Trade Using VSA (Volume Spread Analysis)

Hope you find some value in this.

Interesting set up in the Euro/USD on the 5 min.

A: Effort to Fall candle. Wide spread down candle on climatic volume that closes slightly off its low with the next candle up. Some Demand (buying) is hidden in this candle. Why else would the next candle be up? However, the sellers were in charge on this interval.

B: Up candle showing that there was some buying on the first candle. Notice that the range is narrower than the first candle and the volume is higher. This is a squat. Also note that the close is in the lower portion of the candle. This is bearish. The long upper shadow shows supply entering this candle as well. Is the supply/demand imbalance on the side of supply or demand? We don't know. So what do we do?

C: We test. Narrow range down candle closing in the upper 1/3 of its range on volume less than the previous two candles. So we have tested. But we need it confirmed.

D: Equal close to the test bar, with a long upper shadow showing some more supply. The candle does not make a lower low and volume increases.

E: This candle is down and closing lower than the close of the test. Our test has failed. We have now seen a candle closing lower on increasing volume after our test. Our test has failed.

F: Down candle on increasing volume, but the close is roughly in the middle of the range. There is buying (demand) on this bar.

G: Down candle on equal volume that again closes off its lows. Here again this candle makes a lower low, but demand steps in and pushes the close off the low. Ultimately we have a down candle on high volume. Generally speaking, increasing volume on down candles is bearish.
Since our test (failed) candle, we have seen 3 candles with lower shadows. In other words, although they have closed lower, they have closed off the lows as volume increased. There had been some buying in them.

H: This is a test. To Japanese candlestick traders this is a hammer. From a VSA perspective. This is a candle on volume less than the previous two candles that makes a lower low but closes higher than the previous candle and in the upper 1/3 of its range. Prices were marked down to look for supply and none was found. If there had been supply in the market, the volume should be higher and the close should be lower in the range.

I: This is a key bar. Note that this is a down candle. We close lower than the previous bar. Since the previous candle was up, our test is confirmed. More confirmation comes here. There is no volume on this down candle. Notice the amount of volume on all the down candles since the first test (failed). Volume on down candles had been increasing or equal, now it is dried up. The supply is gone.

We also note that the next candle is engulfing this down candle. Long at the close of this candle.

J: As the market moves up, we see a narrow range doji on volume less than the previous two candles at the edge of the supply/demand zone. If we look back to the Effort to Fall candle, we see that in the price area where it began and brought in ultra high volume, we are now seeing no volume. Simply, sellers rushed into the market in this area, but are not rushing in to sell again. The BBs are not very active on this bar, just in case.

K: Down candle on increasing volume. One last ditch effort for the sellers to regain control of the market.

L: This is a key reversal candle. The open of the candle is higher than the close of the previous candle and the close is higher than the open and the close of the previous candle. The low is lower than the previous candle, yet the close is in the upper portion of the range. This is not quite a doji but pretty close.

If you viewed this as a test candle, then the volume is not less than the previous two candles and is a bit high. However, this candle is ultimately bullish. Again we see the next candle engulfing and closing up. Another chance to enter or add-on.

I know this is not what most people here want, but I believe there is some value in this chart. Hope it helps. FWIW current price is 1.4250.

Bravo...

Awesome post yet again. Thanks for taking the time to do that mate. Fantastic

Cheers,
MM

Yes, I found value in this HG...

It may not be what most people want but, perhaps, it's what most people here actually need...


Magnus

HiddenGap,

this is what this tread is all about...... I read and study each post you make!!! I learn so much and hope you dont stop posting.... I know it takes time to put all this together so I just want to say THANK YOU!!!!

Learning as fast as I can!!!

D-ramon

Seconded ...

Thanks for the input. They have minor differences but not that much. It's good to know that the Demo feed is usable.

Its exactly what most of us need. Really appreciate the effort you are putting in. Wish I had learned this when I started trading!!!

Many thx

Just Brilliant... Keep it up...

Here is 3 my trades today. All losses ....


If someone can comment - please ;]


Thank You.

Best,
Tom

you are trading against the trend. GU has been within a down channel all day. You should trade at top of channel to reduce risk. As range has only been 20 pips I would also look at candles on 1 min charts.

you are trading against the trend. GU has been within a down channel all day. Suggest that you draw lines on 5m. You should trade at top of channel to reduce risk. As range has only been 20 pips I would also look at candles on 1 min charts. Now broken thro but likely to drop again

you are trading against the trend. GU has been within a down channel all day. Suggest that you draw lines on 5m. You should trade at top of channel to reduce risk. As range has only been 20 pips I would also look at candles on 1 min charts. Now broken thro but likely to drop again but wait for news items to settle

Thanks, goood point.

