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Tabla 1 karthikmarar
Member Join Date: Jul 2005 Location: kuwait Posts: 1,520 Thanks: 74 Thanked 935 Times in 178 Posts
Re: Volume Spread Analysis What is Volume Spread analysis? Volume spread analysis is a new way of looking at the market. It more like the candlestick analysis taking into consideration the volume. However not all the candle stick rules apply here. The basic premise behind the volume spread analysis is that the market is basically moved by the Smart Money. The smart money accumulates the stocks at low prices. Then begins process of marking up the price. Then the Dumb Money starts entering the smart slowly. The smart money starts passing the ownership of the stocks to the dumb money. This process is called Distribution. Soon more and more dumb money starts rushing into the market not wanting to be left out of the big rally. Unfortunately the retail traders are the last to get in. Once the process of distribution is complete the smart money starts rapidly marking down the prices and the dumb money are left holding the stock which was bought at high prices. At the end the smart money is much richer and they can again start accumulating the stock at lower prices. The cycle continues. This one way explains why the move moves are slow and the down moves are very rapid. The process of marking up the prices and distribution is a slow process. It takes some effort to get the dumb money interested in buying into the rally. The mark down process is very rapid as the smart moneys intention is to trap the dumb money. They have to give very little chances to dumb money which is generally slow in reacting to exit. VSA attempts to read the moves of the smart money by looking at the price, volume and the spread of prices.
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Join Date: Jul 2005 Location: kuwait Posts: 1,520 Thanks: 74 Thanked 935 Times in 178 Posts
Re: Volume Spread Analysis The foundations for volume spread analysis were laid by R.Wyckoff way back in the early 1930s. Wyckoff was supposed to have made fortunes with his principles. Wyckoff stared with a premise that price / volume / Time could provide a picture of the demand and supply from smart money (he called the smart money composite man). We will come back Wyckoff later in the thread. It would be nice to look at Wyckoff methods time to time as his work is the basic one and others have built on it. Wyckoff had three basic principles or..say.. laws
Supply and Demand Cause and Effect Effort and Result The current day VSA available in the market still relate to these tenets. Much later in the 70s Tom Williams who worked with a syndicate (read Smart money) for 15 years, developed on the Wyckoffs work and came up with Volume Spread Analysis and later commercialized it. (The critic would say ..why commercialize it, he could have made money himself.. ). Now many more companies offer their own concoction of VSA, hawkeye traders and genie software to name a few. Tom Williams VSA basically ignores the open of a bar and uses high, Low and Close. This is where it basically differs from classical candlestick analysis. Most commercial vendors claim to use more than 300 indicators to analyze each bar. I have seen that some of the VSA vendors use other indicators though not explicitly. One thing is certain that the availability of basic information on VSA is scarce. I have come across much discussion on other forums on VSA. However most revolve around commercially available packages. Our intention in this thread will be to explore the basics so that each one of us can arrive at our own convenient VSA analysis.
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Re: Volume Spread Analysis Now it is time to move on . I know most of you are eager to get straight into the core of VSA. But let us lay some foundations before building the blocks of VSA. First thing is of course to understand a little more about working of Smart Money (hereafter we will just use the term SM to indicate Smart money). The SM basically moves the market in four phases as follows 1. 2. 3. 4. Accumulation Markup Distribution Mark Down
Most of you may be fully aware of these. Still we will look at these phases more in details as this would help us to understand the SM operation better which in turn would give a better perspective to VSA. There will not be any demand for something when there is plenty of it available and nobody wants it. As the availability decreases and more people want it then the demand increases. So the first thing the SM does is find something that is available a plenty and cheap. The next step is to create a scarcity of the same and get people interested in it which in turn generates the demand. This is first phase which is Accumulation.
Accumulation is a process through which the SM acquires a large quantity of the stock at the lowest possible price. Accumulation is a subtle, sophisticated and sly process of cornering a huge quantity of the stock that makes the following phases possible and worthwhile. Once a large quantity has been absorbed the number of floating stock reduces and the demand increases. This makes possible the next phase Markup. Accumulation normally takes place in congestion areas. Congestion area are mostly sideways range bound movements where the stock appears to have no interest to either move up or move down. The SM ensures that the stock is contained below a certain upper level which is the supply area. At the same time the SM also supports the prices above a certain lower line which is the support area. The stock moves within an upper resistance or supply area and a lower support area. The congestion areas are characterized by Indecision. One of the most important characters of congestion areas is the Low Volume. When most traders are bullish or bearish the volume is high. Low volumes indicate indecision among the traders on bullishness and bearishness. Ah.. Sounds easy.. Well the problem is that congestion areas are seen in both accumulation areas as well as Distribution areas oh , Well that is not the only problem. There will be periods where no one seems to be interested in the stock the pattern of price movement most of time very similar to the congestion pattern.. So the naturally the question is how one would ascertain if the pattern is really accumulation in progress. A little later on this and other congestion patterns.. Tabla 4 karthikmarar
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Re: Volume Spread Analysis So the question was How one checks if the congestion area is really an accumulation area. There are a few things to lookout for.. First, the indecision should be quite visible. In other words the volume should be low and quite. No huge volume upsurges. Even if the volume is relatively higher the range between up day volumes and down day volume should be narrow. Second, the spread of the bars (High Low) should be narrow. Third, the volume should shrink near the support line and expand near the resistance line. Fourth, the stock should be trading in a range for some weeks if not months. Also you may see some shakeouts in the trading range. The SM would temporarily drive down the prices below the support line in order to takeout the stop losses and panic the weak hands into selling. You will see the stock bounces back above the support line immediately. By this process the SM is shaking out the weak money from the stock. For most of us it is just a failed breakout. Sometime the stock
instead of bouncing back would continue to drop if there was too much supply. So trading these breakouts could be tricky. Also it would a good sign if the stocks trading range is much above the support line. Normally we would see some of the above signs if not all in the acuumulation area. There are many other patterns which signify accumulation. Some of them are rounding bottoms, reverse head and shoulder and double bottoms (or W) patterns. Each could be explained in terms of SM activity. However we would go into the details now. One thing to keep in mind when evaluating patterns is that it is very important to check the volume pattern as well. For an example we will look at the chart of HCC where a clear accumulation indication was seen June 2007... Tabla 5 karthikmarar
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Re: Volume Spread Analysis A few points about the congestion zone we are looking at for signs of accumulation. It is important to look at the history of the stock prior to the congestion area. A few things to look out for. Has the stock gone through a cycle of accumulation, markup, distribution and markdown previously? Were there signs of a selling climax just prior to the congestion? If so, the SM are really looking out for making another round. Or the stock has been languishing aimlessly prior to the congestion zone you are looking at. If so, this area you are looking at is not accumulation at all. Was the stock enjoying an uptrend prior to the congestion? If so, this could be a reaccumulation going on here. Was the stock undergoing a minor down trend (after an up move) prior to the congestion? Was there a downtrend without selling climax? Then this could mean there is re-distribution in progress and it may be advisable to look out for sign of distribution. (If you are wondering what is selling climax.. dont worry.. we will take it up in detail later.) Tabla 6 karthikmarar
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Re: Volume Spread Analysis Now we come to the next phase in the game plan of SM, namely Mark Up. Once the smart money has a cornered a huge chunk of the stocks they are ready
for the next move. The idea is to jack up the prices so the SM can fill their pockets. Typically you will see the low are getting higher. The closes are slowly getting nearer to the high. The prices are getting higher on lower volumes as there is very less supply. The reactions happen much higher than the support line. Then ..the stock shoots through the resistance or supply line with higher volume. For that matter the stock need not exhibit the characteristics mentioned above. Suddenly it can just pop out of the congestion zone. It is better to take note on the volume at this juncture. The volume need not be very high at all. Since there is no supply (SM have the majority of the floating stock). If the volume is moderate we should see it coming in strongly soon. Otherwise the move will collapse and stock would return to the base. We should see a large swift increase in the volume in case of a genuine breakout. The stock should be closing near the top. Also too much volume is not good. It would mean too much supply is coming in. Heavy volume with the stock closing in lower half would definitely mean supply coming in. Typically an 150% increase in volume with the close near the top would indicate a successful breakout. The breakout is just the beginning. Then the stock moves up in stages. Each stage would be an advance at higher volumes and a retracement at lower volumes. The retracement is mainly due to short term traders booking their profits. The SM also starts the distribution during the retracement. The point at which the retracement stops become important. These should be above the previous retracement stops. In simple terms as Saint would put it the stock is making higher high pivots and higher low points. We will also see sideways movement during the up move which would be congestion areas. We need to pay lot of attention to these congestion areas for this could be final distribution areas before the mark down begins. Also it pays to give attention to volume during retracement and congestion areas. Increasing volumes near support line and low pivots indicate problem. If the increase is dramatic then it is time to re-evaluate your position. Finally the stock could make a climax run where the price and volume explode. The shorts run for cover and the green horns rush in not to be left out... like cattle rushing into a abattoir. Soon rapid markdown starts leaving the weak money holding the bag and he SM their cash. Please do note that here we are talking about more of an idealistic picture. In reality it could be more complex and many a time difficult to decipher. But then practice makes one perfect. Just enclosing a chart with similar conditions mentioned above.
