Trading with Volume Spread Analysis (VSA)

[bunny]

Effort v/s result (Volume v/s spread)

Thanks. But, here is the actual confusion; and kindly bear with me. Not intending to challenge or counter, but a genuine query. I have been having the same eye for volume since long and even till date, as I have no other option. Volume supporting the move - it has to be taken on both sides, am I correct? If yes, then am I correct in understanding that volumes act as fuel to facilitate the direction of trend, whether it may be upside or downside?

Didn't get that "both sides"?

You are correct in comparing volume to fuel, or rather say "effort". Large volume means large effort, low volume means low efforts.
So now, we can have following situations:
High effort and high result: Wide spread bar on high volume
High effort and low result: Narrow spread bar on high volume
Low effort and low result: Reducing selling pressure or no demand.
Low effort and high result: Wide spread bar on low volume, likely manipulation, or after series professional activity has taken place on the last few bars. (This is the same type of bat you were asking on BIOCON daily chart 29 JAN 2010)
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[rajputz]

Ema34 just to take the look at the longer trend....

i am not relying totally on it but just keeping it for an extra hand in identification....

and also all the indicators are lagging some where or other...even VSA also (like in case of indeces) also nifty volume is hard to differentiate if high or low...if VSA doesnt then human interpretation (to err is human).

the main point is that the market is in indecision mode. Getting bullish for daily trend. Dont know about the Longer time period.

 

[bunny]

Volumes of a script indicate total number of shares bought and sold during a specific period of time, may it be day or week. Now, heavy volume or high volume denotes that huge number of shares are bought and sold. But many times, I found that this is not actually giving any clue to me.

That is why you also need to see the spread of the bar. Volume only contains half of the information we need.

Let me put my confusion with the aid of an example. Let us classify all those who trade in two categories Mr. Buyer and Mr. Seller. Suppose a script is at 100/- rupees and after huge buying by Mr. Buyer the price rose to 104/-. It is taught to be a positive sign for the script because its price increased with good volumes. But how to decide, who among Mr. Buyer and Mr. Seller is a smart player, mere on the basis of volumes of shares traded. Sometimes, the script continue to rise and one can make use of this funda that prices supported by volumes tend to rise more. But, sometimes, the price decreases immediately on the following days, making Mr. Seller a smart player. I hope, I made my weakpoint clear and request a helping hand on this.

Ok, let us frame few rules so that you can understand better.

1. Professional money = Always Smart = market mover
2. Professional money constitutes an overwhelming majority of the volume or turnover. So most of the volume you see is hardcore professional activity.
3. Retail trader cannot move the market.
4. Professionals will be selling on the top, and buying the bottom.
5. Retailers will sell the bottom and buy the top.

To exactly understand what and how smart money sees the supply-demand, you will have to be familiar with terms like upthrust, shake-out, test of supply, pushing through supply, absrobtion, etc. You will need to read the VSA ebook you had downloaded.

Rule of the thumb: All the activity you see on the chart is activity of the smart money. The retail money has zero chance to do anything there.

 

[adultvish]

Re: Effort v/s result (Volume v/s spread)

Didn't get that "both sides"?

You are correct in comparing volume to fuel, or rather say "effort". Large volume means large effort, low volume means low efforts.
So now, we can have following situations:
High effort and high result: Wide spread bar on high volume
High effort and low result: Narrow spread bar on high volume
Low effort and low result: Reducing selling pressure or no demand.
Low effort and high result: Wide spread bar on low volume, likely manipulation, or after series professional activity has taken place on the last few bars. (This is the same type of bat you were asking on BIOCON daily chart 29 JAN 2010)

[/QUOTE]

Thanks for answering; I was eagerly awaiting ur response.
Both sides, means both ways - downside move as well as upside move.
Your explanation regarding high effort and high result is very useful in clearling some of the confusions. and, it also means that volume has to be analysed as a whole; not on the basis of single session like day or week. Am I correct?

Low effort and low result: Reducing selling pressure or no demand.

