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Volume Spread Analysis (VSA) Discussion 2 replies

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Learn to Trade using VSA (Volume Spread Analysis)

  • #21
  • Feb 21, 2009 2:48pm Feb 21, 2009 2:48pm
Quoting Pips_Cruiser
My biggest problem with this at the moment is that you're using broker tick data in a volume spread analysis. I can't help but wonder how consistent this tick data is from one broker to the next. Also how well it would match up with true volume if that was available.
Ok you have to realize that tick volume in relation to the candlestick or bar charts which ever one you use shows you an accurate view of whats going on. Forex is intermarket exchange, sure b/c of the sheer volume of the trades and liquidity we can't know for sure. However tick volume along with the volume bars gives us the most insight into what the strength of a particular candlestick is. I also explain how I use HLC also. Surely if you trade you can tell that if

BAR 1

H: 1.23
L: 1.05
C: 1.15

BAR 2

H: 1.30
L: 1.10
C: 1.25

Just from not seeing any tick volume can you tell that bar 2 is higher then bar one? So you use price spreads in conjuction with tick volume to give you a snapshot of the strength of a current bar.
  • #22
  • Feb 21, 2009 2:59pm Feb 21, 2009 2:59pm
DOWN BARS: IF PRICES ARE DROPPING ON VOLUME THAT IS LESS THAN THE PREVIOUS TWO BARS OR CANDLES, ESPECIALLY
IF SPREAD ARE NARROW, WITH THE PRICE CLOSING IN THE MIDDLE OR HIGH OF THE BAR, THIS INDICATES THAT THERE IS
"NO SELLING PRESSURE"
UP BARS: WEAKNESS MANIFESTS ITSELF ON UP BARS, ESPECIALLY WHEN SPREADS ARE NARROW, WITH VOLUME LESS THAN THE
PREVIOUS TWO BARS OR CANDLES. THIS SHOWS THAT THERE IS "NO DEMAND" FROM PROFESSIONAL TRADERS.
A Bull Market occurs when there has been a substantial transfer of stock from Weak Holders to Strong Holders,
generally, at a loss to Weak Holders
A Bear Market occurs when there has been a substantial transfer of stock from Strong Holders to Weak Holders,
generally at a profit to the Strong Holders.
The Buying Climax
Brief Definition: An imbalance of supply and demand causing a bull market to transform into a bear market.
Explanation: If the volume is seen to be exceptionally high, accompanied by narrow spreads into new high ground,
you can be assured that this is a ‘buying climax’.It is called a buying climax because to create this phenomenon
there has to be a huge demand for buying from the public, fund managers, banks and so on. It is into this buying
frenzy, that syndicate traders and market-makers will dump their holdings, to such an extent that higher prices
are now impossible. In the last phase of the buying climax, the market will be seen to close in the middle or high
of the bar.
The Selling Climax
Brief Definition: An imbalance of supply and demand causing a bear market to transform into a bull market.
Explanation: This is the exact opposite of a buying climax. The volume will be extremely high on down-moves,accompanied
by narrow spreads, with the price entering fresh low ground. The only difference is that on the lows, just before the
market begins to turn, the price will be seen to close in the middle or low of the bar.To create this phenomenon requires
a huge amount of selling, such as that witnessed following the tragic events of the terrorist attacks on the World Trade
Centre in New York on September the 11th 2001.
There are only two main principles at work in the stock market, which will cause a market to turn. Both of these principles
will arrive in varying intensities producing larger or smaller moves:
1. The ‘herd’ will panic after observing substantial falls in a market (usually on bad news) and will usually follow its instinct
to sell. As a trader who is aware of crowd psychology, you must ask yourself, “Are the trading syndicates and market-makers
prepared to absorb the panic selling at these price levels?” If they are, then this is a good sign that indicates market strength.
2. After substantial rises, the ‘herd’ will become annoyed at missing the up-move, and will rush in and buy, usually on good news.
This includes traders who already have long positions, and want more. At this stage, you need to ask yourself, “Are the trading
syndicates selling into the buying?” If so, then this is a severe sign of weakness.
Does this mean that the dice is always loaded against you when you enter the market? Are you destined always to be manipulated?
Well, yes and no.
A professional trader isolates himself from the ‘herd’ and becomes a predator rather than a victim. He understands and recognises
the principles that drive the markets and refuses to be misled by good or bad news, tips, advice, brokers, or well-meaning friends.
When the market is being shaken-out on bad news, he is in there buying. When the ‘herd’ is buying and the news is good, he is looking to sell.

