Trade Using VSA (Volume Spread Analysis)

hi,

i actually waited that someone would say smth like that

you might be right...no BY THE BOOK "no demands" probably...

but the market was NOT falling on decreasing volume after the massive upthrust...definitely above average volume. on the contrary the market went UP on decreasing volume (the ones i marked as no demands) and not only decreasing but on low volume...

the point here is this: we had weakness in backround, other things and a massive upthrust...what else do you need ?

plus the whole picture looks like a mark up.

let's see how far it goes.

Darn you beat me to it, he he...

But look at the price-bars... they are very significant here. The bars are average in range and closing at [or near] the highs - I don't see this as No Demand in any way.


Fair enough, but from what I've mentioned previously, I do not see weakness in the background here.


Magnus

Sorry I was a bit tired last night/this morning. Let me try that again, and let's start from a different perspective.

VSA teaches us that the ideal place to initiate a trade is a within the range (H-L) of a very high/ultra high volume candle (technically bar since VSA does not use the open). Using a completely different form of analysis, Expansion body analysis, we can refine this concept in such a way as to define the ideal trade location to be not the entire range, but the body (open to close).

We want our Expansion body to have certain characteristics that detail certain VSA principles and some other principles of price action in general. This affords us a better understanding of the price action prior to the appearance of a signal and thus gives us more confidence in said signal.

This is a VSA thread, so we want to keep things along those lines. But, once we understand the price action and the significant expansion body, we could take any type of signal. In other words, if you used a cross of MAs to enter the market, the ideal entry would be a cross of the MAs within the Supply/Demand Delta Zone. This of course makes sense by definition.

The Ideal Expansion bodies will first be EB7s. That is, the body will be the largest body of the last 7 candles. Again, this relates to volatility and NR4 and NR7 bars.

We also like the bar to be a "buying" or "selling" candle. So if it is an up candle, we do not want it to make a lower low than the previous candle but we do want a higher high. If it is a down candle, we do not want it to make a higher high but we do want a lower low.
Next we would like to see that the body (Open to Close) makes up the majority of the entire candle's range. Hence we like to see the close in the 80,85, or 90% of the range with the open in the lower 20,15, or 10%.

From a VSA perspective, this generally means that an up candle closing at these percentages is showing strength. As volume increases, however, the close hints at supply swamping demand. (more on this in a minute).

As volume increases the requirements for the close ease up. At the base level, volume less than a Moving average of volume, we would want the highest close requirement which is 90%. This is because we would be looking at an "Effort" candle. I also added the additional requirement that such a candle with this amount of volume have an increasing MFI (range/V). This basically shows ease of moment, or the ratio to volume to range. We also use range X volume to determine climatic action.

So let's cut to the chase.

Attached is a 5 min chart of the Euro.
At 10:00 NY time the Fed Chairman begins speaking. As a result we get a Wide Spread up candle on climatic volume (dark blue) closing off its high with the next bar down. VSA tells us that when weakness appears, it appears on up candles. Since the next candle is down, there must have been some selling in that candle. This is the reason markets do not like up candles on ultra high volume. We know the Smart Money is active because of the volume AND because of the width of the candle body.

Taking a closer look at the close. We see that it is off its highs, but it is at least in the 80% of the candle's entire range. Had the volume been less, an 80% close would be seen as bullish. In this case it can not be completely viewed as such because the volume is so high.

So we have a candle with a bit of duality. On the one hand it is an Effort to Rise which is bullish. On the other hand it represents new supply coming into the market from the BBs and is therefore bearish. So there is something going on in the supply/demand dynamic in this candle.

Price does indeed fall. But that is not what we are actually concerned about at this moment. What we are concerned with is the fact that this area now represents an area where changes in the supply/demand dynamic have happened, and therefore should continue to be an area of change until it is closed. In other words, what happens we price enters this area (either from above or below) the next time?

So when we look at this candle we see that there was a change in the supply/demand dynamic. Prices went form moving up to moving down. Will sellers continue to step in at this region and force prices down the next time they reach this level? Or will new demand enter in the form of buyers and push prices up?

That is what the Supply/Demand Delta Zones are all about. They represent the market's own best interpretation of where the current support and resistance can be found. More importantly, and what is actually ment by support and resistance, this is the area where any changes (or contiuation of the current) supply/demand dynamic would show themselves.

As expansion body analysis is independant of VSA, one could define significant EBs thru price action alone. Like swing points (there are many ways to define swing points). That is not what I am doing, however.

I'd be careful using futures volume on the lower timeframes, it can be deceiving.

Here's my take on what happened. I agree it was a possible markup on the higher timeframe's but the 5m chart did hint that it was going to go up. I could be way off the mark, but there was no way I would have shorted until point H.

