[VSA] Volume Spread Analysis Part II

[mister ed]

	Quote:	Bearbull
	Those who have sound knowledge of both VSA and Wyckoff are trying to point out especially to newcomers to VSA is that the price/vol relationships have more relevance against significant support/resistance zones (price levels) rather than just anywhere on the chart, so instead of mulling and fretting over every bar, it is more productive to focus at these levels for high probability trades.

Bearbull - I have pulled this one paragraph out of all your recent posts as it summarises the very important point of the context, or background, against which 'signals' (for want of a better word) occur, and as you say is a point important not only to VSA, but also to Candlestick analysis, and other methods. Thanks very much for re-emphasising this important point, nice series of posts.

[firewalker]

	Quote:	Bearbull
	Anyway another example of how the market can be misread Fig. 1, lots of upbars on very high vol, surely a sign of weakness, time to short afterall there is no demand bar with confirmation on the next bar, is it not. o.k where you would you short, and where is the stop Fig. 2 Has the stop been hit, what happened to the setup, there was an ideal no demand bar confirmed on the next bar and with weakness in the background.

When I first started out, VSA got me going in directions I don't want to be going anymore. There's definitely some good stuff in there, but I think, in the end, it lacks context and focuses too much on individual bars.

I just arrived here, and I certainly don't want to offend anyone. But it's very easy to misread the market while focusing on individual bars. Your chart is very illustrative of how I went my ways in the early days. If you look for it there's "no demand" or "no supply" all around the place. What's more important, imho, is where it takes place and under what circumstances (meaning the preceding price action).

In this particular example, all the very high volume bars closed at the high, signaling strength. The following bars were on low volume and unable to push price lower. If you look at the second chart you'll see volume dropping off when price goes lower, and rising when price continues higher. All signs of strength imho.

[gassah]

	Quote:	firewalker
	When I first started out, VSA got me going in directions I don't want to be going anymore. There's definitely some good stuff in there, but I think, in the end, it lacks context and focuses too much on individual bars.

This summarizes my experience also.

[gassah]

	Quote:	gassah
	This summarizes my experience also.

I'm not bashing VSA at all. There is a lot of good in MTM but I think many VSA'ers go through this phase of using it incorrectly that some of us eventually grow out of and recognize what Tom was trying to get across.

[Sledge]

	Quote:	Eiger
	Of course price can rise on no demand. It does it all the time and it is quite logical. Playing with semantics does not make it different. Take the attached chart as example. Prices rise all afternoon. Note that the volume is generally expanding with the increasing prices. Demand is pushing prices higher. It then rests a bit, and then rises again. Price then reacts (note the increased volume on the reaction). But then price starts to rise again. Is there demand for higher prices? No. Look at the spreads and look at the volume. As price rises to 1, volume retreats. The same thing occurs on bar 2, volume retreats and also the spread narrows. This is quite different than the rally on the previous afternoon where demand was evident. Price has risen on 1 & 2, but it does so on No Demand. This is why even though it goes a tick or two higher on 3, it quickly falls. There was No Demand at that level for higher prices. You see this all the time in the markets and with weakness in the background, an excellent place to take a short. Word games won't change this characterisitc of the market. Eiger

Eiger-
Very nice post, shows some very basic fundamentals all in one chart for winnie (and any others still learning too) Nice Example!
Sledge

[Bearbull]

If an effort has been made to identify the right support/resistance zones , then price will move from one level to another irrespective of which timeframe chart you are reading, however if one is operating from say a 1min chart , then obviously a no demand or no supply bar can only be employed for scalping. In my last post the prices plummet and there is no "No Demand" bar in sight, however within each candle on a smaller timeframe there is no doubt there will be such bars present as prices are brought to a dull period prior to burst of activity representing continuation or reversal.

[Sledge]

Bearbull-
Kudos to you for that OUTSTANDING string of posts. I have had those bars form in real-time and had the same "conversation with myself" It was eerie actually. Much thanks for all the time and effort to put those up. Excellent points about S&R as well, in addition to, looking at the landscape vs. the one bar at present!

Sledge

[Gary]

BearBull,
You must be exhausted half way thru the day trading like that. Perhaps it's not VSA that frys you, but your emotional trading? I don't think any method would work when a trader is like an emotional pinball machine, bouncing up and down getting high or down on each and every bar. I've been working with VSA for about 3 years and have found it to suit me best. It really doesn't phase me about what the rest of you say about it. I just thought this was a forum about trading VSA, not one to trash it. Despite your counterclaims, that is really what you are doing. But, as I say, to me it really doesn't matter whether you like the method or not, it suits me fine.

