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TinGull

[VSA] Volume Spread Analysis Part I

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I wanted to start a thread about VSA and how it can be used to trade. I had kind of put this off, to be honest...didn't think it held anything for me. I decided to expand my horizons last night and am I glad I did!! This VSA stuff is intensely amazing to see.

 

What is Volume Spread Analysis? From my meager understandings...here it goes:

 

VSA is a sound methodology to show you when professional money is taking advantage of an imbalance in the marketplace in an attempt to move it in the opposite direction. By using volume per bar and the spread of that bar (the hi to the lo) and the close of that bar, you are able to see that professional money is entering the market.

 

From what I've been looking at you are able to see that money start moving into the market in bars prior to the actual high volume/hi spread bar. For example...a trade I took yesterday would have absolutely been avoided had I put this methodology to work.

 

thum_44245f16393ec786.png

 

I watch a 5min chart as well as a 233t chart of the Mini Dow. This 5min chart shows you something...Notice how that bar prior to the "spinning top" (last bar pictured) has a major increase in volume from ANY bar in the prior 4 hours.

 

With VSA we know that strength is shown on down bars and weakness is shown on up bars. Kind of counter-intuitive...but when you think about it, it makes perfect sense.

 

The professionals have to buy SO much at a time that they need the market to be liquid enough to support their buying, so they MUST buy on downward bars. Exact opposite for selling. The "late to the party Charlies" are buying when they can't possibly stand to not be long, and who is liquidating so they can buy? The Pros.

 

thum_44245f164a4f1712.png

 

Notice what happened in the next bar...price shot up. The trade I took was sell that retracement to VAH/R1 cluster. Had I been privy to what VSA has to offer, I would have seen that volume was increasing DRAMATICALLY, we had a VERY widespread bar and we closed in the upper half of that bar. Is that a sign that pros are buying? Sure as heck is!!

 

So, please...let's add to this discussion. This is a powerful way to look at things in conjunction with Auction Theory and Market Profile.

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Thank you for starting this thread. I hope it will continue to grow and be a real source of learning and sharing of ideas.

 

Volume Spread Analysis is a very valuable tool in my opinion.

 

Just some quick observations:

 

1. We have a wide spread candle with volume that is higher than any volume bar that can be seen on the chart. This candle closes lower than the previous candle, but in the upper portion of its range. Clearly there is demand (buying) going on in this bar.

 

VSA does not care about the open, so the fact that the candle is red means little to use. (personally I do like to see the open on some candles, but technically we do not use them.)

 

The more you use VSA, the more you will see Professional activity around the key numbers (aka Floor pivots). Time and time again, the Smart Money shows itself around these levels.

 

2. The very next candle is narrow, closes down from the previous bar, closes near its low and has volume less than the previous two bars. THIS IS NO SUPPLY.

 

immediately after the Smart Money enters in the form of demand (buying), there is a No Supply bar. That means all the excess supply was soaked up on that wide range previous bar. Note surprisingly, the previous bar has a long tail where supply was swamped by demand (buyers swamping sellers).

 

3. While not VSA, the No Supply bar shows a divergence with your Delta tick tool. Very interesting. VSA gets its roots from Wyckoff more than 100 years ago. Way before any tick delta tool could be made. Not saying it's a bad tool, saying it is great how this new tool hits the nail on the head in this situation.

 

the 1520 bar looks like another No supply bar and again there is a green dot on the bar.

 

4. Price comes back down to the area of the pivot. This bar is wide spread with volume less than the previous two bars and closes in the middle of its range. Again, No Supply. Bars that close in the middle of their range should always draw your attention.

 

Look one bar back. This bar has high volume-relative to the volume bars before it. Now if this bar, which closes down, was truly weakness then why does the next bar close equal to it and not down? Because there was some buying going on in the bar.

 

Note that this last No Supply bar actually has less volume than the first one in this same area. At this point, price is definitely poised to rise...........

