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Eiger

Common Myths Concerning VSA

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There are many myths floating around about VSA. These can be quite confusing to traders interested in learning the technical craft of VSA. If adopted as truth, they can also be quite damaging to traders trading with VSA. Most of these myths center around arguements that, if we look a bit more carefully, are based either on misunderstandings of VSA or attempts to lead the unwary. You can be the judge of that :)

 

Myth #1: VSA is Frought with Unnecessary Jargon

 

I have to admit that I chuckle a bit at this one. VSA is based on the Wyckoff Method. The Wyckoff Method dates back into the early 1930s and is based on reading the market by its own actions. Wyckoff was a very early proponent of reading the charts and developed a set of definitional terms he used to describe what he saw in the charts. Here is a (partial) list of terms from Wyckoff's original manual (in no particular order):

 

Absorption

Distribution

Secondary Distribution

Accummulation

Buying Climax

Selling Climax

Technical Rally

Technical Rebound

Secondary Reaction

Secondary Test

Critical Position

Danger Zone & Danger Points

Upthrust

Hypodermics

Shortening of the Thrust

Corrective Reaction

Apex

Hinge

Springboard

Shake Out

Termial Shake Out

 

Quite a list. VSA, being based on Wyckoff, uses some (though not all) of these terms. Terms used in VSA that come from Wyckoff include Buying and Selling Climaxes, Upthrust, Accummulation, Distribution, Test, Shake Out, etc.

 

VSA streamlines Wyckoff to a certain degree, and such does not use as many of the terms that Wyckoff used. For example, Hypodermics is not found in the Williams text, nor is Secondary Distribution or Shortening of the Thurst.

 

VSA does add a few terms, however. No Demand is one new term. Stopping Volume is another. In truth, these are pretty straightforward terms when you think about it. No Demand simply means what is says - there is no buying or no demand. The same with Stopping Volume. It refers to volume that stops a trend. Not particularly arcane.

 

All professions have a technical language. Law, medicine, psychology, finance, marketing, carpentry, sport -- all have their own set of terms unqiue and specific to the discipline. The profession of trading is no different.

 

Although a technical language may seem exclusionary to an outsider, this is not the intention nor the objective of technical language. Technical language merely serves to facilitate communication between people within the profession. When one VSA trader says, "No Demand," for example, every VSA trader understands what is meant.

 

Communication is made easier and so is learning. I have seen many traders attempt to skirt the technical language only to 'see' and trade random patterns, thinking they were VSA. 'Seeing' selling come in, for example, because volume increases and a bar closes in the middle, they then take a short only to see the market turn on them and continue to advance. Loose descriptions of buying and selling/demand and supply seem on the surface to be more practical than the technical language. But, as every profession knows, loose terminology is neither useful nor practical. Traders avoiding the effort to learn the technical terms and their associated chart patterns quickly become frustrated and abandon VSA, many with a sour taste in their mouth.

 

Does VSA have a technical language? You bet, just like every other profession on this planet. And, as in every other profession, the VSA technical language facilitates both communication and learning. Don't get swayed by the myth that VSA is all jargon. It is not jargon. There is a purpose for the terms used. That purpose is to help you properly learn VSA and talk clearly about it.

 

Hope this is helpful.

 

Eiger

Edited by Eiger

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Eiger,

You have presented some very valid points. I like to use the best of both worlds.

As mentioned before, if somebody disagrees or has strong views against any method, best to leave it alone and move on, that way there is no room for unneccesary confrontation.

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...As mentioned before, if somebody disagrees or has strong views against any method, best to leave it alone and move on, that way there is no room for unneccesary confrontation.

 

Unfortunately, Monad, some have a history of consistently doing just the opposite of your sound recommendation.

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You are spot on Eiger, all professions have their unique terms, having had experience with lawyers. As was pointed out by others take away the main concepts from a method and prove for yourself if they work or not. if not, well on to something else.

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Myth #2 VSA Is No Different Than Just Following Price Action

 

Not really. Price is certainly an important component of VSA, but the real keys – as the name suggests – are volume and spread.