Here lies my principle query? what to take of it, reducing selling pressure or no demand because both are different and have different implications. Because, if low effort and low result denotes reducing selling pressure or no demand; then
High effort and low result will denote increasing selling pressure or high demand; that too create the problem. because, it will reflect a situation when both the seller and buyers are struggling with high pressure. The smart player, if looking to short will let the buyers win for some time and will loosen its grip of selling; and when the price go up just to convince us that buyers have won the situation; the selling starts.
Like in Biocon chart, would you recommend a buying on Monday? I will look for confirmation on monday and if the price remains up with considerable volume, I will enter long in it. But the confirmation will only come when the price exceeds its previous day high i.e. 271. And after 271.70, the price comes under the range of selling pressure.
Sorry for bothering you with such queries, but in practical these things really trouble me a lot because of two-fold aspect of volume; i.e. whether the volume is low or high, it represents the buying and selling pressure equally because the number of volume indicate total number of shares bought and sold. High volume means high pressure on both sides which can either be demand or selling. The movement of price towards a significant direction gives a hint about the winner; but that happens on very few occassions. NOrmally, it always happens on the wrong side i.e. if we enter long seeing the high volumes and price moving up, within a few hours or days, the price went down and vice-versa. And, if we give too much time to confirm the direction of the move; by that time the price goes out of range to enter either long or short.

 

[adultvish]

That is why you also need to see the spread of the bar. Volume only contains half of the information we need.

Ok, let us frame few rules so that you can understand better.

1. Professional money = Always Smart = market mover
2. Professional money constitutes an overwhelming majority of the volume or turnover. So most of the volume you see is hardcore professional activity.
3. Retail trader cannot move the market.
4. Professionals will be selling on the top, and buying the bottom.
5. Retailers will sell the bottom and buy the top.

To exactly understand what and how smart money sees the supply-demand, you will have to be familiar with terms like upthrust, shake-out, test of supply, pushing through supply, absrobtion, etc. You will need to read the VSA ebook you had downloaded.

Rule of the thumb: All the activity you see on the chart is activity of the smart money. The retail money has zero chance to do anything there.

Thanks again. regarding reading VSA, I have already done it several times. But, mere reading or learning by heart is not helping me. I want to understand and feel; what the author is trying to communicate, which I think can only be done by discussing it. Yes, I understand that your time is precious to be spend on replying such simple questions which are apparently very clearly touched in VSA. But, please be kind to me. Thousands of copies of that books have been published and distributed and thousands of people would have read it; but still only a few would have been able to understand. Because, alone reading never helps.

Sir, will it be Okay with you; if you can help me with some live charts. And, please don't get me wrong; I have been in many technical analysis courses some of which amounted to 2500/- rupees per day. They all tried to satisfy with the aid of backdate charts; but when it came to discuss it on live charts, they always avoided on one front or other.

AFter, 5-6 years of banging my head on each and everything which I could have bought and read, I came to conclude that only live examples can be of any help to me. You can see that I have been enrolled on this forum since 2006; but it is only from yesterday that I have posted so many messages over here. Prior to this, I was only reading and reading and reading and trying to understand what it actually mean.

Rule of the thumb: All the activity you see on the chart is activity of the smart money. The retail money has zero chance to do anything there.

This I understood way back in 2004; and still trying to figure out how they (smart player) play the game.

 

[adultvish]

Ema34 just to take the look at the longer trend....

i am not relying totally on it but just keeping it for an extra hand in identification....

and also all the indicators are lagging some where or other...even VSA also (like in case of indeces) also nifty volume is hard to differentiate if high or low...if VSA doesnt then human interpretation (to err is human).

he main point is that the market is in indecision mode. Getting bullish for daily trend. Dont know about the Longer time period.

thanks but why only 34, why not 35 or 40 or 54?
please share, if there is any special importance to this.

 

[bunny]

Re: Effort v/s result (Volume v/s spread)

Thanks for answering; I was eagerly awaiting ur response.
Both sides, means both ways - downside move as well as upside move.
Your explanation regarding high effort and high result is very useful in clearling some of the confusions. and, it also means that volume has to be analysed as a whole; not on the basis of single session like day or week. Am I correct?
[/QUOTE]
yes, a single bar in isolation does not help. You have consider the background. The background is the most difficult thing and is easily missed or ignored

Here lies my principle query? what to take of it, reducing selling pressure or no demand because both are different and have different implications. Because, if low effort and low result denotes reducing selling pressure or no demand;

Narrow spread, low volume down bars on reducing volumes = reducing selling pressure.

