How to trade breakouts using VSA (Volume Spread Analysis)

[pavilion103]

I was originally going to post this in another thread but believe it warrants a thread of its own.

I want to discuss the question: What is the best way to trade breakouts using VSA

I wanted to discuss buying on up bars vs buying on down bars. Having studied a lot of VSA including books, webinars etc... It appears that it is definitely best to buy on down bars e.g. no supply.
This allows for high R:R trades in low risk areas.

Before I was only looking at trading breakouts and can see why I was getting chopped up all over the place and unable to produce high R:R trades. I was entering on big up bars.

This leads me to the question. How is it best to trade breakouts.

Options
1. Wait for pullback
2. Don't wait for pullback

What is the best way to trade (number 2.) without entering on a wide spread up bar as price breaks through?

 

[tech/a]

Ill be covering some of this in the Technical Analysis thread (what I think is important.)

So will leave it to others on this thread (dont want to duplicate havent the time)

 

[Timmy]

I want to discuss the question: What is the best way to trade breakouts using VSA
...

This leads me to the question. How is it best to trade breakouts.

Going to seem like a smart-ass response, but another thing to consider is getting a good trade location ahead of a breakout. Getting on before a breakout.

Some obvious advantages:
better trade location
not chasing the price or competing with the queue awaiting the pullback
if the breakout 'fails' the position can often be sold at a profit/even/smaller loss than otherwise.

How to get on ahead of a break?

Getting on ahead of a break (an up or down break) is probably something tech will cover in his TA thread when it turns to VSA/Wyckoff, but there are some pointers in the various existing VSA and Wyckoff threads.
Probably need a decent Market Profile thread too, some good techniques that can be used and/or adapted in that approach too.
Also some of the old threads from TremblingHand that discuss his scalping techniques have heaps and heaps and heaps of usable and/or adaptable ideas.

Hope this isn't off the topic you wanted to discuss.

 

[Gringotts Bank]

I was originally going to post this in another thread but believe it warrants a thread of its own.

I want to discuss the question: What is the best way to trade breakouts using VSA

I wanted to discuss buying on up bars vs buying on down bars. Having studied a lot of VSA including books, webinars etc... It appears that it is definitely best to buy on down bars e.g. no supply.
This allows for high R:R trades in low risk areas.

Before I was only looking at trading breakouts and can see why I was getting chopped up all over the place and unable to produce high R:R trades. I was entering on big up bars.

This leads me to the question. How is it best to trade breakouts.

Options
1. Wait for pullback
2. Don't wait for pullback

What is the best way to trade (number 2.) without entering on a wide spread up bar as price breaks through?

2. You can't! The only option you have is to notice very high volumes early in the day, and get in before too much % gain has been added to the SP.
1. On pullback - wait for high ranging day, C>O and stochastic cross, then hope for the best! My testing suggest pullbacks are much harder to trade than they look. How bout you?

 

[pavilion103]

I did expect to get a response about getting on a trade before it breaks out.

This is something I am trying to look at doing. I agree with the points that it isn't great to try to chase a breakout once it has occurred.

It's amazing how simple it looks in hindsight.

For EOD trading the other alternative is placing a buy-stop. This poses the dilemma:
1. It is good because it allows me to get in before the market gets too far away from me and allows me so place a good stop with high R:R potential.
2. It is a good way to get chopped up in the market. It could easily be an upthrust that is forming and taking out my initial stop in the same day. I prefer to see the completion of a bar before making judgement.

 

[Mistagear]

I was originally going to post this in another thread but believe it warrants a thread of its own.

I want to discuss the question: What is the best way to trade breakouts using VSA

I wanted to discuss buying on up bars vs buying on down bars. Having studied a lot of VSA including books, webinars etc... It appears that it is definitely best to buy on down bars e.g. no supply.
This allows for high R:R trades in low risk areas.

Before I was only looking at trading breakouts and can see why I was getting chopped up all over the place and unable to produce high R:R trades. I was entering on big up bars.

This leads me to the question. How is it best to trade breakouts.

Options
1. Wait for pullback
2. Don't wait for pullback

What is the best way to trade (number 2.) without entering on a wide spread up bar as price breaks through?

Pav,

Wyckoff ( i prefer the original) affords you the ability to see trades develop over a relatively long period, therefore you should be finding that you are waiting for the market to catch on to what is happening.

If your analysis is correct, you should be able to regularly buy the small range down bar (as part of the big picture) which often occurs prior to the market waking up that no supply is remaining at the lower levels.

