Volume spread analysis methodology takes a multi-dimensional approach to analyzing the market, and looks at the relationship between price, spread and volume. El The foundation of VSA were laid by R. Wyckoff. He started with a premise that price/ volume/ time could a picture of demand and supply from smart money. Supply and Dernand: When demand is greater than supply, prices rise, and when supply is greater than demand, prices fall. The analyst can study the balance between supply and demand by comparing price and volume bars over time. This law is very simple but learning to accurately evaluate supply and demand zones on bar charts, takes considerable practice. The Law of Cause and effect: Helps the traders and investors set price objectives by gauging the potential ex Lent of a trend emerging from a trading range. Cause can be measured by the horizontal point count in a point and figure chart, while the effect is the distance price moves corresponding to the point count. This can be seen as the force of accumulation or distribution within a trading range. THE Much later in 70s Tom Williams, who was a highly successful member of a professional syndicate, developed on Wyckoff's work and came up with volume spread analysis . VSA basically ignores the open of a bar and uses high, low and close. This is where it basically differs from classical candlestick analysis. ACCUMULATION Accumulation is a process whereby smart money accumulates large quantity of stocks at the lowest possible price. Its a subtle and quiet process. It mostly takes place in range bound market. During accumulation phase, we will usually notice thin spread and low volume. Spread is low and contained because SM does not want the public to be aware of its activity. The only time they want the ublic to take notice is the next phase, Mark Up. MARK UP Once the SM has a cornered a huge chunk of stocks, they are ready for the next move namely Mark Up. During this phase the low of the stock should be getting higher. On the day of a successful mark up, we should be seeing higher rela live volume as compared to the volume during accumulation. If one spotted a successful mark up early, the strong momentum could still allow traders to ake quick profit. heck R.R. Too. VOLUME SPREAD ANALYSIS 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. When you notice that the volume diminishing and spread narrowing, its a sign of ending the mark up phase. SM slowly starts offloading their positions. Much care is taken not to make it visible. Volume is never too high and price also supported at a certain levels so that ere is no panic. Here it is important to take note f volume, price pattern and angle of ascent. VOLUME SPREAD ANALYSIS HOW TO IDENTIFY DISTRIBUTION The final lap of the process. Last batches of traders went in as they feel that they do not want to be left out. On buying climax, we usually see a long spread and ultra high volume up bar, preferably closing in the middle or lower middle (this indicates weakness). This is the first sign of weakness, should we short from here...we have to wait for further confirmation before shorting. SOME BASIC BAR DEFINITIONS UP BAR: A bar would be called an up bar if the close of the bar is above the close of the previous bar. DOWN BAR: A down bar would be called a down bar if the close of the bar is below the close of previous bar. SPREAD: read is the difference between high and low. SOME BASIC BAR DEFINITIONS UP BAR: A bar would be called an up bar if the close of the bar is above the close of the previous bar. DOWN BAR: A down bar would be called a down bar if the close of the bar is below the close of previous bar. SPREAD: read is the difference between high and low. SIGNAL OF WEAKNESS UPTHRUST An upthrust bar is a wide range bar seen during an up-trend when price makes a new high and closes strongly down on high volume. The trading activity was high as indicated by the high volume and price dropped to near the low or to the low. This is one of the most easily identifiable and rong indication of weakness. UPTHRUST Important points to be checked: Bar should touch a new territory Spread should be very wide Volume should be more than average or should be ultra. Bar should closed in lower half heck the context ript should be in up trend NO DEMAND BAR No demand is a n up bar with narrow spread closing in the middle or lower and the volume is than the volume of two previous bar. We can use demand bar as a confirmation signal of a sell trade. This bar indicates that there is no support from the smart money for the move. VOLUME ANALYSIS LOW volu me: Volume below 0.7 times the average volume will be low volume. H igh VOI u me: Any volume above 1.8 times the average volume will be high volume. ra High: Volume above 3 times the average ould be termed as ultra high volume. jinC WHAT IS A CLIMAX A climax occurs at the end of a bull or bear market cycle and is characterized by escalated trading volume and sharp price movements. Climaxes are usually preceded by extreme sentiment readings, either excessive euphoria at market peaks or excessive pessimism at market bottoms. BUYING CLIMAX A buying climax is an extremely powerful sign of weakness and will often mark the top of the market. It will come after a bull run has taken place, so it will appear in an