What is VSA? VSA (Volume Spread Analysis) is a proprietary market analysis method that looks at the relationship between the opening/closing price range and trading volume. VSA can also Forex trading using VSA (Volume Spread Analysis) Most traders are familiar with technical and fundamental analysis. There are several ways to use these two methods to analyse the forex VSA is a market analysis methodology that alerts the trader to the two most important questions that they must know the answers to in order to trade successfully — why and when. Why VSA Method - market stages Timeframes for the VSA Method. To analyze the market situation, timeframes from M5 to H4 are used. On D1 and above, this method becomes erratic. On VSA focuses on price and volume and seeks to find the actions of professional traders. Hence, as long as a market has a group of professionals and offers reliable price and volume data, the ... read more
The method is based on the idea that the market situation is controlled by major players who provoke large movements of quotations. In theory, things are simple: a major player bought a large volume of an asset, and the price for it headed up; then they sell a big volume, and the price heads down.
But in fact, things differ. If a large market participant decides to buy, say, a thousand lots of stocks and one lot is a hundred stocks , sellers might simply lack such a volume. The market has liquidity, and accumulating positions might take long. In the stock market, traders get the real volume and all the data connected to it. However, a question appears: where to take order volumes in Forex? Among traders practicing the VSA Method, many use volumes from futures, however, the number of instruments for analysis here is limited.
Hence, what is left are volume indicators and tick volumes. Analysis shows that tick volume in MT4 suits well the VSA Method. To a trader with a small capital, this information gives a small advantage. They can open position in the same direction with a major player. There is a concept that major market participants get access to more information and have more experience compared to individual investors and traders.
The working principle of the method is to look for places of possible reversals or escapes from flats. Reversals are frequent on highs and lows.
Upon sonsolidating in a flat, the quotations approach the upper border of the channel. After a test of the resistance line, the indicator of tick volumes show a large candle which means the volume has increased. Then the border of the channel got broken, and the quotations started developing an uptrend.
Note that the candlestolicks formed after the breakaway are Up Bars the closing price of the next candlestolick is above that of the previous one. These signals are not enough to open a position buy the VSA Method suggests further growth. Hence, we use this signal solely to confirm the ascending dynamics.
In the previous example, we saw the price grow steeply alongside trade volume. As long as not all market players closed their positions at this growth, they will start doing it when the price reaches certain highs.
At that moment, they will take the profit, and trade volumes will grow again. As you can see in the picture below, the candlestick has a large shadow, which means sellers dominate over buyers. The histogram of the tick volume in this candlestick has also increased. These factors together advocate a reversal, and the chart shows that the price did fall in the end. Attentive readers, knowledgeable of the basics of candlestick analysis , must have noted that the VSA method uses reversal patterns from this classic type of analysis.
This method also forms the base of a popular strategy Price Action. In this overview, I have described just a small part of the method. To start using it in practice, you will need to understand market mechanisms and trend principes quite well. I would say the very VSA Method is quite simple to use but you have to invest your time and effort in studying the market.
Though universal, this method is not a ready-made trading strategy. Traders use the method to understand the situation in their asset better and draw conclusions about further development of the situation.
The VSA Method will be optimal as an additional filter informing about the direction of quotations. It also works well with candlestick analysis and graphic patterns. He used to be the head o the laboratory of technical and fundamental analysis of financial markets in the Research Institute of Applied System Analysis. This week could be a relatively quiet one for the currencies, but it is worth keeping an eye on oil prices and the rhetoric of the Fed officials.
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Tips to Detect Scam. Review our tips for indentifing scams to help minimize the chance you will get duped. Is Volume Spread Analysis VSA Useful for Forex Traders? What Is Volume Spread Analysis Volume spread analysis VSA is a trading methodology invented by Tom Williams, originally known as Wyckoff volume spread analysis.
VSA examines the interaction between three variables on a forex chart in order to determine the balance between supply and demand, and the probable short-term market direction: -The quantity of volume on a price bar -Price variations, or the range high and low -The closing price Four Phases of Volume Spread Analysis Working on both the FX and the stock market, the VSA theory is based on four different phases: accumulation, mark-up, distribution, and mark-down.
There are two basic VSA concepts that are easy to understand to help understand: 1. No demand on up bar If the market rises with contracting spread and volume, the market is not showing demand. However, in the spot forex market, volume is a tricky concept. You will not get actual traded volume. You get tick volume which measures the times the price ticks up or down.
