[VSA] Volume Spread Analysis Part II

[Eiger]

I would say that yesterday's action kills the absorption idea in the S&Ps. Price reacted too far. It dropped below the 1360 support area (to the half-way point of the last swing low). Volume also picked up.

[Eiger]

	Quote:	CandleWhisperer
	Wanted to post a pic of a beautiful set-up with not so beautiful results. This chart actually shows two set-ups, but I will just focus on the first one. I hope some other VSAers will tell me what they see and what they would have done (or not done) in this situation. Let's start at the beginning. First thing we see is a ultra wide spread candle on ultra high volume. Markets don't like this type of candle. Unless it is tested immediately or unless there are tops to the left, in which case the BBs could be pushing thru supply (absorption volume). The BBs are willing to buying into the selling because they expect prices to rise. That was not the case here. This WRB on ultra high volume starts the set-up. Note that the next candle is up. However the volume is lower and the range is narrow. This is an indication that something is holding a ceiling on price: supply is overhead. We also note that the WRB did not close on its high. Supply must have entered on that bar. The next candle of note is the Doji. While it is not within the "required" area, it is a very key candle. It is a narrow range bar, with a lower low, closing up and closing near its high. This is a test. But the volume, while relatively low, is up. In short, the test fails. The very next candle is a Dark WRB that closes lower than the low of the test bar. This is not at place to enter for me as the test is not within the correct area, nor is the dark WRB engulfing. However, this is a clear (up to this point) sign of market weakness. A few candles later we get another test. This is a better looking test in some ways. The range is narrow, the close is on the high and the close is down from the previous bar. To be ideal we would want to see a lower low, however. But check out the volume. It is less than the previous two bars but still high. Another failed test. A failed test means price MAY still rise but any rise should be muted by the latent supply in the market. Price does rise a bit. Now we have the key candle(which also happens to be a Doji). A higher high, closing up and closing near its lows on volume less than the previous two bars. This is an up thrust in the form of no demand. We have seen weakness in the background in the form of two failed tests and an ultra high volume wide spread up candle. Notice where this up thrust occurs. It is with the WRB support/resistance zone. More specifically, it is within the area overlapping the white WRB and both a Long Shadow (upper) and Long Shadow (lower). This is the area between the cyan lines. Short on the close of this candle. Initial stop just above the S/R Zone. The stop is moved to the open of the dark WRB only after the appearance of the second dark WRB that closes lower than the first. This second dark WRB finds resistance at the bottom of the S/R zone. Price moves up. We see a couple of no demands prior to a white WRB that closes on our stop level, taking us out of the market with a small gain. Stepping back for a moment, it is clear that the white WRB on ultra high volume represents some kind of change in the supply/demand dynamic. Which is why it, and they in general, make good zones for entry. Although that is only one of their many uses.

Hi CW,
I think that was a good reading of the chart, and certainly good trade management. Maybe the volume on the WRB wasn't ultra high? (I don't know this market). Volume didn't pick up when it approached the low of the WRB compared to the first reaction down (between the two failed tests). Given the data on the chart, that's about the only clue I see. What was to the left of this?

This is an interesting chart. Maybe you can post another chart with more data? It was still struggling later in the day at the 15050 area.

I don't think VSA addresses the idea that WRBs can be support, as indicated on your chart. Others use them this way too. It might be a question for Williams and Manby?

Eiger

[BlowFish]

Heres a chart with more data. I wasn't going to post it so make of it what you will. I got caught up in a nice FTSE trade so it has gone to the bit bucket! I don't know the instrument but the volume struck me more high than ultra high but how long is a piece of string Mind you the chart I post is the future rather than spot so maybe that accounts for some difference blue dot is WRB.

Cheers.

[DbPhoenix]

.
Wyckoff counsels that in order to determine where one is going, he first has to determine where he is:

This is what I call a "cusp". If the bulls are going to take back the reins, they need to get on with it.

.

[zeon]

	Quote:	DbPhoenix
	. Wyckoff counsels that in order to determine where one is going, he first has to determine where he is: This is what I call a "cusp". If the bulls are going to take back the reins, they need to get on with it. .