A) Here's a typical 2 bar shakeout. The volume on the 2nd bar was a healthy increase pushing through resistance as we had an old high to the left. This is bullish.

B) Suspect, a lower spread up bar on higher volume. There is no weakness in the background as yet so we have to wait and see what the following bars do. A lot of short covering perhaps as it was pushing through the old high on the previous bar. Notice how it failed to close down back below the old resistance now support line.

C) This confirms that the previous bar was more than likely short covering. This bar also has hidden potential selling, but it was tested immediately after and there was no supply (selling pressure). If you follow the bars along until the next move up through the old top, you'll see that the supply was abolished before it continued up.

D) That's potential selling on the up bar, but we also get potential buying immediately after. The buying was confirmed again by the no supply bars that followed.

E) Same as point D.

F) This is an upthrust yes, but we don't have the weakness behind us as of yet. It's also a down bar, which indicates strength as there is no weakness behind us to call it a true upthrust. We would want a test of that area again to confirm that there is no demand (buying pressure). You'll notice just before point G, it did test this area but the demand was just too high.

G) This is our first sign of true weakness, volume is ultra high and the spread is ultra wide. The close is not the most important, preferable if it closes in the middle to low, but it's not required. The spread and more importantly the very high volume is what we are concerned about. Yes it's pushing through an old top to the left, but the volume is not healthy, it's just way too high.

H) Here's our no demand confirming that the previous point was in-fact weakness. The volume is still a bit high for my likings so it will probably be tested again. Still good for a scalp though, tight stops as the SM will want to ensure the demand has diminished before going down longer term.

The no demands you pointed out were a bit high on the spread, but it's the relative volume we are concerned about, relative to the past few bars. They were technically no demand bars but we didn't have enough background to make them significant. The close is not the be-all-end-all. It is only preferable that the close in the middle to low. Same with the hidden potential selling/buying. It's the relative volume and the spread we're most concerned about. At least that's what Todd and Tom indicate in the VSA boot camp CD's.

I try not to get all wound up in the exact terminology of each bar. Want we want to do is think of it all in terms of supply and demand. No supply = price up, no demand = price down. Don't use this on only two bars either, it's the background that matters and we can't determine if there is no supply or demand with one no supply/demand bar alone.

You will also notice that the slow incline from point C to F had way to much demand on the moves up and very little supply on the moves down. We want the demand to diminish before considering shorts, and there was no major sign of weakness at the time either.



I still think EU is weak, will post a longer term view next...

Very nice TwoBuckChuck. Thank you.

Hello HiddenGap and TwoBuckChuck.

Just wanted to say a big thanks to both for your posts. Great insight and really thoughfull and clear VSA analysis. That help a lot.

BTW, my friend TwoBuckChuck, which charting platform is that?

Cheers

Shreem

Looking over my charts it seems to be a bit of a dog fight ATM. I would not be surprised if it's trying to test the 4450 highs from earlier this month.

The 8hr chart shows clear signs of weakness, but also possible renewed strength on the 4hr.

The 8hr was a clear hidden potential selling bar. The spike in volume was close to that of the NFP spike earlier this month. It has also failed to close above the previous swing high. The next bar is not usable as it was only the last couple hours of the US session. It's not a full 8h bar.

No doubts in my mind that the potential selling bar is a strong sign of weakness. We know from the 5m chart I posted before that the bulk of the volume kicked in up the top. Whether the demand can be abolished is of course the million $$$ question.



The 4hr also has weakness, and potential renewed strength on the upthrust as it is a down bar. I like my upthrusts to be on up bars personally - so does my wife

One thing that does stick out is that price is finding it difficult to close above the resistance line. Most definitely a lot of selling pressure there, as there's a lot of buying pressure as well. This is why I am thinking of a possible test of the monthly highs before a potential move down. There's a lot of weakness building, no doubts about that - point C on my 4hr chart shows demand is diminishing but this could also be due to it being in the late hours of Friday.

The 8hr could easily no demand or upthrust its way up to the 4450 zone before signalling a possible move down. Not saying a break up past the previous high is out the question either. Time will tell.

Hello and good day to you Shreem. I hope all is well. You should be off work soon hey mate?

The charts are from trade guider, I don't really like it as a charting platform to be honest, but I am slowly getting used to it. It has however helped me with the higher time frame volume analysis. Seems to work quite well even though the Asian sessions are quite thin on volume.

Ninja trader is my personal preference, but as you know it has volume issues on the higher time frames due a max value for a 32 bit integer. Damn simple fix on their side but it's not going to be done until NT v7 I am told

I am swaying towards giving the esignal platform a test dive. If I am not happy with that I think I'll try the Investor R/T platform you suggested.