 

P.S. LOL I just realized that TTM (or H.A.) is on the candles, so I could be wrong about the close of these candles :confused:

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Having sat through 4 long sessions awhile back with the boyz from TradeGuider.. I agree that VSA has some merit, but I also agree with your final comments, Profiler.... as TTM/Heikin Ashi candlesticks are not truly compatible with using VSA. Either way, I am glad to see this thread get started, so thanks for that, Tin Gull.

 

Happy Trading ;)

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I flicked through 'Master the Markets' by Tom Williams and thought it contained some useful points but overall I think VSA is more suitable for stock traders. A lot of the concepts revolve around market makers and their ability to see what other traders cannot see (stops and limits) but this isn't applicable trading futures on exchanges like Globex, ECBOT, EUREX and Euronext. We can see the same things that everyone else can see through the time and sales and order book so it makes sense to concentrate on that information instead of just focussing on volume and price.

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I flicked through 'Master the Markets' by Tom Williams and thought it contained some useful points but overall I think VSA is more suitable for stock traders. A lot of the concepts revolve around market makers and their ability to see what other traders cannot see (stops and limits) but this isn't applicable trading futures on exchanges like Globex, ECBOT, EUREX and Euronext. We can see the same things that everyone else can see through the time and sales and order book so it makes sense to concentrate on that information instead of just focussing on volume and price.

 

 

That is simply not the case. The text may seem "outdated" in that there much talk of Market Makers, but this only goes to show how the principles have stood the test of time. How the markets are manipulated by Smart Money (the term Todd Krueger prefers to Market Makers) remains little changed since the days of Wyckoff.

 

I find it hard to believe that you think there are not Professionals with things on their screen, like where the stops are, that the retail trader does not have. The playing field in simply not that level.

 

I have attached a chart showing what is going on in the Euro. A market (retail Spot Forex) not even around at the time the book.

 

attachment.php?attachmentid=980&stc=1&d=1173690315

5aa70e4ee4b70_post5.thumb.PNG.d5a071355a3ddc877fb909c8a90b4f59.PNG

Edited by mister ed
add chart back

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Spot FX is totally different to futures. I agree in spot FX there are investment banks who can see the stops of their own customers. In futures on the other hand who exactly are these "Smart Money Professionals" who can see all the stops? The stops are held at the exchange and can't be seen by any traders.

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Back to VSA...

 

when PivotProf was talking about the no supply bar showing a divergence between the delta I have on my chart...what that was showing was with all the contracts sold to drive that price down that far, there was enough buying to bring that price back to near equilibrium. This happened late this afternoon on the YM.

 

Notice the stair stepping volume leading up to the climactic bar. That bar is showing a massive amount of volume (biggest on the 5min chart all day) and no excess supply overhead with a little bit of demand creeping in. The delta graph is showing that while there were enough contracts bid down to bring the price to VAH, the bar ended with almost a net 0 amount of differentiating contracts. This meant that there were enough buyers on that down bar to swing price right around. now...it was late in the day and price advanced for only about 15 points...but it's still good to note that the principles are applying.

VSA.thumb.png.339a47dff383cf1d2b695bbe0ebcdc10.png

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Hi T.

 

Let's take a look at that large candle with the ultra high volume. If this volume represented selling:

 

1. The close should be on the low.

 

2. The next bar should NOT be closing equal or up. I think this candle is up based on the color of the volume bars.

 

As you correctly stated, this large bar does look like climatic action/stopping volume. From a VSA perspective, we see the next bar up (or equal) and this confirms the buying on the previous bar.

 

What I always like to see, is Professional Money showing itself at certain "known" levels. Here we see the Smart Money entering as price moves towards the VAH.

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:) sweet....I'm getting the hang of it. hehe. The doji at R1, too...closing in the lower portion of the spread with real heavy volume (comparatively)...showing we've got a direction change coming up. That turned out to be a nice trade of about 40 points.

