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Learn to Trade using VSA (Volume Spread Analysis)

  • #281
  • Feb 27, 2009 3:12pm Feb 27, 2009 3:12pm
Can someone give some info on the backtest on EUR/USD using the new indicators!
  • #282
  • Feb 27, 2009 8:13pm Feb 27, 2009 8:13pm
Quoting Madog
Hi ForexFlash,

Thanks again, much appreciated

Madog

So we have to always look out for Weakness in a uptrend and for strength in a down Trend. Each bar could be characterized to indicate Strength or Weakness based on the Spread and volume. We will start with looking out for weakness. First we will look into one of the most easily identifiable and strong indication of weakness which is commonly called the UPTHRUST Bar

An Upthrust Bar is a wide range bar, with a high volume and closing down. It indicates that the prices were marked up during the day (for simplicity we use day, it is equally applicable on all time frames), the Trading activity was High as indicated by the High volume and the prices dropped to near the low (or to the low) towards the closing hours.

Looking the SM perspective what happened was that the SM marked up the prices in early trading hours indicating strong bullishness. Enticed by this bullish move the weak money also rushed to acquire the stock. Shorts if any would also have rushed for cover. Meanwhile the SM is quietly distributing their holding to the weak money. In the later part of the day the SM drastically marks the price down trapping the weak money holding stocks at much higher prices.

In order to make this ideal, the Upthrust normally appears after a wide range upbar with high volume. This makes it easy for the SM to markup the price and entice the weak money. Most of the time the Upthrust will be moving into new higher territory. The High of this bar will be much higher than the previous high.. High volume should be an important consideration

What are the Things to Looks for in a Uptrust?
1. High Volume and How high?
2. Wide Spread?
3. Close, near or on the Low?
4. What was the previous bar action?
5. Did the bar into new territory?
6. Is the stock in an up trend?
  • #283
  • Feb 27, 2009 8:28pm Feb 27, 2009 8:28pm
Quoting nyse1982
So we have to always look out for Weakness in a uptrend and for strength in a down Trend. Each bar could be characterized to indicate Strength or Weakness based on the Spread and volume. We will start with looking out for weakness. First we will look into one of the most easily identifiable and strong indication of weakness which is commonly called the UPTHRUST Bar

[size=3][size=3]An Upthrust Bar is a wide range bar, with a high volume and closing down. It indicates that the prices were marked up during the day (for simplicity...
High volume Upthrust are a sure indication of weakness, higher the Volume the stronger the indication. It may be even wise to get out of the stock if the Upthrust has ultra high volume. Wider the spread more potent the Upthrust. Lower the closer the stronger the indication of weakness. Ideally it should close should be the Low. If the close is towards the middle it would mean than the SM was not successful in marking the price down. There was too much demand.

An ideal Upthrust will move into new territory. The High will be very much higher than the high of the previous bar. This means the SM was really successful in marking the price up and many traders get trapped into bad positions in the end of the day. Upthrusts are effective when the trend has been in force for some time. Sometime you would find weak up thrusts in early trends. Many times you will Upthrusts with low volume. I call them Pseudo Upthrusts. These are not effective as the Upthrust. But are still signs of weakness..
  • #284
  • Feb 27, 2009 8:30pm Feb 27, 2009 8:30pm
Quoting nyse1982
High volume Upthrust are a sure indication of weakness, higher the Volume the stronger the indication. It may be even wise to get out of the stock if the Upthrust has ultra high volume. Wider the spread more potent the Upthrust. Lower the closer the stronger the indication of weakness. Ideally it should close should be the Low. If the close is towards the middle it would mean than the SM was not successful in marking the price down. There was too much demand.

[size=3]An ideal Upthrust will move into new territory. The High will...
The obvious next question would be "What to do when we see an Upthrust".
The next bar after the UPthrust is very important. That helps us decide our action.
If the next bar is a Downbar closing down it is clear that the weakness and set in and the immediate trend is reversing. Here again the volume is an important indication. If the volume is high then it time to get out and wait to short. If the volume is low the weakness is not so pronounce and it may be worthwhile to wait and watch next bar movement. Here the spread and the position of Bar also give clues. If the Bar is wide closing down the weakness is more pronounced. Also if the high of the bar is towards the low of the Upthrust bar the weakness is enhanced.
If the down bar is with low volume and closing Up then the weakness of the upthrust bar is still in question. We have to wait for the enxt bar for confirmation.
If the Bar after the Upthrust bar is an Upbar closing up then it would mean that the weakness projected by the upthrust is negated
  • #285
  • Feb 27, 2009 8:31pm Feb 27, 2009 8:31pm
Looks like the charts from post #185 describe what you are referring to. It would be great if the MT4 indicators posted in this thread were more like those charts, or utilize a horizontal bar with blue showing buy territory, red showing sell territory, and yellow showing ranging territory - kind of similar to one of the pdf's posted in this thread (based on volume/spread relationship).