Hello TwoBuckChuck, cool. That great that the TG software help you in your higher timeframe analysis. I did test drive esignal charting platform but, for any reasons, dont really like it. I do really more like the investor R/T with esignal data feed. Also, esignal charting is not very much friendly user as you need to always pay to get adds that you want like market profile or the volume profile that Mal have. With Investor R/T, i get it included in the monthly fees. So, 155$ a month for that investor R/T including market profile charts, volume profile chart and so and esignal data feed is not bad at all.

Yep, 1 more week of work and then i am off for 13 weeks. That will be great as i will be trading full time during those weeks and will be able to stay with wife and little child

Have a great week-end my aussie friend

Shreem

Wow, HiddenGap and TwoBuckChuck excellent recent posts. Keep them coming as I'm sure most truly appreciate that you guys are taking your time to show them in a simple and specific manner for those learning. This is exactly what this thread needs when Mal is not around...

thanks for your great input 2buck.

some i agree, some i don't (probably my wrong interpretation of vol analysis)

it seems to me that a lot of analysis is historical chart analysis...it's great to tell the past, this way we are always right.

but when it comes to future prediction things suddenly do not work as clearly as was desired in the first place.

2buck, you said that 5m futures vol analysis is not accurate ?

have you seen that some traders here use 1M and 15 sec vol analysis

Thanks hiddengap for your input..but have one question is there anyway we can make an indicator that will show us the S/R Delta zone.. if we have set of rule i think we can make one.. what do u think?

If I may?... I think he may have been referring to the inaccuracy being in the futures volume as opposed to 5m time-frame.


Magnus

hi,

can you please explain what you meant by that ?

can't read it out.

thanks

Hidden Gap -

As much as I know Chuck would like to do this one for you, I also know Chuck is very busy on another project. If you would like, I would be glad to attempt to code it, and give Chuck the time to work on his current project.

If you would like to pursue this please contact me as I have some questions about the one you are currently using. I do have an early prototype going now, so it shouldn't take us long to get your indi up and running.

Sincerely,

Chief

I thought that was what VSA was all about. Right, that we have to be able, based on VSA to predict where the trade will/may go. There is just too much historical analysis here for my taking. I appreciate the fact that some are adding future volumes to their analysis. To be true to myself, I did not get anywhere untill I added future volumes and MP (my style) to my analysis.

Lets try to VSA any chart at the very right hand edge and maybe some of us would learn something new if not making our lean purses a daint heavier in the proccess.

Weekend is time to put forward what we think the market will do come sunday. What do your lads and gals say to that? 90% of trading is the analytical aspect, I though I heard someone say. Cheers...

While Chalk is quoted above, this response is not directed at him. These are my thoughts for whatever they may be worth.

I posted a chart and asked if somebody could see a long entry signal on the chart. I got a few responses and am very grateful for them. I have spent most of last night and today looking at that chart. WITH 100% HINDSIGHT I HAVE SEEN SOME THINGS I MISSED IN REALTIME. NOW I HAVE AN UNDERSTANDING I DID NOT HAVE AS THE CHART UNFOLDED. I CALL THAT LEARNING.

I have attached the chart with letters, but will not be leaving any analysis. Those viewing the chart can do the analysis on those bars if they want.

I do not predict the markets. The future is unknown and not knowable. I could not care less where the market will be in 2 hours, 2 days, or 2 weeks. As a trader all I can do is identify high probability set-ups and then take them with discipline.

If people want right edge analysis, then we need live action video. That way we could see the set ups being identified and taken as they occur. This is much more valuable than a guess about where the market may or may not go when it opens. Simply, I don't care if you think the market is going up. I want to see that you have a set up as of the last bar/candle/line on your chart and you are going long on the open Sunday night.

With that said, I believe hindsight analysis IS the best way to learn the principles of VSA or any other method. In real-time, other factors and personal issue muddy the core trading concepts. But if its real time right edge stuff this community desires, let's get a way to share our charts live over the web. Simply, posting charts about what you think the week to come holds has less value than hindsight charts offer for learning set ups.

I am new here and have read the thread. What I find most frustrating is 80 pages of indicators/question about indicators for a price action only method. As far as I am concerned, that takes away from learning to see set ups in real-time more than looking at a hindsight sight chart does.
This may not of been my place, and Shamus, I apologize for that. What you have here is great . It is certainly bigger than me. Just had to say my piece.

One last thing: ISN'T THAT WHAT THE CHAT ROOM IS FOR? REALTIME RIGHT EGDE ANALYSIS.

Could you point out first entry?

Thanks



D-RAMON