VSA Trading: Reading the Tape & Learning to Wait

Symbol: TLT
Fundamentals

1. Recession -> lower rates -> TLT price increases
2. May 2026 -> Powell retires -> Trump installs a crony who cuts rates because Trump wants it -> TLT price increases

Monthly Chart

1. EvR as a potential sign of strength.
2. Test w/ supply present, but more importantly, it selloffs beyond the prior bar and rejects the lows. In unison w/ the prior bar, the background is bullish for the foreseeable future
3. Ambiguous bar. Half the bar is a test, and the other half is an attempted rally. Volume is below average either way
4. Shakes out below the lows of the prior bar and closes well off the lows. Subtle, but bulls win yet again.
5. Ambiguous bar. Price rallies above the prior bar's high and fails, but closes off the lows on reduced volume
6. Shakeouts out beyond the prior bar's low as a sign of strength. Increase in volume and spread are a sign of intent (altho the close off the lows suggest bears are still present)
7. Rallies above the prior bar's high and it is rejected. The bars that sold into the prior bar are still present. With that said, bars 1 & 2 are still suggesting bullish background
8. Test bar w/ the lowest volume since July 2023. There's little supply drawn out

Weekly Chart

1. Major Sign of Strength w/ this shakeout/reversal bar. Colors the background for the foreseeable future
2. Price runs out of momentum w/ reduced supply. No weakness in background as much as a lack of momentum for higher prices at the moment
3. Spread increases on the selloff but the volume remains average. The selloff is unlikely to be sustained for an extended period of time
4. The volume as the same as the prior bar even tho the spread has narrowed considerably. Price also closes off its high. Someone is buying...
5. Gap higher shows intent and jumps over a short-term resistance level. The close off the high suggests supply is potentially still present

Gameplan
The less likely scenario is that price sells off for 2-3 more weeks and then rallies heavily at the end of the month.
The more likely scenario is that price tests earlier in the week and the resistance turns support.
I will be looking for testing on the Daily chart to get involved

Finished a (free) course/quiz on Bayesian/Probabilistic thinking that is useful for thinking about risk when trading : https://programs.clearerthinking.org..._evidence.html

Potentially mushrooming on the S&P again:

Here's a breakdown on the Daily:

 

1. Strength in background so bulls are in control but demand is slowing up. No buying pressure
2. Lowest volume in weeks. Not great but still the bulls to lose
3. Below avg volume bar that is still more than the prior bar and a close off the lows. Solid
4. Errr. Another weak up bar... No interest in higher prices at the moment but it can be tested away
5. Tests below the prior bar's close and closes above the prior bar's high. Solid response
6. Another test... But the prior bar tested as well. It needs to get a move on soon ideally
7. Up-bar and the highest volume in ~2 weeks, but that closes is not great. There's supply overhead that needs to be absorbed
8. Close off the lows on low volume. No interest in lower prices which is a good sign
9. Another secondary test bar. Bulls aren't in a rush to take advantage of their opportunities yet.
10. Finally the bulls take advantage of a test. Hidden test in this bar that engulfed the prior bar and closed well above it. Strong bar for sure
11. Hmmm. I would've expected bulls to run up the score here after the last bar showed conviction. Their inability to do so is concerning, but the close is great, so they might let 'er rip on the next bar
12. In addition to basically being a two-bar reversal price has away from the breakout zone which is bearish.
13. Price rallied at the open, only to again close closer to support than the breakout level.

TBH, I don't envision a huge market selloff during Christmas week, so that limits the potential for an outsized breakdown this week that immediately continues. For this week, my ideal scenario is a selloff that is faded next week but leads to a no demand or a test that potentially fails to start the new year.