Quoting nyse1982
[size=3]
So we have to always look out for Weakness in a uptrend and for strength in a down Trend. Each bar could be characterized to indicate Strength or Weakness based on the Spread and volume. We will start with looking out for weakness. First we will look into one of the most easily identifiable and strong indication of weakness which is commonly called the UPTHRUST Bar

[size=3]An Upthrust Bar is a wide range bar, with a high volume and closing down. It indicates that the prices were marked up during the day (for simplicity we use day, it...
  • #286
  • Feb 27, 2009 8:47pm Feb 27, 2009 8:47pm
Quoting nyse1982
The obvious next question would be "What to do when we see an Upthrust".
The next bar after the UPthrust is very important. That helps us decide our action.
[size=2]If the next bar is a Downbar closing down it is clear that the weakness and set in and the immediate trend is reversing. Here again the volume is an important indication. If the volume is high then it time to get out and wait to short. If the volume is low the weakness is not so pronounce and it may be worthwhile to wait and watch next bar movement....
According to trade Guider/ tom Williams an Ideal No demand bar is a Upbar bar with narrow spread closing in the middle or lower and the volume is less than the volume of the previous bars. Though this is their basic definition I have seen subtle difference in the No Demand bar throwing up different commentaries.

But in general any narrow spread low volume Upbar closing in the lower half of the bar indicated No demand.
What does this no Demand Bar indicate?

A no Demand bar indicates that there is no support from the SM. The SM is not interested in higher prices and they are supporting the stock. Whatever buying or selling is from the stray weak money entering and exiting.
Consequently this indicates weakness. The No Demand bar does not indicate any immediate reversal. While analyzing a No demand bar we have to look at the prevailing background.

Does the background reflect weakness in terms of Upthrust or Pseudo upthrust? If the background is weakness the No Demand bar indicates enhanced weakness
  • #287
  • Feb 27, 2009 9:07pm Feb 27, 2009 9:07pm
Quoting eagle4x
Looks like the charts from post #185 describe what you are referring to. It would be great if the MT4 indicators posted in this thread were more like those charts, or utilize a horizontal bar with blue showing buy territory, red showing sell territory, and yellow showing ranging territory - kind of similar to one of the pdf's posted in this thread (based on volume/spread relationship).
I see your point eagle the thing is though that trading program $2995, why pay someone that kind of money when we have all the instructions to create one here..Sure it's not glamourous and glitzy but flash has dressed it up as good as it's going to get..We can trade using the basics from what we have, I've posted trades that I've placed using the beta platform.So obvisouly it does work..People just need to get a better grasp of what signs to look for, which I explain most of them in the threads!
  • #288
  • Edited Feb 28, 2009 12:01am Feb 27, 2009 11:39pm | Edited Feb 28, 2009 12:01am
I just noticed that you wrote basically the same thing I did in your post# 188.

Quoting nyse1982
I see your point eagle the thing is though that trading program $2995, why pay someone that kind of money when we have all the instructions to create one here..Sure it's not glamourous and glitzy but flash has dressed it up as good as it's going to get..We can trade using the basics from what we have, I've posted trades that I've placed using the beta platform.So obvisouly it does work..People just need to get a better grasp of what signs to look for, which I explain most of them in the threads!
  • #289
  • Feb 28, 2009 12:27am Feb 28, 2009 12:27am
Quoting eagle4x
Looks like the charts from post #185 describe what you are referring to. It would be great if the MT4 indicators posted in this thread were more like those charts, or utilize a horizontal bar with blue showing buy territory, red showing sell territory, and yellow showing ranging territory - kind of similar to one of the pdf's posted in this thread (based on volume/spread relationship).
Why not use Ninjatrader for charts?
It's a good platform that enables other types of charts than those based on time, like tick that are volatility based, range and volume bar too.
And if someone prefer can also use data from future for free, with Mirus Future (Zen-Fire).
I use it with VSA indi combined with Volume profile that show where are most probably price reaction .