uptrend., volume should be high or ultra high. Ultra high volume shows the higher activity. The spread of the bar will be very wide and the closing price will be near the middle of the bar. Because the huge buying pressure price strongly moves up, yet it runs into a strong bearish pressure form the smart money. The SM have to put a lot of fight (supply) to beat the strong bullish pressure. As a result, the bullish pressure get exhausted and the SM distributed (dumped) all they want. After see this sign of weakness, we often see the market move sideways for 10 to 20 bars with additional sign of weakness appearing. The most common one is No Demand. After see a buying climax, one should wait to penetrate the low of buying climax bar. If we see low volume up bars in high volume area, this confirms the weakness. This usually happens within 25 bars, the market can turn quickly, in 25 bars. When a buying climax is observed, it is known as the beginning of the distribution phase. According to the Wyckoff, buying climax should be in to fresh new ground, meaning that there is no price action in the same area for at least 500 bars or more in any timeframe. After a buying climax, we must wait for confirmation as market may go up further, even through selling has begun by SM. This is due to momentum. WHAT WE HAVE TO SEE Price should be in an up trend. The last up trend bar should be on extremely high (ultra high) volume — this tells us that up trend was fuelled by strong bulls and the SM had to put a lot of selling pressure to over come these strong bulls. Ideally the last up-trend bar should be narrow bar at high, yet, it could be long bar which close below or the middle of the bar. WHAT SHOULD BE EXPECT After such strong volume surge we should expect a strong reversal. The strong volume surge was witnessed during the buying climax The stronger pressure was applied against the bulls and the stronger reversal down could be expected. Next bar after the buying climax chart pattern could be important to confirm the weakness. SUPPLY COMING IN & SUPPLY OVERCOMING DEMAND A ultra high volume up bar closing at the high and the next down bar indicates supply is overcoming demand. If the high of the down bar is higher than the previous bar, this adds to the weakness. Be cautious if the volume on the down bar was very high to ultra high. THE END OF RISING MARKET The volume accompanying this set-up will be ultra high and most importantly, the spread of the price bar will be narrow. The price should close in the middle of the bar, and it will be an up bar, which will close higher than the preceding bar. This bar should be into fresh new ground. THE END OF RISING MARKET The narrow range of the bar is caused by the mass of sell orders from the SM. This often causes the market to move sideways for several bars and suddenly we get a high volume bar with a wide spread that closes on the low and takes out many of the previous support levels that were observed in the bullish move. SELLING CLIMAX Selling Climax is the high spread bearish candle closing well off the lows having noticeable downward rejection wick projected on ultra high volume. Selling Climax has a downward wick whose size is approximately 25%-30% of the candle body. This bar indicate that there is more demand than the supply so the price will go up in future. SELLING CLIMAX A selling climax is a very powerful sign of strength. After a period of falling price, a point will be reached where traders can no longer be in trade. They want to quit with a loss, But at this point price are now attractive to SM and they begin to accumulate at these levels. FAILED EFFORT SELLING CLIMAX This is a variant of Selling Climax having no downward rejection wick. It has higher spread than the previous candles and its volume is also ultra high or higher than the previous candles. There is an anomaly between the spread and volume as compared to previous andles. So the price will go up in future. STOPPING VOLUME Stopping volume is also known as absorption volume. SV is a down bar , closing on the upper side, having an ultra high or above average high volume. This is called stopping volume because it Indicated that SM is absorbing selling ressure. SM have decide to stop down de and start accumulating. As a result the stock will soon see sideways moment or start accumulating for long side. An ideal stopping bar is a down bar with high volume and closing near top or upper half. In this case there is an anomaly between spread and volume which signifies that there is more demand than supply ausing price to rise up in future. There are three types of SV: In an uptrend where buying has been observed in the background: Bullish SV In an downtrend where weakness is in the background : Bearish SV In a range bound market : Neutral SV R F,VFRSF, UPTIIRUST This is just reverse of UPTHRUST bar that is found during uptrend. Reverse upthrustis found during down trend. This is an up bar with wide spread trading on ultra high or above average high volume. This bar should chartering in fresh low area and closing of the bar should be near upper area or in upper half. REV ERSE UI' I'HRUS'I' Reverse upthrust is a good sign of strength returning and witnessed the trend reversal almost immediately. The reverse upthrust is very rear and is rarely at