Volume Spread Analysis (VSA): Volume and Price DynamicsVolume Spread Analysis (VSA): Understanding Market Intentions through Volume and Price Dynamics.
█ Simple Explanation:
Volume Spread Analysis (VSA) is a trading technique that identifies key market patterns and trends by analyzing the relationship between volume and price spread, revealing traders' actions and market behavior.
Essentials in Volume Spread Analysis (VSA):
Laws.
VSA Indicator.
Signs of Strength.
Signs of Weakness.
Note that while the provided examples are excellent for illustrating the points, they are unlikely to play out perfectly in most scenarios.
█ Laws
Three basic laws forming the foundation of Volume Spread Analysis (VSA).
The Law of Supply and Demand
This law states that supply and demand balance each other over time. High demand and low supply lead to rising prices until demand falls to a level where supply can meet it. Conversely, low demand and high supply cause prices to fall until demand increases enough to absorb the excess supply.
The Law of Cause and Effect
This law assumes that a 'cause' will result in an 'effect' proportional to the 'cause'. A strong 'cause' will lead to a strong trend (effect), while a weak 'cause' will lead to a weak trend.
The Law of Effort vs Result
This law asserts that the result should reflect the effort exerted. In trading terms, a large volume should result in a significant price move (spread). If the spread is small, the volume should also be small. Any deviation from this pattern is considered an anomaly.
█ VSA Indicator
This indicator simplifies the identification of Volume and Spread Levels. It provides options to display volume and/or spread bars. An enhanced version of the indicator auto-scales both volume and spread for optimal chart presentation, reloading every time the chart is moved.
Levels: Representing the levels of both volume and spread using the terminalogy of low, normal, high, and ultra.
Indicator Version 1: Display volume and/or spread bars. When both are displayed, the spread bars are shown in a fixed quantity.
Indicator Version 2: Display both volume and spread bars, with the spread bars scaled to the volume bars.
█ Signs of Strength
Indicates that the market is likely to experience bullish behavior.
Down Thrust: Indicates strong buying interest at lower prices, suggesting a potential upward reversal.
Selling Climax: Signifies a reversal point as panic selling exhausts and smart money starts accumulating.
Bear Effort No Result: A large downward price move without strong selling effort (volume) indicates an anomaly where the result doesn't match the effort, suggesting the down move may be unsustained.
No Effort Bear Result: Strong selling effort (volume) fails to push prices down indicating an anomaly where the result doesn't match the effort, suggesting a potential lack of downward momentum.
Inverse Down Thrust: Shows buyers overpowering sellers, likely leading to a bullish market reversal.
Failed Selling Climax: Failed selling effort suggests strong buying support and a possible upward trend reversal.
Bull Outside Reversal: Indicates strong buying reversing a downtrend, confirmed by higher close.
End of Falling Market: Signifies strong buying absorbs panic selling at new lows, likely leading to stabilized price or reversal.
Pseudo Down Thrust: Suggests weakening of the downward momentum with a potential upward continuation if broken above high.
No Supply: Indicates a lack of selling interest at lower prices, potentially setting up for a price rise.
█ Signs of Weakness
Indicates that the market is likely to experience bearish behavior.
Up Thrust: Indicates sellers overpowering buyers during a price rise, suggesting a potential downward reversal.
Buying Climax: Represents peak buying, typically at price highs, with potential for reversal as sellers take control.
No Effort Bull Result: A large upward price move without strong buying pressure (volume) indicates an anomaly where the result doesn't match the effort, suggesting the up move may be unsustained.
Bull Effort No Result: Strong buying (volume) fails to drive prices higher indicates an anomaly where the result doesn't match the effort, suggesting a potential lack of upward momentum.
Inverse Up Thrust: Increased selling pressure during an uptrend suggests a possible shift to a downtrend.
Failed Buying Climax: High buying volume fails to sustain higher prices, indicating a potential reversal to downtrend.
Bear Outside Reversal: Strong selling pressure reversing an uptrend, signaling a potential downtrend.
End of Rising Market: Indicates buying saturation at market peaks, suggesting a possible reversal as demand exhausts.
Pseudo Down Thrust: Indicates weakening upward momentum with potential for downward continuation if broken below low.
No Demand: Indicates reduced buying interest at higher prices, possibly leading to a price decline.
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MAX HEALTHCARE - Preparing for a MOVE - Bar by Bar AnalysisBar by Bar Analysis - Learning VSA
Bar A - Here there is a definite attempt to move towards the price rejection zone after a small consolidation. We have a widespread up bar closing at the top. This closing was near the boundary of the rejection zone.
Bar B - we can see it was a clear attempt to “Jump across the supply”. But it met with supply and it was pushed back into the price rejection zone. The volume remained high which means there has been good amount of supply here.
Bar C - Again there is an attempt to move up on above average volume but lower than the two previous days.
Bar D - You can see that there was no effort to push up the price rather it was more of an attempt to absorb whatever supply that could be there. But the supply also did not step in here. Again, the prices pushed back into the price rejection zone.
In the next bar you can see that it is almost like a doji with a long wick indicating supply still there but the volume is still below average. It was not real attempt to push the prices up here rather it was the supply being absorbed.
Bar E - In the Bar you can see we had a widespread up bar closing up on the top but the volume remained quite low here. The supply did not step in and the buyers were able to push up the price without much resistance.
Bar F – The bar opened above the previous high and moved up. But supply overwhelmed and we had clear up thrust bar trapping many Breakout traders.
Bar G – The next two bar are down bars on very low volume. The supply was very low. Clearly the smart money is absorbing the selling from the trapped BO traders.
The current down move with low volume and Upthrust Trap move would indicate that the Smart Money could soon make a strong attempt to move up the price. The relative Strength has been positive. Money flow has been positive as well. Then we will see the real BO and the price move much higher. A good close 910 will be significant now. A stock to watch
