VSA - only useful for the bigger boys?

[Blogsy]

Hiya guys,

So the learning continues. Have been reading and shakily trying to apply VSA in the past few weeks, but a comment in the "Master the Markets" e-book has given me pause. Is VSA only applicable for the larger stocks or those that form an index, or can it's application today be used across-the-board? Have to admit I'm not even sure how popular volume spread analysis is but thought I'd throw the question out there...

Thanks,
Dean

 

[CanOz]

Hiya guys,

So the learning continues. Have been reading and shakily trying to apply VSA in the past few weeks, but a comment in the "Master the Markets" e-book has given me pause. Is VSA only applicable for the larger stocks or those that form an index, or can it's application today be used across-the-board? Have to admit I'm not even sure how popular volume spread analysis is but thought I'd throw the question out there...

Thanks,
Dean

Any stock is fine as long as there is ample liquidity.

Liquidity can be defined as how easy it is to buy and sell a financial instrument for cash without causing any significant change in its price.

That way if there is good volume and it affects price, you can draw conclusions from the resulting price action reliably.

Cheers,


CanOz

 

[theasxgorilla]

So the learning continues. Have been reading and shakily trying to apply VSA in the past few weeks, but a comment in the "Master the Markets" e-book has given me pause. Is VSA only applicable for the larger stocks or those that form an index, or can it's application today be used across-the-board? Have to admit I'm not even sure how popular volume spread analysis is but thought I'd throw the question out there...

Well, as motorway says (I think, maybe I still don't get it), its a study of responses. The lower probability of a single player making such a disproportionate splash on highly liquid instruments (S&P500 futures, for example) means that on most charts you are observing a more pure crowd response.

See if you follow me on this one. Small cap stock, on most days still what you'd call liquid when measured against the parcel sizes you trade, but there exists serveral really big individual holders, could be founders, directors who bought in early or have accumulated via options etc. whatever.

A once-off non-company related situation causes them to cease to be a holder. The response of the market is kind of not that valid, since you already knew the stock wasn't that liquid, so this kind of transaction which arrives out the blue doesn't necessarily tell you anything about the interplay of crowd and 'smart money' activity.

IMO it just renders the observation of subtleties/responses (VSA) temporarily ineffective.

Similarly, disproportionate activity from outside eg. a takeover bid, can come along and mess up the subtleties again.

 

[motorway]

Think of the structure of the market as an invisible river bed

invisible being key

The only thing that then can make that structure visible is when
there is "enough" water flowing

You can discern the structure
By the way the water flows

By the study of the responses

the various eddies etc
That reveal a large object ( accumulation ? )

Ok volume in one aspect is the same as the water in the river bed

You need "enough" to discern the structure
TOO much and it's a flood and soon will be reversed

not enough and you can not be sure
there is any structure at all ( sponsorship )..

As stocks become "hot"
short term speculative flows increase

Everything speeds up


And the "invisible" structure
is to some extent revealed even more

( That is why you take special note of ultra high volume )

Large informed interests have to
buy or sell "first"
ie accumulate or distribute

They have to create support and resistance ( structure )

You can not profit short or long unless
you take a position--first...

So the answer to the question is it works on all
stocks and all time frames

Another way of saying that
is that it works on particular stocks on particular time frames

Wherever the water ( volume ) is flowing

hope the analogy helps

not only is the structure invisible
it is also dynamic

Hence why
support and resistance
are dynamic
and not static lines on a chart...

What does the smart money do ?

manipulates ( which means it is not random )

motorway

 

[tech/a]

Having been involved in the study of VSA for around 2 yrs now many of the questions I see posed on the topic are identical to those I have posed myself.

I can only answer these questions from my own experience.

( One thing I have noticed is quite a few Educators use analogies---Wyckoff---Guppy to name 2).

I prefer to use what it is we are looking at.
Crowd behaviour.

Lets take 2 crowds.
(1) of 1,000,000
(2) of 10,000.

If 5000 people in crowd 2 panic the structure of the crowd will alter dramatically.
If 5000 people in crowd 1 panic the structure will alter in a minor way in fact you may not be able to discern it.

In trading crowd sizes can be altered purely with timeframes so this also becomes an issue.
Whats happening in a crowd my not be clear in a 15 min timeframe but clearer in a daily.
Vice versa important sharp moves maybe seen earlier in a 15 min timeframe and much later in a daily.
Everyting written in Wyckoffs analogies are true.
But to grip it you must in my view understand the "Crowd" your analysing.
Those in the 15 min crowd may well contol the action within that time frame but its those who take part in the daily which will control that time frame.

Crowds change.
Those in the 15 min frame will come and go quicker than those in the daily.
The thought process of those in the daily will be generally longer term than the 15 min.
Its when time frames AGREE that we see major changes.
They gang up and move in a common direction.

This is why structure is important BOTH background and immediate.
Will today's structure compel those in past structure to agree or disagree.

Agreement will cause trend,disagreement will cause corrective moves UNTIL something pulls enough of the crowd into agreement.---regardless of direction.

