Simulating (to) Success with VSA

Goals

1. Show consistency on paper before I start trading w/ real money. My profit target to go live is 20%.
2. Update the journal regularly to track my progress towards my profit target.
3. Take a deep dive into trades that went well or show room for improvement
4. Get advice and feedback from other VSA traders on where I can improve

Background
Although I've been studying VSA for over a year, it's been a few months since I last backtested. FWIW, I have been reviewing flashcards daily to (hopefully) improve my trading. There is a concern in the back of my mind that this won't translate into trading success, but the sooner I find out, the better.

Speaking of finding things out, I’m a big fan of tracking metrics for insights. I'm above average in Excel and recently started learning Python and how to utilize Pandas, so I hope to post some unique content as I get more data on my expected returns.

Influences
My VSA influences are Jako McPorker, Gary Dayton and everyone who has graced the 'VSA w/ Malcolm' thread or the countless other VSA threads across different forums over the years. Outside of VSA, Laurentiu Damir's book has probably the heaviest influence on me, along with how Market Profile defines supply & demand.

I'm at a point now where I'm content with the strategies I've been exposed to and have no desire to try and learn a new strategy. To be honest, I'm at a point in my trading journey that if a strategy isn't VSA-based, I don't find it interesting or relevant, so keep that in mind

Notes

Timeframe I will backtest
When I eventually trade live, I don't want to be watching every tick, but I don't want to wait a month for a setup either. I'd prefer to trade the Daily with a large watchlist across various sectors of the US Stock Markets. That doesn't work well for backtesting though... if I have to simulate 2-3 months waiting for a setup, that will eat into the # of trades I can backtest. Also, the older the historical data, the less I trust the volume data.

So instead, when backtesting I'm going to trade the 3min to get more reps and hopefully the fundamentals I improve upon will help me on the Daily as well.

Pair I will simulate
There are no solid backtesting software that offer HLC bars + trustworthy Stock Volume data + metric tracking, so I will stick to Soft4Fx via MT4 and backtest a currency pair. On the off chance that my backtesting is fruitful, I want to test a pair that I can trade intraday IRL. Living in the US, the timezone takes the bulk of European pairs out of the picture. I've narrowed it down to 4 that overlap my timezone: EURUSD, AUDUSD, USDCAD, USDJPY.

AUDUSD & USDJPY have opens in the early evening but the volume tapers off within the first hour so I'll avoid those. That leaves EURUSD and USDCAD. Both have decent volume from 7am - 10am locally. EURUSD is slightly more volatile (which is a good thing imo) and it is the most liquid pair, so I will trade that.

To Do

1. Restructure my backtesting spreadsheet
   1. I have an extensive backtesting spreadsheet from a few months ago but some of the metrics are now redundant and can be removed. In general, filling out the spreadsheet is monotonous AF, so I don't want to overdo it, but it can also provide insights which is important.

2. Find ONE entry strategy and stick to it.
   1. With VSA, there are balances and imbalances within every bar so it's easy to get caught up on short term signals. I want to become more disciplined and only enter the markets when there is clearly high reward and low risk.

I'm currently workshopping how to combine multiple-timeframe VSA & using a UHV as a line in the sand a la Philip Friston (and Anotan too I believe). Currently, I can see the distribution taking place on the long-term timeframe, but I haven't spelled out what I will use to enter the market on the shorter-term timeframe yet. It's still a work in progress lol. Writing it out has made me realize that I need to commit to something and then go from there.

Right now, I'm leaning towards looking for SoS/SoW on the long-term timeframe and then looking for signs of weakness on the short-term timeframe to get involved in the market.

Overall, I'm in a weird position right now where I feel more confident in the live markets than I do on the simulator. Maybe it is because I watch live markets on the Daily, while I sim on the shorter-term timeframe . I will give it some more thought.

I typically use the free feeds on TradingView to watch pairs, but for the last few months they've been screwing up the data for FXCM (which imo is the best feed since it has the highest volume out of the free chart options for the forex pairs). Occasionally, they'll double the tick volume for a day which makes an average, 300,000 tick volume day look like a UHV 600,000 day incorrectly. It makes it impossible to read the Daily chart correctly.



To work around it, I've started watching the Futures charts instead where possible. This week I've noticed some clear SoS on these Futures charts that aren't evident on the Forex charts (that I use anyways). Looks like dollar weakness might be around the corner:

I've spent a lot of time scouring VSA forums for advice. Here are two docs I compiled that includes VSA posts that stuck with me. The docs mostly overlap. Apologies for anyone who I didn't credit in the 'by Author' doc. I'll probably clean it up & add to it over time.

Ideally the content helps someone who gets stuck in a rut.

S&P ETF vs S&P eMini Futures Contracts
I thought the two were interchangeable but days like today give me pause. First is the ETF (SPY) and second is the eMini Contract:

IMO, the ETF chart shows that the markets are losing momentum but the bulls have clear control. The markets might be due for a temporary breather. OTOH, the futures contract is showing more pronounced weakness, with sellers dumping their shares on the market as if they are more pessimistic about upcoming price action.

