This thread got me thinking about MATS. I really like that is uses no technical indicators. Moreover, I like that its concepts are rooted in Market Auction Theory .
At one point I was working with this method (not the real one, but my attempt to decode it from what is on the site and what Dave Johnson told me) and did find some value. The problem was many times at tops and bottoms it would be wrong. This lead me to
VSA. It does a good job of determining tops and bottoms-the result of imbalances of supply and demand.
Since both methods do have volume at their core, I have been thinking if it is possible to combine the two. Still looking at it but Here is what I have so far.
A Balance Area is formed when there are two or more paintbars in a row. On the first non-paintbar, after the Balance Area is established. Note there are 3 Balance Areas on this chart. The middle one is a HV Balance Area.
This Balance Area is interesting. Note that the first bar is wide spread up bar on High volume that closes in the middle of its range.
VSA tells us that a bar like that must contain Selling (supply). The next bar is key. This bar closes below the previous bar . Therefore, the first bar could not of been all buying. If it were buying , then why is the next bar (this one) down?
So while the Balance Area is created basically by the range of one bar, we know it is a selling Balance Area. Check out the small "c" on the second bar. This is a Volume Churn, or squat bar. We have volume higher than the previous bar and an equal or lesser range. Buyers have stepped in on this bar and are keeping prices supported. Market Makers, who can see both sides of the market, are keeping the range narrow as they can see Buy orders on their books and thus expect higher prices.
Note that we now see an area where the bulls and the bears are indeed "fighting" for control of the market. Mats would place an order one tick below the midpoint to go short a Selling Balance Area. However, I like the idea of waiting to see either a NO Demand bar (x's above a bar) or a Volume Churn bar. We could also look for Up thrusts preferably inside the Balance Area.
There is a squat and a No Demand bar that could be used to enter at the first selling Balance Area on the chart. The close of the squat is inside the BA which is ideal. The No Demand is just outside but within reason. Of course, if you short on the squat, then the No Demand is only there to give you some confidence and not trade entry.
Hopefully, Traderxman will find the time to share some of what he knows. I do think it is worth pursuing.