 

In Tom Williams’s outstanding book, The Undeclared Secrets that Drive the Stock Market, he makes special note that volume is the key indicator of the professional traders. It is how we, as VSA traders, can track the activity of those market participants who matter most, the professional money.

 

Volume is crucial because it tells us the level of involvement of the professional trader. Only the professionals can generate the high volume seen at nearly every market turn. Their absence is also easily seen following certain background conditions when volume is significantly low. Volume is so important in VSA that Tom recommends that traders train themselves to look at the relative volume before looking at the price bar when analyzing a chart.

 

Spread is also very important and is looked at next, after volume. Spread (the range of the price bar from high to low) represents trading activity – the wider the spread, the greater the activity. Combining the volume with the spread can reveal much about current market movement. Increasing volume on widening spread, for example, indicates continuation of the current movement. High volume and narrow spread, on the other hand, can indicate a stopping of movement. Spread also relates to professional activity – only professionals, for example, are able to cap a market (i.e., sell into active buying leaving the spread narrow on high volume).

 

After volume and spread are assessed, we next look at the close and the relation of the close to the preceding close(s).

 

Thus, although price is important, volume takes precedence, not price. Following price without volume is something different than VSA.

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Can u bust some other myths... if there is any

 

For eg? VSA does not weed out low volume stocks.........this can create traps where we are deliberately been fooled by a relatively high volume in some low volume stocks which makes no sense

 

I hope u got it....EIGER

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Myth #2 VSA Is No Different Than Just Following Price Action

 

Not really. Price is certainly an important component of VSA, but the real keys – as the name suggests – are volume and spread.

 

In Tom Williams’s outstanding book, The Undeclared Secrets that Drive the Stock Market, he makes special note that volume is the key indicator of the professional traders. It is how we, as VSA traders, can track the activity of those market participants who matter most, the professional money.

 

Volume is crucial because it tells us the level of involvement of the professional trader. Only the professionals can generate the high volume seen at nearly every market turn. Their absence is also easily seen following certain background conditions when volume is significantly low. Volume is so important in VSA that Tom recommends that traders train themselves to look at the relative volume before looking at the price bar when analyzing a chart.

 

Spread is also very important and is looked at next, after volume. Spread (the range of the price bar from high to low) represents trading activity – the wider the spread, the greater the activity. Combining the volume with the spread can reveal much about current market movement. Increasing volume on widening spread, for example, indicates continuation of the current movement. High volume and narrow spread, on the other hand, can indicate a stopping of movement. Spread also relates to professional activity – only professionals, for example, are able to cap a market (i.e., sell into active buying leaving the spread narrow on high volume).

 

After volume and spread are assessed, we next look at the close and the relation of the close to the preceding close(s).

 

Thus, although price is important, volume takes precedence, not price. Following price without volume is something different than VSA.

 

In order to get the full benefit from VSA or wychoff, you have to consider total volume or total market open interest for a security. Published volume is really only what the symbol traded on the given exchanges. However, you can purchase a security as part of a futures contract, an option on a futures contract, an option on the security itself, a sector etf, etc.

 

The more of those you can include, the better the volume picture you will develop and VSA will perform better for you. If you are a trader who wants to use VSA on an instrument like ES and plan to use the volume of only ES, then the above statement is not a myth, since ES volume only gives you a sliver of needed volume information and trading with price action alone will produce similar results. You can certainly try to use only ES volume with VSA, but a monkey will get it right too by throwing darts at 2 circles labeled long and short, but it doesn't need software to do it.

 

MM

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Myth #3: You need expensive software, subscription clubs, or courses to master VSA.

 

There are less than a dozen fairly simple principles to master (though a certain famous software package simplifies them into 450+ indicators). The definitive source that has all the information you need is Toms original book.

 

Eiger nice to see you posting again. This was not directed at you though I do see you are doing the odd gig for the 'TG evil empire'. :) Still better that it's you than the professional marketeer and master, ninja, expert in his own under pants.