If you intend to use VSA methods for trading spot forex, you need to decide if your source of tick volume is a reliable proxy for actual volume. Need help deciding? The ForexFactory forum has a discussion on trading forex with VSA.
I will not sugar-coat the fact that VSA is difficult to master. This is because traders have interpreted various VSA concepts differently. To trade well with VSA requires years of practice and market observation. Consider how much time Jesse Livermore, Richard Wyckoff, and Tom Williams spent studying the markets. Nonetheless, we can still improve our trading with basic VSA concepts that are easy to understand.
Hence, in this first guide, we will look at two simple VSA concepts. If the market rises with contracting spread and volume, the market is not showing demand. Without demand, it is not likely to continue rising.
If the market falls with decreasing spread and volume, the market is not interested in selling. Thus, it is not likely that the market will continue to fall. In the two examples below, we will use a period simple moving average as our trend indicator.
Click on the images to zoom. There are great discussions on VSA on Traders Laboratory and Forex Factory. To find information on VSA in popular trading forums with a click, try our Trading Forums Search Engine. There are many software that claim to use VSA techniques to help you trade better.
I would not comment on their efficacy as I have not used them. But I am sure that no software will bring you trading success unless you truly understand the VSA principles. Hence, you should definitely learn as much as you can about VSA, before relying on a software for your analysis.
This approach will make sure that you do not use the software blindly, if you do buy one. These are not classic VSA methods, but they will help you understand the interaction between price and volume.
Tick volumes are one of the simplest options for VSA analysis Most forex traders are familiar with technical and fundamental analysis. There are several ways to use these two methods to study the forex market.
In a nutshell, the fundamental analysis explores the causes of market movement, while technical analysis finds out when a movement will occur. But a different approach to analyzing prices in the stock and currency markets is also possible. In theory, the methodology should combine the main of two options in order to solve the " why " and " when simultaneously ".
This is what VSA in forex is all about volume variance analysis. Thus, a trader tries to find out the difference between supply and demand created by the major players in the market professional traders, institutions, banks, and other market makers.
If you know how to interpret their actions accurately, it will give you good signals to enter the market. The VSA is an evolutionary extension of the work of Richard D. Wyckoff, who began trading stocks in at the age of In the s, Wyckoff published his work in a financial weekly that sold , copies and made the concept public domain. In the late twentieth century, Tom Williams improved on Wyckoff's research and developed his own methodology.
In his book "Market Masters" he mentioned the importance of price differences spreads related to volumes and closing prices. Livermore was the first to use volume data to analyze the mood of bulls and bears to find entry points.
But he was not the creator of this trading method as such. The main contribution was made by another — Wyckoff. He was distinguished by his academic approach to trading. He was fond of education and used any source of ideas to develop his trading methods. In particular, he personally met with leading traders and interviewed them. One such interviewee was Livermore with his thoughts on volumes, from which Wyckoff would later derive the basic tenets of the VSA concept. But neither Livermore nor Wyckoff used a combination of Volume Spread Analysis.
It was Williams who coined the term for methods based on Wyckoff's work. Williams' books and computer software helped to promote VSA as a powerful tool for analyzing market volumes among Forex traders and made the concept an alternative to the classic analysis variants. Using these three pieces of information, a skilled trader will find the best entry points into forex. The significance and importance of volume seem to be poorly understood by most novice traders, but it is a very important component of technical chart analysis.
Wall Street likes to compare a price chart without volume to a gas tank without gasoline. The volume gives half the information and the other half is found by studying the price difference.
Every market forex is no exception moves according to the supply and demand created by professional players. If demand is greater than supply, the market rises. If supply is higher than demand, the market goes down. Seems simple, but in practice, financial markets are not easy to calculate.
Supply and demand work differently in financial markets. The VSA teaches that all market strength can be read in a bearish candle, conversely, market weakness can be read in a bullish candle.
Professional and institutional investors trade forex often and in large volumes. Their purchases and sales are represented on the chart by bullish and bearish candles with a large range.
The VSA focuses on price and volume and tends to track the actions of professionals. Consequently, in any market where there are good turnover and market makers, the VSA trading concept remains valid.
Almost all financial markets stocks, futures, forex nominally meet these requirements. However, in the forex market, volume is a complex quantity. Traders argue a lot about whether VSA can be used in the forex market. The reason is that the foreign exchange market is decentralized, unlike the stock market. As a result, actual volumes are not available.
