[VSA] Volume Spread Analysis Part II

[brownsfan019]

	Quote:	BlowFish
	Cheers, Nick. P.S. Hope you take this in the spirit it was meant, always quite enjoyed locking horns with you in a friendly sorta way hehe

BF - great questions. I do not want to take over the VSA thread when talking about candlesticks/PA trading. I'd be more than happy to move the discussion to the candlestick area here on TL.

[Eiger]

Today, the market opened lower, and yesterday put in a lower high. No big demand came in off the 8:30 AM Durable Goods report, the open, or the New Home Sales report. Given this background, I am looking for a short opportunity. In the first forty-five minutes, market conditions are not very volilitle, so my objectives are modest (which they usually are). This could be another sloppy day, or it might turn out more active - whatever it is, i will try to trade accordingly.

Here is a trade off the 3-min chart that tries to meet these conditions (note: there are indications off the 5 & 15-min charts as well):

Bar 1 - supply enters the market on a sudden increase in volume, wider spread and midrange close on an up bar. It looked attractive, but as JJ says, it's just a bar with supply on it (pretty, though )
Bar 2 - an upThrust on increased volume that fails to penetrate the opening gap by much and closes near its open. The market is weak here, but not really moving.
Bar 3 - The market slides lower and then gives a No Demand bar and my entry point
Trade exited just above support.

With not much volitility, the objective of this trade was to play for a test of support. It eventually goes several points lower. I don't care. Why fight support in a slow market? If I was wrong, I would book no profit. This was just a quick trade that set up well and I tried to respond to market conditions.

Eiger

[jjthetrader]

I'm with Eiger on his analysis. Although the upbar with ultra high volume that I've marked at 10:03 was a deal breaker for me for any long position. For me that was now my background, weakness.
Then the upthrust we get just about touched the Value Area Low from yesterday and was forced back down below the 20ema. This is indeed weakness. If you didn't get short after that then you had another opportunity, and this is Sebastians setup, to get short on that no demand I've marked.
Zeon, this is why we fell through support so easily, weakness in the background.

Then we have a nice little drop and once again we get massive volume on a pretty narrow spread closing off the low. I jumped in long on the next bar. Since I didn't wait for any confirmation I had a preset target of 2 points.
But this also gives us our new background.....for now

Good trading today guys (and gals).

[jjthetrader]

Sorry, forgot to attach chart to my last post. Here it is.

[zeon]

Eiger and jjtrader, could you guys perhaps have a look at the chart I posted in the Real Time Price Action thread.

http://www.traderslaboratory.com/for...e-to-3494.html

It seems like you both have support around the same level where I had it. So perhaps I'm not completely wrong after all, but I'm still having issues (cleary)...

[jjthetrader]

	Quote:	zeon
	Eiger and jjtrader, could you guys perhaps have a look at the chart I posted in the Real Time Price Action thread. http://www.traderslaboratory.com/for...e-to-3494.html It seems like you both have support around the same level where I had it. So perhaps I'm not completely wrong after all, but I'm still having issues (cleary)...

Zeon, had a look at your chart. Not exacly sure what you're looking for. But if you're wondering why price fell through the line you have drawn at C then here's what I see. Prior to your A that line is broken. Going up it doesn't act as resistance either so when it comes back down again there's not a whole lot stopping it.
Is that what you were in question about?

[zeon]

	Quote:	jjthetrader
	Zeon, had a look at your chart. Not exacly sure what you're looking for. But if you're wondering why price fell through the line you have drawn at C then here's what I see. Prior to your A that line is broken. Going up it doesn't act as resistance either so when it comes back down again there's not a whole lot stopping it. Is that what you were in question about?

Not exactly... the lower line is the important support for me. But I figured 'C' to be a retest because sometimes re-tests do occur at a somewhat higher level than before. Like the chart Eiger posted yesterday or the day before I think...

So, if you're looking in real-time and you're observing the candle at C, volume is less than at the selling climax AND price manages to close higher.

My question is, in this given situation, why not go long here?

[Eiger]

	Quote:	zeon
	Not exactly... the lower line is the important support for me . . . My question is, in this given situation, why not go long here?

Because you are in a downtrend from yesterday afternoon, and the market was weak with supply, an upthrust, and no demand on the 3-min chart.

You will think I sound like a broken record, but you must look at higher time frame charts. Again, what you thought you saw on the 3-min chart does not give the full picture of the structure of the market.

The attached chart is a 30-min chart which includes overnight data. The red arrow is where you wanted to go long. It is pretty clear we were in a downtrend all night long after putting in a lower high yesterday afternoon. The only relevant support around the open was yesterday's low. The lines drawn on your chart were illusory because of the limitations of the time frame.

When I look at support and resistance, I look for the obvious. I don't use Fibonacci numbers, pivots, MP value areas, etc. Some people seem to use these well, but I personally just keep it simple and think about nearby daily highs and lows and the hourly highs and lows, if relevant. If the day before had an especially active area (volume), I will note this too, as it may be tested today or tomorrow (and this is probably like MP). That's about all I do for S&R.

I also think about S&R as magnets. Traders will go and test these areas all the time. If I am short and there is an obvious support area nearby (like this AM), I look for a test of that support. The more obvious it is, the more confident I am about the target. If everyone can see it, they will usually go for it. Of course, I will buy support and sell resistance when it is appropriate to do so with confirmation whenever possible.

Hope this is helpful

Eiger

[Sledge]

Man! After reading Eiger and JJ post back and forth- I realize just how much I'm still only in middle school in my trading education- listening to the College Professors teach the class!

Keep it up guys. I'm picking things up in droves!!
Sledge

[Sledge]

	Quote:	zeon
	So, if you're looking in real-time and you're observing the candle at C, volume is less than at the selling climax AND price manages to close higher. My question is, in this given situation, why not go long here?

But remember this- if you are studying VSA, look at the Volume on those bars approaching the line! As Tom Williams Says, it took a running start and plowed through the resistance!

Volume was increasing towards the line, if it were declining, you would have a valid point that the line would "hold" and bounce off it, then head north again.
Sledge