[VSA] Volume Spread Analysis Part II

[DbPhoenix]

	Quote:	Sledge
	All I can say is this: 1. I study the book. 2. I consume any information on VSA I can. 3. I have yet to find anything I have been told in 1 or 2 above to be false. 4. My results speak for themselves because I follow what I have learned. 5. I am happy at the results I have gained from being a student of VSA I'm not here to be some champion of VSA- I agree with it and adhere to it. It has served me well. Other than that, I don't feel I have to justify anything else. Sledge

I'm glad that you're happy with your results. However, I continue to be interested in the logic of your position, i.e., the position of an ordinary, part-time, retail trader as opposed to the author of the book.

For example, if professional money is the herd, and the objective of VSA is to follow the activities of the professional money, does it not follow that by following the activities of the professional money one is following the activities of the herd?

On the other hand, if "professional money" is defined as specialists, is one to assume that the majority of specialists are all doing the same thing in the same way at the same time?

Or is it possible that there's some other more reasonable explanation of which specialists and market-makers play only a small role, or at least no larger than anyone else?

[Sledge]

	Quote:	DbPhoenix
	I'm glad that you're happy with your results. However, I continue to be interested in the logic of your position, i.e., the position of an ordinary, part-time, retail trader as opposed to the author of the book. For example, if professional money is the herd, and the objective of VSA is to follow the activities of the professional money, does it not follow that by following the activities of the professional money one is following the activities of the herd? On the other hand, if "professional money" is defined as specialists, is one to assume that the majority of specialists are all doing the same thing in the same way at the same time? Or is it possible that there's some other more reasonable explanation of which specialists and market-makers play only a small role, or at least no larger than anyone else?

You know, I don't have an answer for you. Maybe you can call Tom Williams personally and ask him what the answer is. Talk to Seb, maybe for a consulting fee- Tom can give you the enlightenment you seek.

[Nvesta81]

I think the reasoning behind MTM if I recall correctly is that syndicate groups and "big" players are the professional money, and the market-makers and specialists are able to see where these players are buying/selling from their books. Therefor, they are able to manipulate prices to facilitate their inventory requirements, and in the process turn a profit for themselves in their private accounts. It's been awhile since I read the book so I might be totally off here... it's an interesting concept anyway, but I still remain somewhat skeptical.

[DbPhoenix]

	Quote:	Nvesta81
	I think the reasoning behind MTM if I recall correctly is that syndicate groups and "big" players are the professional money, and the market-makers and specialists are able to see where these players are buying/selling from their books. Therefor, they are able to manipulate prices to facilitate their inventory requirements, and in the process turn a profit for themselves in their private accounts. It's been awhile since I read the book so I might be totally off here... it's an interesting concept anyway, but I still remain somewhat skeptical.

But is this not inconsistent with Sledge's interpretation that syndicate groups and "big" players are the herd?

[DbPhoenix]

	Quote:	Sledge
	You know, I don't have an answer for you. Maybe you can call Tom Williams personally and ask him what the answer is. Talk to Seb, maybe for a consulting fee- Tom can give you the enlightenment you seek.

Again, I'm not so much interested in what Williams thinks as in what you think. There is a paradox here, and I'm interested in how you resolved it. Sorry if you interpret this as an attack.

If you'd rather not answer, I won't ask again. Perhaps someone else, though, will offer an explanation.

[Nvesta81]

Quoted straight from the book:

"It is important to understand that the market-makers do not control the market. They are responding to
market conditions and taking advantage of opportunities presented to them. Where there is a window of
opportunity provided by market conditions – panic selling or thin trading – they may see the potential to
increase profits through price manipulation, but they can only do so if the market allows them to. You
must not therefore assume that market-makers control the markets. No individual trader or organisation
can control any but the most thinly traded of markets for any substantial period of time.
Market-makers are fully aware of the activities of trading syndicates and other professional operators that
place substantial orders. It therefore makes sense that they will take whatever opportunity is available to
better their own accounts accordingly."

A little information about what the book refers to as the 'herd' :

