[VSA] Volume Spread Analysis Part II

[Eiger]

At the time, I didn't know if the top had been put in at Friday's high (G). Frankly, I thought that we might pause at this level, and then go higher and try for the top at 1391.75. So, I completely missed the UpThrust at H. I usually like those, especially when the volume increases like this after the weakness at G.

Another opportunity came at I, which I did manage to take. This was probably a safer trade because of the resistances formed by the Supply line and the horizontal resistance off E. Again, volume increased to the downside and indicated the support below E wouldn't hold

[jjthetrader]

Just a little point I want to make today. This issue tripped me up for the longest time. Tawe Trader was a big help is distinguishing between acceptable breakout volume vs what might be potential hidden selling. Not all ultra high volume bars are weak regardless of what Gavin at tradeguider tells you!

Here's an illustration.

BAR A: This would be classified as ultra high volume. It broke up through a previous high from 3 bars earlier that also had relatively high volume but was tested and no selling appeared (the no supply bar 1 bar previous to A). So we've got to ask ourselves, did this bar contain selling? Normally a bar like this will be tested right away. What do we get? An unthrust 2 bars later. This is giving us an indication that the market isn't as strong as we may think. Now in the circled blue area we just move sideways. This is not common to testing, it is common to distribution. We know the market is weak.

BAR B: We break out of that range we were just in but knwing what we know about there being weakness in the background are we going to go long here? No! Wait for your signal because your short is setting up.

BAR C: This is the upthrust Eiger was refering to. We know it's an upthrust more than just it's shape but that it has that high volume and nothing to the left for a long while which would cause this. I personally took a quick short on the break of it's low.

That's my quick synopsis of 'when is an upthrust an upthrust and when is ultra high volume bearish'. Like I said, this used to trip me up so just in case it may help someone I thought I'd post it.

[habi]

	Quote:	Eiger
	The market did not rocket through this supply area, so it can either react or absorb at resistance. Wyckoff first described absorption in the 1931 market. He did this in hindsight, but I think it is a worthwhile analysis nonetheless, and I hope you do, too In my own work, I have taken his brilliant 1931 case study and reformatted it so that each section of his analysis can be read and studied without the influence of subsequent action. And, for my personal use, I have added some of my own observations. I’d like to share with you the page of that analysis that discusses absorption, which you might find helpful at this moment in the market. The 1931 market rallied after this point in the analysis.

Hi Eiger

At the point where we are now, I see more reaction to the high area 1/31, 3/2 than some kind of absorption. We have longer upper shadows in the daly chart instead of rejections from the downside, and now 5 closes within few points. Just above 1400 is another congestion area with more resistance potential.

The small channel in the 60min chart is now broken to the downside, I like such patterns more against the main trend. It will be interesting, if 1360 will hold again.

Instead of a daly chart I use a 1425min chart with a full session time template, since eSignal has a one day delay in the daly fututes volume charts. Therefore the January lows looks a bit different to a normal daly chart.

[DbPhoenix]

	Quote:	habi
	At the point where we are now, I see more reaction to the high area 1/31, 3/2 than some kind of absorption. We have longer upper shadows in the daly chart instead of rejections from the downside, and now 5 closes within few points. Just above 1400 is another congestion area with more resistance potential. The small channel in the 60min chart is now broken to the downside, I like such patterns more against the main trend. It will be interesting, if 1360 will hold again. Instead of a daly chart I use a 1425min chart with a full session time template, since eSignal has a one day delay in the daly fututes volume charts. Therefore the January lows looks a bit different to a normal daly chart.

You may be interested in the context here. The first chart is Wyckoff's, from Dec '30 thru March '31 ("s" signifies Saturday). The second shows the entire year '30, up to and including Dec to show where price was coming from prior to the left edge of W's chart.


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[Eiger]

	Quote:	habi
	Hi Eiger At the point where we are now, I see more reaction to the high area 1/31, 3/2 than some kind of absorption. We have longer upper shadows in the daly chart instead of rejections from the downside, and now 5 closes within few points. Just above 1400 is another congestion area with more resistance potential. The small channel in the 60min chart is now broken to the downside, I like such patterns more against the main trend. It will be interesting, if 1360 will hold again. Instead of a daly chart I use a 1425min chart with a full session time template, since eSignal has a one day delay in the daly fututes volume charts. Therefore the January lows looks a bit different to a normal daly chart.