B,
Tom

Trend is down look to go short between the top and the middle of the channel. Look for a no demand bar (low vol up bar) with a wide spread/high volume up bar in the background.
Reverse for long trades

sometimes look at a larger time frame.... like a 4hr and 1hr for vsa setups... its sometime easy to get off track just trading a five min... look at biger timeframes to confirm trend..

D-ramon

HiddenGap,
are You using VT platfomr on CMS for charting with better volume ?

If yes, would You tell where is possible to download better vol like Yours for VT platform.

Thank you.

B,
Tom

I suck I had my eye on a great trade and I just did not pull it together!!!! you showed this one before and I just did not take advantage of it.... I cant just let these pass me by like this this!!!!!! Darn!!!

D-Ramon

very easy

trade 1 ... 6200 major s/r on gu .. price was marked up to it on news . The candle you entered on was a high vol doji then look at what hapened next 2 x candles ... volume died off in fact one was an o demand bar. Long doomed

trade 2 .. nothing wrong form vsa perspective but you ignored lower highs on 5 min charts and should have been looking for sell rallies not buy dips

trade3 , you missed background buying on support a few bars back

Don't sweat it. The market will be here tomorrow. There will always be moves that are missed.

A word of caution:

My prior post was not so much about a pattern as an understanding of supply and demand principles. We saw three consecutive down candles each with volume less than the previous two candles. In other words, as price was falling, volume was decreasing at an increasing rate. This shows not real enthusiasm by the Smart Money for lower prices.
On top of that, we were in a Supply/Demand Delta Zone. This brings together two things: 1. seeing what you want to see 2. seeing it where you want to see it.

BTW I was not trading during this time so I missed it too . I am sure some of our all stars like malcomb, Yuppie or Shamus caught it though. Would love to see some charts by those who did.

First a couple of thoughts:

1. You are going to be a very good trader. I like how you have taken responsibility for your trades and are not blaming VSA. Many newbies would be cursing VSA and off again on the search for the non-existent holy grail. I truly believe you will be one of the ones who make it.

2. It is no secret that I am a believer in the power of the Supply/Demand Delta Zone. More exactly, in Expansion body and Long Shadow analysis. There are, however, other was to create support/resistance lines, areas, or zones. One of the main benefits to these horizontal lines is that they focus your attention as a trader. It is usually better to be taking a trade on or near a support/resistance line, area, or zone. Most traders should not be taking trades in "air". On your chart, there is a pink line what may be some sort of support/resistance but the trades you show take place nowhere near that line and that is the only line I see.

On to the trades.

TRADE 1- In all honesty, I would of made this trade as well. You can see from the picture I attached, this is in a supply/demand delta zone via a long shadow. Candle A is a failed test. We know that now of course. At the time it looks like a candle of strength. It closes near its high, slightly down from the previous candle, makes a lower low all on high volume. Simply, it does look like stopping volume.

Candle B is an ugly bar for longs. It has ultra high volume and closes in the middle of its range. This looks like a transfer of ownership type of bar. I don't know if you enter on the open or close of this candle. But if it was the close, the candle itself should have given you pause.

Candle C is no demand. It is a narrow range bar closing equal to the previous bar on volume less than the previous two candles. Note that it makes a higher high. The higher high shows weakness. The close in the middle of the range (after making a higher high) is another sign of weakness. On top of that we have our ugly candle at B.
What you did right- You quickly admitted you were wrong and got out of your position. You did not marry yourself to the position and start to hope for a reversal.

Simply, You did not look for the market to prove you wrong, you looked for it to prove you right.

TRADE 2- I do not know why you made this trade. There is one candle (the dark hammer) that shows some strength. It closes in the upper portion of its range on a down candle with high volume. While it is strength, it does not look like stopping volume. Nothing else in the background jumps out at me saying "demand is entering".

TRADE 3- Let me say again, you will be a good trader. Your willingness to take two losses and then listen to the market and change trade direction is the sign of a good trader. While this trade does not go your way, being able to go from trading long to trading short as the market tells you that the path of least resistance is to the down side is an essential skill.
With that said, what in the background makes this seem like a good trade?

If the trend is down, then you want an up candle on low volume to enter. Or a narrow range up candle on high volume. But take a look at the second chart. Notice that every candle that is making a lower low has decreasing volume after the second one (dark hammer). So each push lower is done with less and less enthusiastic sellers. Demand is entering at each point.

Candle A is a candle of strength. It is a narrow range down candle closing near the middle of its range on increasing volume. It looks like a failed test, but the next bar is up. If this was a test on high volume, we would expect the market to come back down and re-test since the volume is high. That's what the market did.

Take a look at the candle prior to candle B. Again this candle makes a lower low than the other candles with the double arrows. Note how much lower the volume is compared to those others. B is a narrow range equal close candle on volume less than the previous two candles. This is a test with good volume (low).

Hope this helps.