[VSA] Volume Spread Analysis Part II

[mister ed]

Well, I gotta say that the way this thread here has started out it is going to completely eclipse the first one - Tasuki has added a whole new dimension to the charts with his lucid comments and notations - he has set a high standard for us in this here thread.

[james_gsx]

Here is my mix of candlesticks and VSA, hope it's valid and I follow some of the basic rules correctly. Correct me if I am wrong though as I am still learning.

This first chart is the ES daily and I highlighted the spinning tops against support. If you go back to our first two hammers with strong volume you'll see price went up to test resistance. Volume was relatively strong on the move to resistance which validates the move IMO. Price was rejected and fell back to our new support level but on low volume, which would tell me there is a lack of interest. This is where I believe it gets important, the three spinning tops also have strong volume. If you look at the chart the volume is similiar to those of wider bodies, but these bodies are smaller which in the candlestick world would give you a warning that the move is slowing down. But with the stronger volume I feel like the market maker is controlling the prices and building a position, quickly buying up shares that newbies are selling in a panic.



This next chart is basically zoomed in so you can see the volume and corresponding price moves a little more clear. You'll see I outlined the bigger WRB with low volume, then the smaller candle with much higher volume. This tells me the smart money was allowing price to fall so they could continue their accumulation that was started two weeks ago.



This is a weekly chart of the ES. Traditionally following basic candlesticks and seeing this chart I would say there was a doji with a WRB, followed by a bearish engulfing candle thus my bias would be bearish. But in this case, we will see that the down volume candle had more volume. If we break down the time frame and look at the daily we saw that the accumulation was at the low, thus making me bullish. If anything, we could test 1400 again and have a nice tradeable 70pt range. I'll take that.



This is a long term chart with a long term trend line. The initial test to the support was on light volume, then a small body under the trend line with high volume. I'm not really sure what this means, so maybe some experienced VSA guys can shed some light. But again, as price stablized around support volume has been very high, which tells me strength.



Then for the last chart. I highlighted a few key areas to combine candles with VSA.
Green - candles became much smaller with tall wicks. I know this really doesn't matter to VSA but in candlestick analysis this would tell me that the market maker has complete control. Now if I went into VSA terms and combined the two I would come away believing that someone is accumulating a large position.
Yellow - Price hits resistance on strong volume and a small candle, actually the doji itself is on low volume which would signal no demand. The big money isn't pushing price any higher thus it falls the next day. From there price continued to fall but the general trend of volume was down. This declining volume and declining price tells me there isn't a very strong force behind the move. Then we hit our lows with a lot more volatility, and alot of accumulation. So I would go out on a limb here and say that the professional money started accumulating in july, and continued in January.



So as of right now, I would be willing to buy calls up to 1400. My stop would be just below a 50% retracement of the major wick that led to new lows, so roughly 1275. The reason for this is I wouldn't be surprised to see the smart money push price a little lower to create a little more panic in order to buy. If the general public is scared they will sell, which creates a very good opportunity for smarter traders.

Please note though, I went at this with a bullish bias. So if something sticks out that I did wrong that would infact be bearish I would love to hear it. Sometimes our own bias can blind us from big opportunities. And as much as I want to say that I'm a good enough trader to not allow that to happen, it's simply not the case yet. Good trading.

[Sledge]

Someone hasd stated that they had taken all of PP charts and saved them- not sure who it was or when it was posted, but I was going through the 1st VSA thread from the start and reviewing all of PP's charts and posts that went with them. Maybe someone still has all of these charts and posts saved off somewhere?

Whatever PP's reasoning- I am uncertain, but I am glad to have gotten to look and use his charts, that I was able to see and match up with his analysis. I only got to post #711 before they all went away. But if their is a chance others have saved charts and posts- maybe the knowledge can be re-created.

I found his posts as enlightening- if not moreso than reading Master the Markets- very straightforward, and timely with multiple detail. It would be a shame if all that work was lost forever!

Sledge

[Sledge]

I'll start to re-post what I have to assist in any way I can with the original post #'s from VSA Thread #1
**All of the Posts AND Charts are PP's Work and not my own!**

Post #5
That is simply not the case. The text may seem "outdated" in that there much talk of Market Makers, but this only goes to show how the principles have stood the test of time. How the markets are manipulated by Smart Money (the term Todd Krueger prefers to Market Makers) remains little changed since the days of Wyckoff.

