[VSA] Volume Spread Analysis Part II

[winnie]

Dear Eiger,
Thank for your clear explanation on VSA. However, I would like to ask you :
1) On Bar 5, it is a down bar with lower volume than before, thus it reflects the selling pressure is not strong ?
2) on Bar 9 , it is an up bar with big volume, thus it reflects the demand is strong ?
how do you know the supply is strong in this bar ?
3) what is mean by UpThrust ? it is same as key reversal bar ?
4) if you use this chart to trade, and you hold a short position , would you take profit in the big volume down bar in Bar 6 ?
Sorry for so much information.
Thanks for your time
Winnie

[Eiger]

	Quote:	winnie
	Dear Eiger, Thank for your clear explanation on VSA. However, I would like to ask you : 1) On Bar 5, it is a down bar with lower volume than before, thus it reflects the selling pressure is not strong ? 2) on Bar 9 , it is an up bar with big volume, thus it reflects the demand is strong ? how do you know the supply is strong in this bar ? 3) what is mean by UpThrust ? it is same as key reversal bar ? 4) if you use this chart to trade, and you hold a short position , would you take profit in the big volume down bar in Bar 6 ? Sorry for so much information. Thanks for your time Winnie

Hi Winnie,
Thanks for the questions - these are good ones.

Bar 5 is a down bar on lighter volume. There are two things that are important about this bar. Most important is where it occurs. It comes after two other signs of weakness. Second, is is what VSA calls an Upthrust. An Upthrust is a bar that goes higher than the previous high, reverses, and comes back down to close on its low. The close is also lower than the prior bars high, penetrating into the prior bar's range, and best when the close if lower than the prior bar's close. It signifies that higher prices were rejected. Please keep in mind, though that the background is crucial. Bar 5 occurs after weakness, and essentially is conifming that weakness with the rejection of higher prices.

Look at Bar 8. Technically, this, too, is an upthrust. It goes above the prior bar's high and closes within the range of the prior bar and on its low. However, there is no weakness in the background, but strength. Therefore, we ignore this as an upthrust. This is a nuance of sorts, but even if you saw this as an upthrust, the next bar would cancel the upthrust interpretation.

Bar 9 - The character of the price bar indicates there is buying. It dips below the previous bar and closes on its high and the close is within the upper half of the previous bar (8). This is bullish. However, there is a lot of volume on this bar. Compare the volume at 9 with the volume at 6, which is the highest volume on the chart. Bar 9 has nearly the same volume as 6. Very high volume on an up bar indicates supply is still present. One of the axioms of VSA is that markets do not like very high volume on up bars -- why? because supply is present and supply (selling) could swamp demand as professinals try to take the market higher. This is why we see another attempt to test that volume at 10. But, as noted, the volume at 10 was also high.

On my charts in the volume window, you see three lines - one solid and two dashed. The solid line represents average volume (20 bar simple moving average). The dashed lines are standard deveiation lines, representing 2 SDs and 4 SDs respespectively. You can think of 2 SDs as very high volume and 4 SDs as ultra high volume.

I wouldn't actually use the 60-minute chart to trade off. The stops would be too wide. I would drop down to a smaller time frame (3, 5, or 10-minute charts) and look for a VSA trrade set-up there. To answer your question though, I would definately take my trade off if I saw a bar like that. The spread and volume indicate the potential for a reversal. Plus, had i been lucky enough to be in a trade and a bar like this occured, I would consider it a gift

Hope this is helpful,
Eiger

[tawe trader]

	Quote:
	One last thing, all who follow and use VSA owe a deep debt of gratitude to Tom Williams. I certainly do.

Eiger,

I agree, us VSA'ers are very grateful to Tom W but I believe all of us (especially any new traders) on this thread, owe a great deal of gratitude to you also, for all your posts. They are truly educational, insightful and very helpful.

Plus you are giving up your free time and posting here for no financial gain to yourself. You are not trying to sell anything and in a world full of tricksters, con-artists and snake-oil salesmen (this trading business attracts them like no other), it is very refreshing and fantastic to see.

Anyway, I'd just like to say thank-you very much.

Tawe

[Eiger]

Thanks for the kind words, Tawe. I appreciate them. I must tell you, though, that I get an awful lot out of doing this. When Sebastian suggested a wee bit more clarity was needed (rightly so), I had to think about how to do this. As I did, the structure of VSA and how to apply the principles became even more clear to me. So there is a some self-interest here

You know, the more I study and trade VSA, the more I appreciate the incredible work Tom Williams has done and given all of us. What a gift! His original book, The Undeclared Secrets that Drive the Stock Market is simply amazing, and the book that turned my understanding of markets and trading around. Though, as Sebastian said, even having this material in hand, it took me a fair amount of study and lots and lots and lots of miss-steps to begin to really understand it and to begin to apply it in trading. Even then, it wasn't until I tripped across Sebastian's series of daily analysis that I began to truly understand how to apply it. Sebastian is a true master at this. I've studied the work he published on the trading forums, his videos for TG, and TG's London web cast -- he is a remarkable trader and a helluva educator. If you really want to understand VSA, go seek his stuff out.

