vsa with Malcolm

please check bond rates, isn,t portugal offering 10-year bond yields at 7.656.
i am currently a bit biased. but i am seeing new yearly highs.

to be clear, i was speaking to e/u fundementals, the chart i posted was meant to express my biased position.

How come your 1 hr chart is showing an extra candle ..I have a close at 1.3685

broker has average price at 3693 ask 3698 bid 3689

Hi Dr G,
I was studying through your explanations and also looking at my own chart at the same time.

i have marked areas where i see weakness in black dotted lines and strength in orange dotted lines. I did not take any of the trades these whole time because i either have been waiting for the test/NDs to appear (and they never did) or i must have missed them when they did appear.

and i not entirely sure if i marked them all correctly or not.. as you can see i have also marked section "A and B" with some strength, but that part of the price was probably like what you had described "it must have been markup to sell off".. because the real reversal didn't happen from there.

My question is, is there any way that vsaers could possibly stop themselves from entering long trades at places like point A and B (could be profit taking area / where SM had purposely marked up to sell off further).
-- and only enter long at C where the real reversal start to happen?

Thanks,
Newbie Trader

it takes time & experience to know when to enter (& exit, if necessary).

let me try & answer your Q, vsa-wise.

please see my charts. i tried to reproduce your chart, but using BetterVol. indi (as im not very familiar yet with HG vol. indi which u used in your chart).
ignore the horizontal lines.
chart 2 is the continuation of chart 1.
take note of dark blue rectangles (resistance/support areas), small white diagonal lines (which shows buying/demand), green boxes (significant areas, volume & price-wise; 1st three green boxes are your A, B , C, respectively).

A & B, has never shown good volume/buying.. or at least substantial buying to warrant an immediate upmove.
remember, the market does not move in a 'V' like fashion often. usually it moves in waves or in "M's" or "W's".

B was heading into a resistance area (blue rectangle). it didnt show significant demand to pierce through that area.. but we are getting signs of demand (white diagonal lines)

C/prior C, we get to see more signs that buying is stepping in.
after C, i indicated major areas of buying(white diag. lines)

hope the charts are clearly visible & explains my thoughts further.. hope it helps

ARTICLE WRITTEN BY Gary Norden!!
YES ! The WHOLE ARTICLE


Volume is one of the most popular indicators used by traders, particularly technical traders. It has become accepted wisdom that high volume needs to accompany any move in a contract if that move is to be believed. For this reason, volume filters are usually added to trading systems in both back testing and real-time trading.

As with most aspects of technical analysis, we are told that we can apply the volume rules to any contract, so volume filters and analysis are
used on markets as diverse as shares and futures. The two main stories told to justify the belief in higher volume are, first, that higher volume means more people are taking part in the move and so the move is more sustainable; and second, that volume is like fuel, and, rather like cars or spaceships, contracts need fuel in order to move. The main caveat to this philosophy is the theory of ‘blow out’ volume, where it is suggested that extremely
high volume can signal a change in direction. Like much accepted wisdom in this business, volume stories appear
to make perfect sense and are therefore rarely questioned or examined. But as a person who likes to challenge conventional thinking, and in the interest of making sure our beliefs are robust, I want to take a critical look at volume and what it may or may not tell us.

We will examine the volume story in the light of how our financial markets operate, using examples from my career as a senior trader in the City of London and also using a well-researched study.
While we are told to apply volume analysis to shares and futures in the same way, these two markets are vastly different. The numbers of shares outstanding are limited, whereas futures have no set limit. Even though we know the number of outstanding shares, we do
not know how many are available to trade. In the case of small-cap shares, the available free float can sometimes be quite small. This situation is exacerbated if stock borrow is not available and therefore the stock cannot be short sold. Compare this again with futures, where there are no impediments to short selling.

Clearly, the available supply for any contract has a direct effect on volume. For example, it is feasible that as a small-cap stock rallies, it declines in volume. But this decline does not mean that people don’t want the stock – they just can’t get it. In turn, such a stock may see a large rise because of issues of demand and supply; a rally which a volume filter that eliminates low volume will miss. This is a simple example – there can be many permutations. We thus should not analyse the volume on a small-cap stock in the same way as we analyse the volume on the SPI Future. Volume for these two contracts can mean very different things.

