[Soultrader]

Tasuki,

I think whether mp or vsa they are showing the same thing. Footprints of the smart money. You can identify the maneuver by the smart money on mp through range extension, profile patterns, POC movement, etc... VSA shows this through strength/weakness in the background, stopping volume, divergence in price & volume, etc...

You mentioned "but the fundamental philosophy of VSA is that the big players drag the price up and down to suit their needs." But this in my opinion applies to MP as well. If there is a conflict in opinion by the smart money, you can see this through profile shapes like neutral days. If the smart money is trapping longs you can see this for example through "P" shaped profiles followed by lower value placement the following day.

So in conclusion they are showing the same information in just a different format. The smart money is not one single entity and I agree they do not work together. But these guys have access to institutional holdings information, understand the psychology of hedge funds, and have a better sense of market direction than most traders. Hence, they will follow the money. As a retail trader, I am in no position to trade based on what I think the markets should do. I will leave this to the big traders who have the capital to move the markets. MP, VSA, and other methods simply allow me to follow in their footsteps. My 2cents.

[DbPhoenix]

You make good points, Tasuki, though whether or not one finds the two approaches to be incompatible depends on how much attention he pays to signal and how much to noise. Both VSA and MP have their roots in the same place, but the farther out one goes on the individual branches, the more differences one finds in jargon and schematics. But do any of those differences matter to one's trading? Is it even necessary to pay any attention to them? If one works his way back to the roots, he can employ both with no trouble at all.

As far as the "smart money" business goes, I prefer to think of it as "big", since it rarely behaves in any fashion that I'd call "smart". And while price can make substantial moves with little or no professional involvement whatsoever, it just doesn't pay to stand in front of the stampede when that money does enter the market.

Personally, I couldn't care less who's buying or selling. I'm only interested in what's going on with price. Makes life and the decision-making process much easier.

[CandleWhisperer]

Actually VSA states that the Big Boys (BBs) are not all working in concert. VSA also states that not all "smart money players" are in the know. Tom would say that some of those Mutual fund managers with their MACDs and moving average crosses are no better than the herd; a term which is usually associated with small retail traders.

As far as the auction process goes, there may be some truth in what you say. While Todd Krueger uses market profile along with VSA, it does seem that there is a dichotomy between market manipulation and fair auction market theory. Yet the propensity of value area lines to act as support or resistance is evidence of sameness or at least a symbiotic relationship.

Regardless, the truth lies in price action. Price does not lie.

[Tasuki]

Soultrader, I guess what I'm objecting to with VSA is the tendency to attribute every little move to the "smart money". Number One, I don't think they're so smart---ever seen the balance sheets of mutual fund companies? The majority of them suck, and they manage multi-billions of dollars every year. Secondly, I don't think they're manipulating every move. For example, Todd Krueger was asked about the No Demand bar on the SPX the day before Christmas. He said categorically that the "smart money" is always active in the markets. Well, folks, I beg to differ. My Dad's office was on Rector Street, one block from Wall Street, and when I was growing up I got a good look at what the rich folks of Wall Street were doing the day before Christmas---getting smashed, that's what. In a recent Pozen video, he said that the specialists were manipulating the overnight markets. No, folks, wrong again. The specialists at the NYSE are sound asleep in Long Island during the overnight markets. So, I question this obsession with "smart money". The simple fact is, they are NOT responsible for every market move. Given the fact that the rich players are trading against each other more than they are trading against retail traders, I doubt they are actually responsible for any of the signals that VSA ascribes to them. With their efforts to outflank each other to get an edge in this market or that, the notion that they act as a single force to move the markets is preposterous, when you sit down and really think it through. And make no mistake, with the biggest, most liquid markets, the ONLY way they could sway the entire market is if they acted as one block to move the market up or down. Individually, Goldman Sachs, Merrill Lynch or even Blackstone could not move the entire S&P. OK, so it did happen once (Long Term Capital Management), and what a scandal that turned out to be. And yes, in ages gone by, the likes of JP Morgan could indeed sway the whole NYSE, but those days are LONG gone. No one player has enough money to manipulate an entire exchange like the NYSE. So, this whole notion of the "smart money" banding together to screw the retail traders is utter nonsense.

What I'm proposing is that there is alternate explanation for every VSA signal. For example, let's think about the Upthrust. VSA proponents would have you believe that the smart money is intentionally driving up the price to catch stops and "wrongfoot" the public, as Tom Williams would say. If we were talking about an individual stock, controlled by an individual specialist on the NYSE, then yes, this is very likely the case. In fact, those who know specialists (e.g. Robert Tharp) say that this happens every day (Robert's told me as much). However, when you see an upthrust on the $SPX, do you suppose that the specialists for 500 stocks all got together in a massive collusion to make that upthrust? If you've ever seen the floor of the NYSE you'd realize how utterly impossible that would be. No, I'm sorry, but we're going to have to find another explanation for upthrusts on the S&P, the Dow, the Compx, and every other index (or their derivative futures contracts). So, what causes on upthrusts on the indexes or derivative futures markets based on them? Quite simply, it is the psychology of fear and greed. The breakout traders got greedy and thought the price would continue higher, but they ignored the sellers who were afraid that they'd miss their opportunity to sell at an improved price, and obviously (because we got an upthrust) the sellers swamped the breakout buyers. Simple as that. No conspiracy necessary. Simple market psychology. I'm willing to bet dollars to doughnuts that you could find equally simple (and logical) explanations for every VSA signal that we've been taught.

