[VSA] Volume Spread Analysis Part II

[Eiger]

	Quote:	habi
	I thought, that we need a selling climax to the left to be a valid spring. habi

Not necessarilly. A SC is very nice background, but not a defining characteristic of Springs. They come in many flavors. In this example, note the rally before the Spring - potential strength. The Spring itself had stopping volume on it, and was climactic action - more strength. You also had near support and, as you pointed out, the first bar of the AM session as some support. I would view the near support as more important, though. There were two swing lows just prior to the open that also could have been tested by the spring. These aren't shown on your chart. Then, a test confirming that supply seen at L has dried up.

Eiger

[mister ed]

	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

Really valuable point thanks Eiger, fully agree. If I can elaborate a little as some reading this thread, especially less experienced traders, may not fully appreciate your point and be left with an incorrect understanding. If I am wrong in my interpretation of your point, apologies.

A bar on a 1-minute chart will have, on average, a much smaller range than a bar on a 5-minute chart, the 1-minute bar will also have, on average, much less volume than the volume on a 5-minute bar. Sorry to state the glaringly obvious, but...

So, a set-up on a 1-minute bar chart that may, on appearance, look like the same set-up on a 5-minute chart, will have a much smaller expected price move from that set-up. Moves occur on different scales, again, sorry for stating the glaringly obvious. A trader looking for say a 5 point move off a set-up on a 5-minute bar may well be disappointed with perhaps only a 5 tic move from what appears to be the same looking set-up on a 1-minute bar chart. This is the sense in which I understand your important point that the set-up evaporates…very significant, thanks.

[Eiger]

Hi Ed,
I personally found that I got whipsawed quite a bit trying to trade off that small of a time frame. Sometimes it is helpful, as in Db's recent post. There you see the demand, where on the 5-min chart it looked like supply. Most of the time for me, however, the 1-min chart appears better than it is. It took a long time for my mentor to convince me that the 1-min was too ephemeral (I was very stubborn ). I kept thinking that the finer time frame let me "see" more and give me better entries and exits. But I finally learned that, for me and my trading, a higher time frame is much better. Others may have a different experience, and that's great.

Eiger

[DbPhoenix]

	Quote:	mister ed
	Really valuable point thanks Eiger, fully agree. If I can elaborate a little as some reading this thread, especially less experienced traders, may not fully appreciate your point and be left with an incorrect understanding. If I am wrong in my interpretation of your point, apologies. A bar on a 1-minute chart will have, on average, a much smaller range than a bar on a 5-minute chart, the 1-minute bar will also have, on average, much less volume than the volume on a 5-minute bar. Sorry to state the glaringly obvious, but... So, a set-up on a 1-minute bar chart that may, on appearance, look like the same set-up on a 5-minute chart, will have a much smaller expected price move from that set-up. Moves occur on different scales, again, sorry for stating the glaringly obvious. A trader looking for say a 5 point move off a set-up on a 5-minute bar may well be disappointed with perhaps only a 5 tic move from what appears to be the same looking set-up on a 1-minute bar chart. This is the sense in which I understand your important point that the set-up evaporates…very significant, thanks.

This is a common misunderstanding, that because the "bars" on a smaller interval chart are shorter and the volume is by definition less that the targets are nearer. The targets, however, remain exactly the same. One buys support and sells resistance. The chief difference is that one is buying support at support and not waiting five minutes or fifteen minutes or an hour to do so.

If one can't read the signals, it's most likely because he's trained himself to focus on bars rather than on price movement. If he also views every aggressive move in either direction as a potential trap, he will find himself reduced to perpetual inaction.

[mister ed]

A common misunderstanding is that there is a 'one-size-fits-all' approach to support and resistance. S&R is present at different scales to diferent degrees, and there are traders trading at these different scales. If one cannot read the signals at these different scales, thats fine, stick to the 10-point or so fixed 'zones' of S & R, but for those more attuned to the dynamic nature of S&R, and who can trade dynamically, recogntion of the different scales within which the market trades is important. It is easy to get fixated on one scale and assume that is the only scale of relevance. It is a subtle distinction, though, not everyone gets it.