Hey Habi,

E-Signal can be really frustrating when it comes to futures volume. I hadn't thought of that trick you mention. That's clever. Thanks, I'll give that a try

I always like to use the SPX with the NYSE volume. Sometimes it tells a slightly different story than ES or SPY. I learned this from SMI. They use it in their Wyckoff Wave and the other indicies.

Here's a chart that gives a larger perspective. You can see that there is a confluence of resistances that price is attempting to negotiate here. You would think that the market would be repelled with so much resistance. Instead, it is hanging just at the resistance area and not reacting much. So to me, the odds favor aborption. You are right, though, there is more resistance to contend with overhead.

Thanks again for the tip.

Eiger

[gassah]

	Quote:	Eiger
	You would think that the market would be repelled with so much resistance. Instead, it is hanging just at the resistance area and not reacting much. So to me, the odds favor absorption. Eiger

Hi Eiger,

When you reference absorption from the Wyckoff course are you referring to the following passage and chart?

The probability that this lateral movement, or trading range, between 156-151 is an area of absorption rather than one of distribution may be determined:

(1) from the fact that volume remains low on the reaction to January 29th and tapers off promptly on the reaction to February 2nd;

(2) from the tendency of the price movement to narrow into a comparatively small range instead of reacting as much as halfway back to the January 19th low, which implies that stocks are not being pressed on the market; and

(3) from the fact that after the recession to February 2nd, volume tends to build up consistently at the same time that there is a lifting of the supporting points from February 5th to 7th - behavior typical of the completion of a period of accumulation or absorption prior to a mark-up.

What's happening in the SP500 doesn't seem comparable to the above because there aren't enough bars yet, not to say that it won't head higher.

nic

[zeon]

	Quote:	Sledge
	Their is one and only one video on YouTube of Tom Williams speaking at some type of seminar or meeting (doesn't give the location) I think it is somewhere between 3 and 5 minutes. It will give you his thoughts on this topic. Go there and search "Tom Williams Market Manipulation" He also is very blunt about the fact in almost any of the speeches, lectures or seminars he speaks on regarding this. ...

Sledge, it doesn't seem a good idea to discuss this topic in this thread. Whether there is market manipulation going on or not, it's a off-topic to say the least. It would make up for an interesting discussion and perhaps we should start a separate thread on this matter. I agree that to a certain extent professional money manages to influence the market more than others because by nature they have more size to play with. But even the originators of the Dow Theory said that manipulation on a major scale cannot be done.

As for what Tom Williams said, I'm quite critical about other people's opinions when they don't back them up with any concrete facts. And as far as your description of what happens around news releases is concerned, that's all fine and correct, but it by no means would be logical to conclude that the smart money is staging all this. By nature a lot of people will be trying to trade around the news, but it's my belief that the smart money will trade after the news, not before.

[BlowFish]

	Quote:	gassah
	Hi Eiger, _snip_ The probability that this lateral movement, or trading range, between 156-151 is an area of absorption rather than one of distribution may be determined: _snip_ nic

4) Notice the advances within the range are on steady increasing volume and the declines are on diminishing volume.


I know Sebastian uses a similar concept. He kind of 'scores' bar by bar and simply allocates it as strong or weak.

[DbPhoenix]

	Quote:	BlowFish
	4) Notice the advances within the range are on steady increasing volume and the declines are on diminishing volume. I know Sebastian uses a similar concept. He kind of 'scores' bar by bar and simply allocates it as strong or weak.

Which illustrates the difference between viewing price movement as a series of buying and selling waves v a series of "bars".

But that's what happens when one tries to make mechanical what is unavoidably non-mechanical, i.e., Wyckoff.

[DbPhoenix]

	Quote:	zeon
	Sledge, it doesn't seem a good idea to discuss this topic in this thread. Whether there is market manipulation going on or not, it's a off-topic to say the least. It would make up for an interesting discussion and perhaps we should start a separate thread on this matter.

It's hardly off-topic. In fact, it appears to have become a central axiom of VSA. Which, I suspect, is a chief reason why so many people have so much trouble "interpreting" their charts.