This is Wyckoff Volume Spread Analysis for TradingView - Buying In this short video, Author of "Trading in the Shadow of the Smart Money" explains the importance of volume and price analysis. This example shows a Volume Spread Analysis trade set up called "Potential Professional Buying"followed by "A Test in a Rising Market". The example used is of Gold, and the same set up happened in the spot and futures contracts simultaneously.
We use our Wyckoff VSA plug in for TradingView that was recently launched and we will be posting weekly charts for you to follow. Here at TradeGuider, the company that developed the plug in for TradingView, we do not use any mathematical formulas, but instead use the analysis of Supply and Demand, Case and Effect and Effort vs Result measured by the volume on the price bar, the high and low of that price bar (referred to in Europe as the spread and in the US and Canada as the range).
Below is a more detailed explanation of the Wyckoff VSA System. Sorry its a bit long but it is important if you follow us that You understand the underlying logic for the trade. This system works in all markets and timeframes, including stocks, futures, FOREX (Yes you read right, we get tick volume through TradingView for FOREX and it is extremely powerful.).
This is Wyckoff Volume Spread Analysis for TradingView developed by the Inventor of Volume Spread Analysis, Tom Williams, and his protégé, Gavin Holmes, who has now taken over the responsibility for teaching this method to thousands of traders and investors worldwide.
Most traders are aware of the two widely known approaches used to analyse a market- fundamental analysis and technical analysis. Many different methods can be used in each approach, but generally speaking fundamental analysis is concerned with the question of why something in the market will happen, and technical analysis attempts to answer the question of when something will happen.
Volume Spread Analysis, however, is a third approach to analysing any market. It combines the best of both fundamental and technical analysis into a singular approach that answers both questions of 'why' and 'when' simultaneously.
Volume Spread Analysis (VSA) methodology takes a multi-dimensional approach to analysing the market, and looks at the relationship between price, spread or range, and volume. VSA is a proprietary market analysis method conceived by veteran trader, Tom Williams, who was a highly successful member of a professional trading syndicate in the 1960s and also the creator of TradeGuider Systems. (www.tradeguider.com)
The VSA method works particularly well at highlighting the imbalances of Supply and Demand.
VSA builds on the pioneering work of Richard D Wyckoff, a famous 1920's trader. He based his trading decisions on supply and demand in the markets and how they are inextricably linked to professional activity - 'Smart Money' trading (Wyckoff's principles are still taught at the Golden Gate University in San Francisco). In any business where there is money involved and profits to make, there are professionals. Doctors are collectively known as professionals, but they specialize in certain areas of medicine. The financial markets are no different. The financial markets have professionals that specialize in certain instruments as well: stocks, grains, FOREX, etc. The activity of these professional operators, and more important, their true intentions, are clearly shown on a price chart if the trader knows how to read them. Volume is the major indicator for the professional trader.
Volume Spread Analysis seeks to establish the cause of price movements, and from the cause, predict the future direction of prices. The ‘cause’ is quite simply the imbalance between Supply and Demand in the market, which is created by the activity of professional operators. It is the close study of the reactions of these specialists, market makers, professionals, or “Smart Money‘’which will enlighten you to future market behaviour.
VSA looks at the interrelationship between three variables on the chart in order to determine the balance of supply and demand as well as the probable near term direction of the market. These variables are the amount of volume on a price bar, the price spread or range of that bar (do not confuse this with the bid/ask spread), and the closing price on the spread of that bar. For the correct analysis of volume, one needs to realize that the recorded volume information contains only half of the meaning required to arrive at a correct analysis. The other half of the meaning is found in the price range. Volume always indicates the amount of activity going on and the corresponding price spread shows the price movement on that volume.
The effect is either a bullish or bearish move according to the prevailing market conditions. The ‘Smart Money’ operating in the markets are very much aware of the emotions that drive YOU, and the uninformed traders or investors, in your trading.
Why do the members of the self-regulated Exchanges around the world like to keep true volume information away from you as far as possible? The reason is because they know how important it is in analysing a market! The significance and importance of volume appears little understood by most non-professional traders. Perhaps this is because there is very little information and limited teaching available on this vital part of technical analysis. To use a chart without volume data is similar to buying an automobile without a gasoline tank.
Where volume is dealt with in other forms of technical analysis, it is often viewed in isolation, or averaged in some way across an extended timeframe. Analysing volume, or price for that matter, is something that cannot be broken down into simple mathematical formulae. This is one of the reasons why there are so many technical indicators; some formulas work best for cyclic markets, some formulas are better for volatile situations, whilst others are better when prices are trending.
Some technical indicators attempt to combine volume and price movements together. This is a better way, but rest assured that this approach has its limitations too, because at times the market will go up on high volume, but can do exactly the same thing on low volume. Prices can suddenly go sideways, or even fall off, on exactly the same volume. So, there are obviously other factors at work.
Price and volume are intimately linked, and the interrelationship is a complex one, which is the reason Volume Spread Analysis was developed in the first place.
The History of the Wyckoff Method and TradeGuider
Volume Spread Analysis was previously known as Wyckoff Volume Spread Analysis and has been in existence for over 20 years. Driven by an artificial intelligence engine, the TradeGuider SMART VSA System is unique and is capable of analysing any liquid market in any time frame by extracting the information it needs in order to indicate imbalances of Supply and Demand evident in a chart. In doing so, TradeGuider is able to graphically exhibit the essential dynamics of market movement.
As mentioned earlier, this is not a new concept. Tom Williams, the inventor of VSA, is a former syndicate trader. He observed that the markets were being manipulated and that the key to unlocking the truth lay in the relationship shown in the Volume, the Spread of the bar, and its Closing Price.
Tom spent many years studying the concepts of Richard D Wyckoff, a renowned trader during the 1920’s and 1930’s. Richard Wyckoff wrote several books about trading the Markets, and he eventually created the Stock Market Institute in Phoenix, Arizona. At its core, Wyckoff’s work is based on the analysis of trading ranges and determining when the stocks are in basing, markdown, distribution, or mark-up phases. Incorporated into these phases are ongoing shifts between ‘weak hands’, or public ownership, and ‘the composite operator’, now commonly known as “Smart Money”.
When Tom Williams went back to Beverly Hills in the early 1980’s, he began to investigate the possibility of computerizing the system he had learned as a syndicate trader- and so began the evolution of Volume Spread Analysis (VSA). With the assistance of an experienced computer programmer, Tom carefully studied thousands of charts to recognize the obvious patterns that were left when professional operators, or Smart Money, were active. This technique, although simple in concept, took several years to write and is now taught as a methodology in combination with software known as TradeGuider.
