TomWilliamsVSAPrinciples

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SignsofWeaknessSOW
SOWPrinciple1
Upbaronanarrowspread,closemiddleorlow,volumeveryhighorlow.Weaknessalwaysappearson
anupbarbecauseprofessionalsellinghastosellintoasurgeofbuying.Thenarrowspreadindicates
supply.Somethinghascappedthetopendofthemarket.Selling,orlackofdemandfromprofessional
moneyaretheonlytwothingsthatcandothis.Ifthevolumeishighplusthiswillshowsupply.Ifthe
volumeislowthiswillshowlackofdemand.Checkforoldresistancelevelstotheleft.
SOWPrinciple2
Marketsareconstantlybeingtraded.Asuddendownmovewilllockmanytradersintopoorpositions
astheywaitandhopeforarallytogetoutwithlittleornoloss.Ifafterareactionthemarketthen
startstogoup,thenanyoldresistantlevelwillrequireefforttogoupandthroughtheseoldhighs
becausetheyhavetoovercomethesellingfromtheselockedintraders.Toapproachanoldhighon
lowvolumeandnarrowspreadsindicatesthattheoldhighsarenotgoingtobepenetratedbecause
thereisnodemand.Ifthemarketisnotgoingtogoupthenitisgoingtogodown.
SOWPrinciple3
ThisisknownaseffortversusResult.Anyindicationofstrengthyoushouldexpectastrongmarket.If
thenextbarisdownonawidespreadclosingonthelowsandthelowandthecloseislowerthanthe
previousbarthisisacountermandingsignal.Youdonotfightthemarketbutyouhavetoassumethat
therehasbeennoresultfromtheSOSthereforethemarketmustbeweak.Iftheoriginalindication
wasgenuineSOSthenprofessionalmoneywouldimmediatelymoveintothemarketgivinghigher
pricesnotlower.
SOWPrinciple4
TheUpThrust.Upthrustsarethereforaverygoodreasonandthatistotriggerstopsinaweak
market.However,manychartpatternslooklikeUpThrustsbutfailtoliveuptheirpromises.TheUp
Thrusthastolookright.Ithastobeintherightplace.Manyarecreatedinastrongmarketbygapping
upattheopeningthenfallingoffforarestonlytocarryonup.Thegenuineonesareeasytosee.
BasicallyyoushouldhaveSOWinthebackgroundnotSOS.
SOWPrinciple5
Upbaronvolumelessthanthe2previousbars.Thisindicateslackofdemandfromprofessional
money.Thiscomesintoitsownonshorttimeframes.
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SOWPrinciple6
Adownbaronawidespreadplusclosingonthelowpushingdownandthroughaprevioussupport
level.

SOWPrinciple7
Strengthappearsondownbarsespeciallyifthebarhasclosedinthemiddle.Herethisisdiscounted
becausethehighishigherthanthepreviousbar.ThisisahiddenupthrustandaSOW.Thisprinciple
arrivesinavarietyofdisguises.
SOWPrinciple8
Asurgeinoptionvolume.Upbarafterarallyandtheoptionvolumeisveryhigh.Professionaltraders
willhaveaverygoodideawhenatophasbeenreachedandwillentertheoptionmarkettohedge
theirpositions.Seemstobecleareronatopthanalowofamarket.SOS
SOWPrinciple9
Buyingclimax.Upbarwithwidespreadsclosingmiddleorlowonultrahighvolume.Verypowerful
SOWiftherearenooldtopstotheleft.Asamarketkeepsongoingupdayafterdayapointwillbe
reachedatsometimewhenmanytradersthathavesoldprematurelyorthosethatarenotinthe
marketcannotstandtheconstanthigherpricesandfrenzygivesthetradingsyndicatesandmarket
makersagoldenopportunitytounloadlargeamountsofstockatahighpricewithouttheiractivity
resultinginlowerprices.Thismarksthehighpointofthemarket.
SOWPrinciple10
Topreversal.Thisisacommonsignofweakness.Thefirstbarismarkeduprapidly,closingonthe
highs(usuallyongoodnews).Thevolumecanbehigh(supplyswampingdemand)orlow(no
demand).Thenextbarrapidlyreversesdown,onawidespread,closingonthelows.Ifthelowand
thecloseislowerthanthefirstbarthisaddstotheweakness.Aswithalltheseindications,itis
importanttoreadthefollowingbarsforconfirmationofcontinuedweakness.

