[Eiger]

Originally Posted by Sanook »

....
With regards to bar D, would we not short here as it is a down bar, and we only short up bars, or is there another reason?

And with regards to bar E, even though it appears to technically be no demand, the volume is certainly not as low as the volume is on the bars around 2. Is this why bar E is not the greatest choice either?

Bars D and F are something I've seen many times trading price action without volume. Enter on the break of the hammer at D with a stop above, only to be taken out by another hammer at F that eventually goes in your direction. It's this area around D,E and F that I hope VSA can help with.

Thanks.

Bar D is a bit early in the process. This is just one bar that closed on it's lows. As they say, one swan does not a Capistrano make. In other words, there is not enough evidence that weakness has come into the market at D.

E shows a lack of professional interest, but not a great bar to short. Again, it's early. We need to let the market unfold a bit to be as clear as we can be that weakness has come in. Also, E dips below D and closed just off its highs. Lower prices were rejected here, and thus, this bar's action is saying that the odds for at least a little more rally are high. It is only after F that we are pretty certain that weakness is now dominating. G & H give the confirmation. F is an aggressive entry, G & H are solid entries.

Keep in mind that you really want to protect capital first and foremost. You absolutely cannot take every signal that comes up in VSA. If you do, you will be hurt. There is a definate art or craft to this business. The art is to see the bars unfold against a background condition that gives substantial weight to a change in trend. Only then do we take a trade. Pay attention to the background first and foremost. Let the bars unfold. Watch the volume as the key indicator. It must start out with a spike or a swelling in volume. When several price bars and their associated volumes add up to a change in trend, then look for a trigger, not before.

Hope this is helpful,

Eiger

[Eiger]

5-Minute ES for Feb 3, 2009 -- AM

A - UpThrust. Market opens at the high of yesterday afternoon (must know your background) on very high volume and closes down, well under yesterday afternoon highs - bearish. Next bar is down and market begins to fall. An aggressive trade is to short on the UT.

B - Market falls, but volume recedes. On B and the bar before B, closes are in the middle indicating buying coming in. Note the lack of progress on the lows from the bar before B and B. Next bar is up.

C - Market rallies and volume comes in on C, indicating buying.

D - As price comes back to the low at B, a lack of supply emerges.

E - Bottom Reversal, and bullish.

Note a higher low (from the yesterday afternoon low) is put in.

F - Market rallies to F where volume suddenly increases at the supply area from yesterday afternoon and today's open.

G - As the market reacts from the supply, it does so on receding volume. G is a Hidden Test and a location for a long.

H - Volume increases at the Globex high, close is in the middle, indicating likely supply.

I - No Demand.

J - Volume increases on this down bar after potential supply into a resistance area. This indicates supply coming into the market.

K - No Demand. Good location for a short. Next bar is down.

L - No Demand. The market is clearly struggling to stay above support (blue line). Another good location for a short. Next bar is down.

M - Another No Demand as the market attempts to rally (lackluster)

N - Volume swells and progress to the downside shortens.


Eiger

[Eiger]

Feb 3 - Afternoon

1 - Price dips down below the support at N, then closes back above the low of N. Most important is the volume. Note how volume has substantially receeded. This is Testing for supply below N and finding none. Good location for an agressive short.

2 - A small Bottom Reversal sends the market up. Note that a higher low has been put in.

3 - A higher high, but volume falls off here, so we can expect a reaction. Next bar is down.

4 - No Supply. Note the higher lows (green line).

5 - This and the bar that follows is pushing through the supply formed between N and the Globex high - very bullish.

6 - Note the high volume on this bar and the next bar closing in the middle. Had this been butting up against resistance (like it did earlier this AM at H), it would indicate siupply entering the market. Althought there is supply in this volume (there has to be), the market has just pushed up above last night's highs. We now have a Sign of Strength, not a Sign of Weakness.

7 - No Demand, but there is no weakness in the background, only strength.

8 - A minor Shake Out into support. Note that the volume did not expand substantially.

9 - Another new high, though price is closing in the middle. Note the volume. It has not expanded here. Supply is not evident.

10 - The bar before 10 is on low, low volume (no supply). Bar 10 is a Hidden test closing on its highs and a location for a long.

11 - As we rally higher, bar 11 gives us a large increase in volume with a narrowing spread. More selling is occuring on this bar. Note the close of the following bar - caution.

Just pure VSA, nothing else. Nothing else is needed, really . Hope this is helpful,

Eiger

[Eiger]

Feb 4th

Background is always the first thing we look at in VSA. The 60-minute chart is often a good time frame for the market phases and overall background. Coming into today, there was converging resistence from a congestion area (red line) several days ago and the Supply Line (blue line) of the uptrend channel. Both converged in the 850 area.

About an hour before the open, it looked like price might not even get to the 850 area as there was a reaction off yesterday's high.

A - An upThrust at yesterday's highs, next bar was down and a reaction occurred. Price held it's gains, however, and began to rally 10 minutes after the open.

B - Wide spread up bar on strong volume, close on its highs. Price pushed up and through the resistance area of yesterday's highs.

C - No Supply back to resistance-now-support. The 3-minute chart had a No Demand in this area.

D - very high volume enters as the market nears the 850 resistance area. Spread is wide, and the close is off the highs near the middle - caution.