I don't understand why the VIX spiked 10% leading up to the somewhat predictable FOMC event but was flat going into the jobs report when expectations are poor and there's increased chance that it leads to selling

Ideal scenario mentioned earlier vs current scenario





Better to be lucky than good

Game plan
TBH this is more aggressive than I prefer as it hasn't accumulated on the weekly as much as I'd like, but with the stock market teetering on the edge, I know bonds have an inverse relationship, so I want to make sure I have some exposure in case there's an onslaught of buyers in a rush-to-safety trade.

The Daily chart is deceptively strong so I am not exactly winging it, but like I said, it's very aggressive:

Reinventing the Wheel Anotan's Structure
I've come up w/ a lot of theories about price over time. The other day I glanced at Anotan's semi-retired journal and realized that his framework, shared years ago, reached conclusions I'm only recently appreciating/understanding.

There are three reasons why I never got Anotan's setup. Two are personal quirks and the latter is a VSA principle that I think most people struggle with. First the personal quirks:

1. Anotan uses candlesticks and I use HLC bars: I can translate between the two, but the extra brainpower required means I usually just skipped over a lot of his charts. That little bit of extra friction potentially stopped me from seeing the forest for the trees
2. I'm hard-headed/opinionated and want to do things the hard way

Now, for the bigger VSA principle. Initially, Anotan's strategy seemed as simple as "draw a line -> wait for price to test/ND the line -> enter a position". That failed for me because, perhaps a bit counter-intuitively, the line is the least important aspect...

...What matters are the VSA principles that show up as price moves away from/towards the line. That is the part that you have to target and grow with experience/repetition.

Surprisingly, JMP trading, another trader I respect and listen to, reached the same conclusions as Anotan.

In the video below, the first 2-3 minutes explains where/why to draw the line, and the rest of the video explains the VSA principles happening around the line:

In conclusion, mastery let's people make the complex look simple. Anotan's strategy seems easy to replicate, but it is really the VSA happening between the drawing of the line and the retest(s) of the line that makes or breaks the strategy. Make sure to focus on the right parts to flatten your learning curve

Made this comment in the main VSA thread. TL;DR: I have a small position in TLT and was contemplating adding to it. Figured it makes sense to update it here instead of treating the Malcolm thread like my personal journal

I was nervous overnight because unlike TLT, the 10y bond futures (ZB1! on TradingView) showed heavy volume entering (2x the avg), which meant supply was present. I am trading TLT, but I'm assuming the two are related so heavy volume seems ominous regardless.

My first instance was to take it as a clear sign of distribution and to get out at the open of TLT, but thanks to experience, I paused a beat and decided to wait for confirmation. It's early but it appears to be the right move based on subsequent price action:


I decided to add to my TLT position @ the close. We shall see how things play out.

^ I did add to TLT like I mentioned. I also added again yesterday but didn't see convincing price action after the open and so I exited that small addition.

For both of the past two days, I bought puts on the S&P 500 but didn't like the subsequent price action and exited. Of course, the administration has decided to go to war which will potentially (likely?) lead to a market shock w/ a gap lower and heavy selling. Wouldn't be surprised to see a big vix spike too, making options less efficient.


Hindsight is 20/20 but what is done, is done. I can develop some strategies for what is likely to unfold. Off the top of my head:

1. SPY opens around 678, fails to hold and falls over
2. SPY opens around 671 but rallies... only to fail around 678
3. SPY opens around 671 and sells off to 660
4. SPY opens down around 660 and tries to rally to 671

Gonna try and game out some of those scenarios this wknd to be prepared.

Edit: Added the chart as a reference point

May have gotten ahead of my skis yet again. The tech sector is leading the market and the tail that wags the dog that is the S&P 500. The monthly chart wrapped yesterday and looks less bearish than I expected
Monthly

Weekly

Opened @ 678 but rejected lows pretty definitively. Market is strong, which is what the NQ alluded to. Stopped out of my two TLT positions which stung, but glad I had already exited the third position I entered on Friday. Gonna lick my wounds for today and then reset and see what's what. I'm guessing the market needs to test these levels before it moves higher/lower so I have a few days to recalibrate

This market is very unpredictable. Getting conflicting messages at the moment. After the No Demand bar, I entered on both of the next bars intraday but exited because there was clear demand present.