Narrow spread, low volume up bars = no demand (EXCEPTION: accumulation in background)

High effort and low result will denote increasing selling pressure or high demand; that too create the problem. because, it will reflect a situation when both the seller and buyers are struggling with high pressure.

High volume, low spread on up bar is professional selling.
High volume, low spread on down bar is professional buying.

Professionals sell into up-bars and buy from down bars. this is because they can get tighter spread(bid-ask).

The smart player, if looking to short will let the buyers win for some time and will loosen its grip of selling; and when the price go up just to convince us that buyers have won the situation; the selling starts.

The description given by you is like that of an upthrust bar. The day is an up day, volumes are high, and so you get into it. But the scrip plummets down!
Upthrust is a very confusing action, and it is said that not just the retailers, but also some smart players are fooled into it by other 'smarter' players.

Like in Biocon chart, would you recommend a buying on Monday? I will look for confirmation on monday and if the price remains up with considerable volume, I will enter long in it. But the confirmation will only come when the price exceeds its previous day high i.e. 271. And after 271.70, the price comes under the range of selling pressure.

I have some concern on the daily bar of 28 JAN 2010. No one has come out with the correct answer I am looking for. The question is still open.

About the position in BIOCON, I think it is safe. Your concern, that it will going into resistance zone, it may happen that the resistance is overcome by "pushing through supply" or gapping up.

Sorry for bothering you with such queries, but in practical these things really trouble me a lot because of two-fold aspect of volume; i.e. whether the volume is low or high, it represents the buying and selling pressure equally because the number of volume indicate total number of shares bought and sold.

The quantity of shares bought and sold may be equal, but the buyers and sellers of the shares are not "equal". By this I mean, that when the buyers are professionals, the sellers are retailers, and vice-versa.

Who is buying and who is selling is the point. If the professional is buying(happens on down day), you know that the market is strong, so you will trade long. If professional is seller, you know market is weak, so you go short.

 

[rajputz]

thanks but why only 34, why not 35 or 40 or 54?
please share, if there is any special importance to this.

according to SH's Market Correction Strategy of Ema's 34ema gets tested after 16-18 weeks....i look on these time frames...after march 2009 it tried to test it in july 2009 then in nov 2009 but nifty bounced back from near....this time it hardly tested it and took supprt near after 2 and half months....

 

[adultvish]

Re: Effort v/s result (Volume v/s spread)

yes, a single bar in isolation does not help. You have consider the background. The background is the most difficult thing and is easily missed or ignored

Yes, this is the only thing which is actually required to be understood appropriately. All other things are secondary and have known to most of us. And because, the understanding of the background may change the view in totally opposite direction; it has to be given utmost importance.

Sir, will you be comfortable with me presenting some charts for your comments? It will really help me to give appropriate attention to the background.
A good example at this time will be of Tech Mahindra
If you take a look at this chart On 9 Nov 2009, there was an upside move with good volumes. then the next candle (10 Nov) is black and the next candle is white (11 Nov). Volumes for both these days i.e. 10 and 11 Nov are almost equal. Thereafter, the price started reducing correcting upto 18.5% within next two weeks. On 26 Nov, there were high volumes with dozy formation on the lower side of previous day candle, which denoted high pressure on both sides. Thereafter, as the price continue to rise in the coming days (actually the whole Dec 2009) - the volume remained low
, rather too much low as compared to its past three-four months volume. Then, the volume started to increase with more wide upside moves (but these upside wide moves were never appeared to have denoting any contrary view towards the continuing uptrend). And on 25 and 27 Jan 2010, the price went down drastically, and the volumes are quite normal.
Can you please comment and guide on this.
What to expect from Tech mahindra now?

 

[adultvish]

according to SH's Market Correction Strategy of Ema's 34ema gets tested after 16-18 weeks....i look on these time frames...after march 2009 it tried to test it in july 2009 then in nov 2009 but nifty bounced back from near....this time it hardly tested it and took supprt near after 2 and half months....

Thanks bhai