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The more of those you can include, the better the volume picture you will develop and VSA will perform better for you. If you are a trader who wants to use VSA on an instrument like ES and plan to use the volume of only ES, then the above statement is not a myth, since ES volume only gives you a sliver of needed volume information and trading with price action alone will produce similar results.

 

MM, as I'm pretty new to the subject of VSA, what other volumes would be relevant when trading ES?

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MM, as I'm pretty new to the subject of VSA, what other volumes would be relevant when trading ES?

 

You would want to use any volume that is related to the s&p 500 which is the underlying instrument of the S&P emini (ES). You will notice that there are times where the volume, for instance, on the ES has a dramatic increase and the S&P volume of all the stocks traded in the S&P did not have a dramatic increase in volume. The dramatic volume from the futures contract may generate a signal where as if you were using the S&P 500 volume you would not be entering or exiting the market. To me this leads to a discussion of whether one leads the other, which tells me that sometimes one does and sometimes the other does. If that is the case, then the value of the signal is watered down if you cannot gauge the complete volume picture. So using price along is probably a cleaner approach.

 

I am not suggesting anything about the software since i have never even seen it, but fundamentally, I wouldn't use it with ES for the aforementioned reasons unless I could get a complete picture of the volume traded.

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You would want to use any volume that is related to the s&p 500 which is the underlying instrument of the S&P emini (ES). You will notice that there are times where the volume, for instance, on the ES has a dramatic increase and the S&P volume of all the stocks traded in the S&P did not have a dramatic increase in volume. The dramatic volume from the futures contract may generate a signal where as if you were using the S&P 500 volume you would not be entering or exiting the market. To me this leads to a discussion of whether one leads the other, which tells me that sometimes one does and sometimes the other does. If that is the case, then the value of the signal is watered down if you cannot gauge the complete volume picture. So using price along is probably a cleaner approach.

 

I am not suggesting anything about the software since i have never even seen it, but fundamentally, I wouldn't use it with ES for the aforementioned reasons unless I could get a complete picture of the volume traded.

 

This kinda response tells me you think too much! Way too complex, bro.

 

If you trade the ES, jus use the ES vol. Don't complicate yur life

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This kinda response tells me you think too much! Way too complex, bro.

 

If you trade the ES, jus use the ES vol. Don't complicate yur life

 

Its all about getting people to pay you when you enter the market. I choose to get as true a reading as possible so that I am not acting like a monkey throwing darts, or worse, so that I am not getting sucked into a trap by other traders seeking to extract money from me. Unfortunately, i need to expend thought which I do not mind doing. Others may try to do it with less thought. All I can hope is that they trade the same markets I do.

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You would want to use any volume that is related to the s&p 500 which is the underlying instrument of the S&P emini (ES). You will notice that there are times where the volume, for instance, on the ES has a dramatic increase and the S&P volume of all the stocks traded in the S&P did not have a dramatic increase in volume. The dramatic volume from the futures contract may generate a signal where as if you were using the S&P 500 volume you would not be entering or exiting the market. To me this leads to a discussion of whether one leads the other, which tells me that sometimes one does and sometimes the other does. If that is the case, then the value of the signal is watered down if you cannot gauge the complete volume picture. So using price along is probably a cleaner approach.

 

I am not suggesting anything about the software since i have never even seen it, but fundamentally, I wouldn't use it with ES for the aforementioned reasons unless I could get a complete picture of the volume traded.

 

Personally I find that using tick volume is superior to contract volume as you can't hide activity from the market. Contract volume can be hidden. This idea of tracking all volume pertaining to an instrument is silly. Volume in the spot and futures market are highly correlated so summing them together won't get any new picture.

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Personally I find that using tick volume is superior to contract volume as you can't hide activity from the market. Contract volume can be hidden. This idea of tracking all volume pertaining to an instrument is silly. Volume in the spot and futures market are highly correlated so summing them together won't get any new picture.

 

What is "tick volume" compared to "contract volume"?

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Tick volume is basically the number of price changes during your specified time interval regardless to the actually number of shares or contracts or handles or whatever traded. Contract volume (for futures) is the number of contracts traded as reported to the exchange.