Re: Volume Spread Analysis Now let us come to the third phase in the SM game plan which is Distribution. Distribution is the process where the SM is offloading their accumulated stock at a much higher price.
It is not very easy to spot distribution. Many a times you will not see any congestion areas. The UP move may slowly deteriorate and start rapidly deciding after a furl of heightened activity. The Wyckoff puritans may disagree here. In mark up phase after the stock has run up for some time you will the volume diminishing and the spreads narrowing. The angle of ascent becomes lesser and lesser. The stock trend may even flatten. This would mean that the demand is drying up. The buyers are not willing to pay a higher price for the stock. Also sellers are reluctant to offload their positions hoping and waiting for a better price. It is here the SM slowly start offloading their stock. Much care is taken not to make it visible. Volume is never too high. Prices are support at certain levels so that there is no panic. Here it is important to take note of the volume price pattern and angle of ascent. Too steep an ascent is also a problem. Suddenly you will see the stock dropping down like stone from its high perch. It is at the top you will see patterns like H&S and double Tops which are distribution patterns. Many times it is hard to maintain any semblance of the uptrend continuing and so a sideways congestion move ensues. The congestion zone will be quite similar to the zone we discussed earlier for accumulation. You will see the price being supported at some support level and being contained within a resistance level. The points to take note are the same ones we talked about in the accumulation zone. Just like in the shake outs in the accumulation zone you will see a shakeout in terms of up thrust bars. One has to be very careful trading the breakout from the distribution zone. If it turns out to be the final climax move you will be left holding the bag. But then the stock may goes for another up move. Here looking for uptrusts and other weak indication becomes necessary. We will be talking about these indications later. In the final climax run the stock explodes in terms of volume and price. Like I said before the breakout traders , greenhorns rush in and the shorts will run for cover. Then you will see many Uptrust Bars where distribution takes place with maximum prices. There could be a series of Uptrusts and then.BANG.. the stock drops down like a stone. The chart posted earlier shows an example distribution zone and the climax run. The upthrust bars are identified with square on Top of the bar.
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Re: Volume Spread Analysis We now come to final step in the SM game plan, the Mark Down. When the SM has disposed off most of the accumulated stock they start the most dramatic move of crashing down the prices. Suddenly supply comes in plenty overwhelming the demand. The price starts tumbling. The spreads dramatically widen. There is panic selling from investors. But the prices drop so rapidly and most of the investors and green horns that entered late never get a chance to off load there holdings. Like the markup phase we will see some rallies in the downtrend. These are more off reactions. Either the SM themselves try to shore up the price for their last bit of holding. Day traders, Value Investors trying to bottom pick and the green horns trying to Average contribute to these rallies. Our friend Saints calls averaging
Catching a dropping knife. I cannot find a better description for Averaging. It is better to note the volume during the rallies. You will find the volume is more on down days and less on up days. When the rally fails the average investor panic and start selling and that accelerates the fall. It may take weeks for the down trend to reach the bottom. The end is generally indicated by a stopping volume or an absorption volume. The SM may be absorbing the stocks to start the game again. You would find a High volume bar with long spread and closing near the top. It is during the mark down phase you will see rallies like the Dead Cat Bounce. Pay attention to the volume pattern during these rallies. The mark down phase is the most depressing and cruel part of the SM game plan. By the end of it the SM would be taking delivery of his brand new E class Benz while the average investor is scouting for a buyer for his run down maruti. Of course the Markdown phase does offer good opportunities to smart investors who are adept in short side trades. But the mark down phase has a silver lining towards the end it offers the smart investors many opportunity to enter into some really profitable trades. We will discuss all these later
Re: Volume Spread Analysis High Volume happens during the early stage of the Mark Up as well. Also SM use High volume to cross high supply zones. So it is important to see if the high volume move is supported by SM and the market in general. How we can infer this? We can do this by looking at the spread and the close. This is just what VSA is about.
Re: Volume Spread Analysis Ahh... Sir CV, a valid question. How high is high and how low is low? Of course we need to a have a Benchmark. Normally a 30 bar moving avreage suits fine. We will face a similar situation on the question of spread. How wide is wide and how narrow is narrow? The problem is more complicated here. During volatile period the average spread is high compared to non volatile periods. More on that later By the way the landmark is missing from your post nowadays. why?
Re: Volume Spread Analysis Now that we have a general idea about the SM operation we can step into the world of VSA. VSA involves analyzing each bar with respect volume, spread and close. We will ignore the open. Also while analyzing the bar action we will also keep in mind the general background of the market. As a first step let us make some definitions. These are elementary and most of you understand this. But for the sake of synchronizing our thought I will repeat these here. Some Basic Bar definitions. Upbar - A bar would be called a up bar if the close of the bar is above the close of the previous bar. Downbar A bar would be called a Downbar if the close of the bar is below the close of previous bar. Spread Spread is the difference between High and Low. A wide spread Bar If the spread of the bar is above 1.8 times the average spread then we will term it as a wide spread bar. The factor of 1.8 is a tentative one. A narrow spread bar if the spread of the bar is 0.8 times the average spread then we will term in a narrow bar. The factor 0.8 is again tentative. Note: The problem of calculating the average spread is that during volatile period the average spread is high and in non volatile period the average spread is lower. So a bar which could be termed as a wide spread bar (WRB) in non volatile times could become a average or even a Narrow spread bar (NRB) in volatile times. For simplicity sake and to take the discussion forward we will keep the above factors common. At a later stage we can discuss about methods to arrive at better methods of defining the average which works at all times.