We have all heard of the term ‘resistance’, but what exactly is meant by this loosely used term? Well, in
the context of market mechanics, resistance to any up-move is caused by somebody selling the stock as
soon as a rally starts. In this case, the floating supply has not yet been removed. The act of selling into a
rally is bad news for higher prices. This is why the supply (resistance) has to be removed before a stock
can rally (rise in price).
Once an up-move does take place, then like sheep, all other traders will be inclined to follow. This concept
is normally referred to as ‘herd instinct’ (or crowd behaviour). As human beings, we are free to act
however we see fit, but when presented with danger or opportunity, most people act with surprising
predictability. It is this knowledge of crowd behaviour that helps the professional syndicate traders to
choose their moment to make a large profit. Make no mistake – professional traders are predatory beasts
and uninformed traders represent the symbolic ‘lamb to the slaughter’.
We shall return to the concept of ‘herd instinct’ again, but for now, consider the importance of this
phenomenon, and what it means to you as a trader. Unless the laws of human behaviour change, this
process will always be present in the financial markets. You must always try to be aware of ‘Herd
Instinct’.
There are only two main principles at work in the stock market, which will cause a market to turn. Both of
these principles will arrive in varying intensities producing larger or smaller moves:
1. The ‘herd’ will panic after observing substantial falls in a market (usually on bad news) and will
usually follow its instinct to sell. As a trader who is aware of crowd psychology, you must ask
yourself, “Are the trading syndicates and market-makers prepared to absorb the panic selling at these
price levels?” If they are, then this is a good sign that indicates market strength.
2. After substantial rises, the ‘herd’ will become annoyed at missing the up-move, and will rush in and
buy, usually on good news. This includes traders who already have long positions, and want more. At
this stage, you need to ask yourself, “Are the trading syndicates selling into the buying?” If so, then
this is a severe sign of weakness.
Does this mean that the dice is always loaded against you when you enter the market? Are you destined
always to be manipulated? Well, yes and no.
A professional trader isolates himself from the ‘herd’ and becomes a predator rather than a victim. He
understands and recognises the principles that drive the markets and refuses to be misled by good or bad
news, tips, advice, brokers, or well-meaning friends. When the market is being shaken-out on bad news, he
is in there buying. When the ‘herd’ is buying and the news is good, he is looking to sell.."

[DbPhoenix]

Thank you, Nvesta.

One of the reasons why it's so difficult to come up with a coherent and internally consistent strategy that implements what is addressed in VSA is that there are so many iterations of VSA, from the original all the way to TG. For example, the emphasis on the location of the "close" of a bar even when there is no universally agreed-upon bar interval presents certain difficulties that should be obvious.

This is why I'm less interested in what the book "says" and much more interested in what is being "heard" by those who are reading/studying it. If, for example, ten people are studying it and they each have a different understanding of how it all works than everyone else among the ten, then I should think that they, at least, would be interested in ironing out these differences. Perhaps then their understanding of what is happening in real time (since this is when trades are placed) would be enhanced.

[Ricks Inn]

Tom Williams is, of course, not the only one who's written about market manipulation as fact. Though no longer in print, all three of Richard Ney's books books document this (the first two in great detail).

Tom has also pointed out that "smart money" is not monolithic, does compete among themselves, and does not consist of everyone who works in the financial sector as a career. Bank investors, retirement fund managers, retail brokers, individual financial planners at places such as HSBC and UBS --- all control very large funds, but almost invariably part of the "herd" (I've been a customer of these in years past, and my HSBC account manager disputed manipulation being a significant factor.)

So there is a distinction here. Not till you get to the so-called syndicate, specialist, or market-maker level do you find the folks who have 1) the funding, and 2) the inside knowledge (e.g. where stops are placed, pending large block orders being distributed) which are needed to implement the maneuvers Tom and Richard -- and others -- speak about. I don't THINK this is a paradox; maybe unseemly, borderline illegal, winked at by the revolving door regulators --- but extant none the less.

Check this for a rare main-stream-media reference to this activity:

http://business.timesonline.co.uk/to...cle3587090.ece (The first sentence in particular -- this usually doesn't get out, and Tom Williams has spoken of having witnessed this very behaviour within the syndicate he worked for in the 1960s.)

[zeon]

	Quote:	DbPhoenix
	This is why I'm less interested in what the book "says" and much more interested in what is being "heard" by those who are reading/studying it. If, for example, ten people are studying it and they each have a different understanding of how it all works than everyone else among the ten, then I should think that they, at least, would be interested in ironing out these differences. Perhaps then their understanding of what is happening in real time (since this is when trades are placed) would be enhanced.

This is one of the major problems I have with VSA. Last week or so I posted a chart where I saw a long opportunity. However the market reversed before I took profits. When I posted the chart here, I got the response that 'after seeing two down bars' you should've exited. But on what timeframe? Two down bars on 5-minute might not even show up on a 15-min chart, etc, etc.

I don't mean any offense to anybody here... I hope I can still receive constructive criticism because I am still trying to find out how best to approach the markets. Everybody's input is appreciated.

[BlowFish]

Lets not forget Reminiscences of a Stock Operator by Edwin Lefevre. Through the anecdotes of the campaigns waged by the great traders of yesteryear much can be learnt about the techniques employed by those legends in meeting there objectives. Not only that its a cracking good read.