Balanced Areas

[Soultrader]

Hi Pivotprofiler,

I always do enjoy reading your posts. Can you explain a little further on why the narrow bar is a test? I do understand the concept behind the previous bars... but am unable to fully comprehend why that narrow bar becomes a test for supply. I see volume is low.... did the markets test for supply near the low of the bar? In other words, sellers were not interested in selling so low so buyers stepped in to close the bar near its high? Thank you

[bobajob]

I have the VSA book. It is good. The problem is that the methods need a few more examples for me to understand them. Would be really good if someone could just walk through a few more charts with thoughts on VSA methods.

[Anonymous]

	Quote:	Soultrader
	Hi Pivotprofiler, I always do enjoy reading your posts. Can you explain a little further on why the narrow bar is a test? I do understand the concept behind the previous bars... but am unable to fully comprehend why that narrow bar becomes a test for supply. I see volume is low.... did the markets test for supply near the low of the bar? In other words, sellers were not interested in selling so low so buyers stepped in to close the bar near its high? Thank you

Thank you for the kind words. May I say the feeling is mutual.

As for the chart shown.

The No Supply bar is a narrow bar that closes on its middle or low with volume less than the previous two bars.

With volume less than the previous two bars, we know that there was no real selling pressure or interest. VSA teaches us that 85% of a volume bar is Professional Activity. And it is their activity that we are interested in mirroring. If the bar is low than they are not interested. (of course 85% of a low number is still more than zero- so they are still present.)

In VSA, however we look at relative volume. That is, volume compared to the one bar ago or two bars ago. We are not concerned with actual volume numbers. We do look at actual volume as well, but again not number but we gauge actual thru the use of moving average of volume. For example, the tradeguider charts have the relative volume bands and when a volume bar is in the salmon colored area, it is Ultra High.

As for the test. This test is not a narrow range test. The ideal test bar would have a narrow range, close below the previous bar, close on or near its high and have volume less than the previous two bars.

Tom does not look at the open but I think sometimes the open helps. In this bar look at what must of been the case:

1. the bar opens and price is 'marked' down
2. buying comes in and pushes price up
3. Price trades higher than the open to make a high
4. Price settles back down where it opened on the close.

In candle terms this is a Doji.

From the VSA perspective, the Smart Money is not interested in lower prices. But before they mark prices up, they need to be sure there are not any sellers. What the Smart Money usually does not want is to do is buy supply at higher prices. They would rather buy up the "paper" at lower prices and then sell to the retail trader at higher prices.

So they purposefully take price down to see(test) if there is interest. If the volume is high, then the market is not quite poised to rise. If it does rise, the up move is muted and price tends to go back and retest in the area of the original test.

[walterw]

Pivot : do you have a shareable version of does mats (type) paintbars ? cheers Walter.

[bobajob]

Insightful stuff PivotProfiler - more of the same if you could

[traderxman]

Just alot on my plate right now...but if I can see a way to help I will. Good discussion here. Like the talk!

[Anonymous]

	Quote:	walterw
	Pivot : do you have a shareable version of does mats (type) paintbars ? cheers Walter.

Still working on them.

If you're interested in the idea, take a look at Traderxman's posts about the method. Take a volume histogram and determine a way to classify volume as high, ultra high, average, etc.

In Tom's book he says to compare the last 30 periods. (Tradeguider-the company that bought the rights to Tom's work, will not disclose what they use for their volume bands). On an aside, this makes at least some of what TG does Black Box in my opinion.

Anyway, I place a simple 30 period moving average on volume. Then I use standard deviations of that to determine various levels. This would seem to be vary close to what MATS does. Mats trades off a 1 min chart but also looks at Market Profile. Probably a typical 30 min profile. So using a 30 minute average seems to fit into the Auction Market Theory concept as well as standard VSA.

[walterw]

ok Pivot, if you ever want to share does paintbars formulas I will be very pleased... (even maybe I can help you on the programing process) cheers Walter.

[walterw]

Does someone have a pdf or document that clearly explains the famous Auction Market Theory ? would aprecciate that... cheers Walter.

[Anonymous]

Cisco futures has an extensive site on Auction Market Theory.

I have given what I have, in terms of "code" up to this point:

1. define average volume over some period x. For me, X=30.
2. Define 4 more levels of volume based on a deviation of the average.
3. why four? Mats has 4 paintbars: blue, green (cyan on the tradestation chart shown on the site),pink, and purple. Black bars are neutral (green on tradestation version shown).

The same idea is used in VSA as one way of determining how much volume a particular bar represents.

With the lowest volume bars (blue), there are a few other requirements. Like they be climbers or drifters (see Bill Williams' trading chaos). Also most of the blue bars are buying or selling bars.

Here buying bar refers to a bar that take out its previous bars high and not the low. A selling bar has a lower low than the previous bar but not a higher high.

Below we have a good example of what may be possible with the combination of "mats" and VSA. The first thing we see is stopping volume/climatic action. This bar has high volume that stops the preceding downtrend. With high volume and closing off the lows and the next bar up, we know there must of been Buying (demand) in this bar.

A few minutes later, a High Volume Balance Area is formed. We know it is a buying Balance Area, because the low is made before the high of the Balance Area. This concept comes from Mats. With VSA we know we have recently seen stopping volume. Hence we are looking to see if the market responds to the upside.

Ideal, we want to look for a No Supply sign within the Balance Area. Price moves out and then comes back inside. Note that the bar that represents No Supply does close within the Balance Area.

Remember, A balance Area is formed when there are two or more successive paintbars. When the next bar is a non paintbar (green) The balance Area is formed.