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SignsofStrengthSOS
SOSPrinciple1
Bottomreversal.Awidespreadplusdownbarclosingonthelow.Thelowandthecloseislowerthan
thepreviousfourbars.Followedbyanupbaronawideplusspreadclosingonthehighs.Thisarrives
inavarietyofversionsbutbasicallythefirstdownbarisashakeoutusuallyonsocalledbadnews.
Thesecondbarisrapidlymarkeduptolocktradersin(ifyoushorted)oroutofthemarketifyou
wantedtobuythemarket.(peoplehesitatebuyingbecauseitnowappearsexpensivetotheearlier
price.
SOSPrinciple2
Stoppingvolume.Tostopadownmovedemandhastoovercomethesupply.Theoddwaysupplyand
demandisevidenthere.Asamarketfallsdayafterdayapointwillbereachedwhentheherdcannot
standthelossessotheyalltendtopanicatasimilartime.Ifthepricelevelsreachedarenow
attractivetoprofessionalmoneytheywillstepinandstartbuying.Thisactivitycausesasurgein
volumeastheybuyandcovertheirshortpositions.
SOSPrinciple3
TheTest.ThisisaverycommonSOSfrequentlyseenjustbeforeanupmove.Isalsoseeninarising
marketafteraminorSOWandindicateshigherprices.
SOSPrinciple4
DownbarsclosinginthemiddleonreducedvolumeseenafteranySOWindicateshigherprices.Thisis
astrongSOSinanuptrendafteraSOWbecausethereisnocontinuationoftheweakness.Ifthereis
nocontinuationexpecthigherprices.
SOSPrinciple5
Awidespreadupbarclosingonthehighspushingupandthroughanoldtoptotheleft.Thisis
demandandanefforttogoup.Afterthiseventthemarketusuallyrestsorstartstoreact,youarenow
lookingforindicationsofstrengthtoconfirmthestrength.SOSPrinciple6
SOSPrinciple6
Thisisaverypowerfulindicationofstrength.Firstyouseestoppingvolume(seeprinciple2).The
markethasashortrallyonlytofallagainbackdownintothesameareaasthefirsthighvolumeseen
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duringthestoppingvolume.Thevolumeislow.Ifthespreadisnarrowandorclosingonthehighs
thisisastrongindicationofstrength.
SOSPrinciple7
Thisislavariationofstoppingvolumewhichhasarrivedon2barsratherthanon1bar.Onthefirst
barsupplywassoheavythatprofessionalmoneywasunabletoabsorballthestockdumpedontothe
market.Thisallowsthemarkettofallonthenextbarusuallyonsocalledbadnews.Thiscanbe
gappeddownontheopeningcausingthepanic.However,tocloseinthemiddleorhighsindicates
demandhasovercomethesupply.
SOSPrinciple8
Thehiddentest.Thisisavariationofthebottomreversal.Ifthemarketlowhasfallenbelowthe
previous4barsonawidespreaddownclosingonthelowsandthenextbarisuponawidespread
closingonthehighsthenthishasthehallmarkofalowbottomreversalandasignofstrength.
However,ifthelowofthesecondbarislowerthanthepreviousbarthisaddstothestrengthonthe
assumptionthatthemarkethadbeenmarkeddownontheopeningonlytofindthattherewas
absolutelynosupply,sothemarketquicklyreversedonawidespreadclosingonthehigh.Ifthereis
nosellingatthelowerlevelsthenexpecthigherprices.
SOSPrinciple9
Sellingclimax.Widespreaddownclosinginthemiddleorhighafterasubstantialdownmovehas
alreadytakenplace.Thevolumeisultrahigh.Asamarketfallsdayafterdayapointwillbereached
whentraderswillstarttopanicandencouragedbybadnewswillstarttodumpstockontothemarket.
Ifthemarketclosesinthemiddleorhighthenprofessionalmoneymusthavedecidedthatthelower
pricesnowlookedattractiveandwillstarttobuyintothepanicselling.Theactivitywillcausethe
volumetobeultrahigh.Thismarksthelowpointofthemarket.