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TG, Thanks for starting this thread. This weekend I made a couple of indicators for Ensign to flag a couple VSA type long reversal bars, and today it paid off. The market lacked outside influence/paper, and it was the props vs. the retail guys all day. I noticed the ES was once again being led around by the ER2 for the greater part of the immediate past when a VSA long setup (or at least my interpretation of it) occurred. The image ER2_VSA_Long is what I saw. I exited my ES short, and went long the russel on then next one minute bar. The time on the chart is CME exchange time. The next image ER2_070311_08 is a 5 min chart showing the entire day with the blue vert line the entry bar. Incase anyone is curious, the horizontal lines are: YHigh=yesterday's high, YHVA=yesterday's volume based value area high, P=pivot (RTH only), YVPC= yesterday's volume POC. The last image ER2_070312_07 is what Market Delta showed for the same bar.

 

Most of you probably trade the YM, so I just wanted to show a different mkt.

ER2_VSA_Long.png.15631110f18008e97b5ca21db0a639d4.png

ER2_070311_08.png.50caefa9d0b769f11771c2b1f7bb02da.png

ER2_070312_07.png.2054c74b73aef0ab93463abdc71c16c4.png

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Beautiful stuff MPTrader :) Thank you for sharing!

 

No problem. I don't know this VSA stuff at all. I just went by what it may be, thought it thru a bit, and tried a few paintbar like indicators over the weekend. I am looking forward to the presentation tomorrow, and perhaps Pivot can enlighten us with a few more cases that I can code up.

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This weekend I made a couple of indicators for Ensign to flag a couple VSA type long reversal bars, and today it paid off. The market lacked outside influence/paper, and it was the props vs. the retail guys all day.

 

MP,

 

If you wouldn't mind could you post the DYO or template for the indicators you have on your charts? I'm using ensign as well and would like to play around with this.

 

Thanks

 

-DT

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One simple observation that really changed my approach in analyzing volume was waiting for the next price and volume bar to confirm the previous bar.

 

In other words, if I planned to go long at a pivot on a sell bar... the chances of the long working out would increase alot more after I observe the second bar after it. I used to not pay attention to it as much and rely more on tape. But after watching for tests/tests of supply, I am able to view price action alot more clearer. Very powerful technique in my opinion.

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mp trader, one of those pics is of MarketDelta - a very useful tool but nothing to do with VSA.

 

I included it to show the ask and bid volume within that bar that caused the close to be as high as it was. It was interesting to me because it did not seem that large negative delta would have allowed a close as high as it did. It seems the sellers just disappeared. That is my interpretation anyway. I had hoped someone familiar with MD would have a comment about that. I freely admit I know nothing of VSA and hope to learn some of it tomorrow.

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One simple observation that really changed my approach in analyzing volume was waiting for the next price and volume bar to confirm the previous bar.

 

In other words, if I planned to go long at a pivot on a sell bar... the chances of the long working out would increase alot more after I observe the second bar after it. I used to not pay attention to it as much and rely more on tape. But after watching for tests/tests of supply, I am able to view price action alot more clearer. Very powerful technique in my opinion.

 

This is one of the VSA patterns that I hope to learn. I have no idea how many patterns there are, but I suspect they are all variations on a few themes or concepts. My VSA knowledge is limited to the posts in this thread and the "Balance Area" thread.

 

Perhaps the study I did is not even VSA. I really don't know, but hope to soon :-)

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mp trader, one of those pics is of MarketDelta - a very useful tool but nothing to do with VSA.

 

notouch, how does market delta have nothing to do with volume? nothing to do with analyzing the bars for selling pressure inside the bar? It has EVERYTHING to do with it, just presents it in a more graphical manner.

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Okay, Let the learning and sharing of ideas begin. :)

 

 

1. Volume is activity. Hence tick volume can be used where actual contract volume is not available.

 

2. Two ways of looking at volume:

* relative volume: volume in relation to the previous bar or bars.

* actual volume: the amount (size) of volume an individual bar represents.

 

3. Strength comes in on down-bars and weakness comes in on up-bars.

 

4. Markets do not like high volume up bars with wide spreads? Why because there is a possibility of Professional Selling into such a bar.

 

5. Professional Money deals in large amounts and thus sells into up bars so as not to be hurt by their own selling. The converse would also be true.

 

6. 85% of a volume histogram represents Smart Money activity.