Re: Volume Spread Analysis Now let us define some Close positions. Up close : A close near the High would be termed as a Up close. (Upper 30% of the Bar)
Down close: A close near the Low would be termed as Down close (Lower 30% of the Bar ) Middle close: A close in the middle would be termed Mid close (between 30% to 70%) Please note that the values mentioned above could be controversial. But for this discussion we will take these values and move forward. Now we have some basic tools to analyze the bars. Next we will look at volume. Tabla 13 karthikmarar
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Re: Volume Spread Analysis Next we come to topic of volume. CV had raised a valid question on this. How high is high and how low is low? For this we should have a reference volume which can used to compare with the daily/bar volume. The simplest way is to have 30 day/bar moving average of the volume. From the very little experience I have in VSA I feel that the 30 day/Bar simple moving average of volume serves the purpose quite well. We will take it as the stating point. Mike had pointed out another method. We can discuss these further in the thread later as points of refinement after we establish the basic indicators of VSA. Again as a starting point we will define any volume above 1.8 times the average as High volume. Volume above 3 times the average would be termed Ultra High volumes. Volume below 0.7 times the average volume will be low volume. With these basic definitions we are ready to look at some of frequent Indicators (do not confuse with the normal TA indicators, here we are talking about the various type of Bars related to VSA analysis) Some members felt that the thread looked too elementary in a Advanced Strategy section. Maybe it is true. I wanted the thread in this way since it should be easily understandable even for the newbee. Also, even more experienced people are not reluctant to look at the market in this way. The indicator trader would definitely find a Bar by Bar analysis a hard pill to swallow. A note of caution, before we proceed into the real VSA study. Please note that it will be difficult to build a mechanical trading system from VSA though not impossible. However knowledge of VSA will greatly help one to understand the market better and will be a great support tool complimenting their trading systems. Also VSA on its own provides some excellent entry and early exit points resulting is good profitable trades.
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Re: Volume Spread Analysis
Sorry for the pause in the posting.. Got busy with many other things... Finally. we will step in the actual VSA. VSA measures the weakness and strength of individual bars. In addition it looks at the background strength/Weakness. So we have to always look out for Weakness in a uptrend and for strength in a down Trend. Each bar could be characterized to indicate Strength or Weakness based on the Spread and volume. We will start with looking out for weakness. First we will look into one of the most easily identifiable and strong indication of weakness which is commonly called the UPTHRUST Bar. And what a day to talk about Upthrust The charts are full of them todayEven the nifty is showing a Upthrustof course not a one of the ideal one. But distinct weakness shown on the nifty. What is an UPTHRUST BAR ? An Upthrust Bar is a wide range bar, with a high volume and closing down. It indicates that the prices were marked up during the day (for simplicity we use day, it is equally applicable on all time frames), the Trading activity was High as indicated by the High volume and the prices dropped to near the low (or to the low) towards the closing hours. Looking the SM perspective what happened was that the SM marked up the prices in early trading hours indicating strong bullishness. Enticed by this bullish move the weak money also rushed to acquire the stock. Shorts if any would also have rushed for cover. Meanwhile the SM is quietly distributing their holding to the weak money. In the later part of the day the SM drastically marks the price down trapping the weak money holding stocks at much higher prices. In order to make this ideal, the Upthrust normally appears after a wide range upbar with high volume. This makes it easy for the SM to markup the price and entice the weak money. Most of the time the Upthrust will be moving into new higher territory. The High of this bar will be much higher than the previous high.. High volume should be an important consideration. What are the Things to Look for in a Uptrust? 1. 2. 3. 4. 5. 6. High Volume and How high? Wide Spread? Close, near or on the Low? What was the previous bar action? Did the bar into new territory? Is the stock in an up trend?
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Re: Volume Spread Analysis What are the Things to Looks for in a Uptrust? 1. High Volume and How high?
2. 3. 4. 5. 6.
Wide Spread? Close, near or on the Low? What was the previous bar action? Did the bar into new territory? Is the stock in an up trend?
The Answers for the above would decide how potent the Upthrust is. High volume Upthrust are a sure indication of weakness, higher the Volume the stronger the indication. It may be even wise to get out of the stock if the Upthrust has ultra high volume. Wider the spread more potent the Upthrust Lower the closer the stronger the indication of weakness. Ideally it should close should be the Low. If the close is towards the middle it would mean than the SM was not successful in marking the price down. There was too much demand. An ideal Upthrust will move into new territory. The High will be very much higher than the high of the previous bar. This means the SM was really successful in marking the price up and many traders get trapped into bad positions in the end of the day. Upthrusts are effective when the trend has been in force for some time. Sometime you would find weak up thrusts in early trends. Many times you will Upthrusts with low volume. I call them Pseudo Upthrusts. These are not effective as the Upthrust. But are still signs of weakness..
Tabla 16 rmike
Join Date: Mar 2007 Posts: 82 Thanks: 33 Thanked 66 Times in 23 Posts
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Re: Thoughts on VSA Quote: Many times you will Upthrusts with low volume. I call them Pseudo Upthrusts. These are not effective as the Upthrust. But are still signs of weakness....BY Karthik in VSA Pseudo upthrusts will generally occur when price is treading the fringes of a previous known area of supply (resistance) from below. This can be confirmed from the price action and pivots on the left. If price has reached the fringes of a known resistance area on the previous day, you would do well to look out for the open the next day and WAIT!. The SM has two choices, (a) To gap up the open above the old reistance. This indicates the SM's commitment to bullishness. This is to discourage selling by traders who are holding stock at previous resistance price range in the hope for more gains! But herein lies the delicate balance, You have to wait to see if the market makers are selling into the gap or not and if the SM is prepared to absorb the selling. (b) To open near previous close and to mark up the price rapidly. This indicates that the SM is not very bullish and is probing upwards in the resistance zone to see the market reaction. Depending on the reaction, the SM will decide upon further course of action. If the volumes are medium to medium-high and the price is not moving
up (ie high equal to or not too much greater than previous high) then it's time to jump ship as the aim of SM this time is not to gun shorts stops (if they manage it then it's a bonus) but to distribute as much stock as possible before the intermediate down trend sets in (as it invariably will). In both the cases it is better to wait & watch till almost the final outcome, as no amount of tape reading (in the absence of level 2 trading screen) or volume analysis will give a very clear picture in the intraday timeframe. Pseudo upthrusts will rarely occur in areas of new price territory. That is not to say that Pseudo upthrusts are not potent. Regards, Tabla 17 karthikmarar
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Re: Volume Spread Analysis We looked at the Upthrust and Pseudo Upthrsts.. We also looked at what to look for in an Upthrust Bar. The obvious next question would be What to do when we see an Upthrust. The next bar after the UPthrust is very important. That helps us decide our action. If the next bar is a Downbar closing down it is clear that the weakness and set in and the immediate trend is reversing. Here again the volume is an important indication. If the volume is high then it time to get out and wait to short. If the volume is low the weakness is not so pronounce and it may be worthwhile to wait and watch next bar movement. Here the spread and the position of Bar also give clues. If the Bar is wide closing down the weakness is more pronounced. Also if the high of the bar is towards the low of the Upthrust bar the weakness is enhanced. If the down bar is with low volume and closing Up then the weakness of the upthrust bar is still in question. We have to wait for the enxt bar for confirmation. If the Bar after the Upthrust bar is an Upbar closing up then it would mean that the weakness projected by the upthrust is negated.
