Trading with Volume Spread Analysis (VSA)

[bunny]

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

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

I am posting the chart below. I have tried to explain most of the things on the chart itself. Please save this chart top your PC for future reference. Read the chart bar by bar along with the notes attached with every bar.

I hope this chart will be very helpful to you and every other person who has difficulty with the background stuff.

 

[observer]

In area marked 1, no support days, what does the third wrb closing near high mean?

 

[bunny]

In area marked 1, no support days, what does the third wrb closing near high mean?

That bar looks like a mini-shakeout and is a some sort of strength. However, on the next bar which is an up bar, though volume is only marginally less, the spread is very narrow and also closing is in the middle. So that bar becomes weak bar.

 

[adultvish]

Thanks bunny bhai for all the pain that you have taken in preparing and posting the solutions. I have gone through the VSA once again overnight and still re-reading it.

There were some facts, which were not understood; but now appearing somewhat clear. But, the problem arise when I try to analyse the current situation. While applying it on back-date charts, it become easy; but when I have to apply it on current chart, there again arises some confusion.

Therefore, in order to train my mind to think and analyze in tune with the professional or smart trader; I would request you to kindly allow me to put my observations/queries on current charts.

here is the first one.

1. On 4th Jan 2010, we had downbar with low volumes, indicating lack of effort or fuel. It resulted into steep decline for next two days with high volumes.

3. on 8th Jan 2010, we had somewhat narrow spread downbar with good volumes.

Red Circle Then we have 4-5 days sessions, where prices were low and narrow spreads with downside pressure. Somewhat appearing to be trading within a narrow range. But because the volumes were low, we can not call it smart buying? Had, the volumes been good, it could be taken as involvement of smart money?

2. On this day, we have a downbar with good volumes, closing below the previous day close. Clearly indicating what has been discussed under Red Circle i.e. the upside movement on previous day was not involving any smart buying. and as a result, we find the prices go down, even below the lows of red Circle.

? Now my question with respect to the last candle. It is a wide spread. It closed above previous day close. So wide spread up bar. But the volumes are again quite low to assume involvement of smart money in it. Because, had the smart money operated, the spread should have been narrow, while the volumes should have been more, somewhat around 9-10 lacs. So, is it wise to presume that, the script is still weak and we can expect more selling driving the prices down below its current low levels i.e. 1332.

 

[bunny]

Maruti

 

[adultvish]

Re: Maruti

/IMG]

Thanks bhai.
But as you can see, despite my best efforts I am not able to get it correct. I gave around 20 minutes in analysing; and all that I could came out with is simply crap
I really dunno what is wrong with me?

I saw the bars of 5th and 6th Jan; both are wide spread down bars and volume was 14.07 lacs and 15.71 lacs respectively. So I analysed that smart money is selling. Am I correct till here?

Now, I analysed that if the smart money is selling within the range of 1570-1460; then they must be looking for some good targets; at least 10-15%.

On 20th Jan, there was an upmove with volumes of 13.76 lac, which I found less than selling volumes on 5 and 6 Jan 2010. On next day i.e. 21st Jan there was a bar denoting pressure with volumes of 12.20 lac. Which again denotes pressure on the highs, expecting prices to down down.
And, that occurs 27 Jan with volumes of 11.80 lacs.
I observed that the volume is decreasing and price came down to 1350-1370 on 27 Jan, reducing to around 10 % from 5th and 6th Jan 2010. Now in order to have an strength, I need to focus on down bars which must have good volumes and appropriate closing.
I found the closing appropriate, but could not find the volumes supporting it.
On 27 Jan volumes were 11.80 lacs
On 28 Jan volumes were 8.35 lacs
On 29 Jan volumes were 4.68 lacs
much below the volume levels with which the script declined on 5th and 6th Jan 2010.
In order to understand your point of view, should I consider the decline of 5th and 6th Jan as smart money entering long, or there is some other thing which I am totally missing?
Kindly help, will be highly obliged.