The current bar looks to be continuing that trend but it gapped outside of the larger range which opens it up for volatility. Currently stalking the 65m for a potential setup but I don't see anything substantial as of yet:

Zooming out to the daily bar again though, if the EoD close is definitively in the lower half of the bar, then I think the bears have (definitively?) regained control barring clear volume discrepancies on the bar, as that type of close insinuates that the demand is clearly being overwhelmed instead of just the jagged stairstep lower we've seen over the last few days.

Volatile times. A closer read lets me create a narrative and gives me conviction about direction

(I am using the S&P 500 futures contract here to minimize gaps and stuff, but it ties into my earlier analysis of the S&P 500 ETF, SPY, as well)

1. Look at the last four bars. Declining volume, capped by a No Demand bar. No one is interested in higher prices it seems
2. The bar prior to this is an engulfing up-bar yet the market is too weak to hold onto a clear sign of strength. Anotan had this phrase he mentioned once that has stuck with me "If it is not strong... then it must be weak" Simple but nuanced for ambiguity.
3. Exact same narrative as 2: Engulfing up bar (which is typical a strong SoS) but immediately hit w/ no follow-through. Someone is spiking prices to distribute at higher prices methinks
4. Same narrative except it is all in one bar: After the ND, price rallies above the prior close only to fail to hold on and close at the lows. This market is weak AF
5. EvR. Some demand is entering the market here and lower prices are rejected. Can the bulls show up?
6. Even clearer rejection of the lows. The bulls are coming to life
7. Low volume upthrust. Mediocre response to the past two bars that makes the bulls look suspect
8. The bar after 7 was a test. This is the response. Closes near the highs which is bullish at a glance, but what about the volume? Even tho the spread is the same as #7, volume has swelled. Supply is still present.
9. Buyers are defending the lows aggressively. Clearest strength on the chart by far. Price is still making lower lows and lower highs on each bar though. Volatile period and hard to make heads or tails out of IMO

Best case Scenario

1. Price rallies to 6885, encounters cluster of closes and sells off for the rest of the day, closing below 6820

OK Scenarios

1. Price rallies to 6920 and has a strong rejection and closes up, but off its highs. EvR suggests distribution and a likely resumption lower immediately
2. Price rallies to 6940 and has a strong rejection and closes up, but off its highs. EvR suggests distribution and a likely resumption lower immediately
3. Price rallies to 6920 and puts in a No Demand bar. Given where price now is, support below is liable to become an issue if there's no conviction on any subsequent attempt lower

Uncertainty Scenarios

1. Price closes @ beyond 6900. That would give it 6885 & and 6855 as support levels. My uneducated guess is that the market might gap beyond both levels if that is the case (or rather trade through them during off-peak hours) which would mean I would have to take a leveraged bet overnight in anticipation of a move lower, which exposes me to more risk.

It looks like a worse, even less tradable situation played out Lol.

No demand bar, breaking down at the close. There was weakness throughout the day, but nothing suggesting a breakdown intraday so I did not get involved

This morning there is a Jobs report in the pre-market, so the market is liable to gap lower.

One perfect scenario would be the jobs market numbers beat and so the market fakes a rally to start the day and then sells off... I will be looking for this setup to take. This feels like the main scenario where I can get involved at a reasonable price without volatility spiking options premiums.

Entered two positions:



The 'position' tool shows my entry and stop, but disregard the rest of it. I plan on holding until there are definitive signs of accumulation present ideally. Psychologically, my hope is that I entered at a position of strength, and so will be easier to imitate 'strong hands' and withstand temporary rallies on weak demand for the foreseeable future.

I still have a lot of gunpowder available but want to use it smartly. Energy and metals both will sell off IMO. Bonds are still the position I want real size in.