 

For spot forex only tick volume is available since there is no central exchange. There are plenty of successful forex vsa traders.

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Tick volume is basically the number of price changes during your specified time interval regardless to the actually number of shares or contracts or handles or whatever traded. Contract volume (for futures) is the number of contracts traded as reported to the exchange.

 

I was afraid you'd say that, but I wanted to give you an opportunity to clarify yourself first. So, you're saying that it's actually MORE accurate to ignore actual traded volume, and instead consider the number of trades or price changes? As I reread your statement, it sounds as if you're equating the number of price changes as something the market can't "hide," but that it can hide traded volume? Am I right?

 

EDIT:

I will work off the assumption that this is what you're saying. If that is the case...

 

Price changes mean very little. Your bucket shop broker (or someone else's if you do business with the less crooked ECN's) has no obligation to report the same price to you that another broker reports to someone else, trading the same currency pair, much less changes in price. They determine the quotes, and that's what you get--what THEY decide. So forget the fact that price changes don't mean anything, ticks don't mean anything--even the quotes are what the bucket shop decides to quote you for goodness sakes...!! You should read ROSO if you want to learn more about the bucket shop business back in 1900 when Livermore got his start, it's quite entertaining and really not much different from today.

 

At any rate, way back when MM made that post, he was talking about the equities futures market, something you clearly do not trade, or you wouldn't be saying the things you are saying. There is a general correlation between the volume of the issues in the cash index and the futures market, and associated derivatives. However, pull up a chart of the ES contract, and compare the volume with SPY. You will notice non-negligible differences in traded volume on some days, or some parts of the day. MM was simply saying, if I recall, that one volume source alone may not tell the whole story.

Edited by joshdance

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you can purchase a security as part of a futures contract, an option on a futures contract, an option on the security itself, a sector etf, etc.

 

The more of those you can include, the better the volume picture you will develop and VSA will perform better for you. If you are a trader who wants to use VSA on an instrument like ES and plan to use the volume of only ES... ES volume only gives you a sliver of needed volume information and trading with price action alone will produce similar results. You can certainly try to use only ES volume with VSA, but a monkey will get it right too by throwing darts at 2 circles labeled long and short, but it doesn't need software to do it.

 

MM

 

Asking a question that you know the answer to so you can go on the offensive seems in poor taste.

 

I am fully aware that different forex brokers have different liquidity and therefore different tick volume. You can also get tick volume on some platforms for futures if one prefers. Its a bit extreme to say that ticks "don't mean anything" when they are clearly correlated to contract volume. The spot forex market has 10x the liquidity of the futures market. There are good brokers and bad and any trader should do research before choosing one. VSA is about relationships not absolutes so we don't need accurate contract volume to trade using VSA principles - tick volume is good at showing the relative difference in these relationships. Big players in the futures markets can hide their volume for up to 36 hours - they cannot hide their activity.

 

If you look at MM's statement he is clearly indicating that you need to be aware of all volume, spot, futures and options in order to successfully trade VSA on an instrument. I think this is wrong and there are enough VSA traders doing just that to throw out his monkey/dart theory.

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Its a bit extreme to say that ticks "don't mean anything" when they are clearly correlated to contract volume.

 

I only said that your so-called "tick volume" from a bucket shop doesn't mean anything, as it's unverifiable. Just my opinion of course, you obviously feel different and I respect that.

 

Big players in the futures markets can hide their volume for up to 36 hours - they cannot hide their activity.

 

Their volume IS their activity... how can they hide volume for 36 hours?

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...... However, pull up a chart of the ES contract, and compare the volume with SPY. You will notice non-negligible differences in traded volume on some days, or some parts of the day.....

 

Beware the ETF trap..?

 

"..While the price of an ETF closely tracks the underlying index's value, the volume of an ETF only reflects the popularity of the ETF itself - NOT THE SUPPLY OR DEMAND FOR THE THING THE ETF TRACKS...(authors Capitals)"

 

From here...

BEWARE THE "ETF" TRAP - ChartWatchers - StockCharts.com Blogs

 

Cheers...

