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Old 05-15-2008, 11:07 AM
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Re: [VSA] Volume Spread Analysis Part II

I don't want to get into a protracted discussion of what VSA is or isn't either. But it's important, for newcomers anyway, to understand where an application of VSA is appropriate and where it isn't. To point out that VSA is not necessarily appropriate to every trading application is not necessarily an attack on it.

It's easy to understand that a trader who elects to employ an approach that focuses on bars may choose an interval that provides a half-dozen bars per day rather than dozens, or hundreds. But even though he may understand that, for example, an hourly "no demand" bar is an amalgam of all the thousands of trades within it, even down to the tick, and that the "no demand" character of that bar may be more "meaningful" than a 1m "no demand" bar, and further that that bar may imply a larger move than that implied by a shorter-interval "no demand" bar, he must also carry a hell of a lot wider stop with that hourly bar, and he must be at least as specific with the hourly bar as with a shorter-interval bar regarding the conditions for determining whether and when the trade is correct or incorrect.

In order to determine whether any of this is "worth it" or not, one must have an internally consistent approach, if not a strategy, complete with a set of explicit and straight-forward rules that can be tested, both backwards and forwards. If the equity curve is not much better than flat, he must wonder if he's fundamentally incapable of interpreting the "background" behind his entries or if his approach and his rules are taking him in the wrong direction.

Therefore, yes, one can theoretically assume that the "magnitude of the profit expectations [will] differ because of the magnitude" of the bar intervals. But the gap between theory and application can be exceedingly wide.

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