E - More high volume and a close in the middle - supply.

F - Again we see an increase in volume, close in the middle. Note the lack of progress made from E to F. Next bar is down - selling.

G - No Demand

H - No Demand

I - No Demand

J - No Demand

K - Hidden UpThrust

M - 2-Bar UpThrust/Top Reversal

Plenty of opportunity to get short.

N - Selling Climax

The supply that came in at resistance had similar principles as occured on Feb 3rd. Careful study of these two charts will serve you well in the future to know what to look for as price approaches resistance, and then what to look for once it starts falling.

Hope this is helpful,

Eiger

[BlowFish]

The 60min chart reminded me of a question. Might I ask do you find VSA that useful on a 60 min chart? For example 9 times out of 10 the last hour of the pit session is the high vol bar of the day usually followed by the 1st (or sometimes 2nd if there is 10.00am news) bar of the day. It just seems like a 1 hour bars volume is very susceptible to time of day.

It seems to me that there might be value in comparing the last hours volume not only with the previous hours but the previous couple of days last hour volume? I guess that takes things outside pure VSA howver Just seems one of the least useful bars from a VSA perspective (but great for context).

[Eiger]

Originally Posted by BlowFish »

The 60min chart reminded me of a question. Might I ask do you find VSA that useful on a 60 min chart? For example 9 times out of 10 the last hour of the pit session is the high vol bar of the day usually followed by the 1st (or sometimes 2nd if there is 10.00am news) bar of the day. It just seems like a 1 hour bars volume is very susceptible to time of day.

It seems to me that there might be value in comparing the last hours volume not only with the previous hours but the previous couple of days last hour volume? I guess that takes things outside pure VSA howver Just seems one of the least useful bars from a VSA perspective (but great for context).

Hi BF,

In general, I really only use the 60-min chart for market structure and to id locations for possible trades on the small time frame charts, though it certainly can be of help especially around meaningful market turns.

With regard to your question: I don't know about last hour volume comparisons -- I haven't studied that. But, here are some thoughts on volume vis a vis your question:

Volume generally is U-shaped during the day - high in the AM and high again in the afternoon. Volume during the middle hours of the day usually falls off, especially during the noon hour. Given this as the typical scenario, look for unusual (above average, high) volume to occur when volume is typically low. This is a great clue on a reversal days where the market sells off in the AM, turns around, and rallies through to the close - you will see above average volume come in usually during the early afternoon. We can see the VSA 'Pushing Up Through Supply' sign of strength occur with this kind of unusual volume. It is also a useful confirmation of a V-type reversals.

Sixty-minute bars may not make for the best comparisons, especially in the last hour. The last hour isn't a full hour and ends up being some sort of an orphan. Forty-five-minute bars would give more accurate data and more reliable results from a statisitcal point of view.

Sebastian Manby developed a method to read the last periods of the day with respect to volume and spread. You can frequently forecast the first hour's trading for the next day with this; it can be quite accurate. Sebastian uses the 5-minute bars to do this, though. And, it's only good for how the market trades in the opening hour. I thinlk you may be looking for longer term?

I do track the 15-minute period volumes and compare the current period with last 20 days' volumes for that period. Volume directly relates to market movement, and I am looking for the presence or absense of professional traders (Other Time Frame Participants, Large Operators, Institutional Traders, Composite Operators -- take your pick or make up your own term if 'Professional Trader' bothers you) who move the market with their volume. In this early AM comparision of volumes, I get a pretty accurate idea of how the day will trade -- active or range-bound -- because of early period relative volume characterisitcs. It helps me frame the rest of the day.

I haven't looked at comparing the final periods with prior similar periods to see what effect it may have on the next day or next couple of days. It would make sense to do and I don't see why this wouldn't tell us good info. It would be a relatively easy research project that could be done in Excel.

Hope this is helpful,

Eiger

[VolumeJedi]

Eiger, just wondering where you would get long or short (if you would do the fromer or the latter or both) on this chart?

[Eiger]

Hi VJ,

There is a lot in this chart:

A - Since this is currencies, I am assuming that this area is occuring before one of the three main markets open. Low volume, narrow spreads - not much interest up or down. The market narrows down into an apex.

B - It falls out of the apex on wide spread, increase in volume, close on the lows. We now have our background and know that movement is to the downside

C - A weak rally on narrow spreads after the impulse move down. No real VSA signal here, but this would be a first 'choice' location to short.

D - More impulse down

E - Two-Bar UpThrust/Top into the area where no rally could materialize earlier (Supply). The spread is wide and may have to be discounted by risk rules, but a good short.

F - At the time this was unfolding, a probable climactic action as price reaches the Demand Line (reverse TL). Highest volume on chart thus far, wide spread, close in the middle are the clues.

G - SC confirmed by the testing at G on lower volume. The lifting supports (lows) at G are a great clue that buying is occuring in this area. Last bar in this area is a Hidden Test. Backrgound is now strength and a long position can be made here.

H - Impulse move up on wide spread and strong volume, close near the highs.

I - Test - After F, G and H, you know you have have strrength in the background. A good spot for a long trade.

J - Reaction and test of the highs made at H. This action telss you in advance the high at A will be reached.

Nice chart - lots packed into a small time frame currency. Thanks for posting this, VJ. Maybe I'll take a look at trading these

Eiger