When you become proficient at correctly reading lack of supply as the last stage of the accumulation phase, you could enter just prior to the explosive move out of the congestion zone, your risk will be minimal and your reward will be significant.

However if you decide to wait for a move to start, you should be ready with a contingent order that places you in the trade immediately a move begins (ie. near the opening of what later is seen as the wide range bar).

If you have not been following the chart and arrive on the scene late, after a wide range bar has already occurred, yet the analysis suggests this is the only the beginning of a sustained move. You could move to a lower timeframe chart and find the low volume short range down bar within that chart to place your low risk entry.

As always, all other confluent factors such as current chart phase,support and resistance levels, overall market sentiment etc, should be considered and be part of the selection process.
Personally I do not like to buy into an existing wide range breakout bar, where price sentiment has already changed due to supply/demand factors and is more likely to be stretched closer to the point where it snaps back. I am more than likely to look for a quick contrarian position against the move by looking at the lower timeframe chart for an entry.
This is a big subject and my answer only scratching the surface, where you enter relates directly to risk management. I think we should always keep in mind, the important thing is what happens AFTER you enter, not so much WHERE you enter
Hope is of some help anyway.

 

[pavilion103]

Pav,

Wyckoff ( i prefer the original) affords you the ability to see trades develop over a relatively long period, therefore you should be finding that you are waiting for the market to catch on to what is happening.

If your analysis is correct, you should be able to regularly buy the small range down bar (as part of the big picture) which often occurs prior to the market waking up that no supply is remaining at the lower levels.

When you become proficient at correctly reading lack of supply as the last stage of the accumulation phase, you could enter just prior to the explosive move out of the congestion zone, your risk will be minimal and your reward will be significant.

However if you decide to wait for a move to start, you should be ready with a contingent order that places you in the trade immediately a move begins (ie. near the opening of what later is seen as the wide range bar).

If you have not been following the chart and arrive on the scene late, after a wide range bar has already occurred, yet the analysis suggests this is the only the beginning of a sustained move. You could move to a lower timeframe chart and find the low volume short range down bar within that chart to place your low risk entry.

As always, all other confluent factors such as current chart phase,support and resistance levels, overall market sentiment etc, should be considered and be part of the selection process.
Personally I do not like to buy into an existing wide range breakout bar, where price sentiment has already changed due to supply/demand factors and is more likely to be stretched closer to the point where it snaps back. I am more than likely to look for a quick contrarian position against the move by looking at the lower timeframe chart for an entry.
This is a big subject and my answer only scratching the surface, where you enter relates directly to risk management. I think we should always keep in mind, the important thing is what happens AFTER you enter, not so much WHERE you enter
Hope is of some help anyway.

Fantastic response.

Some of the points really hit me, as this is what I've been trying to do. I've watched charts where there looks to be climactic action. I've then waited for it to come back and test this area on lower volume. I've looked for tests and possibly a shakeout.
I then wait for a no supply bar and try to get a relatively low risk entry.
I need much more practice with this, however, rather than entering on any no supply bar near a bottom.

I'm not sure if this is normal but sometimes I get stopped out a couple of times for small losses, before getting in at the right time and getting possibly a 5-10R move in my favour (I get very few of these as you can imagine, but they do happen).

I've heard people say that it sometimes takes 2-3 entries before getting on the one that takes off. Is this generally true?
The alternative is that I've often waited too long for the perfect set up and missed the move entirely.

 

[pavilion103]

Looking over some of the charts from historical data that I used. This probably illustrates it the best. I'm not sure if this was a particularly good trade or if I just got lucky (of course you can't predict a move like this).

 

[pavilion103]

And another example.....
Price hasn't broken out as far yet with this one but, but I'm focusing more on the 'no supply entry' aspect of the trade here.

 

[Mistagear]

And another example.....
Price hasn't broken out as far yet with this one but, but I'm focusing more on the 'no supply entry' aspect of the trade here.

View attachment 45186

Pav, bit of a classic "Wyckoff Creek Crossing " look to this chart. That base would give me a long term Wyckoff target price of 92% increase from the breakout price to $19.95 and target date in early November.
Have mentioned to you previously this forward target calculation that Wyckoff used for Commodity charts and I have an adapted version for use on equities.
Works best when overall market sentiment is in sync with the chart you are trading.
I admit to having trouble holding stocks for the full journey when coming out of these base formations, and have found it the calculation helps to keep me holding further into the trend than I would previously have imagined possible.