NT certainly does not have the speed of MT4 to move from a chart to another and to upload a new one, it is a bit slow on this, and consumes more resources, thus not suitable for some older PC.

Lubo.

If I know how, I tell You!! Few but Good!!
  • #290
  • Feb 28, 2009 1:04am Feb 28, 2009 1:04am
Yesterday Volume Analysis on EUR/USD.

See the same situation on 10 and 15 TF.

Lubo.
Attached Image(s) (click to enlarge)
Click to Enlarge Name: 6E 03-09 27_02_2009 (10 Min).png Size: 130 KB
Click to Enlarge Name: 6E 03-09 27_02_2009 (15 Min).png Size: 128 KB
If I know how, I tell You!! Few but Good!!
  • #291
  • Feb 28, 2009 8:13am Feb 28, 2009 8:13am
Quoting LuboLabo
Yesterday Volume Analysis on EUR/USD.

See the same situation on 10 and 15 TF.

Lubo.
Can you explain how did you add those indicators? Did you have to write code or are th ose available to users of the software?
  • #292
  • Feb 28, 2009 8:48am Feb 28, 2009 8:48am
Quoting nyse1982
Can you explain how did you add those indicators? Did you have to write code or are th ose available to users of the software?

Normally in a down trend you will see a down bar with high volume bar closing on the upper side. This is called a Stopping volume. This indicates that the SM is absorbing all the stocks. The SM has decided to start the game all over again and have decided to stop the down tide and start accumulating. As a result the stock will soon see side ways movement or go into a long accumulation phase. In effect the stopping volume or absorption volume indicates that the long bearish move is likely to end soon.
An Ideal Stopping Volume bar will be down bar with high volume and closing near the top. However most of times you would see the close on the upper half of the bar.
Attached File(s)
File Type: txt chart1.txt   < 1 KB | 819 downloads
  • #293
  • Feb 28, 2009 10:29am Feb 28, 2009 10:29am
VSA ( Part I): A New Way to Look at Markets

Volume Spread Analysis is a study that focuses mainly on volume and price action and their influence on one another in differentiating the smart money from the dumb money. With this study, it focuses on the how much of smart money is in a certain part of the volume that may influence the outcome of the direction of the market.
Volume and price are the two basic data that the exchanges release in its pure form. The rest of the technical information such as indicators are only derived from them.
With that, the volume which accompanies it must be analysis as one. This is pure data analysis, no other indicators are involved. As for the price action, the length of the bar (from the high to the low), also called the spread, plays an essential role. The interpretation is mainly on Japanese candlesticks. Basic knowledge of candlesticks is required to apply it with volume. Because the close is so important, the effect of the candlestick shadows plays a role as well.
What is smart money and what is dumb money? Smart money includes specialists, market makers, corporate insiders, brokers. Specialists and market makers can see their clients’ incoming buy and sell orders. They can view ahead where the supply and demand may be coming and can determine the likelihood of where the market is going.
What is a spread? In VSA, a spread is the distance between the bar’s high and the low within a timeframe being analyzed. Normally, a set of bars are analyzed against one another for comparison. If a bar has a large spread, it usually provides clues to the smart money’s buying or selling. On the same note, a small spread next to these large spread bars give hints to the smart money’s willingness to hold or exit their current positions. Grouping several bars together provide a bigger picture of the possible intentions of the specialists, market makers and insiders.

Here are the basic rules on analysis:
1. Increased volume on up-moves indicates bullish smart money and increased volume on down-moves indicate bearish smart money. This is common sense; higher prices are pushed by buying volume. Prices moving higher without increased volume show no interest from specialists, institutions or smart money.
2. Decreased volume on down-moves indicates lack of supply and decreasing volume on up-moves indicates lack of demand. Lower prices are helped by selling volume. Lack of volume while prices are moving down shows supply is decreasing. Smart money, institutions, and specialists are not participating.
3. If there is a bar with a wide spread (lengthy high and low) accompanied by high volume, this bar is analyzed to find how much of the possible smart money is in the volume of this bar.

http://www.mrswing.com/cache/getimag...ng&ftype=image
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Figure 1 Wide Range Bars
4. If the following bar closes below the previous bar’s close but in the middle or higher of its own bar, then smart money has been detected.
5. Extremely high volume is considered a negative not a positive to the advancement of the trend. Looking at opening gaps as an example. These gap bars with high volume are well over 5 to 10 to 20 times greater than their average daily volume and are considered unhealthy trend. The move should have steady high volume, not explosive volume.