So, do I think manipulation doesn't exist? Yes, it certainly does exist in individual markets---in stocks controlled by an individual specialist as I mentioned above, and in commodities such as the grains which can be manipulated by huge buyers like Cargill or General Foods. But for most other markets, the manipulation that we've been taught in VSA is simply not possible without serious collusion by the major trading houses, all of whom are competing with each other.

Rather than resorting to concepts like "smart money" to explain Upthrusts, No Demad, etc. etc., the psychology of the auction process is a much more cogent argument.

[Soultrader]

I agree to an extent Tasuki. I havent really studied VSA closely as most traders here.... but the psychology/effort/result behind the bars and volume is what makes sense to me. I am not familiar with the VSA jargon as well.

I agree the smart money is not always active. This is evident through volume and nontrend days. Even on days when the initial balance is wide and the markets trade within this IB range... it is showing early involvement by the big money but no activity throughout the rest of the day.

I did have the opportunity to observe my old boss. As a discretionary fund manager, he was an expert in reading the psych behind other funds. (often based on news, sectors, etc...) Hence, if he suspected that Goldman Sachs was selling inventory today he will simply follow the money and focus on the short side. I am assuming this mentality exists on other top fund managers as well. As a result a few fund managers managing hundreds of millions with the same idea/thinking can be considered "smart money" in my opinion. (no specialists in Japan) They are well aware of the impact on the markets if they liquidate/absorb inventory.

Anyways... wanted to post ES chart for Feb. 28, 2008. Please see attached.

[Tasuki]

Originally Posted by DbPhoenix »

But do any of those differences matter to one's trading?

DB, actually, the answer is yes, they matter alot, at least to the style of trading that I'm trying to develop. The idea is to understand, as clearly as possible, the reason for the market's move in a direction. I can only speak for myself, but I was allowing myself to be seduced by the idea of sinister "smart money" that was out to get me (the "retail trader"). Listen to Joel Pozen or Tom Williams or Todd Krueger if you find that idea far-fetched. These guys really believe that the big operators are intentionally moving the markets to outwit the retail trader. If you follow this notion too closely, as I was doing, then you start to ascribe every market move to professionals whose motives you can only guess at.

Fortunately, there are much better explanations. At any turning point in the market, you can observe the forces of fear and greed and weigh their relative strength by looking at support and resistance. You can also assess the central notion of "fair value" as described in the philosophy of Market Profile. By carefully weighing in your mind each of these forces, you can get a much clearer picture of where the market is likely headed than if you indulge in the paranoid fantasy of "smart money" that is supposedly manipulating the markets. Frankly, I think this notion is actually detrimental to a trader's mental edge.

[dandxg]

Wow so much to ponder! I agree there is too much info put on smart money and market manipulation when it comes to price and volume. And yes DB I find myself using VSA terms when attending LTG's free chat and get reprimanded with SMI terms which is ridiculous IMO, but I do appreciate their free teaching. I believe MP is very complimentary to PV because they are both based on price and volume. Or maybe it's just that I have found methods which are logical and make sense to me? Who knows but they work for me. Good trading to all.

[mister ed]

Hi Taz, nice hand grenade, thanks for chucking it in.

I saw your post a few hours ago, and have been thinking about it since. Sad, I know, but true.

I am going to go with the 'muddle through' option.

Price movement is a result of manipulation, sometimes,
AND price movement is a result of an auction process, sometimes.

The two co-exist, sometimes one is dominant, sometimes another. I will let the fundamentalists (no, not balance sheet/NFP/interest rate type fundamentalists, I mean those who set themselves up in either the MP or the VSA camp) slug it out, I will muddle through.

What does muddle through mean? Hmmm, this bit of MP seems to work quite well, I will use it. Hmmm, this bit of VSA seems to work quite well, I will use it.

Is this price move, here, now, a result of manipulation? Or is this price move, here, now, a result of the auction process? Ask me later, after I have closed the trade. Right NOW I am occupied with looking at the test and the response. Let me elaborate ... Price moves up, breaks through resistance (maybe a double top). This is the test. Then the price stalls, stops going up, and the volume has dropped. This is the response. OK, so here we are. Why are we here, manipulation or auction? I don't care. What's more important to me is how we got here and then making a judgment on where we are going from here. Up or down? Do the assessment, make the judgment, buy or sell. Now manage the trade until it is closed.

I use Wyckoff analysis. The way I use it is to use whatever tool or technique that can tell me about supply & demand, cause & effect, effort & result, and position. I use VSA techniques a lot. I am trying to use MP techniques more as well. Are the philosophies behind each contradictory? Maybe to the fundamentalists (picture white-bearded VSA adherents at the entrance to one cave and white-bearded MP adherents at the entrance to another, hurling invective at each other) they are, to me they can peacefully and profitably co-exist

So, is the market manipulated or is it an auction? Yes.