[DbPhoenix]

	Quote:	mister ed
	A common misunderstanding is that there is a 'one-size-fits-all' approach to support and resistance. S&R is present at different scales to diferent degrees, and there are traders trading at these different scales. If one cannot read the signals at these different scales, thats fine, stick to the 10-point or so fixed 'zones' of S & R, but for those more attuned to the dynamic nature of S&R, and who can trade dynamically, recogntion of the different scales within which the market trades is important. It is easy to get fixated on one scale and assume that is the only scale of relevance. It is a subtle distinction, though, not everyone gets it.

This common misunderstanding arises from an equally common misunderstanding as to the nature of support and resistance. There are "support" and "resistance" in every tiny swing on a tick chart, but one is not required to trade that just because he happens to use a tick chart to follow price action.

Yesterday, for example, support was at 1675. Resistance was at 1710. That's what the trader trades, regardless of what bar interval he's using to monitor price action, if he's using any bar interval at all.

[mister ed]

	Quote:	DbPhoenix
	There are "support" and "resistance" in every tiny swing on a tick chart, but one is not required to trade that just because he happens to use a tick chart to follow price action.

Agreed, no requirement for that at all. And one would do well to be aware that these small S & R forming will not necessarily translate into the grand poobah of trades .... different scales, different 'targets' (for want of a better word).

[DbPhoenix]

	Quote:	mister ed
	Agreed, no requirement for that at all. And one would do well to be aware that these small S & R forming will not necessarily translate into the grand poobah of trades .... different scales, different 'targets' (for want of a better word).

The "smaller" S&R don't translate into anything. They are merely components of the waves of buying and selling. The "target" remains the same, in yesterday's case, 1710.

Many novices will link "small bar interval" with "small target". This is a fundamental misunderstanding of what reading price action is all about. As Bearbull pointed out earlier, one is more likely to misunderstand intent with a longer bar interval than with a shorter one.

[BlowFish]

Just playing devils advocate but to a trader with a 'monthly' perspective the daily S/R might 'translate into nothing' (or if not nothing, less than they are interested in).

Similarly a more hyper active trader (a 'scalper' if you will) might focus on nailing 'hourly' S/R rather than 'daily' S/R.

(I appreciate 'hourly', 'monthly' and 'daily' are artificial constructs)

There is an important lesson here though (well at least I think so) and that is knowing what your focus is. I fully agree that markets don't trade in nice discrete 5 minute, hourly, daily, weekly, chunks. However, it is convenient when you are trying to decide what size moves you are trying to capture to consider a suitable time frame to focus on. A 50 point ES move will take longer to develop than a 5 point move regardless of the bar size you use to monitor it. Put another way if you want to make roughly 5 points on a trade that will dictate the 'time frame' to focus on, this will tend to suggest suitable charts to use. In this case time frame is not the same as chart time frame it is the scope of the trade.

A wise man ( DB someone or other ) once said the chart is just a map not the territory. Having a suitably scaled map for the journey makes navigation easier.

[mister ed]

	Quote:	DbPhoenix
	The "smaller" S&R don't translate into anything. They are merely components of the waves of buying and selling.

Yes, yes, yes! We are getting somewhere here.

	Quote:	DbPhoenix
	Many novices will link "small bar interval" with "small target". This is a fundamental misunderstanding of what reading price action is all about.

Ya gotta remember those different scales Db - not everyone is going to have the same 'target' as you. Not every chart is going to be useful for the same thing. By all means use the 1 minute (or whatever) to help with entry for 'your' target, but recognise that a small interval is extremely useful for a small target for someone else's trade.

In the end, reading price action is just one component of trading. Many novices miss this point. Yes its an important component of trading, but where the rubber hits the road its about risk management and to expect a 'pattern' on the 1 minute to give the same result as a 'pattern' on a larger scale is going to end in disappointment much of the time.

Thank-goodness this is a pre-Fed announcement morning, allowing us the luxury of some navel-gazing! Over to you for the last word!