http://www.mrswing.com/cache/getimag...ng&ftype=image
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Figure 2 Extreme Volume
6. While the opening is not important the close is extremely important. This shows how important shadows are in VSA.


http://www.mrswing.com/cache/getimag...ng&ftype=image
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Figure 3 Long Shadows

7. When the bar has a small spread, volume plays an important role in determining supply or demand. This is an early indication if the thrust of the previous bars (with large spreads) will have follow-through or not. If the bar closes in the middle or on the opposite side of where thrust, then there is the possibility the top or bottom is near.

http://www.mrswing.com/cache/getimag...ng&ftype=image
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Figure 4 Narrow Range Bars
8. The test is by far the most important part of VSA, a revisit near the lows or the range off the lows hint at where the smart money may want to be, up or down.
The next post will go into further details with examples on how VSA is applied.
forexflash
  • #294
  • Feb 28, 2009 10:31am Feb 28, 2009 10:31am
Volume Spread Analysis (Part 2)


As mentioned earlier, the important information is the spread (range of the bars) and its volume. High and low volume plays an important role. If there is less volume while the bar is continuing in the trend, then there is no interest in taking it further. In addition if the volume is high but the bar closes in the opposite range of the bar. That too is indicative of a lack of interest. For example, in the chart below, the bar (wit blue arrow) has a large spread on average volume. But the most interesting bar is the next one (with green arrow). It shows its low was lower than the previous bar, but the volume was higher and that the bar closed near its high. This is a clue that there was a lot of buying in that bar, thus the reason why the close was higher than the open.


http://www.mrswing.com/cache/getimag...ng&ftype=image
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Figure 1
Below is another example where a reversal was foreseen by observing the wide range bar (large spread) and a narrow range bar (small spread). AAPL on chart below made a gap down on higher volume than normal with a wide range. So far, this is still bearish from that bar, but a few days later, prices tested that low. With a very narrow bar (no supply bar) with no volume, indicated that there is no more supply to take the stock down further. There is usually get the smart money to move in to take the opposite direction.

http://www.mrswing.com/cache/getimag...ng&ftype=image
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Figure 2
The next few days should see either more consolidation in this area or a rise when smart money decides to move the stock up by buying. The smart money has seen there is no supply in their order books, this should give them a head start by getting in early and buy.

As for the identifying tops, just the opposite applies. YHOO has been moving higher on steady volume. Then it topped off with a higher volume than any recent days (bar with green arrow). So far it was a normal day. What is important was the following day (bar with blue arrow) where the high was higher than the previous bar, but it closed at the low end of the bar on higher volume than the previous day. This indicated there was more selling than buying. By seeing higher volume than the previous day, it shows the sentiment is changing, either by the smart money or participants who previously have not taken are now coming in to close their positions.

http://www.mrswing.com/cache/getimag...ng&ftype=image
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Figure 3
As for results in the following days show, although the volume subsided, the prices have already begun moving down. A test is normally used to find out if there is any more demand (or supply on downtrends). This is usually smart money (specialists or market makers) that will move the prices up to find out if more orders coming in to push it up further. When smart money move it near the highs and don’t see more orders (low volume), they usually enter in the opposite direction and push it down to get others to join in and push it even further.

http://www.mrswing.com/cache/getimag...ng&ftype=image
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Figure 4
The chart above shows the test (bar with red arrow). Prices were pushed back toward the high (green arrow) on low volume indicating there were no more buying orders coming in. This gave smart money the opportunity to push prices down without buying resistance. The next few bars show the snowball effect: by pushing prices down, they got the others to join in as well.
As the charts show, sometimes just by observing bar ranges and bar closes with volume can tell a lot what smart money is doing and not doing; all this without other indicators. Sometimes keeping it simple can bring a lot more value. With time and close observation, VSA can prove to be an invaluable method in tracking what the smart money is doing.
forexflash
  • #295
  • Feb 28, 2009 10:33am Feb 28, 2009 10:33am
Volume Spread Analysis with Candlesticks (part 3)

Understanding candlesticks is crucial how price action shows how much buying and selling is going in a particular bar or group of bars. With volume added to those bars, it amplifies the bars’ importance from two to three dimensional understanding of the market’s sentiments and likelihood of direction.

