[VSA] Volume Spread Analysis Part II

[Eiger]

It takes a little more than large volume on a 5-min chart to turn a trend. In VSA, we view ultra high volume on up bars as dangerous to bulls. The high volume indicates supply present in the market. You can see this clearly on the weekly chart attached. The highest volume on the chart occured on an up bar in May. We know that there was heavy supply on that bar because the next bar tried to rally higher, but failed and fell well into the spread of the high volume bar, closing on its lows and in the middle of the range of the high volume bar. We call this an UpThrust. The market then tried to rally the next week, but the volume was very light, indicating there was No Demand from the large, professional traders. So this combination of events is quite bearish, and the market falls.

The current downtrend on the daily chart has accelerated over the last two days, and is taking the market into a steeper stride or angle of decline. The 50 level has a confluence of support. There is a weekly Demand Line (green), a support level around which price had been stopped in late Feb/early march, then supported in late April (purple), the Demand line of the downtrend channel (red), and also the 1/2 - way point from the rally low at about 41 to its high at about 60. Given that the daily is accelerating with widening spread and volume is starting to rise, I would look to see if this market will find support around this level. If it does, the subsequent rally will tell you whether this has been a shakeout and new highs can be expexted, or lower prices will prevail and perhaps a trading range from the low at 41 to the resistance area between 56 - 60 will form.

[biegea]

eiger, thanks so much for the thorough analysis. Great points, I clearly overlooked a number of much bigger-picture items here. Cheers, biegea

[winnie]

How to know whether an up bar is a no demand bar or just take rest of a downtrend and then resume the downtrend ? For example, if we see a downtrend( or last bar is strong down bar with wide spread and big volume) and then an up bar with a lower volume than previous two bar, can we say that the bar is a no demand bar ?
Thanks

[Sledge]

	Quote:	winnie
	How to know whether an up bar is a no demand bar or just take rest of a downtrend and then resume the downtrend ? For example, if we see a downtrend( or last bar is strong down bar with wide spread and big volume) and then an up bar with a lower volume than previous two bar, can we say that the bar is a no demand bar ? Thanks

Winnie-
That is what the Tradeguider folks would call a "Polar bear in Hawaii" it is out of place- thus should be disregarded.

To me that bar shows that the brakes are being applied HARD, and would be a very wise bar to perk up and pay attention too. I know the TG folks would say that about the Wide Spread Down Bar, but the bar you describe shows that some profit taking is taking place and a lot of offloading took place on the WSB- logically that makes sense- you don't see too many "smart traders" seeing a huge down bar and say- "ooh I should go long"

Hope this helps.
Sledge

[speres]

	Quote:	winnie
	How to know whether an up bar is a no demand bar or just take rest of a downtrend and then resume the downtrend ? For example, if we see a downtrend( or last bar is strong down bar with wide spread and big volume) and then an up bar with a lower volume than previous two bar, can we say that the bar is a no demand bar ? Thanks

Thats what a no demand bar is Winnie, I think you answered your own question...
What is a no demand bar for instance? Price moves up on low volume. Pro money has withdrawn and has no interest in higher prices at this time. Hence low volume.

To your second question (strong down bar with wide spread and big volume) the volume would have to be very big for a trend reversal for starters.Is the volume huge is the first question you ask yourself. Then you get a move up on low vol. Is this no demand?, well it might be, smart money might not have finished distribution yet for example and so have withdrawn, but after a possible sign of strength would you short the no demand, of course not.

[speres]

Also was there any follow through after the increased volume? You see the increased volume, what was the effect?

[Eiger]

Great VSA trading yesterday and today. Here is a quick analysis of today's market:

A - Top Reversal near the 10:00 inflection point
B - No Demand
C - Some buying enters here. Note the volume and the close in the middle
D - But the market is not quite ready to rally with the UpThrust and the market falls back near the lows of yesterday where buying drove the market upward
E - Down bar on above average spread close near the lows on an increase in volume. This could be bearish, but the next bar dips lower and closes up. Note also the volume difference between E and C. In the background, we are in the support area of yesterday's lows.
F - Bottom Reversal. This bar dips lower than the previous bar reverses and closes on its high.
G - low volume down bar indicating no supply
H - a small shake out that closes on its highs indicating upward prices
I - Supply enters (increased volume, mid-range close) as we approach the old top at A-B-D. This weakness was only temporary as the market goes sideways holding its gains in a fairly tight range
K - Hidden Test
L - Test bars
M - A sudden increase in volume, fairly narrow spread, poor close. Professional traders capped the market here.
N - The rally back up to the weakness seen at M is on low volume, narrow spreads indicating low odds of rallying past the weakness at M. The market declines.
O - The decline halts at O where we have No Demand on the 5-min chart. This area is better read on the 3-min chart
P - 3-min chart - Increased volume and strong closes after the market had been declining for an hour indicates stopping volume and buying
Q - 3-min chart - Compare the volume between Q and PP. Note the close on Q. Strength has come into the market
R - A No Demand after strength and the market rallies, as it should.
S - 5-min chart - Compare the bars and volume at S with the bars and volume at N. Can you see why at S the market signaled it would break through the oppositon formed by the old top at M-N and at N it signaled it wouldn't?

[Eiger]

In the above post, both O (5-min chart) and R (3-min chart) are mis-labled as No Demand. That's incorrect. The correct lable is Test. Sorry, it was late, I was tired, and I had been working on another project that focused on the No Demand bar, so that was on my mind ... The edit function seems to be missing?

[tawe trader]

Seeing as recent posts have been regarding no demands and I haven't posted for a while I thought I'd share a quick no demand short trade I carried out on the FTSE yesterday afternoon. This was also a multiple timeframe trade.

First chart is a 15 min, at 2.30pm (UK) when the US mkts open we have a possible weak bar.

Why is this weak ? even though it closes near the top, it has very high volume and as Tom W says 'mkts don't like very high volume up-bars, there could be hidden selling involved'. Also the next bar closes down, which confirms the weakness. (If it had been on lower volume and the next bar closed up, it would have been seen as a bullish bar and a 'test' in a rising mkt).

I am now looking for a no demand bar for my short entry. There is a borderline no demand at 3.15pm. I decide to drop down a timeframe to investigate further.

The next FTSE chart is a 10 min timeframe and at 3.20pm there was a clear no demand, so after seeing this I decided to go short with a target of 20 to 25 pts. I exited for a gain of 21 pts and the mkt never really went much lower for the remainder of the afternoon.

Tawe

[Seb Manby]

Hi Guy's

Late buying on the close today ES contract, should mean higher open Thursday.

Regards Sebastian