bottoms. There is an anomaly between the spread and volume as compared to previous candles. So the price will go up in future. As the name signifies that this bar indicates absence of supply and indicates strength. The No Supply bar is a narrow range bar with low volume and closing should be in lower half. The next bar should be an up bar with average or high but should not ultra high. Ultra high volume means we will see further tests before the market move up. The criteria for No Supply bar is as follows: The volume within the bar formation has to be lower than the volume of the previous two bars. The bar has to be down bar. There has to be some sort of rejection at the low of the bar. If the bar closed at the bottom it would ot be a No Supply bar. THE 'SHAKEOUT' It is a powerful sign of strength. This signal is used as an opportunity by SM to dislodge as many traders who are in long position and to trigger as many stops as possible. The Shakeout often mislead many traders who go short after seeing wide pread bars as a sign of weakness, when in fact it is a sign of strength. TEST The concept of Supply & Demand test in VSA analysis implies the defining of resistance to both the ascending and descending movements. So, with the accumulation of sufficient position, smart money need to check whether there are sellers or buyers in the market who will resist the uptrend or downtrend. For this the price is understated in a zone that is comfortable for buy or sell, where as a rule, there was a previously a mely high volume of trades. TEST IN RISING MARKET It is the easiest signal to identify. A " Test in a Rising Marke€' is a very good trade setup to go long, but it must meet the following criteria to be a high probability trade 10 the buy side: There must be a clear uptrend in place. There should be a clear sign of 'Climatic Buying' in the larger time frame, such as a 'Selling Climax' or 'Shakeout'. 'Test in a Rising Market' should be on a down wag of trading ith narrows read. TEST IN RISING MARKET The open and the body of the test bar should not penetrate the preceding bar. The volume should be very low. High vblume tests seen in rising markets often come back and get retested at the same level. After a 'Test in a Rising Market', the next bar should close higher than the test bar, but one thing should noticed that next bar should not have ultra highe. TEST BAR This is the most important bar that we need to see if we want to long. We need to see strength in background A test for testing the supply. If there is too much supply, price will not be supported. Test bar should have narrow spread, dipping into territories of previous low where we see high volume before. A test bar don't work in isolation. The next bar should high, above the test bar with ease. Volume of the t way of trading ould be low but higher than the test bar. BULLISH TEST TEST AFTER SHAKEOUT It is a powerful sign of strength. This signal is used as an opportunity by SM to dislodge as many traders who are in long position and to trigger as many stops as possible. The Shakeout often mislead many traders who gd short after seeing wide spread bars as a sign of weakness, when in fact it is a sign of trength. 4 STAGES OF VSA This is the stage in which "SM" begins to accumulate shares. These are major players who need to acquire large positions but can't do it all at once for fear of driving prices higher and raising their cost basis. So they buy at regular intervals when the stock hits their desired price levels. During this stage, few retail investors might participate because price action is unremarkable and doesn't attract attention. On the other hand, this is where "SM" might able to position themselves to realize the greatest gains. SC: Selling Climax, PS: Preliminary Support, AR: Automatic Reaction, ST: secondary Test , LPS? Last Point of Supply, BU: Back Up This is topping stage for a stock or market. It signals that a rotation is taking place as early buyers, those who bought during the accumulation stage, as well as later buyers may being exiting the stock. One hallmark of this stage is an increase in volume but without an increase in price. In fact, this stage often sees the stock's highest volume because bullish sentiments is extremely high. Initially new buyers may be able to absorb the selling, but not enough to keep driving the stock higher. DISTRIBUTION Phase E PSY: Preliminary Supply, BC: Secondary Test, I SPY: I.ast Point Buying Climax, AR: Automatic Reaction, ST: of Supply, UP: Upthrust Advanced Level VSA (EFFORT VS RESULT) CRITERIA FOR VSA THREE FOR VSA CRITERIA 1 ----- VOLUME CRITERIA 2 Spread of The Bar CRITERIA 3 Closing Price on The Bar Swelling of Volume The Scout Story Concept of Thin Area Thick Area: Acceptance Thin Area: Rejection Concept of Vertical Volume Fixed Range Session Volume Visible Range How To Find High Probability Trades Wide spread Closing in lower half 4 Ultra high volume or greater than previous bar O Up Trend O Significant Strength in Background O Absorption How To Read Cumulative Delta Cumulative Delta takes the delta values of each bar and successively adds them together Cumulative Delta measures the effectiveness of buyers and sellers Climatic Action Bar Starting of a Campaign Entry Point A No Supply Bar or Test Bar. Next bar should be an Up bar.