But we can simply analyze the volumes of each bar and candlestick. It works quite well in forex trading. In broad terms, volume allocation analysis is a school of trading thought that insists on the crucial role of volumes in understanding price movements in financial markets. The argument in favor of technical analysis is the postulate that price already discounts everything. However, reading the market solely by price is not enough. Markets depend primarily on supply and demand, hence on the psychology of their final participants.
Therefore, volume analysis is a good way to understand how supply and demand affect prices. The fundamental analysis says we can always understand the real value of an asset by examining the intrinsic value of a financial instrument - stocks, currencies, commodities, etc. Volume traders say that to fully understand what is happening in the markets we have to start from perceived value.
Not the actual value, but how the bulls and bears see it at the moment. Because traders are constantly valuing companies above their book value, taking into account other types of analysis besides fundamental analysis. Past prices are an important aspect of understanding movements in financial markets.
However, price analysis is not enough. Proponents of VSA say it is more important to understand exactly where the money is now and where it will be at the moment we need it. Volume determines the "hunger" or "saturation" of the market, which affects the strength and direction of price impulses.
We have already dismissed fundamental and technical analysis as the only explanation for movements in financial markets. VSA suggests looking at price movement in relation to volume as the main factor. For example, no matter how good the performance of the market or an individual issuer may seem, if the trading volumes have been at a peak for a long time, we can expect an impending slack or reversal.
The basic idea of the concept is that different types of traders carry different types of information. We can base our trading strategy on this idea. Retail traders are those who have small accounts and trade casually.
Commercial traders are investment banks whose function is to place orders in the market to meet customer needs. Professional traders are qualified investors who seek to win and almost always try to stay slightly behind the market in order to go in a steady trend.
By calculating which type is making the weather now, a trader is more accurate in predicting future price movements in forex. This approach is really unique in behavioral research.
It helps to bypass the limitations of classical fundamental and technical analysis. Volumes give an idea not only about the direction but also about the strength of the future trend. This is very useful. Lack of clarity. There are no clearly defined rules in theory. There is a concept of market strength and weakness, but everything is quite vague.
This is an obvious disadvantage for beginners. It takes a long time to sweat over a demo account to master everything. Bad for high-frequency trading. In short time frames, classic technical analysis is much more effective. The Upthrust pattern is the canon of using the concept.
An uptrend pattern can appear on the candlestick chart as a large uptrend candlestick on super high volume with a further downward movement. Such anomalous candlesticks are not uncommon in forex and are associated with the manifestation of aggressive trading.
In particular, these situations often occur after the broadcasting of important news. The appearance of the pattern of upward movement sends a signal to many traders about the beginning of a reversal movement.
The term Shakeout consists of two words — Shake and Out. The term requires no explanation. It reflects what happens behind the candlestick formations.
The big forex players often use the Shakeout to drive the weaker players out of the promising bull market. When trading on margin with leverage, their skinny deposits simply can't withstand the drawdown from the resulting ripples. Shakeouts can be found on any type of chart, across different time frames and markets. The classic VSA pays a lot of attention to shakeouts. On a price chart, a pattern is represented by powerful candles or bars with high volume, which "break" the current price patterns.
For example, observing this during a sideways movement, you can say that the consolidation period is coming to an end. The main point: the candle should break out at a really strong level. The levels should be fully formed. The harbinger of the end of the imminent change of the trend on the forex market. Often there is a sharp increase in liquidity against the background of rapid growth, which is quickly followed by a state of uncertainty and a decline in volumes.
It is important for forecasting. The main mistake beginners make is to see a mistaken continuation of the trend, mistaking a reversal for a consolidation. Big players can manipulate the market with such a trick, knocking down stop-losses en masse and changing the trading volume. Be careful.
6/7/ · Volume spread analysis (VSA) is a trading methodology invented by Tom Williams, originally known as Wyckoff volume spread analysis. It takes a multi-dimensional approach to 11/4/ · VSA trading system I want to explain my training set up basically so what I do when I what I do when i open the charts: I first zoom-out chart this is the first thing that: I do and try to VSA Method - market stages Timeframes for the VSA Method. To analyze the market situation, timeframes from M5 to H4 are used. On D1 and above, this method becomes erratic. On Forex trading using VSA (Volume Spread Analysis) Most traders are familiar with technical and fundamental analysis. There are several ways to use these two methods to analyse the forex VSA is a market analysis methodology that alerts the trader to the two most important questions that they must know the answers to in order to trade successfully — why and when. Why Forex Trading Strategy: VSA. This video demonstrates a technique which was partially developed by Tom Williams, a former professional trader, who now lives in Europe. His system ... read more