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Re: Volume Spread Analysis Just one more thing... When we have a upthrust bar or a pseudo upthrust then it is time to keep a close watch on Trendline breaks... more on trendlines later
Tabla 19
karthikmarar
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Re: Volume Spread Analysis Let us look at another indication of weakness. If the stock has been moving up on a high volume and then we encounter a down bar closing down towards low on high volume is a sign of weakness. Volume need not be very high. Ideally the volume should be higher than the previous two bars. If you look at the enclosed chart the stock was moving up on higher volume. Then we have the down bar closing down near the low. The volume is higher than the previous two bars. Looks like the SM have been distributing. The next bar looks more like a test for supply. The volume is low and the stock closing up. The low volume indicates supply is lower. Then again a downbar on higher volume. The weakness is more pronounced now. What followed is obvious
Re: Volume Spread Analysis NO DEMAND BAR Next we will look at another indication of weakness, the No Demand Bar. According to trade Guider/ tom Williams an Ideal No demand bar is a Upbar bar with narrow spread closing in the middle or lower and the volume is less than the volume of the previous bars. Though this is their basic definition I have seen subtle difference in the No Demand bar throwing up different commentaries. But in general any narrow spread low volume Upbar closing in the lower half of the bar indicates No demand. What does this No Demand Bar indicate? A No Demand bar indicates that there is no support from the SM. The SM is not interested in higher prices and they are not supporting the stock. Whatever buying or selling is from the stray weak money entering and exiting. Consequently this indicates weakness. The No Demand bar does not indicate any immediate reversal. While analyzing a No demand bar we have to look at the prevailing background. Does the background reflect weakness in terms of Upthrust or Pseudo upthrust? If the background is weakness the No Demand bar indicates enhanced weakness. If the background does not show weakness the No demand bar does show weakness and does not necessarily Indicate reversal. It only shows lack of participation from SM. We may soon see the SM moving in to take the stock up further. So it would be wait and watch time.
Re: Volume Spread Analysis We will explore a little more on weakness indications. Upbars with high volume with narrow spread and closing in the middle or low indicates that supply is swamping the demand. This kind of bars would normally be seen near resistance lines. This by itself does not portend great weakness. But the following bars would indicate whether the supply is persisting or not. Persisting supply would definitely reinforce weakness. Enclosing the chart of L&T for the recent times when supply came in at the resistance line. The next bar shows that supply has decreased which encouraged the SM to push further. But the move faltered at the next level. Some thoughts.. It is quite difficult to code all the VSA condition into indications. So eyeballing the chart becomes quite necessary to come to proper conclusions. I am not teaching VSA here. I am just sharing a few things I learned and many things are my own interpretations. Hence if someone feels that a particular interpretation is wrong, do feel free to point out/discuss. That way we can arrive at better understanding of VSA.
Re: Volume Spread Analysis Let us move on. Currently we are discussing weakness. One last indication before we take up strengths is called Effort without Result After accumulation phase is over the SM gets ready for the Mark Up Phase. In order to move the stock up the SM has to put in some effort. The effort to move the market up can be seen as wide spread upbars closing near the top with increased volume. The volume would never be excessive. It is easy to identify these bars. If the effort to move up results in the stock moving up, the effort has yield the desired result. Many times you will find an effort to move up bar and the next bar would be high volume bar closing near the low indicating large supply coming in swamping the demand. So the effort to move up has not yielded the desired result. Frequently you would find such a situations at high resistance / high supply areas. These Efforts without result are good indications of weakness. Most of the times you will find the stock moving down or side ways after this failure. This is because the
SM would rather wait for the supply to vanish before repeating the effort. The SM will then test the market for supply before trying to move up further. The repeat move could be good entry points. Actually though the VSA does not take into account the OPEN, I have noticed that an ideal Effort to Move up bar would open near the low and close up near to high. This is a deviation I have taken from the general VSA concept in my analysis.
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Re: Volume Spread Analysis Now let us move on to the indication of strength. One of the most powerful indication of strength is the Testing for Supply. After down trend when the SM has accumulated enough and is ready to move the stock up again they test if there is still supply present. Also in an uptrend if the SM encounters large supply they would pause till the supply disappears. Then they would check again to see supply is present. The Testing for supply is done by rapidly marking down the price. If the stock recovers towards the high and the volume is low it would mean that there was no supply. If the volume is high and if the stock fails to recover it would mean that there still supply present. Low volume or less trading activity indicates a successful test. A TEST bar typically dips into a previous high volume area and recovers to close near the high on low volume. A test bar viewed in isolation does not signify anything. It necessary to look at the background to ascertain the strength of the Test bar. If there has been absorption volumes just before the Teat bar the strength of the test bar becomes more significant.
Re: Volume Spread Analysis STOPPING Volume Apologies for the pause in the posting..got busy many things as usual .. Now we will move further. The next VSA indication we will discuss is called the Stopping volume, also called absorption volume. Normally in a down trend you will see a down bar with high volume bar closing on the upper side. This is called a Stopping volume. This indicates that the SM is
absorbing all the stocks. The SM 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. In effect the stopping volume or absorption volume indicates that the long bearish move is likely to end soon. An Ideal Stopping Volume bar will be down bar with high volume and closing near the top. However most of times you would see the close on the upper half of the bar. Stopping volume occurs after long down trend. Stopping volumes are basically alert to the impending reversal.
Re: Volume Spread Analysis Next we will look another indication of strength called a Reverse Upthrust. Users of TG will not find this in their software. However I do find it a useful indication. Just like the Upthrust bar we will find in a bearish move a High volume wide range up bar with the low chartering into new lows and the closing will be near the high. This is a good sign of strength returning and you find the trend reversing almost immediately. The reverse Upthrust is rare and is found rarely at bottoms. Finding the bottom is more difficult than finding the Tops. Most of the time the bottoms will see stopping volumes, some sideways moves and multiple tests before we see a reversal of the trend. It is also common to see consolidation bases at the bottoms.
Re: Volume Spread Analysis NO SUPPLY BAR Next Indication we are going to look at is called No Supply. As the name signifies this bar indicates absence of supply and indicates strength. The No Supply bar is a narrow range low volume down bar closing in the lower half. The No Supply bars are found in the early Bottom reversals and indicate strength. It is also common to find these bars in an up trend which are indications of continuation of the trend. They would also be found on consolidation bases. A No Supply indication has to be read in context with background. At bottom reversal areas they indicate there is no supply available. Then the SM gets ready for mark up. Hence they indicate strength especially if they appear before/after test bars.
During up moves a No supply could indicate non participation from SM. IMHO this is one of the difficult indication to interpret.
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Re: Volume Spread Analysis SUPPORT & RESISTANCE It is widely believed that SM respects the support and resistance areas. Before we proceed with Support and Resistances with regards to VSA let us look at some basics about support and resistances. The general practice followed by most of us is to draw lines from previous swing Highs and Lows (or high and low pivots). Once these lines are they are taken as Support and Resistance lines .. I repeat.LINES IMHO this is one of the basic folly we make The question we ask here is How can a single price act as a Support or Resistance Line ? It is like assuming that in case of resistances there are a huge numbers of people holding the stocks at this particular price and early waiting sell. A more reasonable assumption would be that there are many holding the price at and around last swing high. So there would be a area or a zone of supply/Demand rather than a single price. In case if the last swing high was an Upthrust bar the whole range off the bar could become a supply rich area. The point here is that not all swing Highs and Swing Lows offer Resistance / Support. A swing high can be considered as a resistance only if the price reacts at that level. Till then a swing high remains a swing high. Same is the case for the Supports. Swing lows become swing lows only if the price reacts at these levels Enclosed is charts explaining this concept.. Please feel free to express contrary views if any More on Support and Resistance Later Tabla 28 karthikmarar
Re: Volume Spread Analysis An important thing to note here is that the Resistance areas do not represent large supply waiting to be dumped. In the same way the Support areas do not represent a huge demand waiting to lap up all the supply coming in. It is better to consider the resistance areas are zones where selling pressure increase and support areas represent zones where buying pressure increases.