 

[bunny]

Maruti vsa

MARUTI-EQ-NSE

• 24, 29 and 30 DEC 2009: Up bars with higher volume, but limited or restricted spread. Perhaps professional money is selling into the up bars (Sign of weakness). [This is the "weakness in background"]
• 31 DEC 2009: Down bar, closing in the middle, with higher volume - means that supply is still present.
• 04 JAN 2010 - Down bar with slightly lower volume.
• 05 and 06 JAN 2010 - Down bar with wider spreads on high volumes.(Effort to go down or professional selling)
• 07 JAN 2010 - Down bar, narrow spread, lower volume. Indirect sign of reducing selling pressure.
• 08 JAN 2010 - Down bar with higher volume after sign of reducing selling pressure. We are wondering of that if the last bar really meant reducing selling pressure, where did the supply or selling on this bar come from? Why aren't the professionals marking up the prices as selling pressure is reducing? Answer: Because they are bearish. And why are they bearish? Perhaps they have seen some weakness which we have failed to notice. The presence of this makes it necessary to remove the supply before any rally starts. The presence of supply add to "weakness in background"
• 11 JAN 2010 - Up bar, narrow spread, low volume, gapped up. At this bar, I am confused. Is this an effort to go up? Since this bar is closing on the high, should I take it as a sign of strength? If so, it will mean that the previous down bar had contained more of hidden buying than selling, which is contradictory to our conclusion on the previous bar. So we wait and watch for the next bar.
• 12 JAN 2010 - Down bar, narrow spread, higher volume. If we assume that the previous bar had shown strength due to removal of supply(hidden buying on down bar of 9 JAN 2010), then why is this bar down? It should have been an up bar. This means that the bar on 11 JAN 2010 was a weak bar.
• 13 and 14 JAN 2010: These are down bars, perhaps a result of weakness seen on previous bars. However, the spread are narrowing and volume is reducing. Signs of reducing selling pressure, indirectly a sign of some sort of strength.
• 15 JAN 2010: I am expecting an up bar, but its a down bar. The volume is higher, but the range is still narrow. Hints at professional buying. Signs of strength of this bar.
• 18 JAN 2010: As expected after seeing sign of strength, we have an up bar. This bar may seem innocent, however the likely culprit is higher volume on that bar. Ideally, since we have seen professional buying on last bar, we assume that there will be acute supply-demand gap and this should lead to an up bar that closes on high albeit with lower volume. However, this bar not only has higher volume, but also closing off its highs. This means that professionals have failed to remove the supply adequately and this existing supply now metamorphoses into weakness in background.
• 19 JAN 2010: Weakness seen on previous bar manifests itself as a down bar. Worth observing - that the volume is higher, but the spread is narrower on this bar. This hints that professionals have a bullish view, but the existing supply is hindering the mark up.
• 20 JAN 2010: Up bar, wider spread, higher volume. The good thing about this bar is is increase in spread(professionals trying to mark up the price). The bad thing is higher volume, which means that there is some selling interest on this bar. Translates into weakness of a mild type.
• 21 and 22 JAN 2010: Down bars on reducing volume. Sign of reducing selling pressure. Indirect strength.
• 25 JAN 2010: Strength seen on last bars is manifesting itself. But again, to our dismay, supply comes in. The good thing is that wide spread indicates professional markup. This mark up is coming after signs of reducing selling pressure. So we conclude that this mark up is not an manipulated one, but attempt to go up. However since the professionals have seen some selling coming into their mark up, they must have given up the mark up. Translates into indirect weakness.
• 27 JAN 2010: The weakness seen on the previous bar makes us expect a down bar, and we are correct - we have a down bar. However, the spread of this bar is wide, and the volume is high. It sounds like 'Effort to go down' which is bearish. But we had seen professional buying interest(and reducing selling interest) on few bars ago(which is bullish). So are we bullish or bearish? Has the weakness started to manifest itself? I am confused. There is a possibility of selling climax(which is bullish). Since we are confused let us wait and watch for the next bar.
• 28 JAN 2010: Its an up bar, low volume, narrow spread, closing in the middle. Sounds like no-demand. But wait, if the previous bar has contained mostly professional selling, then how can this bar bar be an upbar with only so little volume? Again I am confused. So I wait and watch for the next bar.
• 29 JAN 2010: An important event(RBI credit policy) is coming up. Professionals use such news and events to better their positions. The bar make a new low, but manages to close on the high. Observe the volume under this bar. It low. If the bar on 27 JAN 2010 had contained professional selling, this bar should also attract selling pressure because it is in the same price level of the 27 JAN 2010 bar. This means that the 27 JAN 2010 bar has mostly contained hidden buying on the down bar. Thus, we term the 27 JAN 2010 bar strength bar. And this strength manifests it self on the bar of 29 JAN 2010. The supply has been removed and this is the reason why price could be marked up from the days low to the high without attracting selling(as indicated by the low volume). As the selling as been finally absorbed, we are now bullish.

