[VSA] Volume Spread Analysis Part II

[DbPhoenix]

	Quote:	dandxg
	DB, is this 25 minutes a general rule to be used on a daily basis? How does it differ on days when big reports come out before RTH, like NFP and such? Thanks

No, that's the timeframe that Eiger was asking about. One can go on for as long as the wave lasts, but the focus must be on the flow and not on bars and closes in order to interpret the balance between buying pressure and selling pressure at any giiven segment.

For further info, check the "Dailies" posted to my Blog.

Edit: I should point out again that the keys are support and resistance. Without that, one can easily get lost in the trees and end up being tossed around like the ball in a game of KeepAway. Keep your eye on the prize.

[CandleWhisperer]

	Quote:	Eiger
	I thought today was a pretty interesting, sometimes a little difficult to figure out, though. I have a VSA question for the experts. Maybe you can help. I attached a chart of this morning's session in the ES (5-min). The second bar this AM (Bar A on the attached chart) had 80,000 contracts on it. That is ultra high volume for a 5-min bar, even off the open. The bar was fairly wide spread and closed on it's lows on the heavy volume. I read this as supply. The next bar was a level bar. Then, two bars later on Bar B, price dipped lower and reversed closing on its highs. Volume was less than the previous two bars, and B bounced off of the last top at the area I labled as 1. I didn't buy this test, as i was concerned about what I thought was supply on A. Was I reading A as supply correctly, or am i missing something? Is this one of those instances where the market suddenly becomes bullish at B? This drove me nuts all morning Thanks for the help, Eiger.

Just a couple of things to note:

[habi]

Hi Eiger

Just my opinion: The first bar was a strong up bar, closing on its high, followed by a weak bar on higher volume. If you have a look on a 1 minute chart, it looks not that bad. After the open, all green up bars close nearly their high. Weaknees came in on bar 1 with the highest volume since the open. The second down bar after 1 closed already in the middle, followed by a long up bar.
Bar 2 then was on very high volume, but closing off of its low, followed by two lower volume down bars and an inverted hammer on increasing volume.

I don't know, if you would find a tradable setup here, but it looks all stronger than in the 5 min chart imho. It's not the first time, that I see weakness in one time frame and strenght in another.

A question to you. Was the 1:20 bar a spring? We had high volume at the open on up bars, it was not a selling climax in this case, but we had a huge gap down in the regular session.

[Eiger]

	Quote:	dandxg
	Eiger, I am no expert, but decent so I will chime in if that's ok. I think your read is spot on. If I was going to buy a B, which is no supply or a test, I would do so with an expectation that the high of A will be retested. As I approach the high of A which is also your upper trend channel another supply line I would be watching the momentum on the tape to see if you are going to punch through or bounce off like it did. Now if I could ask you a question? If you bought at B would you a breakout of the high with a stop below the low of bar B or would you buy at close. I have been experimenting with both and just trying to get some opinions if it's not to personal? BTW I like your example of using trend channels with VSA/PV. I still have difficulty with combining the two. If my read is correct B and D are no supply tests which is a good sign for your uptrend channel and should give one confidence on a possible target and expectation. I vaguely recall Sebastion pointing out in one of the customer events that when approaching the supply line in an uptrend you want to see UT's and ND's off the supply line to see that it's respected which is what you appear to have at A and A1. Maybe this is one where using $tick or $ticki would assist?

Thanks, Dan. I would have bought B on the close with a stop just below (though I didn't take it because i was perplexed with A). It was a reversal bar and closed well into the preceding bar after dipping down underneath it. That's a pretty strong bar in general and shouldn't come back on you. Sometimes, the next bar will retrace a little into the reversal bar, but sometimes it just takes off, so I just take them on the close.

These trend channels shifted a few times during the run up. I first drew a demand line from B and the small swing low preceding B, with a parallel from A. That was OK for taking C, but made A1 look quite weak. It wasn't until D was in place that these trend lines were drawn. You could also have drawn reverse trend lines off A and A1 just as effectively. I thought they highlighted the top at E1/E2 pretty well.

I think you heard Sebastian correctly. The trend lines are support and resistance. Tom Williams talks about this in his book. You do want to see No Demand and UpThrusts occur along the lines, and also see volume recede.

[Eiger]

	Quote:	DbPhoenix
	. During the first 25 minutes, the bars that illustrate the greatest amount of trading activity are generally related to positive or neutral price bars. The waves of buying and selling can be more accurately linked to price action by using an even smaller interval. . .

Thanks, Db. That's a good use of the 1-minute chart. I tend to stay way from it because I begin see way too many "set-ups" that then evaporate. But I see your point about this. Thanks

[Eiger]

	Quote:	habi
	Hi Eiger Was the 1:20 bar a spring? We had high volume at the open on up bars, it was not a selling climax in this case, but we had a huge gap down in the regular session.

I'm not quite sure what bars you are talking about. There was a nice Spring today (Bar L) on the 1:25 PM bar (Eastern Time). A nice dip down with a very good close. Lot's of volume though, so it got tested. You can see how the Secondary Test (Bar M) came back into the high volume area at L. The ST was the place to go long.

Eiger

[DbPhoenix]

	Quote:	Eiger
	Thanks, Db. That's a good use of the 1-minute chart. I tend to stay way from it because I begin see way too many "set-ups" that then evaporate. But I see your point about this. Thanks

Actually, the setups are identical. The only difference is whether one wants to trade according to the clock or to the balance between demand and supply at key levels.

[dandxg]

	Quote:	DbPhoenix
	Actually, the setups are identical. The only difference is whether one wants to trade according to the clock or to the balance between demand and supply at key levels.

I am glad you are constantly reminding folks to find and use S/R areas they like and work from there. It makes things much easier. I just sit and wait and watch PV as it approaches S/R. Before I was always trying to determine is this distribution/accumulation. It makes trading much more relaxed.

[habi]

	Quote:	Eiger
	I'm not quite sure what bars you are talking about. There was a nice Spring today (Bar L) on the 1:25 PM bar (Eastern Time). A nice dip down with a very good close. Lot's of volume though, so it got tested. You can see how the Secondary Test (Bar M) came back into the high volume area at L. The ST was the place to go long. Eiger

Yes, I was talking about bar L in your chart, but I have drawn the line from the 9:30 am bar. If I move the cursor over a bar, eSignal shows the open time, Metastock the closing time, thats where we have the difference.

I thought, that we need a selling climax to the left to be a valid spring. At the open, we had much volume, but on up bars. J was just a small selling climax. Even so, bar J looks very significant with this volume spike, closing high and on support from the opening. Yes, M was a nice test and looks even better in a 3 min chart.

habi

[Bearbull]