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Asking a question that you know the answer to so you can go on the offensive seems in poor taste.

 

I am fully aware that different forex brokers have different liquidity and therefore different tick volume. You can also get tick volume on some platforms for futures if one prefers. Its a bit extreme to say that ticks "don't mean anything" when they are clearly correlated to contract volume. The spot forex market has 10x the liquidity of the futures market. There are good brokers and bad and any trader should do research before choosing one. VSA is about relationships not absolutes so we don't need accurate contract volume to trade using VSA principles - tick volume is good at showing the relative difference in these relationships. Big players in the futures markets can hide their volume for up to 36 hours - they cannot hide their activity.

 

If you look at MM's statement he is clearly indicating that you need to be aware of all volume, spot, futures and options in order to successfully trade VSA on an instrument. I think this is wrong and there are enough VSA traders doing just that to throw out his monkey/dart theory.

 

Read back a bit. I said that the more the better and named a few of the others that impact volume but are not directly seen. All to mean better than using just the futures contract volume.

 

I would be interested in leaning about the traders who trade using VSA and are successful using only the contract volume.

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Beware the ETF trap..?

 

"..While the price of an ETF closely tracks the underlying index's value, the volume of an ETF only reflects the popularity of the ETF itself - NOT THE SUPPLY OR DEMAND FOR THE THING THE ETF TRACKS...(authors Capitals)"

 

From here...

BEWARE THE "ETF" TRAP - ChartWatchers - StockCharts.com Blogs

 

Cheers...

 

I'm not quite sure what relevance this has here...?

 

The author highlights one of my points -- that an ETF like SPY will have non-negligible differences with related products like ES, or the underlying cash stocks.

 

If the take home message is "don't use indicators for SPY," well, I agree! But if the market buys SPY heavily, arbitrage WILL cause buy programs to buy the basket of S&P 500 stocks. The futures contract, the ETF, and the stocks that comprise the index are all inter-related. Someone may buy ES, and sell SPY to hedge, vice versa, and so on... SPY is not just some separate entity whose demand and supply do not affect underlying stocks, or the futures contract. They are all related, and all affect each other.

 

For me personally, when I use volume analysis, I only use ES, and do not reference SPY.