T.Williams
  • #23
  • Feb 21, 2009 3:06pm Feb 21, 2009 3:06pm
Nearly all traders use computers and many of these traders are using Technical Analysis packages. They will have learned how to use well-known indicators, like RSI and Stochastics, which are mathematical formulae based on a historical study of price. Some packages have over 100 indicators and other tools that measure cycles, angles, or retracements. There is even software that analyses the effects of tidal forces, astrological, planetary, and galactic influences. To many traders, these methods will have a place in their trading decisions, because they will be familiar with their use. However, it can become a very frustrating business being placed outside of the market looking in, using these tools, trying to decide if the market is likely to go up or down. The fact is, these tools never tell you why the market is moving either up or down that, in most cases remains a complete mystery.


People, unless they are naturally well disciplined, are extremely open to suggestion! Folks like to be given tips, listen to the news stories, seek out rumours in internet chat rooms, or maybe subscribe to secret information leaked from unknown sources.


For the most part, professional floor traders, syndicate traders, and the specialists, do not look at these things. They simply do not have the time. Professionals have to act swiftly, as soon as market conditions change, because they are up against other professionals who will act immediately against their interests if they are too slow in reacting to the market. The only way they can respond that fast is to understand and react, almost instinctively, to what the market is telling them. They read the market through volume and its relationship to price action.


Inserts from T.Williams



  • #24
  • Feb 21, 2009 3:29pm Feb 21, 2009 3:29pm
Quoting nyse1982
Ok you have to realize that tick volume in relation to the candlestick or bar charts which ever one you use shows you an accurate view of whats going on. Forex is intermarket exchange, sure b/c of the sheer volume of the trades and liquidity we can't know for sure. However tick volume along with the volume bars gives us the most insight into what the strength of a particular candlestick is. I also explain how I use HLC also. Surely if you trade you can tell that if

BAR 1

H: 1.23
L: 1.05
C: 1.15

BAR 2

H: 1.30
L: 1.10
C: 1.25

Just from...
I have no problem with the HLC. I'm still not totally sold when it comes to equating tick volume with true volume. But if it delivers profitable results, that's the main thing. I'll stay tuned and see how things go . . .
  • #25
  • Feb 21, 2009 3:37pm Feb 21, 2009 3:37pm
Quoting Pips_Cruiser
I have no problem with the HLC. I'm still not totally sold when it comes to equating tick volume with true volume. But if it delivers profitable results, that's the main thing. I'll stay tuned and see how things go . . .
hopefully this will give you insight
Attached File(s)
File Type: pdf Trade Guide.pdf   1.5 MB | 18,227 downloads
  • #26
  • Feb 21, 2009 3:39pm Feb 21, 2009 3:39pm
Here Check Out This Article On Price Action Very Informative To Becoming A Successful Trader
Attached File(s)
File Type: pdf Trade Guide.pdf   1.5 MB | 9,945 downloads
  • #27
  • Feb 21, 2009 5:51pm Feb 21, 2009 5:51pm
Quoting nyse1982
Here Check Out This Article On Price Action Very Informative To Becoming A Successful Trader
Can you explain your system on trading on Volume alone ?

thanks,
Kurt
  • #28
  • Feb 21, 2009 5:52pm Feb 21, 2009 5:52pm
Quoting nyse1982
VSA occurs on any chart, the definition is volume-spread-analysis. Basically means you take the volume of a particular currency EUR/USD example. Utilizing any chart time, you look at the volume tick for that bar, then look at the High/Low/Close. I subtract the (H-L = (X) H/L) and (H-C = (X) H/C) and then I check the volume. I base it on 2 bars.