So BearBull, here is how I approached yesterday. This may be long, but since you went to so much troubel with all your charts and stuff, I want to give you a fair repsonse. First, I knew there was resistance at the 1422-24 area. There were highs there from May 2 & 6. If price was going to fail going higher, it would do that here. If price was going to break through that level, it would need to do it with some demand behind it - seen by increasing volume on up bars and wider spreads with good closes. I watched the 30 minute chart and didn't see that come together. The 30 minute was pretty interesting. Volume was not confirming higher prices, although the closes were up throughout the day. Then price shot up on the 30 minute at 1:30, but the next bar was weak on sustained volume. Then, the next bar (2:30)closed lower, again on sustained volume. This was the first down bar on the 30 minute all day. This said to me that a reaction was coming.

You could see weakness as I pointed out on the 5 minute chart. This was especially clear on the up thrust with high volume (2nd W). I saw the no demand bar at 1, as you pointed out. You could have taken a short trade there, and there would have been nothing wrong with that. Your stop would be above the last high, and if you had sat through all sideways action for the next 40 minutes, you would have been fine. I don't take those because of just that. I saw the up thrust and no demand, but this did not meet my trading plan requirements, so I let it pass. But, its a personal choice.

So, if you did take that trade the next bar (2) is a down bar which confirms the no demand. You say it is no supply because of the low volume, but this is a misreading of the bar. There is weakness in the background, not strength. VSA talks about this in some detail. It's a question of understanding the nuances of VSA, I guess. The bar to follow is also down, so even if you did think that 2 was a test, it is now a failed test.

So the market slides down to 3 and some buying comes in. There is a little shelf of support, so this is potentially a bullish bar. However, the next bar 4 is another no demand, so it negates any strength on 3. Also, there is relatively high volume now on 4, which is an indication of supply (narrow spread, up bar). There is still weakness overall.

Price next falls to 5 and makes a lower low. But, there is a bottom reversal. This could be buying coming into the market and a concern. If I were short from 1, I would definately cover on the close for a half-point scratch. The bottom reversal indicates that price might try to test the high.

The next bar (3rd W) is an up thrust on increased volume. This is followed by a down bar, close on the lows. The bottom reversal has failed. This more weakness. The up thrust catches stops from early shorts and sucks in new longs. The rapid down bar that follows confirms the up thrust.

So here, in recap, is what you have: 1) A higher time frame resistance area. 2) Weakness on the 30 minute chart. 3) Some stopping volume on the lower time frames. 4) Up thrust and no demand bars. 5) Potential strength that did materialize (at 3 and 5) were wiped out by further weakness. 6) Lower highs and lower lows.

With all that in the background, bar #6 was a perfectly logical place to short the market. The next five bars to follow were all down and confirm both the short and significant weakness seen in the charts. If you missed 6 because your emotions were getting in the way or you just couldn't read the chart well, then look at 7. This bar was another no demand - a low volume up bar, close off the highs with significant weakness in the background. This bar is telling you that the market is not going very high - it can't on no demand. And there is no demand there, despite what others say. That was a nice trade in a liquidating market that made you good money.

This is how I analyze the market and how I work a trade. I look to stack stuff up in my favor by using VSA. I hope I've been able to make this clear to you. You don't need anything else if you develop the skills. I've worked very hard at this and it works well for me. If you want something else to float your boat, then do that. As I say, its a personal choice and it doesn't matter to me. If you want to talk about VSA trades and analysis, I'm all for it. But if you all just want to trash it then I won't waste my time.

[BlowFish]

Mr Ed, its the magnitude of the buying/selling climax and the characteristic of the accumulation base that might indicate the magnitude of the move. (Mainly length, Whycoff used P&F to measure the base if memory serves me right). You might also add the 'importance' of the S/R - a yearly low is likely to see a good size reaction.

A no demand bar, or test for that matter, is more of a 'trigger' and so is far less important than what occurred in the 'background'. Thats all imho of course and with the caveat that I am not really a 'pure' VSAer, if one at all.

[Eiger]

	Quote:	mister ed
	It was a straightforward question. No, I didn't interpret everything you included as an attack on VSA, the last two lines did, in fact, answer the question. The rest of your answer was couched in terms of an attack on VSA (again), asking if it was 'worth it', gaps between theory and application is exceedingly wide...etc. Like I said, you have made your dislike of VSA very clear, I do not know what your agenda is, but it is tiresome for those of us who see value in using VSA and would like to move forward.

I agree. It is tiresome. There is another thread to criticise VSA. Everytime time a little positive activity comes onto this thread, DB jumps right in and starts criticising VSA. It's all attention-seeking behavior. Very, very boring.