Stopped myself out of both trades due to the rally into the close. Might live to regret it tomorrow (which is when the jobs report is... earlier, I mistakenly thought it was today)

It's still early but so far, it's another day w/ strong defense of new lows. There is still demand in the market which is antithetical to lower prices in the short term:

Today could definitely still sell off, but the more price struggles to close near its lows, the more it seems price may need another (attempted) leg higher to trap bulls (while also flushing out weak shorts), so that it can dump supply and move price w/o resistance.

Entered a position going into Friday's close. 2x normal size as distribution feels complete and it feels like musical chairs getting a position before a potential big move lower. Definitely anxious to see where the open is in an hour (and again Monday morning)

Position details

1. 4x Apr 655 puts
2. 18:1 leverage when I entered the position (will increase if/when the position goes in my favor)

Thoughts
Futures for the S&P 500 are down ~1.7% ATM. I am not playing for a quick down move although that seems highly probable for the upcoming week. I think that sellers now control the market for the foreseeable future. My guess (read: hope) is that whatever price is traded through nowadays won't be retested for months, so the best strategy is sell and hold instead of trying to be clever.

The part I am trying to prepare myself for is if/when the markets put in a dead cat bounce, what then? One scenario that comes to mind is huge selloff -> Trump declaring victory in Iran in spite of nothing changing -> huge gap rally. In that situation, would it be better to close my position and reestablish higher or whether it is best to just hold on? On the one hand, I do think that w/ the VIX spiking, options are going to become expensive indefinitely moving forward, so I would get more bang for my buck holding onto my existing position. OTOH, having a tight stop might make options premiums less relevant in the grand scheme of things perhaps? I started a convo w/ Claude to get more guidance here and it suggested that I need to precommit to what will cause me to exit a position. I am going to try and brainstorm this and update in the near future. Ideally I hold my position until expiration but that is easier said than done clearly.

I had a theory that price would rally because there was clear demand in the market is price tried to sell off. Hindsight is 20/20, but I flipped the chart as the bullish story a more familiar story: Price hits supply overhead but refuses to cede ground and is so strong that it absorbs through supply and continues higher:


Of course, the chart is inverted, so it's actually bearish AF lol. My updated theory is that the markets are extremely weak, to the point that when the demand showed up, instead of checking for Demand w/ a No Demand, price appears to be just dumping lower. I've never thought of the concept 'supply absorbing through demand' before even tho I'm familiar with it's inverse, but it makes sense. Next time I will be ready for it.

Only tomorrow's close will confirm this theory, but I don't see the war changing substantially in the next 13h tbh.

As bearish as I am becoming on SPY, I'm actually more bullish on TLT. I had a +7R position in it and gave back gains on the selloff yet I'm unperturbed. The down-move as of late has been one of the most obvious accumulation attempts in recent memory:

The campaign is not over yet but I'm actively watching. To put things in context, here's the weekly chart:

Clear increase in volume. Any guesses to how it compares to TLT overall? There's a clear spike earlier in the chart so it's not the most heavily traded week ever... but what if I told you that it was the 2nd heaviest week in the 23 year history of TLT?

1. 8.5% spread on 4/7/25 - 503 million
2. 2.6% spread last week - 313 million
3. 3.64% spread on 11/4/24 - 308 million
4. 5.3% spread on 1/29/24 - 307 million

How is it the second highest week ever, yet substantially less volatility? Effort vs Result suggesting someone is absorbing sellers in anticipation of a move higher

TBH, technical analysis (read: VSA) is the be-all and end-all for my positions more or less, but I have had an extended convo w/ Claude around the fundamentals for the bonds trade and it only added to my conviction. This isn't financial advice, and I'm just a middling VSA trader, but Bonds seem to be where smart money is parking their money, and the reasoning seems sound AFAICS. I will share the cliff notes in the near future.