Edited by joshdance

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    • I'm gonna pull a crazyCzarina and reply to a long dead post ... One sure thing about trading forums - The great questions never get an answer.  Ask  even the greatest posters a great question... silence, no nothin’, not even crickets.          First a few comments about Elliott Wave Wave Theory is a ‘science’ of socionomics.  Socionomics is about how societal ideas ‘ideally’ or typically unfold -  wave 1 is the early adapters, wave 3 is broad collective acceptance, wave 5 is continuing valuation narratives but with narrowing collective assessment of actual value... with all kinds of ‘ideal’ sub patterns... Socionomics starts with a simple observation: For lots of issues, how people FEEL influences how they will BEHAVE.  (Equally true = How people BEHAVE influences how they will FEEL... but that’s for another topic) Anyways... Elliott Wave theory is an attempt to apply socionomics  to trading   - and  yes analyst75 “theory” is the key word.  Imo, it’s a jump too far.   First, price is not a good metric for socionomics.... especially across decades when currencies are being viciously  'corrupted'.   And practically, socionomics does not transfer over to trading nearly to the degree Ellioticians would like.   It simply does not deliver enough of those ‘ideal’ sub patterns because  crowds of traders’ behaviors and ‘feelings’ about pricing are not sufficient equivalents of broader collective behaviors / socionomic waves... ESPECIALLY as time frames shorten... (ie waves may appear to ‘fractal’ down ... but they really don’t.)   If you’re going to use EW to trade, probably the most important point you can acknowledge is that 5 wave patterns are EXCEPTIONS to normal trading crowd behavior ie  the best thing a 5 wave pattern indicates is that corrective patterns will soon resume.  I’ve described it differently in other posts*  ... but basically, at any given point in time it is possible to reasonably project that ANY freakin wave ‘count’ / pattern will enfold.   It is just as reasonable to project that a nice 5 wave completion will go on to a nice 7 or 11 or 17 or whatever wave count as it is to project that the market will now have a ‘trend’ change.  At the end of any nice 3 wave corrective pattern, either projecting a huge 5 wave pattern unfolding in the other direction or projecting a long flat congestive pattern or another 3 wave correction pattern... or... all are equally reasonable.  Or, a pretty wave 1, 2, and 3 doesn’t not mean a pretty wave 5 will unfold.  Ie it’s just as reasonable to count it over and project that the next sequence will be corrective or a 5 wave impulsive move in the opposite direction. etc etc       ... to get back to the unanswered question - So what do you propose as an alternate? Long ago I read Hurst.  In a short section of his book he mentioned it.  It didn’t sink in.  Then one day it really hit me.  There is no Elliott wave sequence or any other ‘technical’ price pattern that cannot be better explained via ‘summation of cycles’ ...   * fun example can be seen by searching for 'trading chaos by bill williams' thread on t2w ... TL is so special we don't even allow links to other trading forums? ... other snarky EW comments at http://www.traderslaboratory.com/forums/topic/7555-do-you-use-the-elliott-wave-to-trade/page/2/?tab=comments#comment-146022      
    • Date : 22nd September 2021. Market Update – September 22 – No Turnaround Tuesday.  Trading Leveraged Products is risky Market News   USD (USDIndex 93.25) holds gains, Evergrande will pay some local debt on Thursday, but major doubts remain. Strong Housing data helped USD. AUD recovers lifting NZD, JPY slips post BOJ. CAD holds gains. $3.5bln infra. bill goes to Senate, Biden doubles climate crisis investment. Yields moved two ticks higher (10yr closed at 1.32%) trade at 1.33% now. Equities remain weak, Evergrande worries persist. (USA500 -3 (-0.08%) at 4354. USA500.F flat at 4358. No Tuesday turnaround. ; Dow -0.15%, Nasdaq +0.22%. Nikkei & China down VIX cools to 23.42. USOil continues to recover broke $71.00 earlier – inventories to come later today. Gold also recovers to $1780 but remains shy of key resistance at $1788. Overnight – BOJ – no change – if anything a more Dovish outlook ” economy picking up as a trend, although it remained in a severe state due to the impact of the pandemic.” No sign of tapering any time soon. AUD back to 0.7250, AUDJPY up to 79.50. Evergrande will only pay local bond holders tomorrow but that was enough to ease concerns, at least for now. PBOC injected more funds into the local credit market. FT report there are enough empty apartments (new & unsold) in China to house 90 million people (30 million Chinese families) …-FT European Open – December 10-yr Bund future down -22 ticks, underperforming versus Treasury futures. In FX markets both EUR & GBP corrected against USD, leaving EURUSD at 1.1718 & Cable at 1.3647. USDJPY recovered to 109.56 from 109.10 pre-BOJ. Risks from China & realization global supply chains will take longer to recover from Covid disruptions (BBG report chip shortage getting worse, lead time now 21 weeks, Honda in Japan working at 40% of capacity for 2 mths) have seen investors scaling back tapering concerns & we expect Fed to stick with a cautious wait and see stance for now, which should help keep stock markets underpinned. Today – US Existing Home Sales, FOMC rate decision & Chair Powell press conference, more new supply from UK & Germany. Biggest Mover @ (06:30 GMT) CADJPY (+0.65%) The oscillations continue capped at 86.00 and back to 85.00 yesterday trades at 85.75 now. Faster MA’s aligned higher, MACD signal line and histogram below 0 line but rallying. RSI 61 and rising. H1 ATR 0.150, Daily ATR 0.695. Always trade with strict risk management. Your capital is the single most important aspect of your trading business. Please note that times displayed based on local time zone and are from time of writing this report. Click HERE to access the full HotForex Economic calendar. Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE! Click HERE to READ more Market news. Stuart Cowell Head Market Analyst HotForex Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • Yes, they are all nice, but again it all also depends on your trading skills to make some good money online.
    • Yes, we have to be a lot more vigilant and ensure that the brokers whom we are trading with, are legit and regulated ones.
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