I find it hard to believe that you think there are not Professionals with things on their screen, like where the stops are, that the retail trader does not have. The playing field in simply not that level.

I have attached a chart showing what is going on in the Euro. A market (retail Spot Forex) not even around at the time the book.
5.jpg

[Sledge]

Post # 68
Gaps are filled.

Interesting early morning action in the Euro.

Check out the chart below.

First we see a dark WRB followed by a GAP in price. Note the first candle with a double arrow. Notice that the volume is ultra high and the bar closes lower than the previous bar and off of its low. VSA teaches that this is a bar that may have buying within it. Now the next bar is key. It turns out to be a WRB, but the fact that the bar is up means the prior bar MUST of had some buying contained within it.

Now we move to the white WRB itself. Note that this bar creates a zone or range where we get a change in the supply/demand dynamic. We also know that the market does not like wide spread up bars on ultra high volume because of the possibility of hidden selling. In this case, however, the volume actually fell from the previous bar and is not ultra high.

We move to the next candle with a double arrow below. This is a doji that closes equal to the previous bar and in the upper portion of its range. Volume on this bar is Ultra high. There is SUPPLY in the market at this stage. Price moves down from here.

Next candle, closes in the upper portion of its range and higher than its open. Volume again is extreme. Here we have Demand showing itself. In other words, Demand is swamping Supply on this bar. SOMETHING HAS CHANGED. Notice that the next bar closes in its middle, has an equal close and volume drops off.

The Last bar closes on its high on volume that is less than the previous two bars. Although it does not make a lower low, this is a 'test' bar. The Smart Money is testing for supply and finds none. Now price is poised to go up and fill that gap.
68.jpg

[Sledge]

Post #133
I just wanted to show something that might help.

Originally, I was going to post this pic in the WRB thread and make the following point.

Not all WRBs are created equal. While there may be many factors in what constitutes a significant WRB, the three main are:

* Size in relation to other WRBs
* Amount of volume
* If the WRB is the result of some news related event

NihabaAshi is the true WRB expert and may be able to enlighten us as to some of the more reasons that determine a WRB's significant.

As I know you are looking at VSA, don't let what I just said about WRBs confuse you. There are three factors that constitute significant bars in VSA as well:

* Size in relation to other wide spread bars
* Amount of volume
* If the wide spread bar is the result of some news related event

Now in the chart below we see numerous WRBs or wide to Ultra wide spread bars. However, they are all not equal.

Let's just focus on the very first one on the left hand side of the chart. We see an Ultra Wide Spread bar with Ultra High Volume that closes up from the previous bar. VSA teaches us that markets do not like Ultra Wide Spread or Wide Spread bars on high or Ultra high volume. Because they could hide selling (supply) within them. Although some times they are indeed strength. Which by the way, much time is spent on in the bootcamp. Because many people after hearing weakness (supply) comes in on up bars automatically assume all up bars are weak.

We know this bar had some selling (supply) once we see that the next bar is down. If all that volume was buying (demand) then the next bar could not be down.

What we often see next, if the market is strong, is either a No Supply or Test for supply bar. Here we see a test. This is a low volume test. Note that volume is less than the previous two bars. Note that the test makes a lower low than the previous bar and closes on its high. It hard for me to separate some things, so I must point out that this test bar is in body of the WRB. But from a pure VSA point, note that the test is within the range of the Ultra Wide Spread bar. SIMPLY, A LOW VOLUME SIGNAL WITHIN THE RANGE OF A PRVIOUSLY HIGH VOLUME BAR.

Many concepts in VSA are logical. Here we see some supply enter the market. The next thing we see is a test of supply. The Professional want to take prices up, but are making sure that the supply is out of the market. If there were sellers underneath, then there would be more volume. And if a large amount of supply had entered (more than the demand present) then price would go down on more volume.

The key(s) here are that the 'test' comes immediately after we see supply enter the market showing us market strength. Or, simply put, location and background information. An aggressive trader might enter once the test is "proven" on the next bar that closes higher than the close of the test. Shown here. The reason for the question mark is that not everyone would enter at this point. Some use multiple timeframes, some use price action patterns, and some even use indicators ( ).