We need to understand the demand and supply issues that affect our contract before we make any assumptions regarding volume analysis. It is simply wrong to assume that volume analysis is the same for every market, product or contract. Even seemingly closely correlated shares may require completely different volume analysis. Analysing every contract in the same way makes your analysis easier, but does not make it more reliable.
Many supporters of technical analysis argue that volume indicators and filters are vital accompaniments to whatever patterns or indicators they use. For example, true head-and-shoulders patterns are apparently formed only when the volumes at various points are as the textbooks say. Breakouts need to be accompanied by good volume. It might sound okay in theory, but one aspect has always puzzled me. If volume is so important to technical analysts, why do they apply their analysis to foreign exchange markets, where volume is never published and cannot be known? Is volume not as important as technical analysts say? Markets today are complex beasts, very different from a hundred
or even fifty years ago, when some volume theory was first taught. Not all traders buy contracts because they think they are going up, and sell them because they are bearish. If this sounds odd, I will explain, using examples from my own career.

At ING Financial Markets I traded a very large (approximately $A1 billion) convertible bond book, using mainly a technique called volatility arbitrage. Essentially, we used the options that are embedded in the bonds to trade the volatility of the underlying contract. We did not take directional views on the underlying stock, but traded the volatility of the stock. If the stock rallied, we needed to sell some to rebalance the position. Similarly, if the stock fell we needed to buy to re-hedge. The re-hedge trades would usually take place for every move of a few per cent. Importantly, because the aim was to be always neutral to market direction, we did not necessarily try to sell at the top or buy near the bottom; rather we had to re-hedge whenever the stock moved. If the stock rallied and we sold, it did not matter if the stock rallied further because we would have more to sell.

Volatility arbitrage is quite a complex method of trading. If I had a large position in a bond and the underlying stock rallied a few per cent, I would need to sell a large number of shares. Sometimes this took two or three days, and undoubtedly my volume would greatly increase the typical daily volume. While I was careful how I sold the shares, often I would halt the rally for those few days. But I was not selling because I was bearish on the stock. I didn’t have a view on it. I sold because my position was now unbalanced and I needed to rebalance it. Anyone looking at that stock and making assumptions about high volume would have been wrong.

Volatility arbitragers are just one type of trader whose actions can mislead; they do not buy because they are bullish or sell because they are bearish – a frame of mind that is not supposed to exist in our markets. Similarly, if I bought a large number of bonds from a fund, I had to sell a large number of shares in the underlying stock in order to hedge. Again, my selling of shares was not because I was bearish, but merely to hedge my position. I might cause a spike in the volume and drive the stock lower, but, I must reiterate, I was not bearish. While it is almost impossible for retail traders to know when these types of trades occur, the important point is to acknowledge that they exist and therefore to abandon analysis that might be misplaced. Unfortunately, most educators and writers have no experience of this type of trading. Most have only ever traded from home and rely on decades-old rules of thumb that seem plausible, without ever scrutinising them.

Any contract that has derivatives on it might be subject to this kind of trading activity. Again, small- and medium-cap stocks that don’t have derivatives have very different influences than a futures contract, which might have many derivatives. I am sure most readers are aware of the greater volume and volatility that can occur at the time of futures’ and options’ expiration. However, once the expiration has occurred it is pointless analysing the volume of that period in too much depth, because the circumstances surrounding the high volume no longer exist. This is essentially another period when volume is not due solely to traders’ views on market direction, because much of the trading over the expiry period is the unwinding of arbitrage trades.

I analysed many excellent studies for my book ‘Technical Analysis and the Active Trader’. I will refer to just one, a study in 2000 by Lee and Swaminathan entitled ‘Price Momentum and Trading Volume’. The study examined all stocks on the NYSE and AMEX between January 1965 and December 1995. The authors found that the relationship between momentum and volume is not as straightforward as the supporters of technical analysis would have us believe. They found that for rising stocks, early momentum is accompanied by low volume and that higher volume was associated with the end of the rally. Buying a rising stock when the volume increased was likely to be a losing strategy. For falling shares, the opposite was true. Higher volume tended to accompany the start of a fall. Increasing volume usually meant the end of the move. However, in a major caveat to their study, the authors noted that their findings were generalisations. While they covered most of the situations they studied, individual stocks followed very different, individual paths. When studying momentum and volume, the authors stated, “The turning point for individual firms may appear random and difficult to pinpoint.” (written by Gary Norden’s 20-year trading career started at the age of 18. He has traded derivatives for investment banks and with his own capital).


