[VSA] Volume Spread Analysis Part II

[Sledge]

	Quote:	DbPhoenix
	So why did you exit the trade? What was your plan for the trade?

Db-
Trade set-up was this:
Went Short at 1.9837
Looking at Trend-lines I envisioned that after I hit the hay, that it would rise to approx 1.9889 and start its decent.

I put no T/P target on the drop to "let the winner ride" and re-assess my position when I woke at 6:30 EST.

As I did wake I see that it had gone down as far as 1.9761 and returned back towards the north. looking at the 1 hour bars, it appeared that 1.9761 was the bottom. I took my 20 pips and cut out- which was a blessing since it rose from that 1.9761 and never looked back.
Sledge

[dandxg]

	Quote:	Sledge
	Ok VSA pro's I need some educating. I watched the GBP/USD daily bar all day yesterday and prepped for its close (See the bar marked with the arrow) In the chart below you see a very high volume day into "higher ground" closing, not only on the low, but BELOW the prior days close. This as I understand is TEXTBOOK reversal bar stuff! I waited for the market to drift a tad higher into 11:30 PM last night- I figure the higher the better right? Monster drop ahead! Now I was able to make pips and profit on the trade- but I'm scratching my head right now as this "monster drop" never came to fruition. At one time I was up 58 pips and when I woke up, found myself taking only a 20 pip profit. I would like the more seasoned VSA traders to fill me in. Forget the large green bar to the marked bars "right side". I didn't have the luxury of seeing that todays volume would be higher than yesterday when I made my trading decision. So what is this- temporary weakness that was overcome? Is the volume way to low to be a "reversal bar?" I'm dying to find out the answer to this riddle! Thanks in advance! Sledge Attachment 5335

Hi Sledge, I am no VSA expert, but I have been studying it full time for about 5 months so I will chime in. I am a TG customer, but just for book and boot camp. On a TG customer only event last week Sebastian advised strongly not to try and sell at the point that you did. He said it would be extremely aggressive, something only someone like Tom Williams himself would try. He suggested waiting for confirming signs of weakness. At minimum you would want to see a no demand bar after that red bar which is an upthrust, preferably you want to see that ND in the upper 1/3 of the UT. The upper 1/3 is something I learned from another price volume expert. It must have a higher close, volume that is less than the previous 2 bars, and a for me a more narrow range. Some ND's , that work, show up as equal closes with a very narrow range and volume less than previous 2 bars. So at minimum you should have waited for a ND, another UT, or a combo of both after the initial UT on the daily to show up on a smaller time frame. TG recommends using a 240 min, then drilling down to even a 60 min, and a 15 or 5 min for entry. I have heard both Tom Williams, Sebastian, and Todd Krueger say that on your entry chart after the higher time frame confirms you will see it littered with UT's, ND, and sometimes and end of rising market ( which is a narrow range at the high with extreme volume ). The top will also have a mushroom look to it, a sort of rounded top.

Furthermore, and an even more safe place to enter would be after the mark down starts, which will be shown after the market has broken through support of the trading range ( which Wyckoff SMI calls ICE ) in the distribution area you wait for a pullback on low volume which will often be ND and sometimes UT followed by ND and sell there, or buy in reverse situation. The point being that this is a much safer entry then trying to sell or buy at the extreme which is essentially what you were doing. I attempted to do the same thing as you about 1 week on euro futures and got whacked promptly for 10 ticks, no big deal, but I would of course rather not lose. So now I just wait for a confirmed reversal at the high or low after signs of weakness or strength and buy or sell on pullback on low volume.

If you have ever used fibs before, you will often see the first pb on lower volume after the confirmed reverse will occur at 38%, but that's just a side note.

I hope this made sense.

[mister ed]

	Quote:	Sledge
	Db- Trade set-up was this: Went Short at 1.9837 Looking at Trend-lines I envisioned that after I hit the hay, that it would rise to approx 1.9889 and start its decent. I put no T/P target on the drop to "let the winner ride" and re-assess my position when I woke at 6:30 EST. As I did wake I see that it had gone down as far as 1.9761 and returned back towards the north. looking at the 1 hour bars, it appeared that 1.9761 was the bottom. I took my 20 pips and cut out- which was a blessing since it rose from that 1.9761 and never looked back. Sledge

Hi Sledge,

Well I look at your chart and I can't see anything I disagree with in your analysis up to that bar you have marked with an arrow (the next bar hadn't formed yet as you say).

That red bar is, to me, a pretty clear reversal, at previous resistance levels. The volume is not huge but its not bad. My only suggestion is to ask what does it look like if you drop down a time-frame, say to hourly? (I could get the price chart from the net but don't have the volumes on it). I know this analysis works on all timeframes etc. and maybe its just me but I always like to see intra-day bars if available. The dynamics of supply and demand do change and of course will show up more quickly on an intra-day. Having said that, its tough when ya gotta sleep...

Just on the basis on the daily chart you have posted here I wouldn't fault your analysis ... maybe someone can see something I don't though (wouldn't be the first time!).

So why didn't it fall as expected? From a Wyckoff perspective I would say the position of the market was not right to drive it lower (I might see this better on an intra-day as I say).

Hope this helps ... or at least doesn't hinder. Looking forward to any other analysis.

[Sledge]

Ed-
Ok, here is the same day, on a 4 hr chart- I see coming into the upthrust:
1. A Wide Spread Bar up on extremely high volume
2. Some ok follow-through on the next bar but with significantly lower volume
3. A down bar with even less volume
4. An up bar still on very low volume
5. The upthrust

Maybe this chart will shed some more light possibly?
Sledge

gbp_4hr.jpg

[mister ed]

	Quote:	DbPhoenix
	So why did you exit the trade? What was your plan for the trade?