To be sure, the market did indeed move up and a quick profit could have been made. In fact, one could still be long as of this pic and in profit using only one timeframe and that repeatable and reliable pattern.

Once you witness Ultra Wide or Wide Spread bars on High or Ultra High Volume, you want to then start looking for bars with low volume. This is where you find no supply, no demand, and some test bars. Sometimes there will be high volume tests or Upthrusts on high volume. An Upthrust is kind of like a high volume test but showing weakness rather than strength. That is, a high volume test will close on or near its high and an Upthrust closes on or near its low. Ideally a high volume test will make a lower low while the Upthrust will make a higher high.

There is a lot more here, but it is enough to say that every No Supply or No Selling Pressure sign in this pic is within the range of a significant Wide or Ultra Wide Spread bar. More precisely, within the body of a significant WRB.
133.jpg

[Sledge]

Post #71
Nice Bullish White Hammer pattern.

Note that the white hammer line is inside the range of the Ultra Wide Spread Ultra High Volume candle.

When we take a look at the WRB, we see a down candle that has an ultra wide spread and closes on its low. There would appear to be heavy selling pressure in this bar. BUT THE NEXT BAR IS UP. If that bar was true selling, then the next bar would not be up.

In fact, if one looks at what price did after that bar it moved up. Clearly, the Professional demand created an upward drift in price. Simply, that WRB must of been a shift/change in the Supply/Demand dynamics of the market.

Now note the large dark Candle just prior to the shaded area. This candle closes on its low , closes lower than the previous bar and has volume less than the previous two bars. This is No Selling pressure. The close on the low fools the retail trader into seeing weakness. The lack of volume, however, is the real clue.

Price does move down a bit and create the bullish hammer pattern. Note that the hammer line itself is a VSA shakeout/test bar.

This is the "ideal" set-up. We see strength come in using our primary methods (VSA and WRB) and then we get a buy signal via our secondary method (Japanese candlestick patterns).
71.jpg

[Sledge]

Post #106
What did they know, and when did they know it? OR the importance of Volume.

Here is a chart of some of today's price action in the Euro.

What is telling here is the actions of Professional Money PRIOR to the news release. We can see when they begin to position themselves and on what side through the use of VSA.

Almost an hour beforehand, we see an Ultra Wide Spread Bar with Ultra High Volume, that closes down from the previous bar and closes in the middle of its range. This bar represents a transfer of ownership. That is, the Professionals are buying from the retail traders. Why would they be buying prior to a usually volatile news release ? Seems like a risky thing to do. Could they already have an idea of what it will say?

Now VSA tells us that if this is the case, we would expect that if they are BUYING now, they will be SELLING into the release itself for profit taking. Especially If the news spurs the retail traders into entering the market on the long side. However, if the retail trader is believes the news to be bearish, they (Smart Money) would be BUYING more. That is, if the retail traders are getting short, who are they selling to? So we should see both Professional selling and buying. We don't expect then to get net short in other words.

Check out the large dark hammer as the news is released. There was some profit taking on that bar. But the bar has ultra High volume, closes on its low with the next bar up. Some buying must of taken place as well. More exactly, they took profits and then began buying as the retail traders (weak hands) rushed in on the short side. We always want to consider "who is on the other side" with VSA. Usually, its the Smart Money and that is not good. I should say, without VSA it's usually the Smart Money and that is not good.

Note that price did begin to fall for a few bars. But then we get a dark hammer line. The Long Shadow of the hammer line happens, not so coincidently, to trade into the region of the First candle mentioned where the transfer of ownership begun. The Smart Money is becoming aggressive on the demand side. They are locking in the weak holders (retail shorts) as they know price is going HIGER NOT LOWER. The down move and the dark hammer itself may have even pushed some weak longs out.

If you look at a chart beyond the time shown here, you will see the strong up move that ensues.

1. The Smart Money began getting long (long) prior to the News.
2. Some used the event to take a bit of profit.
3. Most got even more long (demand).
4. Once the weak holders where short, price found support in a such a way as to knock out weak longs and lock in weak shorts.
5. what can not be seen in this picture, is a large inverted white hammer that represents the last effort for the weak shorts to get out at break even if the bought on the news release itself.