 

7. Smart Money is active on all time frames. Various time frames are used to hide their actions from those that can read a chart and each other.

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Morning doji stars are something to look for. In a down trend this would be a long down candlestick followed by a doji which would signify a reversal. This would be confirmed by an up candlestick. Presumably other reversal candlesticks like hammers work just as well.

 

The issue which most interests me is what timeframe is ideal? I know "all timeframes" is the usual response but which timeframes are ideal? Looking at today's action the 1 minute charts would lead to false "signals" but the 5 minute charts would get you in very late. One solution may be to use the 1 minute for entries but only stay in the trade if confirmed by the 5 minute.

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Morning doji stars are something to look for. In a down trend this would be a long down candlestick followed by a doji which would signify a reversal. This would be confirmed by an up candlestick. Presumably other reversal candlesticks like hammers work just as well.

 

VSA does not look at the open. There are two and three bar patterns like candle patterns, but not candle patterns themselves. Although they MAY be a candle pattern, they are not looked at in that light.

 

Since we do not technically look at the open, we do not know or care about a Doji. By definition, a Doji has an open equal to the close but we don't look at the open so we can't "see" a Doji. If you use TG software or look at their charts, you will notice that there are no open notches on the bars.

 

Personally, I do like to see the open on some bars. If fact, a NO DEMAND bar that closes in the middle and has an open in the middle is a powerful sign. This is a Doji, but VSA is concerned with the range, the closing price and the volume.

 

The issue which most interests me is what timeframe is ideal? I know "all timeframes" is the usual response but which timeframes are ideal? Looking at today's action the 1 minute charts would lead to false "signals" but the 5 minute charts would get you in very late. One solution may be to use the 1 minute for entries but only stay in the trade if confirmed by the 5 minute.

 

All time frames :) .

 

1 minute has a lot of noise on it. It also depends on how many time frames you want to look at. If only trading off of one chart, then a 1 minute might be too "fast". Joel trades off of a single 3 min chart. Todd likes to use multiple charts. One problem with multiple charts is it becomes harder to see the signs of Professional Demand/Support. This is where the software does have an advantage over those who choose to learn the method alone.

 

I am not a fan of the software and would not recommend it. But if you want to trade off a 1 minute chart, you do need to look at least one more time frame. Just realize it gets difficult to keep all the various bars with supply and demand straight.

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notouch,

 

I think you know the answer. there is no ideal timeframe. I wish their software analysed pure ticks not bars. There is nothing special in 1 min close price.

About entries, You should not think that all reddish signs represent short entries and greenish - long entries. Some of them are "soft" signals like "we would not go long at this time". And also they recomend looking at other indicators like Relative Volume Indicator, their trend indicators and so on.

Look at the chart attached, it's EURUSD 120 min. I think if you want to catch all swings, you should skim for several timeframes. Short term trades - 1min to 20 min, Mid-term - 30 min to 240 min and so on.

If you are interested I can post some more charts. Just let me know.

 

P.S. Personally I would rather have indicators for TradeStation or eSignal than stand-alone software. I use Drummond Geometry and Market Profile to trade, and using another tool for confirmation/entries is not very convenient.

EUR031407.thumb.gif.4da72eb459209d8da25ee614492279da.gif

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It should be said that candle can be used. TG offers them because many traders like them. I used to like them myself. But bars are easier to see especially at first.

 

Tom Williams (father of VSA) uses bars

Todd Krueger (TG and leading VSA expert) uses bars

Gavin Holmes (TG) uses bars

Sabastin Manby (Tom's friend and VSA expert) uses bars. Read his article on the T2W forum.

Joel Pozen (Formerly of TG, Student of Richard Ney, and one of the best chart readers, second only to Tom Williams) uses bars. Check out his site at Tradingmentor.com

 

If one uses candles, one need to remember that the close is more important than the open. Hence while a candle may close in the middle and have an equal open, what matters first is the middle close. The fact that the bar is a Doji is secondary.

 

As far as mutliple time frames. The best approach may be to find certain support/resistance levels on various higher time frames, but trade off of just one lower time frame chart.

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