I have one question. What do we need to analysis price under this model ? I see so many different ways to look at volume that i find it unnecessarily confusing. Is there something like a short practical guide to start analysing price a la VSA?
Why don't you start by being a little more specific. First tell me a little about your background with volume or VSA. Then let me know some of the ways you currently read price action. From that info I'll be able to give you a good recommendation that will help you fill in some of the knowledge gaps.
Maybe I'm asking too much, but here are my questions:
I would like to know what to look for on a breakout pullback that indicates that there will be a surge to higher prices (going long) or lower prices (going short). Contrast this with a trend is knocked into a range. What should we look for in volume that shows either accumulation or distribution that indicates a continuation or reversal of a trend?
I use price action in my trading, but I've been looking to use volume more in my trading to help identify potential moves by smart money. I've read William's book on VSA but I can't quite nail down the specifics.
“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” - Sun Tzu
This differs when looking at the cash market vs the futures market. The example you cited highlights one of the important distinctions between the two. The cash market not only has a limited number of contracts at each level, but it also has a limited number of contracts altogether. This is unique compared to the futures because an unlimited number of total contracts are potentially available. So to summarize, the concept of a cash market "float" and a derivatives market "open interest" make the interpretation of supply and demand slightly different at respective swing points.
The general rule regarding volume at swing points surrounds the idea of sequentially increasing or decreasing volume. In general if volume and spread are both decreasing and contracting as price approaches a swing point, then traditionally, we should interpret that as a weak test and a form of price rejection. So in the example you stated above concerning a test after a breakout, you would look for those characteristics. First, you want to see both volume and spread expanding as price pushes through the breakout point, then, as price pulls back, you'd want to see both volume and spread contracting as we test back to the breakout level, finally you would once again like to see an expansion of volume and spread as price thrusts in the direction of the breakout.
The previous explanation is a general interpretation of price action that, for the most part, accurately describes both cash market and derivatives market behaviors. There are however, some nuances that apply to derivatives and not necessarily cash. These involve a relative volume comparison at the breakout level that helps elucidate the strength of the breakout. Essentially what you want to see is more volume on the current breakout relative to volume at the previous swing high found at the same price point.
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I really depends what instrument you are trading and what type of market you are trading. It depends on how much order flow the issues receives on a daily, weekly, monthly basis. You really need to learn your instrument and determine what time-frame provides well defined price action. As far as the ES is concerned, it is traded on a 5 and 30 minute time-frame. Fixed income is generally traded on the 15 or 30. The cash market should be traded on the daily or higher unless the issue has earnings related news at which point it can be traded on a 5. When using VSA I never trade lower than a 5 because proper relative interpretation of price/spread/close elucidate the price action within that bar.
A bar that breaks a key level does exactly that, it breaks a key area of supply found to the left on the chart. A climactic bar is not breaking any level at all. A climactic bar is found well into new highs in fresh high ground. A climax can occur on wide spread or narrow spread and the important thing to remember is very high volume with no previous supply levels at that price point. Using a two day look-back on a 5 or a 3 month look-back on a 1 day is generally a decent approach, however, this is subjective and can vary depending on the market.
A climax and a breakout shouldn't look the same, if you are finding that your breakouts are failing and seem to look like a climax, what you really might be seeing is simply a weak/failed breakout that gets pushed back into a trading range.
Post a chart if you like.
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Nah, that's a breakdown at B, not a climax, and it looks like we will continue lower after lunch or tommorow.
Two things I want to point out.
1. You are not doing VSA, you are using bid/ask volume interpretation. We can talk about that as well, but VSA is a separate methodology. Furthermore you are pointing to the bid/ask volume net calculation, that calculation involves taking the difference between volume at the bid and volume at the ask. When dealing with VSA we want to use total volume not net volume.
2. It is easy to lose perspective on the 1 minute time-frame. If you post a 5 minute chart you'll see a swing low put in at around 8am central. The bar labeled B is breaking that swing low on high volume, so it qualifies as a breakdown not a climax.
The market could squeeze higher off this high volume low, we also have news at 1 pm central, the treasury budget, so that can distort supply/demand as well. However, in general, even if we rally or squeeze higher, we are going to have to revisit the 1111 level because of the amount of supply found there. In my opinion we will move below that level this afternoon or tomorrow.
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That's one difficulty i have with VSA reading. The VSA reader seems to use so much discretion in his interpretation a bit like the guy who tells a story "I saw a strange creature once while I was walking the old abandoned railroad tracks near here. It looked like a bear-man" then another person continue the story and then another and finally we lose track of the original version. That's what VSA looks to me.
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