So... which one should I trust? My understanding of VSA boils down to riding the coattails of the deepest pocketed players who are concealing their trading. The question is: "If I had deep pockets, which market would I trade?"

To me, the answer is whichever market is the easiest to mask my covert buying/selling. I think it's big fish hide more easily in a big pond, so which pond is largest? I did some #quickmath:

The notional value (total $ traded after accounting for leverage) for the futures contract is 18x the ETF. This is a convoluted way of saying I will try to use the Futures Contracts to analyze the markets more than the ETFs moving forward because that is what smart money will likely use the most.

The last two days of weakness on S&P Futures were confirmed by the premarket price action:


I have been trading w/ real money here and there. Yesterday, I closed out 2/3 of SPY calls I had open yesterday but shit the bed on some calls for MU & PEP. Less risk involved fwiw but moving forward, I have to watch all positions going into the close. If I did, I would've seen clear signs to sell on PEP and maybe take some risk off the table w/ MU.

The volume today was just barely lower than on 6/13 but the range was much wider:

Relative to 6/13, it looks like buyers have left the market and so price is heading lower without any resistance. My understanding is that smart money thinks price is more favorable at lower levels... the question is whether it is retesting the recent lows that are ~5% away, or further still

Got stopped out on a trade for the S&P 500. Lost a pretty penny on it too:


1) Sign of Strength in the Background
6) Narrower bar than #5 but increased volume = buying. Also, this bar could be perceived as a long term test of #1
8+9) Declining volume on the rally, buyers are tiring
11) Closing off the lows and an increase in volume, are buyers entering the dip
12) Close above the prior price action is bullish (but in retrospect the reduction in volume means smart money might just be running up the price to dump it)
13) Test that I placed my entry above
14) Trap Upmove that stopped me out instantly

Thoughts

1. The rally from 1-> 10 was responsive (aka weak/tepid/low-energy) so I should've expected a pullback to occur
2. There was resistance overhead and so I should've waited for a close beyond resistance and entered on a retracement test of that level instead
3. The weekly chart has a more mixed picture. Due to the accumulation in the background, I was hoping that the low volume rally last week was a feather bar (where the market rallies on low volume because supply was already absorbed in prior heavy volume bars) but instead it is looking like No Demand bars or at least No Buying Pressure Bars. (The difference between the two is No Demand is when weakness is in the background, and No Buying Pressure is when strength is in the background).

Watching stock w/ crypto-currency exposure. Charts are showing some climactic volume but obviously still too early to pull the trigger. RIOT is the most interesting since it is near the bottom of a channel on top of being a strong EvR bar today:

With my SPY trade from Nov 3rd, it was in my Roth IRA and since it was the overarching ETF, I was down to risk about 2.2R instead of 1R. Not only was I stopped out, but I increased my risk by entering after a gap move higher, so I ended up losing 4R instead of 2.2R. Definitely stung a little and made me trigger shy. I've been stalking USDJPY for months but didn't pull the trigger last week and missing an easy trade. C'est la vie.

On an unrelated note, w/ VSA I think I can conclusively spot tops/bottoms well, but I struggle with managing pullbacks within a trend (ie is the pullback shallow and worth holding onto a position or deep enough to exit and re-establishing a position at a better price level). It could be that my stops are too tight or that my risk targets are too shallow . I am strongly contemplating a supplemental Wyckoff-esque market structure course to read the overarching trend better, but I'm not sure I want to add any additional moving parts to my strategy.

For now, I think the best strategy is to double down on the skills I have, and be more meticulous with my studying and backtesting. I still watch the markets day-to-day but it's been too long since I've solidly backtested to get some data on what works/what doesn't work.

I have been able to put a better face to my issue. I have been struggling with seeing potential entries outside of climactic tops/bottoms. I realized two things this week:

1. Testing (or failed testing) of support/resistance levels are the keys to entries in VSA. However, outside of marking climactic volume, the only thing on my charts are the trend channels. If I'm not marking up the trading ranges during the trend, then there's no clear signs to enter an existing trend.
   1. I will tackle this by rereading the chapters related to Finding Trading Areas in David Weis' "Trades About To Happen" book

2. Alternatively, I can keep my charts as is, and apply Laurentiu Damir's ideas about trading a trend channel (with a heavy reliance on VSA principles)
   1. will reread Laurentiu Damir's book "Price Action Breakdown"

I also plan on Backtesting again this week.

