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Old 01-26-2009, 10:22 AM   #1

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Common Myths Concerning VSA

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

Last edited by Eiger; 01-26-2009 at 10:28 AM.
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Old 01-26-2009, 12:25 PM   #2

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Re: Common Myths Concerning VSA

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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Old 01-26-2009, 12:43 PM   #3

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Re: Common Myths Concerning VSA

Quote:
Originally Posted by monad »
...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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Old 01-26-2009, 01:53 PM   #4

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Re: Common Myths Concerning VSA

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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Old 01-29-2009, 04:41 PM   #5

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Re: Common Myths Concerning VSA

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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Old 01-27-2011, 03:34 AM   #6

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Re: Common Myths Concerning VSA

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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Old 02-10-2011, 04:56 AM   #7

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Re: Common Myths Concerning VSA

Geat post, but all stuff that u tell are necessasry to learn VSA?
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Old 02-10-2011, 07:21 AM   #8

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Re: Common Myths Concerning VSA

Quote:
Originally Posted by Eiger »
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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