Now the question is what Resistance and support has to do with VSA? As mentioned earlier the SM generally give due respect to the Resistance and Support areas as they represent zones of Selling pressure and Buying pressure. In general increased volume with increased spread as the stock approaches a resistance area is a bullish sign. Falling volume and decreased spread would mean that stock would be stalled at these areas. In the same way decreased volume and spread as the stock approaches support area is sign that the stock would take support in that area and reverse. Increased volume and spread would indicate that chances of the stock breaking the support are more. If Resistance areas are crossed with high volume it is a sign of bullishness and if the crossing is with low volumes caution is advice. In the same way if supports are broken with high volume it is a sign of bearishness and low volume crossing should be viewed with caution. Going short on a low volume break of support could result in a bad trade. The SM often attempt to push through the Resistance areas with a huge volume. These are clearly evident on the charts in terms of high volume wide range bars. In general it always pays attention to resistance zone even if you are using you own trading systems. When Buy signals are generated near resistance zones one has to be careful. Tabla 29 karthikmarar
Re: Volume Spread Analysis TREND LINES Next we are going to look at trend lines. We all use Trend lines and trend line breaks to decide reversals. We will look at trend lines with respect to VSA. The general belief in TA is that Trend lines offer support in up trends and also act as resistances in downtrends. We will not go into the details of why and how of this belief. Instead we will look at the how volume and spread can give us clues whether the trend line will hold or break. For example we will take an uptrend. When the stock retracts towards the trend line, small spreads and lower volume indicate as the stock approaches the trend line indicates that the stock is likely to be supported by trend line. Higher volumes and wide spread indicate a probability of a trend line break. Trend lines are resistance areas and effort is needed to break the trend lines. Wide spreads and high volumes are indications of this effort. Many times we will see the SM absorbing the supply near trend lines. This is a bullish indication as the smart money is bullish on the stock and is interested in higher prices. So when there is lot of supply near trend lines they absorb the supply to keep the prices above the trend line. Let us look at an example with a chart
A) We can see that the volume is decreasing and the spreads are narrower as the prices retrace towards the trend line. B) Here the volume is increasing as the prices approach the trend line. This would suggest increased probability of a Trend line break. C) We have a bar with increased volume and closing near the low. This bar indicates that there is increased supply. The next bar is an effort to Rise bar. This would mean that the SM is interested to keep up the price and they have absorbed the supply on the previous day. Entry / Adds on such effort to rise bars near trend line often result in a good trade. D) Here the volume is simply tapered off. There seems to general lack of interest on all sides. (This are area shows a failed test and no demand bars indicating a general weakness). However volume came in near the trend line and stock is again going up towards the right edge.
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Reversal and Retracement One of the difficulties we face when analyze prices is determining whether the stock is going through a reversal or just a retracement. If we assume that a retracement is in progress and it turns out to be a reversal we end up giving away too much. At the same time if we assume a reversal then we would be out of the trade too soon. These apply specially for positional traders. So how do we get a clue whether it is retracement or a reversal? Following are the basic things one should look at. RETRACEMENT 1. Lack of volatility 2. Small spreads 3. Decreased Volume REVERSAL 1. Increased Volatility 2. Large spreads. Especially Effort to Fall bars. 3. Increasing volume. The simplest thing we can do is to draw arrows for the stock movement and the volume. In retracements you will the arrows are in the same direction. And in case of reversal the arrows will be in opposite directions. Just enclosing an example.
Re: Volume Spread Analysis Friends I have covered the basic elements in Volume Spread Analysis. When I started the thread I was hoping for an active discussion which would eventually lead to a better understanding of Volume spread Analysis. But then the thread turned out to be a disappointing monologue. There could be many reasons for this. VSA as a concept has not caught the imagination among our members. Or is it that most of our members have not crossed the Indicator stage. Or is it that the concept is a bit far fetched for our members. On the positive side this thread did attract many from different parts of the world. Since this was a restricted thread they could not post and many conveyed their views by PMs and I did learn a few things from them. Then the time has come to wrap up this long monologue. I do hope this did help at least a few of our members.. Warm regards Karthik
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Re: Volume Spread Analysis TREND CHANNELS Next I will touch on the concept of trend channels. Tom Williams briefly mentions this in his book. He calls then Trading Ranges though I prefer the term Trend channels as in we will find the stock is actually trending up or down when we look at from a wider view. This is actually different form the horizontal trading ranges where the stock movement is sideways. Of course I have taken some deviation from his concepts. Many times you will find a stock moving in a upward or downward channel. We can draw upper trend lines and lower trend lines and they would almost be parallel. Tom Williams divides this channel into upper quarter and lower quarter and most
reactions happen in these quarter. He also calls area above the upper trend line( or supply line) as over bought zone and the area below the lower trend line as over sold zone. The middle area is where we can expect the stock to move anywhere. But I go a step further and I draw a middle line. The interesting observation here is that it is around this middle or mean line where most we see a conflict or tug of war between the bulls and bears happen and many reactions happen around this line. I call this the Conflict Zone. From a VSA perspective we will find support or strength coming near the bottom trend line. We will also see weakness creeping in in terms of upthurst bars or pseudo upthrust bars near the upper trend line. In most cases the Trend channel is wide enough to give some nice trade opportunities. Here is n example of downward trend channel
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Re: Volume Spread Analysis TRADABLE BASES Accumulation bases can be found in various shapes and sizes. The most common recognizable one is the one where the stock moves sideways in a narrow range and the volume has dried up.. However we will also find rectangular bases where the stock moves up and down but restricted within a wider range. You will find weakness coming in at the top of the range and strength at the bottom of the range. Many of the ranges are easily tradable. For a trader or investor with longer term view the idle time to get in would be when the stock bounces back from the support line. This way it the stock breakout he would have the idle entry point. He also has the option to quit at the stock fails to cross the resistance at the range top, For a short term trader who is adapt in trading the long and short this kind of base provides good opportunities to go long at the support line and go short at the top of the range. Just like the Trend channels described before we can find a zone in the middle of the range which I call the conflict zone where many reactions take place. Here is just an example of tradable base. More tradable bases will be covered in my other threads.
