[Anonymous]

Through the Looking Glass:

Beautiful chart to post on what one should be seeing when he/she looks at the market through the prism of Volume Spread Analysis and WRB analysis.

In my opinion every trader should have a "story". That is, a reason "why" price does what it does. "Why" certain players behave in certain ways. "How" the players are. "What" an overbought reading on the RSI means.

VSA has a story. I believe in that story.

Let's take a look at how the story placed out last week. This chart is from Friday before the Payroll report.

The first thing to see is an Effort to Fall bar on the left side of the chart. VSA's story tells us that effort represent professional money trying to move price either up or down. This bar is also a WRB. I have melded the concepts of effort from VSA with WRBs.

Now, WRB analysis tells us that a WRB represents a change/shift in supply/demand among other things. Therefore if there has been a shift in supply/demand it is to the downside-an effort to take the market lower would mean adding supply to the market.

Okay, we need on more thing. Professional money is not sitting around a large table in a smoke-filled room saying " Let's try and take price down on the retail trader in 10 minutes.......". No some Professional money will want to go long and some may want to go short at certain price levels. So we see the cumulative actions in price and volume. Of course, those professionals that went short (for example when price rises) also see what is going on and are usually quicker than the retail trader to 1. admit they are wrong 2. get out 3.get long.

Okay now let's skip to the squat bar. Bill Williams tells a good story about what this bar means. It is , however not quite correct. Our story is that the narrow range means that the market makers are keeping the spread narrow because they have a particular perception of value. In this case they are bullish. Hence they are willing to buy from the sellers entering. These traders thing they are getting a good price but fail to wonder why. Note what happened. Range narrowed, Volume increased on a bar that made a lower low and not a higher high (Selling Bar). However, this bar is not weakness rather strength. The market goes up.

Take a quick look at the first effort bar. We do not close above the High of this Effort to Fall bar. Simply, the high is being supported on a closing basis.

Let's skip to the first No Demand bar. This is an Ideal place to go short. It represents a low volume signal within the range of a High volume candle. Now think about the story. Supply/traders rushed in an attempt (effort) to take prices down. Price went down a bit but now has made its way back up. If volume is low that must mean one of two things:

1. All the traders that went short are still bearish. If they were not and their stops were being hit, volume should be high.

2. No rush of new bulls is taking place at this time.

Again, think about what an Effort bar means. Professional money came in at a certain area with some resolve to move price down. Low volume up bars in this area should therefore be bearish: the high volume represent a desire to move price one way, the low volume should show the opposite. That is, no desire.

Now let's move to the next No Demand bar. Another nice entry/add on point. Note that we again have low volume in the area of previously High volume. That high volume in fact, is on an Effort to rise candle. Same as an effort to fall, just in the opposite direction. The story changes slightly.

This time we see traders willing to step in and buy the market, which results in the Effort to rise bar. Yet, price moves down. THIS IS NO RESULT FROM EFFORT. So we see no result from the effort to rise, but are seeing result form the effort to fall. Then we get an Up bar on low volume (second No Demand). Volume on an up bar is falling. Those who wanted to take price higher have lost their resolve to do so.

Think about it. In this price area (range) bulls stepped in. But now in this same level they seem to be nowhere. This must be a bearish sign.

One quick note: we could also see Upthurst or Squats in the area of previously high volume. These two are usually higher volume themselves, but there is a logical and consistent story here too. This chart does not show them. It shows the low volume sign within the range of previously high volume. Moreover, that low volume sign is within the body of a WRB......

This post was in response to an PM, hope it helps.

[BlowFish]

Ive been messing round with some VSA indicators. Sometimes I think they are helpful other times I think just plain charts with volume and nothing else may be the way to go. heres a snap I just took.

[mroalan]

i,m also of the opinion kiss.all i,m using is supp/res auto pivots/candles,and last and most important volume,trading the FTSE,yesterday was a blinder,i,m using a 15 min chart to trade also a 1hr chart just to watch the general direction,using Updata for charting package,also running a 15 simple average which has something built into it as it chucks out arrows for a change of direction 3 out of 3 yesterday,5 out of 6 today,so its caught my interest!
thanks for your input here i still read it every day,wired into my e-mail.

[mroalan]

Link did not work, attached image instead

[Tasuki]

I'm sure VSA does have some merit, but there are times, it seems, when the pros are dead flat wrong. See attached chart. Tradeguider, and some other people, present the pros as always being on the right side of the trade. I'm postulating here that they're wrong more than we'd like to admit. If I'm right, this would limit the value of VSA and would explain why it seems to work best in hindsight. Someone on this forum suggested that we call live trades here, and nobody took him up on it. Hmmm. OK, so you couldn't intraday trade from signals posted here because we're all busy trading. But swing signals--predictions of where various markets are going to go---if VSA can pass THAT test, then I'll become a believer.

[walterw]

Hi Tasuki, I am not much versed on VSA and I expect to see what the experts have to respond here, but I see a very nice VSA setup there as price keeps going up with less volume wich I understand so far that means no demand... correct me if I am wrong.... cheers Walter.

[notouch]

To be fair to VSA the theory is that weakness follows up bars with high volume which is exactly what happened in the chart you post. I agree that the idea of "Professional Money" always being right is nonsense. I'm also sceptical that high volume means "Professional Money" is active. Where VSA has value is in stressing that a reversal follows ultra high volume. That's just old school technical analysis though.

[walterw]

Originally Posted by notouch »

To be fair to VSA the theory is that weakness follows up bars with high volume which is exactly what happened in the chart you post. I agree that the idea of "Professional Money" always being right is nonsense. I'm also sceptical that high volume means "Professional Money" is active. Where VSA has value is in stressing that a reversal follows ultra high volume. That's just old school technical analysis though.

yes correct, calling it smart money may be a little tricky, because maybe that super volume spike was the dumb and uninformed money that bought there...

I think here Volume divergences its what counts, is it ?