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Yesterday, we looked at the 60-minute chart (ES). One of the cool things about the market is that it is fractal. Tom Williams points this out. Fractal means, in part, that the same VSA principles apply across different time frames. It's a little bit like deja vu, or 'history repeats itself'. Here is a piece of the market (ES) on the 3-minute time frame from today. Compare this with the 60-minute chart posted yesterday:

A - an Upthrust (like Bar 5 on the 60-min chart)
B - No Demand (when we see No Demand after weakness has occurred in the background, we know there are very good odds the market will be unable to rally very far)
C - another No Demand
D - Ultra high volume on a wide spread down bar, closing in the middle, next bar shoots up and closes on its highs - Demand has come into the market on the professional side (because of the ultra high volume -- look familiar? Not really sure? Look at Bars 6 & 7 on the 60-min)
E - a Test on volume less than the previous two bars -- supply drying up and the market begins to rally
F - a little supply (weakness) comes into the market - a fairly wide spread up on a sudden increase in volume, closing well off the high (in the middle). There was selling on this bar, and this could be expected as we run into an old congestion area (red line) to the left where we know there are some trapped traders with poor positions.
G - although we see weakness on F, it is immediately tested on G - a narrow spread, down bar on very low volume, close in the middle. Because of the spread and the volume, we know professional money is not interested in the downside. Thus, higher prices must be in the offing. And, of course, they are.
H - another nice test followed by a further rally.

Although different, this is almost the same set of principles that occurred yesterday on the 60-min time frame. It doesn't matter what time interval, VSA principles work.

Hope this is helpful,
Eiger

[elovemer]

...before today's big up move.... thursday
.... monday.... average spy volume finished half way up the daily bar
.... tuesday... massive volume.... but closed almost half way up the bar
.... wednesday... doji at lower end of bar....inside bar.... very high volume
.... to me this seems like clear signs of accumulation

....although i am posting this ex post facto.... it seems that there may be more to come in the way of upside
....others posted about possible accumulation... but they did not seem convinced

.... am i wrong in interpreting this as being a very very clear sign of accumulation?
.... just curious as to why others more knowledgeable than myself with VSA were not more certain about this
..... or was it not as clear beforehand as it seems to be now.... in hindsight ?

thanks
amateur at vsa here

[gassah]

	Quote:	elovemer
	.... am i wrong in interpreting this as being a very very clear sign of accumulation? .... just curious as to why others more knowledgeable than myself with VSA were not more certain about this ..... or was it not as clear beforehand as it seems to be now.... in hindsight ? amateur at vsa here

As you gain experience you'll find that setups are rarely "very very clear" because you will come across similar examples where the market goes in the opposite direction. There are only probabilities, no certainties.

[winnie]

Dear Eiger ,
Thank you for you kind effort to explain the VSA.
However as you said that :
"Very high volume on an up bar indicates supply is still present. One of the axioms of VSA is that markets do not like very high volume on up bars -- why? because supply is present and supply (selling) could swamp demand as professinals try to take the market higher."
I do not understand that why high volume on an up bar indicate supply is great instead of demand is great ? Traditional , high volume on an up bar should be good for an uptrend
.
Thanks again for your kind help

[mister ed]

	Quote:	winnie
	Dear Eiger , Thank you for you kind effort to explain the VSA. However as you said that : "Very high volume on an up bar indicates supply is still present. One of the axioms of VSA is that markets do not like very high volume on up bars -- why? because supply is present and supply (selling) could swamp demand as professinals try to take the market higher." I do not understand that why high volume on an up bar indicate supply is great instead of demand is great ? Traditional , high volume on an up bar should be good for an uptrend . Thanks again for your kind help

Hi Winnie - good question and one I am sure many have. A good resource to study is Master the Markets as it answers many questions such as yours.

[winnie]

Dear all VSA expert ,
I have read the book "Master the markets" and I don't understand why the Smart money need to test the market before the uptrend finally move . Below is the passage from the book:
"The best way to find out is to rapidly mark the prices down. This challenges any bears around to come out into the open and show their hand. The amount of volume (activity) of trading as the market is marked down will tell the professional how much selling there is. Low volume, or low trading activity, shows there is little selling on the mark-down . "
How do they know the selling pressure is small when they mark down the price ?
Thanks for all your kind help

[gassah]

	Quote:	gassah
	There are only probabilities, no certainties.

Didn't have to wait long for that lesson.