You see the first bar :H/L=54;H/C:6
H:1.2640
C:1.2586
L:1.2634
V:276

Second Bar: H/L=46;H/C:25
H:1.2678
C:1.2629
L:1.2653
V:357

As you can see the volume increase for the second bar means smart money...
What do all the other scenerios mean such as:
1). volume decreasing H/L decreasing H/C decreasing;
2). volume decreasing H/L decreasing H/C increasing;
3). volume decreasing H/L increasing H/C decreasing;
4). volume decreasing H/L increasing H/C increasing;

1). volume increasing H/L decreasing H/C decreasing;
2). volume increasing H/L decreasing H/C increasing;
3). volume increasing H/L increasing H/C decreasing;
4). volume increasing H/L increasing H/C increasing;

Please explain in as much detail as you can.....
  • #29
  • Feb 21, 2009 6:02pm Feb 21, 2009 6:02pm
Quoting nyse1982
Sure, I trade using a 15min chart, say for example

EUR/USD @1.2340 close
Volume: 350
Green Bar

What I'm looking see if the next bar can reach half of the tick volume on the previous candle. So half of the tick volume is 175 on EUR/USD @1.2340 close. So if my next candle has enough volume to surpass 175 by a midway point of 7min 30sec which is half the time of a closing bar, chances are it will stay with the current trend. This tells me thier is enough strength on the current bar for a continuation of the trend. If the current candle doesn't...
A couple of things I would like you to clarify:

1). In the above scenerio are you stating things as if you were already in a buy trade ("Green candle") or are you looking to get into a buy trade at the midway point (7min 30 sec into the 15 min candle) or are you looking to continue the buy trade if you are already in??

2). Furthermore, if you are already in a buy trade and If the current candle doesn't reach half the tick volume before the midway point (7min 30 sec) do you immediaetly close out of the buy trade and go short?? or if you aren't in a buy trade already and the current candle does reach half the tick volume before the midway point (7min 30 sec) do you immediaetly get into a buy trade??
  • #30
  • Feb 21, 2009 6:08pm Feb 21, 2009 6:08pm
nyse1982,

What is the relationship between the two methologies mentioned in posts #8 & #23? Are the used together in conjuction? seperatley? simultaneously? Pleas advise.....

Gator
  • #31
  • Feb 21, 2009 6:23pm Feb 21, 2009 6:23pm
POST #8 is utilizing VSA as taught by T.Williams

DOWN BARS: IF PRICES ARE DROPPING ON VOLUME THAT IS LESS THAN THE PREVIOUS TWO BARS OR CANDLES, ESPECIALLY
IF SPREAD ARE NARROW, WITH THE PRICE CLOSING IN THE MIDDLE OR HIGH OF THE BAR, THIS INDICATES THAT THERE IS
"NO SELLING PRESSURE"

UP BARS: WEAKNESS MANIFESTS ITSELF ON UP BARS, ESPECIALLY WHEN SPREADS ARE NARROW, WITH VOLUME LESS THAN THE
PREVIOUS TWO BARS OR CANDLES. THIS SHOWS THAT THERE IS "NO DEMAND" FROM PROFESSIONAL TRADERS.

YOUR FOLLOWING THE SPREAD OF EACH CANDLE H/L & H/C and the Volume

H/C: HIGH/CLOSE
H/L: HIGH/LOW


PROFESSIONAL TRADE USING VSA WHICH GIVES THEM ACCURATE INSIGHT AS TO HOW THE PRICES ARE REACTING IN RELATION TO THE VOLUME OF A CURRENT BAR. PLEASE READ THIS ARTICLE IN DETAIL TO GET A BETTER IDEA.

http://www.sfomag.com/homefeaturedet...ne&YearID=2006

THE SECOND POSTING IS A REVISED METHOD I'M CURRENTLY TESTING AND I'M NOT MAKING CLAIMS THAT IT WORKS B/C IM CURRENTLY STILL TESTING THE METHOD.
  • #32
  • Edited 6:29pm Feb 21, 2009 6:25pm | Edited 6:29pm
Quoting Gator
A couple of things I would like you to clarify:

1). In the above scenerio are you stating things as if you were already in a buy trade ("Green candle") or are you looking to get into a buy trade at the midway point (7min 30 sec into the 15 min candle) or are you looking to continue the buy trade if you are already in??