Sledge - this question from Db, as I understand it, is a mighty good one. I wont try to read Db's mind in what he meant by this question (although that is just what I am about to attempt...LOL).

A trade taken off an analysis of a daily chart, I would say, is looking for a move on the daily chart. On the chart you have of GBP/USD here, if going to get short on the basis of that last red bar in the context of recent resistance, then the initial stop has got to be above the high of that red bar. Of course you may or may not move the stop on the basis of subsequent developments, or you may exit the trade early if its not working out like you wanted, but have you allowed the daily chart to play out the move yet?

[Sledge]

	Quote:	dandxg
	So at minimum you should have waited for a ND, another UT, or a combo of both after the initial UT on the daily to show up on a smaller time frame. TG recommends using a 240 min, then drilling down to even a 60 min, and a 15 or 5 min for entry. I have heard both Tom Williams, Sebastian, and Todd Krueger say that on your entry chart after the higher time frame confirms you will see it littered with UT's, ND, and sometimes and end of rising market ( which is a narrow range at the high with extreme volume )

dandxg-
I'd say with 5 months under your belt- you are analyzing quite nicely. I thank you for this post. As I am not a TG customer and working to learn chart reading from scratch- this nugget of information is invaluable. A wonderful piece of information to place into my VSA arsenal. Luckily for me- this is a current chart, so I still have a nice shot to look for those "littered bars" on lower timeframes and plan a strategy to short.

Kudos on your analysis! It is appreciated!
Sledge

[mister ed]

	Quote:	Sledge
	Ed- Ok, here is the same day, on a 4 hr chart- I see coming into the upthrust: 1. A Wide Spread Bar up on extremely high volume 2. Some ok follow-through on the next bar but with significantly lower volume 3. A down bar with even less volume 4. An up bar still on very low volume 5. The upthrust Maybe this chart will shed some more light possibly? Sledge

I have attached a chart with some of my comments on it (includes bonus typos).
The volume variations in FX charts are made more complex by the time zone changes ... the low volume bars I marked are of course the Asian timezone so I wonder how much weight they carry in the analysis. Agree with you on dandxg comments, really valuable.

[DbPhoenix]

	Quote:	mister ed
	Sledge - this question from Db, as I understand it, is a mighty good one. I wont try to read Db's mind in what he meant by this question (although that is just what I am about to attempt...LOL). A trade taken off an analysis of a daily chart, I would say, is looking for a move on the daily chart. On the chart you have of GBP/USD here, if going to get short on the basis of that last red bar in the context of recent resistance, then the initial stop has got to be above the high of that red bar. Of course you may or may not move the stop on the basis of subsequent developments, or you may exit the trade early if its not working out like you wanted.

Yes, that's what I meant. I'm more concerned with why Sledge did what he did than with what I would have done, at least partly because I don't follow forex.

Assuming that there was good reason to short, and I'm not saying that there was or wasn't (as I said, I don't follow forex), and assuming that the short had something to do with hitting what appears to be -- though may not be -- resistance, and assuming that the "target" was support (which is the whole point of trading S/R), then there would be no reason to exit unless (a) support was reached or (b) the trade was invalidated by a breakout through R.

However, Sledge may also have imposed a contingency which he didn't mention, i.e., that if price did not move immediately in the expected direction with no retracement of any kind, then he'd exit the trade. If this contingency were not determined in advance, then more likely he just freaked and got spooked out of the trade.

All of which is a lot of assumptions and I don't mean to talk about Sledge as if he weren't here. But even now, I see no reason to exit this trade, though I wouldn't necessarily have taken it in the first place. I hesitate even to bring up S/R since the behavioral dynamic driving price here may not even lend itself to trading ranges, or at least not the pretty kind one finds in futures.

[CandleWhisperer]

	Quote:	mister ed
	I have attached a chart with some of my comments on it (includes bonus typos). The volume variations in FX charts are made more complex by the time zone changes ... the low volume bars I marked are of course the Asian timezone so I wonder how much weight they carry in the analysis. Agree with you on dandxg comments, really valuable.

My $0.02 :

The third blue line labeled as bearish is in fact not. It is a down bar closing in the middle on volume less than the previous two bars: this is strength.

The next two bars are indeed weakness. The second one is no demand.

The bar after that is a failed test. The volume is high with a close near the high. There are sellers underneath so any move up should be muted and we can expect lower prices.

okay let's put it all together-

We see a down bar that closes near its middle on volume less than the previous two bars. This is no supply. The BB's see that there aren't any sellers underneath. But the volume is still relatively high. The next bar is narrow and closes equal on even less volume. The bar after is up an is no demand. The BBs don't quite want to take the market up, but for some reason they are hesitant. Next bar we see a test. They are testing for supply, with the amount of volume on the bar; they found it. Price may go up but it will be muted.

[dandxg]

	Quote:	Sledge
	dandxg- I'd say with 5 months under your belt- you are analyzing quite nicely. I thank you for this post. As I am not a TG customer and working to learn chart reading from scratch- this nugget of information is invaluable. A wonderful piece of information to place into my VSA arsenal. Luckily for me- this is a current chart, so I still have a nice shot to look for those "littered bars" on lower timeframes and plan a strategy to short. Kudos on your analysis! It is appreciated! Sledge