The next question is for how long that agreement lasts,time (and timeframe) will play a part on the crowds behaviour.
They could agree for long or short periods.---in various timeframes.
The longer a timeframe is in agreeance the longer timeframes are likely to become involved.

So in DIRECT ANSWER to the question.
I have found that the more volume in a suitable timeframe (Meaning those stocks with massive liquidity like BHP are reliable in lesser timeframes) the more accurate the VSA analysis.

Small caps generally just dont have a large enough crowd to determine a crowd mentality.(Meaning the crowds vary rapidly from in some cases millions to thousands making their behaviour un reliable).

 

[Blogsy]

Right,

So liquidity (or to put it better, sufficiently high liquidity) is the pre-requisite for any stock you hope to apply VSA to with any degree of reliability. As you say tech/a, the small caps usually don't have that and I've had troubles trying to get anything out of looking at them, so that would explain it. The crowd analogy really sums it up.

Good explanation motorway, I hadn't thought of volume in a "flowing" context, but it makes sense that if you can find the flow you're able to discern what it may be doing.

Thanks for your answers guys, I'll be more selective which stocks I apply this to now (actually, a volume-based filter might come in handy as well).

 

[tech/a]

This is what I use as a rule of thumb.


Daily/Weekly ASX 500
120/180 min ASX 200
As low as 15 min ASX 100

Although I dont trade FX or other futures I have seen 3 mins used with them.

 

[Blogsy]

Tech/a,

This sounds very ignorant (but I've got to start somewhere), but could you clarify those number? 100,200,500...? 500K trading volumes for a daily/weekly scope, 100K for 15min etc.? For the foreseeable future I'll be concentrating on the daily/weekly timeframes.

 

[tech/a]

Has nothing to do with volume in the literal sence.

I use the stocks found in the ASX 500 as my universe when looking for VSA setup in daily or weekly charts.

 

[GreatPig]

Just to clarify further, the ASX50 etc. are market indices. The constituents are available from the Standard & Poors website, here for the ASX50, and just change the "asx50" part of the URL to "asx100", "asx200", or "asx300" for the others (not sure about the 500 though, they don't seem to have one of those).

GP

 

[Timmy]

The All Ords is (roughly) the biggest 500.

 

[brettc4]

I have done a couple of searches in the net for VSA and found very little information. Are there any good internet resources for this, or is it primarily in books?

Thanks, Brett

 

[tech/a]

I have done a couple of searches in the net for VSA and found very little information. Are there any good internet resources for this, or is it primarily in books?

Thanks, Brett

http://www.tradeguider.com/

 

[lesm]

http://www.tradeguider.com/

You can also google:

'Richard D Wykoff' or 'Hank Pruden'

 

[weird]

I watched at least 3 of the free VSA/Tradeguider presentations (there are heaps more to watch if one has time), and I can understand the question if it only concerns stocks that are being manipulated by the big players (there is a video u must watch they keep telling u) ... I couldn't watch further videos ... you just hear Gavin saying the same thing ... most presentations go for more than an hour ... I wish I had a "remove Gavin" switch, to hear what anyone else had to say in the presentation ... don't get me wrong, I found what Gavin had to say in the first video interesting, he just repeats everything again and again, in most videos I have watched, in case you haven't seen any other presentation. Some interesting comments made by other traders that are in some of the presentations.

 

[tech/a]

Yes I agree weird.
I'd like to lock Gavin in a room with 24 hrs of his videos.
Sebastian is worse.

Unfortunately the message is lost on some as they glaze over with the mono tones.
Its like some kind of test.
Get through that and you deserves to know!.

Perhaps its a VSA thing.
Motorway is pretty obtuse.

 

[Timmy]

I have done a couple of searches in the net for VSA and found very little information. Are there any good internet resources for this, or is it primarily in books?

Thanks, Brett

Brett,

I stuck "volume spread analysis" into Google and got loads of results. I wont vouch for any of them but I know at least one that comes up on the front page is a very good resource. A good starter is the "Master the Markets" book which is available as a free ebook (links around the place but let me know if you can't find one and I will look it up).

 

[Timmy]

Yes I agree weird.
I'd like to lock Gavin in a room with 24 hrs of his videos.
Sebastian is worse.

Unfortunately the message is lost on some as they glaze over with the mono tones.
Its like some kind of test.
Get through that and you deserves to know!.

Perhaps its a VSA thing.
Motorway is pretty obtuse.

Have to disagree with you on Motorway, his posts/discussions on Wyckoff are second to none (IMO). I have learnt heaps from him, but each to his own.

 

[tech/a]

Not bagging Motorway.

I find his style of writing very similar to all of those who use visualisation techniques in their writing.--Obtuse.
Full of excellent info---just think it could be plainer.
Charts are good to.
While M/W is proficient in Point and Figure many arent---so while his explainations are perfectly clear for those who are exponents of P&F they are lost on those who arent.
A chart labelled in laymans terms can be followed by most (some I know cannot read a chart).

I just prefer plain English.
When posting charts of my own I try to use plain english to help explain what I see going on.
As you say each to their own.

 

[Timmy]

Thanks tech - maybe a knee-jerk reaction from me, but yes I value his info/insights very highly.