The traditional volume story is undoubtedly one that makes a trader’s job a little bit easier. To use volume as a filter or as an extra indicator in the way we are usually told to helps us make decisions. However, I believe my role is to explain markets as they are, not as we want them to be. I believe that sustainable success depends on understanding how markets really work and incorporating that into our analysis. If we hold beliefs that sound convincing but are misguided, we do not help ourselves. While I do take some account of volume, it is crucial that I apply that information in the correct way and not just rely on a rule of thumb.

trichet had some pretty nice words for the eur yesterday...i am really looking forward to sundays gap

http://www.bloomberg.com/news/2011-0...chet-says.html

If there are about 40 pips gap, is there anyway for bargain hunter?
I've never traded the gap, so have no real experience with it but notice it always gets filled

I am not going to repost that whole previous article but I would like to add my 2c.

You may have extensive experience trading very large accounts but I am not sure you have posted your article on the right thread.

You mentioned that volume info is not available for forex, but tick volume is available - which is what is used by VSA practitioners.

I expect most volume in forex does not arise from transactions in which a direction bias is its basis - but that does not mean that volume cannot provide some insight into the probable direction of price in the future.

Market supposedly operate upon the basis of supply and demand - and if that the case, then it shouldn't matter WHERE the volume comes from - price should still respond to volume .

I have not found any methodology that uses volume to be consistently helpfull except for VSA. From your article it appears your understanding of the methodology is not extensive. VSA is based on the principles of Wyckoff who started his trading career early in the last century. It is my opinion that a methodology doesn't last that length of time if it is of questionable merit.

I did that, but I can get some pressure from other peoples moneys, so I am just saying that they have to make trade desicion themselfs.

http://www.forexfactory.com/showpost...ostcount=13176

on Oanda earlier today, eurusd & gbpusd has already moved up from Friday's close.
3pips up for eu, gu ..hahah

Thanks supremeChaos for your time and effort in explaining the chart.
It seems i have overlooked some places where demand has stepped in.

i have learnt frm your chart that low vol into resistence represent no selling interest and high volume into a previous resistence area will make it become a new support level.

The first high vol bar into the support area (indicated in orange text) is a high volume 'shakeout', one of my my problem is also, i cannot tell it is buying or selling when a WS doji-like bar appears on charts, like in this case, where price returns to the same level again on average volume... can't be able to tell if theres any potential buying from there to can make this become a support level...

Keeping eye on this levels ..not sure what the gap will be but i see 1.37xx a good place to sell or wait for test or 1.36 for momentum.

DR G, DO YOU HAVE ANY OPINION ON THIS GOLD ? i AM LOOKING FOR SELL IN COMING WEEK BUT NOT TO SURE ABOUT THE CORRELATION WITH USD

yes, low volume as we approach a resistance is (actually) no buying interest... no demand/expectation for higher prices.

"high volume into a previous resistance area will make it become a new support level" --not necessarily. depends on the situation or context.
regarding the right hand side where i talked about the 'new support level', to be precise, we had several ultra high vol (white climax volume) bars at that area.
i believe 'effort vs result' enters the picture.. if price were bearish, then price should have breached that 'new support level' convincingly. but as u saw, in several occasions, price stayed at/above it ... until price eventually rocketed up last Friday. so we can safely conclude that the above average , high & ultra high vol candles at the 'new support level' had buyers in them (price stayed at/above the area [RESULT].. after.. [EFFORT] the hi/ultra hi vol. candles).

to help u determine if there's potential buying/selling, refer to 'effort vs. result' again. & u dont conclude based on 1 candle: u conclude based on background & foreground candles(the candles after the one u are deciphering)

im not sure if "The first high vol bar into the support area (indicated in orange text) is a high volume 'shakeout' ", but i think the next 2 candles, & the 11th wide spread, doji-like candle (11th from the candle u called a hi.vol. shakeout) could be called shakeouts too
i think the 3 down bars with average vol. u highlighted can be considered tests/no selling pressure. also, using some 'imagination' u can consider this as a direct opposite/inverse mirror of that area in the chart's left-hand side (where u learned that low vol into resistance represent no buying interest; see the 4 yellow ellipses/circles below..refer to my 2 earlier charts for a clearer view)

hope i made sense

Yes the information has been very helpful, esp where you mentioned the ellipses/circles area., i have never realized these before.. i will study into these areas more.

The part which you mentioned "low volume as we approach a resistance is (actually) no buying interest" is a bit confusing though, i had been thinking it was the opposite the whole time. but i think i get what you are trying to say there.

Thanks very much for the explanations!

Whats your thoughts on the wide spread up bar 3 bars before your last highlighted buying bar Malc? Largest volume and appears to be selling?

...a 700pip stop has nothing to do with trading.

the next bar was down, immediately testing on low vol. the following mark down was bought heavily again. since we broke the highs, it has now been invalidated, unless we test it with too much remaining supply present.