Before you get carried away, I can show plenty of examples where the calculation failed and price did not achieve anywhere near the target, but worth applying in bull markets imho.
If you have not come across it yet, here's a hint. Read his thoughts on P&F charts, its hidden in there

 

[pavilion103]

Pav, bit of a classic "Wyckoff Creek Crossing " look to this chart. That base would give me a long term Wyckoff target price of 92% increase from the breakout price to $19.95 and target date in early November.
Have mentioned to you previously this forward target calculation that Wyckoff used for Commodity charts and I have an adapted version for use on equities.
Works best when overall market sentiment is in sync with the chart you are trading.
I admit to having trouble holding stocks for the full journey when coming out of these base formations, and have found it the calculation helps to keep me holding further into the trend than I would previously have imagined possible.

Before you get carried away, I can show plenty of examples where the calculation failed and price did not achieve anywhere near the target, but worth applying in bull markets imho.
If you have not come across it yet, here's a hint. Read his thoughts on P&F charts, its hidden in there

Interesting.

I feel everything is starting to come together. At first it was very slow going and now it seems to make more and more sense.

Tbh, I haven't spent a lot of time studying Wyckoff's thoughts on P&F charts. I've kinda skipped over most of it. The whole price target thing is of interest to me and is the main reason I'm going to go back and look at the P&F parts of his books at some point.


I've been more focusing on short term stuff. Trying to work on my exits. It's coming along ok, but I'm still not 100% sure on my rules. Profit targets would help no doubt.

I might PM you if I have any questions about it.

 

[tech/a]

Let your analysis (The Market) define your exit.
Trade like a pro and sell into strength.
Hard to do until you know what your seeing!

GXY is a current example I've exited today at .96 I might be wrong but the risk is in my view very low.

I exited because I saw today as a low risk short entry on GXY.
This view may change going forward but right now---


DAILY



20 min Chart---Now do you see what I see?

 

[pavilion103]

That's a very good point Tech.

I've found exiting to be so difficult at times. But I'm starting to understand how to exit on strength better now.
When it shoots up sometimes I get excited and want it to take me to the moon. But then I stop and realise this is the time to exit. I see enormous volume coming in and realise the professionals are getting out.

This is probably the hardest part psychologically for me so far.

 

[pavilion103]

A bit of a plug for Tradeguider, but I've found in the last couple of weeks with the software I've learnt a lot.
Also the webinars have really crystalised concepts in my mind, such as exiting on high volume etc.

I've watched around 20 webinars in the last week and a half and it starts to become clearer and clearer. I'm saturating my mind with it.

 

[tech/a]

That's a very good point Tech.

I've found exiting to be so difficult at times. But I'm starting to understand how to exit on strength better now.
When it shoots up sometimes I get excited and want it to take me to the moon. But then I stop and realise this is the time to exit. I see enormous volume coming in and realise the professionals are getting out.

This is probably the hardest part psychologically for me so far.

See the thing is not to be concerned if I am wrong.
What im seeing is weakness.
Im seeing an exhaustion gap.
Others will see it as a continuation gap.
I see massive supply others will see demand meeting supply.
Tomorrow will tell the tale.

Youd love to watch R/T futures in particular the FTSE.
Its like a VSA book without the labels! (if you turn them off)

 

[Greenscreen]

And another example.....
Price hasn't broken out as far yet with this one but, but I'm focusing more on the 'no supply entry' aspect of the trade here.

View attachment 45186

Gread forum and thread. Love the chart discussion.

 

[Greenscreen]

It's a pity this thread is dead. Any thoughts on trading no supply bars or tests which test the range of high volume breakout bars?

 

[tech/a]

Happy to hop back in when I've got time.

Just been a little busy protecting my EGO and ARROGANCE on some other threads.

You have identified a very important observation!

 

[Greenscreen]

Happy to hop back in when I've got time.

Just been a little busy protecting my EGO and ARROGANCE on some other threads.

You have identified a very important observation!

Thanks Tech/A. I love your work and do hope you find the time to share your valuable input.

In the recent chart by Pavilion, he identified a test of an ultra high volume bar. I know there isn't a 'one size fits all' rule for trading these tests but how far back from experience would you consider a UHV bar as supply? Is there a way in VSA to measure absorption of this supply perhaps through Point and Figure?

 

[tech/a]

Don't have time to mark up a chart right now.
BUT a clear answer is seen in the WEEKLY chart.

Have a look and see if you can spot it!

Refer to my comments on the Continuation Breakout thread and join the dots!