Re: Volume Spread Analysis Rajaram Agree, the stop loss for Tradable base is quite a tricky issue. There can be many temporary violations of the support line and the stock would bounce back into the base. Even the example of ABB you can see many time the stock would dip below the support line only to close into the base. Of course the SL should be below the support line. Most tend to keep it at the support line are thrown out of the trade unnecessarily. But how much below is the crucial question. This would depend on one risk potential. Personally I keep a variable percentage. The down moves volume and spread normally gives me a good idea of the chances of the impending break of the support. Moves with higher volume and wider spread warn of the impending break. In such moves I tend to tighten my SL. If the move is on lower volumes and smaller spread I tend to give a wider SL. Of course the market would at times fool me on this approach. One more one should remember is that it is always better to acts on signals in the same time frame one is trading. Like a positional trader trading on EOD taking a decision on a intraday move would only be out of the trade too soon. In case of ABB you can see large support coming in at 725 and again 721 both temporary violation of support line. Hence in future we can expect support at these levels. regards
Tabla 35 Placebo
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Re: Volume Spread Analysis A stock in range could mean one of these two things. A. Accumulation B. Distribution Unfortunately for you it was distribution . Vipin in my opinion the best possible place to enter a Long is when a stock has broken out of accumulation on more than average volumes and has crossed the 1st Level Of Resistance. After the Breakout a complex pattern develops (a test). A test is basically a ranged bar which does nothing. It is a test of supply which is used to determine if Demand > Supply or vice-versa. If the test indicates that Demand > Supply then the High of the breakout bar will be taken out the very next bar if its the other way round then the Low of the breakout bar will be taken out. The advantage with this strategy is that the downside is kept to a minimum. Sorry to sound condescending by talking about stop loss but i like to know my downside in advance as compared to the upside ,as the VSA techniques do not determine the Profit Booking Point in advance
Tabla 36 Placebo
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Re: Volume Spread Analysis Precisely we are buying at the markup price. The funny thing about buying in the accumulation zone is that you make be correct 9/10 time in buying the asset but there will still be a loss. That's because accumulation takes a hell lot of time and effort (money) on the part of manipulators. So prices will move up and down till the time floating supply has been absorbed. At times the price will fall way below the point where 1st time accumulation was seen. If a person employs tightly gripped money management rules then the SL will trigger and you shall be out of a good trade as the asset has reached an undesirable price.At the same time manipulators will be buying more in such a way that they do not put up the price against their buying. EVERYONE WANTS TO BUY AT A CHEAP PRICE AND MANIPULATORS ARE NO DIFFERENT .And once the first level of resistance is pierced (Breakout after accumulation) the Low of the Breakout Bar will act as a good support level as piercing the Low of this bar will take extra effort (money) on the part of manipulators. Vipin i totally agree with the entry point suggested by you but i respect Stop Loss more than anything else in Speculation. The difference in term of PIPS between the two entry points would be marginal and in my view its not worth waiting for such a long time. Rather speculate in some other asset and try to increase your capital Cheers
Tabla 37 vipin.kumar05
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Re: Volume Spread Analysis Hi lnangia, Pardon me for my ignorance, but could you explain a bit more on why its a sign of weakness? As i understand the weakness comes in to the picture when there are no more buyers at higher prices, which means that there is a) No volume b) the close is lower than the close of previous day. In this particular chart that you have given,i can see the upthurst bar , defined by High volume, wide range bar in which the close is near to low. its a definite sign of weakness if: a) the next bar is a down bar with huge volume, showing the SM has started to bring down the prices, by coming as a huge buyers at lower prices and the sellers have no option but to sell at lower prices therefore the close was near the low of the day. b) Its a narrow range bar with low volumes showing that the SM is no longer selling it at higher prices( it usually happens after the distribution phase, so they dont own most of the stocks ) so the high, low and the close are "narrow ranged" .
This charts' weakness point is the bar next to the upthurst bar. Am i right ?
Tabla 38 Placebo
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Re: Volume Spread Analysis Hi Vipin. The high Volume Upbar where Mark-Up is written can also be looked at as Selling Climax because of the excessive volumes . The fact that the Upthrust has closed below Selling Climax gives more insight to the fact that Supply > Demand. An Upthrust is the biggest sign on weakness and its a Narrow Spread Bar. We make a comparison of the spread and volumes with the previous bars , this helps us decide if the spread is Narrow , Average or Wide and same is the case for volumes. Everything needs a parameter for comparison and this is ours if VSA is used. Once this is clear look at the Selling Climax (Widespread on High Volumes) and then look at the Upthrust (Narrow Spread on High Volumes). If the High Volumes meant buying on the Selling CLimax then why did the next bar close below it ? On the Upthrust Bar why is the range capped on High Volumes? If the high volumes indicated buying then the Range of that Bar should also be wide and not narrow. The reason is because that the market makers do not want to put up the price against them. A 2 Bar confirmation is more than enough to understand the extent of Weakness. Weakness can be spotted much easily and quickly in a chart as compared to Strength. If a conservative approach is taken perhaps a person could wait for more supporting evidence. Maybe a 3bar or 4bar confirmation. You could even wait for the Low of Selling Climax to be taken out. People often say that never trade against the trend and you could precisely do that by shorting on the Low of Selling Climax.
Tabla 39 lazytrader
Member Join Date: May 2009 Posts: 1,125 Thanks: 796 Thanked 1,655 Times in 613 Posts
Re: Volume Spread Analysis I still have a few doubts on when to exit the stock. (it's a little difficut to read your chart due to the resize so I'll use the icharts chart again) On the upthrust bar the volume was lower than the previous 2 bars and the volume was actually falling for the next 7 days so in such a case wouldn't it have been called a retracement since the volume was declining with the price declines? How would you you say on the next bar after the upthrust that it was the end of upmove? Is it because it was a down close? Another question I had is that, since everyone was talking about economic recovery and the big rally that would follow was SM looking for higher prices but the
downtrend put the brakes on it so SM didn't completely exit the stock? So in that case the stock would again start the upmove sometime right? P.S: Suzlon came out with bad earnings so it gapped down on Monday (loss of 453cr vs 9cr or something like that). It still closed up though. Wht does that tell you? Recently Sunpharma was in the news for their US subsidary under fire. Stock gapped down 16% from 1200 to 1000 odd then recoverd to 1200 odd subsequently.
Tabla 40 Placebo
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Re: Volume Spread Analysis Great Analysis of the chart Karthik. Absolutely Incredible LazyTrader : Tom William's Book Master The Market clearly states that the volumes should be compared with the previous two bars however i bet to differ with this point. The actual comparison of the spread and volumes should be made from day 1 of transaction in the secondary market. The reason is because we cannot eliminate the data where Accumulation and Mark-up has taken place. Infact analysis of this data brings clarity in determining if the volume/spread is More Than Average/Average/Less Than Average . The comparison of the last two days will often present an incorrect picture of volumes and spread. Market Makers often use bad news to re-accumulate the stock and to eliminate the current floating supply. My crappy data software is unable to open Suzlon however if you look at the charts of SunPharma it is very evident that the stock is not moving in conjunction with NIFTY50 and when the broad index tanked in Jan 2008 , Sun Pharma was still moving upwards. Visually without any raw data in front the only thing visible is accumulation from Nov 2008 - March 2009. Currently i am very Bearish on the Broad Index and visually SunPharma is showing a Negative Corelation. It is highly probable that the stock is under re-accumulation. Cheers
Tabla 41 Placebo
Re: Volume Spread Analysis As i said earlier the comparison of volumes with the previous two days will present an incorrect picture. To see the real picture plot the volumes from the very beginning and make the comparison. And as per my understanding of the chart , the bar where Karthik has written Confirmation of END of Upmove is because the bar has taken out the Close and the Low of Upthrust on More Than Average Volumes. Independently with Supply (Climax) in the Background an Upthrust itself is a very big Sign Of Weakness. Also
the bar after Upthrust has made Lower High and Lower Low. This means that the 1st level of Support has been pierced and extra effort (More Than Average Volumes) has been put and the result is in tandem with the effort . For the time being this shows that the path of least resistance is now on the Downside. However more clarity will come on the downmove when the Low of The Climax Bar is taken out on More Than Average Volumes. The reason is because this level (Low of Climax Bar) has acted as a genuine trigger support point where prices surged and once this is pierced it can be easily established that the price will only move downwards. After this has been pierced , visually this looks like the price is moving up on Narrow Spread on Low Volumes. In that cluster of 'Blue Bars' , the second one is a No Demand Bar and price will never surge till the time there is Demand from Professional Money. I hope this helped in clearing some doubts Cheers
Tabla 42 Placebo
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Re: Volume Spread Analysis Hi Lazy..Thank You for the kind words but i'm just a student of the market. Kindly Refer to the chart posted by Karthik : After the 1st level of Support was taken out the bigger support level (low of selling climax) was also taken out on More Than Average Volumes. Then prices started moving upwards and the Blue Colour Bars appeared (just under the O of SUZLON). Now the 2nd blue colour bar is of utmost importance as this has moved up on Narrow Spread on Less Than Average Volumes. How do i know this ? Karthik has plotted a moving average for volumes and this bar very clearly shows that the volumes are ultra-low. This is a No Demand Bar. The reason is because price has moved up in an area where initially very high volumes were used to move the prices up (Climax Bar) and then High Volumes were used to move the prices down (High Volume Bar after Upthrust and the ones after that). This means that price has been fluctuating between Support and Resistance Levels. And if this holds true then the price has taken out a Resistance Level on Less Than Average Volumes on a Narrow Spread Bar which is a False Breakout and the best place to short the Asset Cheers
Tabla 43 lazytrader
Member Join Date: May 2009 Posts: 1,125 Thanks: 796 Thanked 1,655 Times in 613 Posts
Re: Volume Spread Analysis Since there are no markets in the weekend I look at a lot of charts. Looking at reliance I feel that after going through a period of accumulation reliance broke out and hit its target of 1840 and after a few days gapped up on open above
this level and then went on to touch 2500. Now my question is can smart money actually move this heavyweight as easily as smaller market cap stocks? I'm afraid that the stock has hit a high at 2500 and not going anywhere above it anytime soon. Looking a the largevolume down moves it looks like it is distribution mode. Could Anil have spooked the SM out of this one? Although it has formed a IHnS with technical traget of 2500 I don't think it a the right way to look at a bottom reversal pattern. I am currently holding reliance and wanted to get a VSA view on it. Please do correct me as necessary. Also one more stock - airtel. I don't even feel we need to look at the charts. Looks like definite distribution. In both stocks its the news flow that is affecting them. Now what is more important? If there is favourable news flow but SM is out then will the stock adv or dec? Is it always the SM that moves the stock? Tabla 44 bunny
Join Date: Apr 2009 Location: Mumbai 400051 Posts: 1,730 Thanks: 570 Thanked 2,359 Times in 918 Posts
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Re: Volume Spread Analysis I am posting VSA of the same chart(PRAJIND) as posted by lazytrader.