Cool, that's exactly the line I drew before the day. A lot of talk of this breaking down again, but I had my line drawn and it looks like reacted to that.

Also, at the same time the ES bounced off support, the NQ reversed off the midpoint of yesterday's range at 1835.

Just observing from a neutral standpoint, but I'm sure amazed at the amount of 'order' there sometimes is. Actually finding a trade somewhere in there is another thing.

[Sledge]

	Quote:	BlowFish
	Heres a chart with more data. I wasn't going to post it so make of it what you will. I got caught up in a nice FTSE trade so it has gone to the bit bucket! I don't know the instrument but the volume struck me more high than ultra high but how long is a piece of string Mind you the chart I post is the future rather than spot so maybe that accounts for some difference blue dot is WRB. Cheers.

Looks like a Euro Chart. Regarding the 8th bar in from right- Wouldn't this be the Gapping up Tom Williams talks about- rapid markup to discourage any longs to sell since they are now making $- he also refers to this as a path of least resistance to "bypass the tolls normally having to be paid to get to higher prices"

[BlowFish]

Indeed it is....I should have said its not an instrument that I am familiar with.

[DbPhoenix]

	Quote:	zeon
	Actually finding a trade somewhere in there is another thing.

At least one will be looking for those trades on the right side of the market, in this case, the long side.

Rather than my getting into hindsight analysis, I suggest that those who are interested go back now and review the morning with an eye toward the long side and not the short. Look at what price is doing and look at what volume is doing in tandem. Set aside any notions of being tricked and focus on the flow of price and volume.

[zeon]

	Quote:	DbPhoenix
	Rather than my getting into hindsight analysis, I suggest that those who are interested go back now and review the morning with an eye toward the long side and not the short. Look at what price is doing and look at what volume is doing in tandem. Set aside any notions of being tricked and focus on the flow of price and volume.

This isn't hindsight, because what I copied here is what I observed for myself at the time and typed in a text editor. I was however observing the 'extremes' (1825 and 1845) and not considering trading from the middle.

So price opened on huge volume which brought us straight back up to resistance (1845). It stalled there and reversed rather strongly (on the 5-minute chart the second bar takes up more half of the first one). However, volume recedes on the next bars and most of them close in the middle. Volume takes off further but there's a sudden reaction, apparently in the middle of S/R at 1835. The bar closes near the high.

Next is a strong reaction back up. At this moment I was thinking: if this moves back to resistance this could lead to a short opportunity. However there wasn't much suppy at resistance (only a short pause and notice the volume taking off, but price not going lower much => no effect). Next a wide range body, very wide actually on massive volume. Price goes up more than 10 points in 5 minutes. Wow.

Next 15 minutes are three tiny little bars, again on receding volume. A retracement. But how far will the retracement go. The next resistance is at 1865, but again going long here is trading in the middle of nowhere. If I were to considering long, I'd wait for a retracement back to 1845. But as I was thinking that, price went up quickly on confirmed volume.

And so right now we are at resistance, 1865. The demandline isn't broken yet and there's no lower high. So shorting this is not an issue. Going long now is very late imo, we've already moved 30 points in two hours. Like they say, flat is also an option...

[DbPhoenix]

It may seem odd to some TL members that anyone (me) who maintains a 5s chart would be interested in a daily chart, much less a weekly one, including S/R that goes back for months.

But even if one trades off tick charts, he is excluding important information -- important in the sense that it may/will affect his trade -- if he does not consider the bar intervals and timeframes (these are two entirely different things) used by other traders.

There are, for example, a hell of a lot of EOD traders out there, and every one of them is looking at the highs of this trading range. Though some may be looking at 1390 and some may be looking at 1400 (for the NQ, 1880-1900), the power behind any move through or away from these levels will include a great many of those traders. To ignore them is to ignore the elephant in the room.

This is not to say that we can't fail here. But what are the probabilities? And that's where the relationship between price and volume provides the key.