 

[bunny]

@Adultvish,
VSA is difficult to practice on a real time basis. When you are sitting at leisure, without much pressure and analyzing historical charts, things seems easy, but they are not so easy. So it is normal to take time to learn these concepts. The learning curve is slightly bumpy here

 

[adultvish]

Re: Maruti vsa

MARUTI-EQ-NSE
[*]27 JAN 2010: The weakness seen on the previous bar makes us expect a down bar, and we are correct - we have a down bar. However, the spread of this bar is wide, and the volume is high. It sounds like 'Effort to go down' which is bearish. But we had seen professional buying interest(and reducing selling interest) on few bars ago(which is bullish). So are we bullish or bearish? Has the weakness started to manifest itself? I am confused. There is a possibility of selling climax(which is bullish). Since we are confused let us wait and watch for the next bar.

Wait. wait wait..

Here I have some different understanding.

During a bear market volume is generally lower as prices fall. There are fewer traders, professional money is not buying in sufficient amounts to make the volume even average, because they are bearish. A marketmaker or specialist will never fight the market. He will take advantage if possible, but will never fight the trend. If he does he will go bankrupt. If any up
move occurs and he is still bearish, he simply withdraws from the activity. This is the cause of low volume during the up move [in other words the professional trader is not interested].

And

page 38 VSA

Accumulation areas unfold in a variety of disguises and intensities but the principles are always the same. Understand the basic principles and you will have little difficulty in your analysis. Strength always appears on down bars as high volume closing in the middle or highs, or the next bar has reversed sharply closing on the highs (bottom reversal)

[*]28 JAN 2010: Its an up bar, low volume, narrow spread, closing in the middle. Sounds like no-demand. But wait, if the previous bar has contained mostly professional selling, then how can this bar bar be an upbar with only so little volume? Again I am confused. So I wait and watch for the next bar.

It may be upbar. But the close was near the lows of the day making it a downbar for the day. And, even with respect to previous day closing it may be an upbar; but just slight upbar not very prominent. Its range/spread was between 1399-1362, which was completely under the previous day range. Moreover, if smart players have entered long either the volume should be more; or the spread should not be so wide.

[*]29 JAN 2010: An important event(RBI credit policy) is coming up. Professionals use such news and events to better their positions.1* The bar make a new low, but manages to close on the high. Observe the volume under this bar. It low. 2*-If the bar on 27 JAN 2010 had contained professional selling, this bar should also attract selling pressure because it is in the same price level of the 27 JAN 2010 bar. This means that the 27 JAN 2010 bar has mostly contained hidden buying on the down bar. Thus, we term the 27 JAN 2010 bar strength bar. And this strength manifests it self on the bar of 29 JAN 2010. The supply has been removed and this is the reason why price could be marked up from the days low to the high without attracting selling(as indicated by the low volume). As the selling as been finally absorbed, we are now bullish.

1*Professionals should known known this in advance, in spite of waiting for the public announcement. The bar made a new low and managed to close on the high; but still the high of this day was not above the previous day high.

2* Or, it may also happen that the professional have already gone short on 27th Jan. And what about the high volume bar of 21 Jan 2010. It clearly indicate smartplayers selling. They (smartplayers) may be expecting some more downside and hence waiting for the prices to go down to square off their short trades.

The confusion till 28th Jan is fine. Because I am able to understand a lot. The only point is taking small volume, wide spread with new low as a bullish signal.

Thanks a lot for your time and patience Sir.

 

[adultvish]

@Adultvish,
VSA is difficult to practice on a real time basis. When you are sitting at leisure, without much pressure and analyzing historical charts, things seems easy, but they are not so easy. So it is normal to take time to learn these concepts. The learning curve is slightly bumpy here

Very right said bro
:clap:
Just imagine, when I will become capable of understanding and applying VSA; it will make me a millionaire within one year. Therefore, all efforts and pain is worth applying.