When we use VSA we get a 3 dimensional picture: volume, range and price. Ignoring one of them (like volume or keeping volume constant) is like cutting off one leg of a tripod...............
106.jpg

[Sledge]

Post #107

If there has been a theme to my posts recently, it is summed up in the word: CONTEXT.

I am learning to use candlestick patterns as a secondary method. By that I mean, entry set-up signals.

VSA and WRB & Long Shadow analysis are the primary methods and are used to understand the contextual backdrop thru which a candlestick pattern trade can be taken.

Take a look at the chart below.

We see a WRB on Ultra High Volume. VSA tells us that markets do not like Wide Spread up bars on Ultra High Volume. Because there could be hidden selling in the bar.

Now check out the very next bar. This bar has almost as much volume as the WRB, in fact it has 3 ticks less. BUT the range is much more narrow and the bar closes in the middle of its range. This is a transfer of ownership bar. The Smart Money is dumping supply into the market. As retail traders rush in to get long, the Smart Money is all too happy to sell to them. Like I said, we need to always be aware of who is on the other side of the trade.

While this bar is up, on high volume it is not "up volume". Most volume indicators and volume analysis would assume it is positive. But we know better than that.

A few bars later, we see a narrow bar that close up from the previous bar and closes in the upper portion of its range, but on volume less than the previous two bars. This is No Demand. Professionals are not interested in higher prices at this time.

At this point we have context. Supply has entered the market. Note that price overall begins to move sideways.

There are some who would go short after the No Demand with the background selling that can be seen. This is a personal choice. For me, all that the context says is, "now is not the time to be going long". I need to see some candle pattern, preferably within the range of the WRB, to get me short. (if you look at a chart from today, you will see that price plummeted after the jobs report). But my point is this, the context, or story, at this time says more about NOT going long than simply get short.

A Tradeguider "sign of weakness" might appear on the transfer of ownership bar. It would therefore look like the top was called and thus possibly sold. This is the error that most indicator only traders who look at TG make.
107.jpg

[Sledge]

Post #114

BEFORE & AFTER:

I have attached two charts. The first is the before and the second is the after.

Let's look at the before.

For me the key concept comes thru at least a basic understanding of WRBs. Of course, VSA doesn't look at the open, but I think much is missed if you don't. More over, I think that if VSA did, they would come to the same conclusion. And in fact, they DO come to the same conclusion partially when dealing with wide spread bars (more on this later).

The first bar with the double arrow is a wide spread bar that closes in the middle on ultra high volume. Supply enters the market on this bar. Not a place to go short. The reason: the reason is explained in the next highlighted bars.

The next bar we have is a Long Shadow and in VSA terms, it is Ultra Wide Spread bar on high volume, that closes lower than the previous bar, and closes in the upper portion of the range. DEMAND entered the market on this bar. Now, here is where I depart from VSA. We now have a Long Shadow that creates a support/resistance zone. We also see that this Long Shadow tells us that demand overcame supply on the lower portion of the bar. Not to mention, this bar is a Doji (close=open). VSA does not care that it is a doji, yet the conclusion that something is changing in the supply/demand dynamic is the same-Buyers came in on this bar.

Still not the bar to get into the market on. The next key bar is a WRB. WRBs also tell us of shifts or changes in supply and demand. Then we get a No Demand bar. Again not a bar to enter on. What we need to see is something happen within the RANGE of the WRB AND OR THE RANGE OF THE SHADOW OF THE LONG SHADOW BAR.

Ideally, the market will move back down and give us a No Supply or Test within these ranges. Then we should be looking to go long. And that concept is what Todd does not say much about. Clearly, he would not talk about within the context of the WRB because he does not look at the open, but he can talk about the overall range of the Ultra Wide Spread bar. In other words, even though he would not know it is a Long Shadow, he would recognize the bar as Ultra Wide Spread and thus should be used as a matrix to measure what comes.

The next chart is the AFTER.

We do indeed get the No Supply sign in the range of the WRB and the Long Shadow candle. Once we have the confirmation bar up, the next bar, we get long at the close of that bar/open of the next bar.

Note that there are two gaps and gaps are usually filled so we need to keep that in mind.
114_before.jpg

114_after.jpg