Looking at XLE as a long term short in my Roth IRA:

Background

1. Lengthening of Thrust as a SoW (11/14 -> 11/21 is an increase in the size of a downswing as a potential Change of Character)
2. If price doesn't head higher on Monday, then 11/22 becomes a lower high and is another piece of evidence that points to mushrooming occurring
3. The monthly chart shows No Demand on a retest of the prior resistance level
4. Crude Oil charts broke down to lows not seen since Dec 2021. Energy-related stocks will follow suit imo
5. One cause for concern is price may go the other way based on the Weekly chart

Jumped into XLE. Used 3% of my Roth IRA. Hoping that this is the last hurrah for traditional energy stocks and it goes in perpetual downtrend as we transition towards renewable energies. Another positive aspect of the trade is the murmurings of Putin open to diplomacy/negotiating w/ Ukraine over the last 24 hours. Time will tell:

Probably couldn't have envisioned a better day:

Ideally, I am going to wait until at least $82 to lock in some minor profits as that is where a prior Value Area lies.

This is a clear example why I need to backtest more. I don't have solid trade management structure as of yet for locking in profits vs letting it run. Also, I usually trade 1R per trade and so there is some added pressure seeing larger than normal price swings in my account. I think one of the main goals tomorrow is to try to view the intraday price action objectively, and avoid watching my P&L for every tick.

Below is my post-market analysis of areas to keep an eye on:
A & A2) A has UHV, A2 could be seen as a retest with lowered volume which is bullish. However the close of today's bar is very bearish, even with the lowered volume. Pair that with the mushrooming in the background and I have to give it to the bears for now.
B) There is a trendline I drew on the 65m. It shows that the markets are currently oversold. If the markets do adhere to the minor trend channel and retrace though, it will still fall short of my stop out, so that's yet another reason to sit on my hands and stop overanalyzing the price action.

I've sold two thirds of my positions and still have the rest open. TBH, it should be the other way around with two thirds of the position open, but I was paying too much attention to the 3m timeframe yesterday and got spooked.



My current theory on the market was that the 3% pop on 11/30 has the potential to be a distribution day depending on the next few days. The markets have given back all their gains but support is holding. Today's push didn't have conviction but the close was beyond yesterday's high which was more bullish than I expected tbh:

With that said, I did drill down yesterday for sectors w/ short candidates, and one of the weakest ETFs I saw was the Industrials sector:
From there, I drilled down to one of its top 10 holdings and started stalking CAT for an entry. It has been mushrooming, and today it showed a lack of demand on the Daily. This could spell the end of a corrective rally and lead to an impulse move lower, however, I should've waited for price to actually drop below the low of the No Demand bar before I entered, so I may be punished for that tomorrow:

XLE
Still holding a third of my position. I wouldn't be surprised if it started a weak rally on Monday tho but I'm going to hold unless there's real strength present:


CAT
I was a tad early, but luckily I placed my stop based on the trend on the 65m instead of the high of the ND bar. Really good price action on Friday that makes me hopefully about this week:


Aussie Dollar (Potential Trade)
Watching as a potential short. I think I see distribution in the recent price action although a bottom has likely been put in on the longer term timeframe. Best case scenario is a weak rally above 0.682 that gives me a chance to jump onboard:

Great Trade on XLE mate..cheers

Appreciate in Pranith.

Was stopped out of CAT today. My stop was not large enough but I'm still bearish and might try to get involved again down the road.


In general, today looks like the final shakeout across the markets before a harsh move lower. Every industry ETF is looking vulnerable and so I have a variety to choose from.


I've earmarked a handful of stocks and will choose 1-2 to enter the market tomorrow.

There are two that stand out as of now. Both are mushrooming and had an upthrust on the Daily yesterday. Normally I'd wait for a No Demand bar, but there's little chance of tomorrow being light volume given the FOMC meeting. I am going to drill down on the 65m and look for weakness as price tests a prior support level:
TSM

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AMD

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Still have a 3rd of my XLE trade open. No new trades today. Was multi-tasking with deliverables and the World Cup and didn't have a plan on motion for an intraday entry. I expected FOMC to be a trigger for a move but it was pretty tepid overall. AMD did broke down in a clear way while TSM looks bearish to a lesser extent. Both are a ways away from high volume bar aka accumulation/distribution line, so I'm looking for greener pastures.

I haven't found anything that makes me salivate but I'll be watching these tomorrow:

CAT

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I'm concerned that I might be early to the trend/trying to pick the top. 11/17 is a low that hasn't been taken out yet.

I would rather the higher probability trade after a clearer breakdown on the Daily than trying to capture the top. OTOH, yesterday/today is showing clear distribution as the market can't get out of the gates.

UNP

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This one also looks like distribution is occurring but it is still putting in HLs across all timeframes. Gonna have to be patient.


MSFT
Volume is too high right now and price is still making HLs across all timeframes. I see weakness via distribution, but I want to see weakness via the trend (LL/LH) as well. This does feel the most promising though if it can't get some momentum and trade to the lows of the channel.

JPM

I see mushrooming and but there's no clear distribution in the background to give me additional conviction. It can breakdown w/o me, but if it doesn't, I'm waiting for something more telling... like an End Of Rising Market, a clear upthrust, or a telling No Demand bar