Things to observe: 1. The mid-July support at 70 2. Towards the left, there is a trading range in 70s in first half of May. 3. The volume in (1) and lower than that in (2).
Together, these 3 points mean that the selling pressure is decreasing* and about to vanish. Now which day exactly it would stop is most likely indicated by the two down bars on decreasing volume. * = "Master the Markets" Taking a Professional Approach to Trading & Investing by Using Volume Spread Analysis - Tom Williams.
Tabla 45 bunny
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Re: Volume Spread Analysis Can we consider pullbacks(with price moving in a definite direction) as sign of accumulation or distribution? Consider the below scenario: Accumulation: (See ADLABS attached chart) The price leaks above the resistance line(the highest price smart money-SM is willing to pay for the stock). As soon the price goes above the max. bid price, the SM is not interested in buying it at that levels. So buying stops and volume fall until prices enter below the resistance line. Once it enters the bid range, buying picks up and volume increase!
Distribution: The price breaches a support level and selling stops until price comes back into the range. Reduced selling is reflected as less volume. The price slowly picks up and enters the range where selling again resumes!
This is the same thing as "A breakout above resistance level with low volume is a false breakout".
Tabla 46 bunny
Member Join Date: Apr 2009 Location: Mumbai 400051 Posts: 1,730 Thanks: 570 Thanked 2,359 Times in 918 Posts
Re: Volume Spread Analysis One more distribution illustration: Please see the attached daily chart of IFCI during Jun 2009. I wanted to illustrate distribution.
The stock is in an uptrend. Smart Money (SM) wants to distribute it to take its profit. So it starts distributing now. At this point, we don't know in how many "batches" it will sell its stock. Soon, it sells its first batch and creates R-1. The drivels the price a bit lower than the minimum ask price of the SM. So it stops selling temporarily(and creates S-1) and allow price to rise. Once it approaches the desired price, the next lot is sold and R-2 is created. Again the price falls below the min. ask price, so selling is temporarily stopped(and S-2 is created) and the price is allowed to rise again to the ask price range. Once it increases, the next "batch" of selling resumes, thus creates R-3. After the price is coming down after R-3, it reaches area of support - prices which are very close to S-1 and S2. But this time the support range is breached on high volume. This indicates selling pressure! The above was quite basic. Now some important observations:
1. Volume increases near resistance. 2. Volume decreases near support. 3. When the price approaches the support zone, volume also reduces along with price (reduced selling pressure near support) 4. On S-2, the volume is higher than that on S-1. This means that there is increase in selling pressure pressure at the same support price. 5. The drop from R-3 to S-3 is on high volumes. Down-bar on higher volume always indicates selling.
6. In the next session, SM refused to buy the stock near S-3 and allowed it fall. This means that SM has
no more interest in higher prices. This inturn means that SM has completed the distribution and walked away with the cash!
Tabla 47 bunny
Member Re: Volume Spread Analysis Quote:
Originally Posted by karthikmarar (In Accumulation)Third, the volume should shrink near the support line and expand near the resistance line. Hi Karthik Sir, I think that the volume should shrink near resistance and expand near support in accumulation. My thinking behind this is: Since the SM is buying, it will look for buying at the lower end of its bid price range. Thus when the price goes upwards towards the upper end of the bid price range, the SM will temporarily stop buying. This inturn will be reflected on charts as shrunken volume. Then when the price drop lower, the SM will resume its buying. This will be reflected as expansion of volume. What you have mentioned seems apt for distribution rather than accumulation. Finnaly, the breakout in either direction will occur in either direction when SM stops resisting the increasing price(in accumulation) SMstops supporting the falling price(in distribution)
Please correct me if I am wrong. Thanks, -Bunny.
Re: Volume Spread Analysis Bunny what you said sound very logical , isn't it? Let us look at this with a different angle.... As the SM accumulates the volume increases and the price also moves up. When the price reaches the top of the TR the SM has to prevent the stock breaking out of the range. Normally SM may even resort to some selling inorder to keep the price below the TR top. So you will find many wide ranging down bars at the top of the range. Then the price starts falling. the SM would not support the down move otherwise shorts build up and this may take the price well below the TR. As the SM steps aside you will find lower volume and lower spreads. When the price reaches bottom of the TR te Sm will start buying again. So you will find upbars with higher volume at the bottom of the range. That is why the volume shrink near supports and expands resistances.. This logic looks a little strange but that is the way it works For a practical example, let us look at the Accumulation phase for the NIFTY from November 2008 to march 2009... You can notice volume expands as the NIFTY approaches the resistances and shrinks as it approaches the support
Tabla 49 bunny
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Re: Volume Spread Analysis Thanks Karthik Sir for the wonderful explanation. I was waiting eagerly for your reply. I still have some doubts but I will try to solve in light of historical data and come again. So basically the idea is to not make it obvious that they are accumulating(or distribution). Reminds me of what Chakanya said, "A snake should pretend to be venomous even if it is not". Thanks, -Bunny.
Tabla 50 abhinkoi
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Re: Volume Spread Analysis Quote:
Originally Posted by bunny I am posting VSA of the same chart(PRAJIND) as posted by lazytrader.