This instance I'm referring to as if I'm currently in a trade say I bought EUR/USD @1.4567 based on the previous candle,you can also use it to get into a trade aswell. Please be aware that it makes no sense to try to hop into...
I immediately go opposite of what the current trend is. For example

Red- Bar 1
EUR/[email protected]
Vol: 300
H/V: half volume 150

Red- Bar 2
EUR/[email protected]
Time: 7min 30sec
Vol: 100

In this case the H/V wasn't reached by the halfway mark so I'm going opposite of the current trend based on volume weakness from the market to push through on the current trend. I'm still testing this method so I'm not making claims that it works.
  • #33
  • Feb 21, 2009 6:28pm Feb 21, 2009 6:28pm
Quoting kujo17
Can you explain your system on trading on Volume alone ?

thanks,
Kurt
I'm still testing the method however, I currently trade using the VSA method which works. I'm trying to create a revised version based on volume strength. Check the previous post I explain it.
  • #34
  • Feb 21, 2009 6:40pm Feb 21, 2009 6:40pm
Thanks for the pdf Nyse. It will be interesting read. I trade support/resistance areas but volume analsysis was always something i wanted to get into. There is a lot information about it on traders laboratory forum but not much about using it in forex market. Looking forward to your insights and some present examples.
  • #35
  • Edited 7:50pm Feb 21, 2009 7:31pm | Edited 7:50pm
I'm going to post a revised version of the trading technique which I'm using and it's going to cover 17 bars 2/18@7:30 - 2/18@12:00. I'm going to be posting the HLCV(HIGH,LOW,CLOSE,VOLUME) JUST TO CLARIFY SO PEOPLE HAVE A BETTER UNDERSTANDING AND THE VSA. I BASE MY TRADE ENTRIES ON 2 PREVIOUS CANDLE STICKS. I DON'T USE T/A PERIOD. JUST PRICE ACTION AND VOLUME TO ENTER. THE CHART I'M USING IS EUR/USD 15MIN INTERVALS.I'M GOING TO LIST THE PRICE ACTION IN THE FOLLOWING WAY

H/C OR (HIGH-CLOSE)
________________<<<NOT A DIVISION LINE JUST SEPERATES HC FROM HL

H/L OR (HIGH-LOW)

BAR 1: ENTRY LONG

H/L: 9
H/C:5
VOL:111

BAR 2

H/L:10 <<<NOTICE STEADY INCREASE H/L
H/C:2
VOL:119

BAR 3

H/L:29
H/C:14
VOL:252 <<<STRONG VOLUME

BAR 4: SELL ON THIS BAR ANYTIME

H/L:20 <<<DECLINE H/L POINTS TO WEAKNESS
H/C:3
VOL:209


BAR 5: SELL/SHORT - I CLOSED OUT AFTER 15-20

H/L:15 <<IMMEDIATE DECLINE
H/C:14
VOL:203 <<VOLUME WEAKER THEN BAR 3/NO STRENGTH ON SELL SIDE

BAR 6: BUY/LONG BASED ON H/L DECLINE FROM PREVIOUS BAR/CLOSED OUT AFTER 15-20 PIPS

H/L:13 <<IMMEDIATE DECLINE
H/C:2
VOL:200 <<VOLUME WEAKER THEN BAR 4/NO STRENGTH ON BUY SIDE

BAR 7: SELL/SHORT ON WEAKNESS FROM H/L
H/L:20<<STRENGTH ON H/L
H/C:2
VOL:264<<STRENGTH ON VOL

BAR 8: CLOSED OUT ON 15-20 PIP

H/L:19
H/C:14
VOL:238

BAR 9:

H/L:14<<SHOWS WEAKNESS
H/C:13
VOL:205<<WEAKNESS ON VOL FROM BAR 7

BAR 10:BUY/LONG BASED ON H/L WEAKNESS

H/L:21<<SHOWS STRENGTH
H/C:6
VOL:280<<SHOWS VOL STRENGTH FROM BAR 8

BAR 11 BAR CLOSED ON TRAILING STOP 15

H/L:24
H/C:14
VOL:364

BAR 12

H/L:16
H/C:13
VOL:275

BAR 13: SELL/SHORT

H/L:30 <<STRONG INCREASE ON H/L
H/C:23
VOL:244

BAR 14:

H/L:14 <<WEAKNESS ON H/L
H/C:11
VOL:251

BAR 15:

H/L:26 <<STRENGTH ON H/L
H/C:26
VOL:298 <<STRENGTH ON VOL FROM BAR 13

BAR 16:IMMEDIATELY CLOSE OUT BAR AFTER TRAILSTOP HIT

H/L:16 <<WEAKNESS ON H/L
H/C:13
VOL:342

BAR 17:

H/L:22
H/C:10
VOL:306

NOW THE SYSTEM ISN'T PERFECT. ESPECIALLY SINCE SOMETIMES VOLUME WILL BE UP AND LEAD ME TO BELIEVE THAT THEIR WAS STRENGTH IN THE CURRENT TREND ONLY FOR THE NEXT BAR TO CLOSE DOWN. HOWEVER IF YOU TRAIL YOUR STOPS YOU WILL STILL COME OUT WITH CONSIDERATE PROFITS.
Attached Image (click to enlarge)
Click to Enlarge Name: chart2.gif Size: 34 KB
  • #36
  • Edited 7:40pm Feb 21, 2009 7:34pm | Edited 7:40pm
Hi NYSE1982,

Interesting thread. I agree that one can trade solely on volume and price action alone, (although I have not yet mastered either), and that to rely on indicators is a complete waste of time.

If however, you are using Metatrader as your platform (from the pics that you have posted thus far, it looks like you are) then you need to be aware that the volume is only correct for your specific broker and not for the forex market as a whole. This can and will cause inconsistancies in your results, unless you have a live tick feed with volume info from esignal or similar provider, or if you have a more advanced charting package, or if you have an indicator that can pull live volume info from multiple broker sources.

I have to agree with Pips_Cruiser about his qualms about the broker feeds. We all know that bucketshops can and do play with the feed especially if they are known to hedge your trades.

I will continue to follow your thoughts and analysis with great interest.

Lim
  • #37
  • Feb 21, 2009 7:37pm Feb 21, 2009 7:37pm
Quoting Greenhaze
Thanks for the pdf Nyse. It will be interesting read. I trade support/resistance areas but volume analsysis was always something i wanted to get into. There is a lot information about it on traders laboratory forum but not much about using it in forex market. Looking forward to your insights and some present examples.
There's a good reason why volume hasn't been used much in the forex market. Since there is no central exchange, nobody really knows what the volume is. When you click on a chart candle or use an indicator to look at volume, you're actually looking at a different measurement.

Here's another explanation, taken straight from my volume indicator:

"Volume" is representative of the number of incoming price ticks provided from the brokerage's quote stream during any given bar. The Forex market is unregulated which means there is no way to centrally gauge how much volume is being moved (in $ value). In the absence of traditional volume, "tick" volume is often used as a substitute (or proxy) to gauge market participants' activity.

Based on the assumption that "tick" volume can be used substitute to monetary volume, if the number of ticks per bar is increasing it is likely that there are more market participants entering the market trying to position themselves; more market participants typically equals more orders which means more money flow (or $ volume). The opposite is true if the number of ticks per bar is decreasing; it is likely that there are fewer market participants which signifies less orders and less money flow.

VSA has been used successfully in other markets. Now it's being transferred to Forex except one of the elements has been changed in the process - volume. Will VSA work just as well using "activity" as it has in the past using monetary "volume"? That's what I'm waiting to find out. I'll try to keep an open mind.
  • #38
  • Feb 21, 2009 7:51pm Feb 21, 2009 7:51pm
Quoting Greenhaze
Thanks for the pdf Nyse. It will be interesting read. I trade support/resistance areas but volume analsysis was always something i wanted to get into. There is a lot information about it on traders laboratory forum but not much about using it in forex market. Looking forward to your insights and some present examples.
GOOD THING ABOUT IT IF YOUR RIGHT YOUR MAKING ALOT OF PIPS IF YOUR WRONG THE MOST YOU CAN COME OUT WITH IS 15-20PIP LOSS MAX.
  • #39
  • Feb 21, 2009 7:53pm Feb 21, 2009 7:53pm
Quoting Pips_Cruiser
There's a good reason why volume hasn't been used much in the forex market. Since there is no central exchange, nobody really knows what the volume is. When you click on a chart candle or use an indicator to look at volume, you're actually looking at a different measurement.

Here's another explanation, taken straight from my volume indicator:

[b]"Volume" is representative of the number of incoming price ticks provided from the brokerage's quote stream during any given bar. The Forex market is unregulated which means there is no way to centrally...

GOOD POINT...
  • #40
  • Feb 21, 2009 7:57pm Feb 21, 2009 7:57pm
CHECK OUT THAT SFO ARTICLE ON VSA FOR MORE INFORMATION

http://www.sfomag.com/homefeaturedet...ne&YearID=2006
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