[VSA] Volume Spread Analysis

[jjthetrader]

I think you're right Tin. It trips me up sometimes because one bar will be hidden potential buying followed by hidden potential selling on the next bar. Best to step aside I suppose or drop down to a smaller timeframe to see what's happening.

[MrPaul]

	Quote:	jjthetrader
	Nice trade bertg. Any positive trade is a good one. Do you guys think end of the day market action taints VSA. Short covering produces very high volume in a short period of time. Any thoughts?

Imo...

It's still a reflection of supply and demand no matter what the cause. Additionally, short squeezes near the end of the session won't be able to affect the background strength/weakness seen throughout out the day.

For me the first 15min of the next day is paramount to the last 15min of the day prior for the very reasons we're discussing.

[jjthetrader]

	Quote:	MrPaul
	Imo... It's still a reflection of supply and demand no matter what the cause. Additionally, short squeezes near the end of the session won't be able to affect the background strength/weakness seen throughout out the day. For me the first 15min of the next day is paramount to the last 15min of the day prior for the very reasons we're discussing.

I was thinking more along the lines of determining strength or weakness for the following day based on end of day action and wether it gives a good indication.
As for beginning of the day, how do you relate it to what will happen at the end?
thanks

[jjthetrader]

Updates on the two stocks I posted on the weekend.
The first was the one I was asking about testing which was confirmed as a test today.
The second is FDX which there was obviously still a lot of weakness.

[Tasuki]

jj,
As far as "so much for that being strength"---if the bar had closed WITHIN the playing field I'd say that it meant strength, but as it closed lower, and below the halfway mark of the bar, I'd look at it as weakness. What is this stock?

[jjthetrader]

It's Fedex.

[jjthetrader]

	Quote:	Tasuki
	jj, As far as "so much for that being strength"---if the bar had closed WITHIN the playing field I'd say that it meant strength, but as it closed lower, and below the halfway mark of the bar, I'd look at it as weakness. What is this stock?

When we see ultra high volume down bars closing off the lows then, in what circumstances are we to think bearish?

[sleepy v2]

JJ,

My analysis may be wrong here as Im still learning VSA ... but the key IMO is the close on the LOW. If the last bar had closed on a HIGH then you could argue there was strength coming in.

High volume on a down-day/bar always means selling. However, if the day’s action has closed in the middle or high, then market-makers and other professional money must have attempted to buy into the selling, or absorbed the selling (by buying), which then causes the market to stop going down..... Absorption volume typically marks the end of a downward trend. It is characterised by a very high volume bar that closes below the previous bar, on a wide spread. In normal circumstances, this would be construed as selling, but the defining difference is that the bar closes on the high. If the high volume had represented selling, how can the price action close on the high? Williams P90-91

But at the moment the close on the LOW signifys weakness. However, if the next bar is UP then you have buyers coming back in and what yourve just observed is either:

Failed Down Move
A rapid price move on wide spreads down, on high volume (especially if closing low), is a sign of weakness (i.e. Effort to go down). However, this type of action causes the market to become rapidly oversold and vulnerable to up-moves. If the next day (or hour) is up, it must show that there was buying as well as selling contained in the high volume down-move (no results from the effort). This shows that the brakes are being applied to the falls at that moment. P.147

Selling Climax
After substantial falls have already taken place (bear market), the market may open with wide spreads down, on very high volume. There will be panic amongst the herd! However, the next day (or bar) is up. This action represents a rapid transfer of stock, generated from panic selling to professional money (news will be doom and gloom to help this transfer of stock). This is known as a selling climax. P.161

Selling Pressue
For a market to drop, selling pressure needs to be evident, which normally shows itself as wide spreads down on high volume. If the next day is down this usually confirms that the volume seen on the day (bar) before was genuine selling. However, if the next day is up then it shows that there was selling going on, but the professional money was prepared to buy and support the market as well. You would now be expecting testing at some time, as a check is made on the level of latent supply. P.166

So until theres confirmation (i.e., an UP bar) theres still weakness and it could go even lower. Similar to what occured around September 20.

sleepy

[jjthetrader]

Thanks bud, that confirmation bar is so important, you're right.

[BlowFish]

	Quote:	RAVIN
	YW, you will find that with this VSA stuff, it is relatively easy to get into detailed discussions with the benefit of hindsight as to the meaning in each bar and whether one should have gone long or short, but in realtime one does not have this luxury. As with all tools there are no full proof setups, probability always rules, VSA provides that extra edge, however any scenario which works on one occasion can be negated next time depending on selling and buying pressures from folks who operate on higher time frames, and one has to be ready for that rather than get tied up with any forecasts IMO

Quoted for truth. Actually it should be quoted twice!

As an aside I think an area where VSA shines is monitoring what is going on in the now. My paradigm was always anticipate and then monitor. Is it happening yes/no. VSA is a pretty decent monitoring tool. I have shifted recently to simply looking for continuation/change. Neither of these paradigms rely on prediction.

It is easy (especially amongst newer traders) to come away with the idea you can 'predict' and that if you 'read it right' the trade will be right. This can actually lead to a pretty damaging mindset and is patently not true. Its refreshing to see trades that did not work out, I'd like to see lots more to keep a balanced perspective. Besides that there is often much more to be learnt from these scenarios. It is how one reacts to unfolding events that is really key to trading success not the initial 'read'. Monitoring price and volume puts you ahead of those that only watch price.

Cheers.