Things to observe: 1. The mid-July support at 70 2. Towards the left, there is a trading range in 70s in first half of May. 3. The volume in (1) and lower than that in (2). Together, these 3 points mean that the selling pressure is decreasing* and about to vanish. Now which day exactly it would stop is most likely indicated by the two down bars on decreasing volume. * = "Master the Markets" Taking a Professional Approach to Trading & Investing by Using Volume Spread Analysis - Tom Williams. It makes perfect sense in this trade to buy at those levels where selling pressure is reducing...2 consistent down bars with volumes decreasing and the price on 2nd bar should be closed in the middle or on the upside of the bar... This seems to be a very interesting topic and I am still learning so pls let me know if we are on the same page...or if Iam missing something? thx Abhinav Tabla 51 bunny
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Re: Volume Spread Analysis Karthik Sir, Can you please explain what a markup and markdown is? I know that markup means price is increased and markdown means price is decreased, but like, what happens exactly? Do the professionals who have accumulated increase their "ask price" in markup? and do they decrease the ask price in markdown?
Tabla 52 ksesha
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Re: Volume Spread Analysis Hi Kartik, I am new and accumulating as much knowledge as I can by going through the gems of traderji. I am a follower of your thread and it is very informative. Will you please look into the following stocks whose volume is abnormally high compared to the recent times and advise. TATATEA, YESBANK, ABB, HCLTECH, CHENNPETRO, Thanks in advance Sesha Tabla 53 Placebo
Re: Volume Spread Analysis http://img338.imageshack.us/img338/7...tatea10min.jpg Hi Observer. This is my view on the 10min chart posted by you In the background we have Buying Climax which would be termed as potential Buying Climax while trading it intraday. Buying Climax basically means that there is more Selling that Buying in that particular bar however conformation is required. The next bar market by a horribly drawn blue line has made Lower High and Higher Low. I often think of this as a bar in the middle of a supply zone with the top end capped. Next we have a widespread bar which has dipped drastically in the body of the Climax Bar and then closed very close to its own high. If this would have been genuine buying then the High should have been higher than that of the Climax Bar. The very next bar is down which conforms more supply. The bar marked by the crooked Red Line is a Test Bar. It is on a narrow spread and has dipped in an area where high volumes were seen before and closed off its own high. The bar after this has not responded to the test and has closed below it. This
basically means a "Failed Test". Expect Lower Prices from here. Just to make things easier i have constructed a horizontal line from the low of Climax Bar. Look carefully , this line has touched the High of a Bar from where price has fallen even further. And the bars prior to this have moved up on low volumes and narrow spread. One thing that i keep in mind while trading intraday : It is the participation or the lack of participation (activity/volumes) of Professional Money that changes a trend. P.S Get rid of the moving averages they will just confuse you Cheers Tabla 54 Placebo
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Re: Volume Spread Analysis Hi observer. There is no rigid definition or set of rules which define an Upthrust . Although Tom Williams states that an Upthrust occurs when the markets are overbought and occur in a fresh new ground High. The bar on this chart is not an Upthrust in my opinion. It seems more like a bar hit by massive supply. Look at the background which occurs before Climatic action started. After a surge in prices there was supply . However this supply was taken out on Narrow Spread and More Than Average Volumes. Soon after that we got Climatic Action (Widespread Bar on Ultra-high/High Volumes). However if u notice after the first supply zone (the area within the yellow horizontal lines) was taken out there was no sign of Test/Removal of Supply / No supply Bar. You need to ask yourself one question at this point. Is the professional money willing to buy more at higher prices ? if yes then why the narrow spread bar followed by Climax Bar ? There is a webinar on VSA at 2am IST 30-08-2009 conducted by Gavin Holmes (one of the partners of Tradeguider). Gavin is more of a trader who relies on Tradeguider indicators and there is not much he can teach. However these webinars were very helpful when i started with VSA. Here is the link if you wish to enroll http://www.tradeguider.com/events/
Sorry Traderji for posting the Tradeguider link . I am not associated with Tradeguider , my intentions are just to help a fellow trader in need Cheers
Tabla 55 Placebo
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"Your daily decisions are based on your background information and only partly on what is happening today.If you won the lottery last week ,yes,you might be buying a yacht today ,but your decision to buy a yacht today will be based on your recent background of financial strength appearing in your life last week.The stock market is the same.Today's action is heavily influenced by recent background strength or weakness,rather than what is actually happening today" Tom Williams - Master The Markets Page 19 There are several others things which are written about the background however this stands out. The background interpretation could differ from person to person so i'm not getting involved in explaining my point of view of looking at the background as your interpretation could be totally opposite of mine and that would just create confusion. I'm not too sure but i think that bunny has posted the download link on one of these pages. If possible read the book. Cheers
Tabla 56 bunny
Member Re: Volume Spread Analysis Quote:
Originally Posted by lnangia I'm not too sure but i think that bunny has posted the download link on one of these pages. If possible read the book. Its a 20 MB PDF file. Right-click here and select "Save as". As about the background its definition as well as perception is subjective and varies widely among people. My working definition is that the 2 or 3 most recent bars are good to be considered as background. These bars become significant if there are some important events like: 1. 2. 3. 4. 5. 6. Test of supply on a downday Upthrust on an up-day Narrowest/widest range bars with volume indications Push through bars Making new immediate-term(min. 4 bars) low on up-days Making new immediate-term(min. 4 bars) high on down-days
7. Is the price approaching any trend line?

Tabla 57 Placebo
Re: Volume Spread Analysis Hi Anoop Kumar. I am no expert however i am very passionate about using Wyckoff's methods and VSA and this is my interpretation of the chart. http://img187.imageshack.us/i/asianpaints.jpg/ The lower horizontal line represents the highest price point that the stock made in May 2008. The higher horizontal line represents the consolidation zone which lasted for more than 2 months. This consolidation zone highlights Wyckoff's principle of Cause and Effect. The stock was building up a cause to break through the higher horizontal line and the effect was a successful breakout. (1) After the break out the very next bar got its top tailed on a wide spread and the volumes were low. (2) This bar struggled to close above the previous high which represented a potential resistance zone although the volumes picked up. So this confirmed one thing that selling was abundant as price moved up. (3) This bar highlights the weakness present in the trading zone. Prices are at a all time high , there is nothing higher than the current level of the trading range and then suddenly the volumes have picked up and the spread is extremely narrow. In fact the bar has even struggled to make higher high's.The next bar is down however the volumes look like they are more than average which is why the stock has started moving sideways. The next bar looks like a no demand bar which also got its top tailed. All these things combined together are a definite "Red Flag " for me and this looks like a Distribution Range. I would exit all my long positions here however i have been wrong before and i can and will be wrong again so the rest is up to you. Good Luck and please keep us updated with the developments of this stock. Cheers Happy Trading
Join Date: Apr 2009 Location: Mumbai 4000 Posts: 1,730 Thanks: 570 Thanked 2,359 Times in
Spread Analysis
eady offered the views on weekly chart. I am posting the daily chart of it.
out very prominently on this chart - the high volume and narrow spread bar that is annotated in pink. Perhaps there w nce the spread could not expand. This bar looks like an upthurst, but it is not, considered there is no weakness in the b usually seen after weakness has been seen for a good amount of time, say two or three weeks. Overall, I will not consid
ions are in line with Lnangia's observations, so I will not repeat them.
uld like to add the below: proaching a resistance line. The volume under the last few bars can be said to be generally greater than the bars to its sorption volume. The smart money is absorbing the shares from the locked in players and hence the volume.

Bunny

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Re: Volume Spread Analysis

Re: Volume Spread Analysis

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Please correct me if I am wrong. Thanks, -Bunny.

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Join Date: Apr 2009 Location: Mumbai 400051 Posts: 1,730

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7. Is the price approaching any trend line?

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