Trading W/ Smart Money

Testing is by far the most important of the low volume buy signals. As we shall refer to the subject many times, in what follows, it will be worthwhile to digress here for a moment and look at the subject in detail. What is a "test" and why do we place such importance on this action? A large trader who has been accumulating an individual stock or a section of the market can mark prices down with some confidence, but he cannot mark prices up when others are selling into the same market without losing money.High volume, or high activity, shows that there is in fact selling (supply) on the mark-down . This process is known as testing. You can have successful tests on low volume and other types of tests on high volume, usually on ‘bad news‘. This not only catches stops, but shakes the market out as well, making the way easier for higher prices. Testing is a good sign of strength (as long as you have strength in the background). Usually, a successful test (on low volume) tells you that the market is ready to rise immediately, whilst a higher volume test usually results in a temporary up-move, and will be subject to a re-test of the same price area again at a later time.

Testing occurs on the 15m and on the 1m charts

I'm still longterm bullish EUR, my broker FXDD still allows hedging, so I'm long EUR.However off the 1H chart the current candle volume isn't higher then the previous 2 candles, so I'm shorting off the 15M chart assuming the 1H chart, will close down b/c of lower volum on the green bar.Tom Williams speaks about looking at largertime frames to anticipate positions to take in the lower time frames.

Got to forecast these things!

Update

Closed out trade on down move and I've bought another long position b/c red candle closing on 1hr chart had less volume then the previous 2 candles, so I'm anticipating a green candle on next candle. I checked the 1m chart and bought on that bounce off the overbought area.

I'm still watching 1M chart seeing if it drops lower, I'm going to try to buy more on oversold dip.

I'm only going to ride this green bar for a few pips, b/c the volume doesn't look like it will be higher then the previous 2 candles, so unless the volume surges, I'm anticipating the next candle to be red and I'll be looking to take a short out soon.

update

volume is just dead on this candle, I'm going to get out and prepare to setup my short!Got out with small pip loss.

pipsr4kids,

can you post the VSA spread indicator that you have on your charts? Thanks!

I've done a brief analysis on the GBP/USD on the 4hr tf were still in a long trend distribution phase,however the distribution phase, is beginning to show signs of weakening. You can tell based on the declining volume during the distribution phase. Once I intentified the longer term trend, I focused on the 5m tf, where I indentified how the pair approaches the strong pivot on weak volume which means, the move upward is not supported by smart money so it retraces back to the top trading range pivot on lower volume and and that isn't supported by smart money either. So it appears that it's stuck in this trading range until we get a confirmation to the upside or down side on strong volume which would show support of smart money.However, I plotted an arrow, which shows a test by smart money, a test for supply.The test was successful on low volume, which means higher prices are evident, b/c smart notices the supply has been removed from the market.

I've done an analysis based on the 4hr chart and the overall trend is still bullish and the market is in a distribution phase:meaning smart money is selling and prices move higher. However, were going to have a slight break in the trend based on the analysis of the last bar volume which isn't higher the previous 2 bars,this shows temporary weakness in the pair.

The current short term trend is down, based on the fact that we have weak volume as the pair approaches the ultimate resistance and smart money currently isnt supporting higher prices. Also notice how the spreads narrow near the resistance lines. The pair may drift to the major support/resistance line, however continue to watch the volume as it approaches the line. This lets you know when to step in and go bullish. Your looking for decreasing volume as it moves towards the major support/resistance and a spike it volume on the rebound from the major support/resistance, to show smart money is currently supporting the move.Be cautious and remember if you go bullish set tight stops, b/c overall trend is still down.

More videos of VSA by tom williams

http://www.youtube.com/watch?v=FK5PfQuHJcs

http://www.youtube.com/watch?v=FK5PfQuHJcs

Just a quick update, the 4hr chart closed on a red candle lower volume, so next 4hr candle will be a green candle. Now what will occasionally happen is the pair will drift lower in Asian session as more sell orders are filled from weak holders. Continue to watch 5M chart and look for opportunities to go long.I'm going to post my trades once, I find a good entry.

Always look at the 4hr chart before trading to get an idea of the overall trend of the market. Now as Tom Williams explains in master the markets, he says to look at the current candlestick and if the volume is lower then the previous two candles then the next candle will close down.

Example:If it's a red candle and the volume is lower then previous two candles, then it will close green. If's a green candle and the volume is lower then previous two candles, then it will close red next candle.

You can then take that knowledge and look for opportunities to short using the 5m or 15m charts. Always look out for the increasing volume as the pair approaches a resistance or support area. Increasing volume means that smart money is supporting the move and it should move right through the support.resistance points. Likewise decreasing volume approaching the support/resistance line means smart money is not supporting the move. That's all were concerned about is what smart money is doing. The activity of the weak holders is of no concern to us.

A good opportunity to go long is when you see absorption volume or stopping volume:Normally in a down trend you will see a down bar with high volume bar closing on the upper side. This indicates that the smart money is absorbing all the selling.Smart money 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.

I got in on EUR/USD reversal 1.3973 on the green bar reversal, noticing that of course was weakness and got out about 30 pips.

I went short after that markup bar on low volume!

USD/JPY long trade..

Great indicator from my man flash, helped me book some great profits.This is amazing,

Great start to the trading day!

The following suggested checklist is for short positions


• Is the market constantly falling on no support? The low of each day (or bar) should be lower than the
previous day (or bar). This is a sign of weakness (the market is not being supported because there is
no professional interest in the upside).
• During an established bear market, be pessimistic, even if a rally appears to be going on. Bear Markets
usually run longer than you think they will.
• Are green indicators present which result in the price showing an immediate upward response?
Caution, the market has responded to what might be a bullish indication.
• Are there any low volume up-bars following a green indicator? This is a sign of weakness.
• Is the market oversold? (i.e. The price is moving below the bottom trend line in a trading channel). It
would be inadvisable to short in this situation.
• Is the market in an upwards trend? You should be very cautious if shorting in an uptrend.
• Is there a successful test in background? Be careful, it would not be wise to short.
• Is there stopping volume in the near background? It would be very risky to short in this situation.
• Is there a selling climax in the near background? This is a significant sign of strength, so shorting in
this situation would be extremely dangerous.
• Do you want to short on a down-day? It is extremely unwise to chase the market. True weakness
always appears on up-bars.
• Can you see a ‘no demand’ up-day (or bar), following signs of weakness? This is a good place to
short.