The most important areas to understand candlesticks are the reversal patterns. These are the bars that show capitulation or blow-off of one direction and warning of an impending reversal at work. With high volume, it creates even a bigger emphasis of what is actually taking place.
Here some basic reversal patterns of Japanese Candlesticks:
Doji – Located near the top or bottom of the trend, this is a lone bar in the chart where it doesn’t give any special meaning to indicate the likelihood of the upward or downward direction. However, in VSA, this is considered a No-Demand or No-Supply bar; it is narrow range (narrow spread in VSA) and the opening and closing price are close together and that the volume is relatively low compared to the average. This No-Demand/No-Supply identifies whether the buyers or sellers are still in the push. This is a small window to peek at the possible reversal in the making.

http://www.mrswing.com/cache/getimag...ng&ftype=image
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Figure 1 A lone Doji showed a same day reversal from sellers into buyers on high volume.

Harami Cross Pattern– This is extremely important in VSA on that Harami shows a wide range (large spread) bar followed by a small range bar where No-Demand or No-Supply is taking place. The first bar usually has higher volume than the average while the second tends to have less volume than the average. An example is shown below.

http://www.mrswing.com/cache/getimag...ng&ftype=image
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Figure 2 Low volume on small bar of the Harami cross pattern indicated an exhaustion of the upside.

When applying it to VSA, it’s a No Supply Bar, where the spread is small and the volume is low, indicating the exhaustion or disinterest unlike the previous bar, a complete change in market sentiment. The next bar confirms the Harami pattern as prices headed down.


Hammer – These two names are the same but on the opposite ends of the trend. The hammer is found at the bottom of a downtrend while the hanging man is found at the top of an uptrend. The shadow is usually twice as long as the body and the body is usually on top of the shadow (below the shadow for the hanging man). The closing price can be above or below the opening price.

http://www.mrswing.com/cache/getimag...ng&ftype=image
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Figure 3 A hammer appeared with the gap on high volume. The low was made that day.

Shooting Star – In a bullish uptrend, this bar is seen as a possible reversal, normally accompanied by high volume. The body is usually half the size of the shadow. The shadow means that the buying and selling were equal measure, indicating that the bulls are in no better strength than the bears. The selling are drawing more participants in, closing below the opening.

http://www.mrswing.com/cache/getimag...ng&ftype=image
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Figure 4 Example of a shooting star, part of VSA where the new high is made on low volume.

Although candlesticks are extremely helpful, VSA adds an extra dimension to it, involving volume to confirm what has already been taught. VSA and candlesticks confirm each other’s meanings can bring very powerful signals to watch for reversals and take appropriate actions. Unusually high volume usually appears during trend changes, it is no surprise that these are periods where the media usually mentions volume.
forexflash
  • #296
  • Feb 28, 2009 1:45pm Feb 28, 2009 1:45pm
Excellent posts Forexflash, you've answered a lot of my questions with these.

Thanks

Madog
  • #297
  • Feb 28, 2009 2:56pm Feb 28, 2009 2:56pm
nyse1982,

I've noticed your last several posts have been 'word for word' takes from Karthik Marar. (attachment on post #185)

I've followed Karthik Marar on another forum for some time and he's an excellent trader. If you're going to plagiarize his work, at least give him credit.
  • #298
  • Feb 28, 2009 3:23pm Feb 28, 2009 3:23pm
Quoting Madog
Excellent posts Forexflash, you've answered a lot of my questions with these.

Thanks

Madog
A printable version.

Again, lets give credit where credit is due.

http://www.mrswing.com/artman/publis...ter_4214.shtml

http://www.mrswing.com/artman/publis...ter_4478.shtml

http://www.mrswing.com/artman/publis...ter_4546.shtml
  • #299
  • Feb 28, 2009 3:50pm Feb 28, 2009 3:50pm
I have noticed a not quite uncommon pattern of posts on FF of news or technical analysis (without proper attribution to original author/news org/etc) on many threads that are too professionally written in comparision to the usual posts from the particular FF member. Why? Ego.
  • #300
  • Feb 28, 2009 4:01pm Feb 28, 2009 4:01pm
Quoting Mike21
nyse1982,

I've noticed your last several posts have been 'word for word' takes from Karthik Marar. (attachment on post #185)

I've followed Karthik Marar on another forum for some time and he's an excellent trader. If you're going to plagiarize his work, at least give him credit.
Thats the guys name?? Thanks for pointing that out I had copied that from another website!
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