Do you want to learn to anticipate a price movement like this one? You’re in luck because this is the video that will change how you see and trade the market. Today I’m showing you how banks and professional traders use Volume Spread Analysis, one of the best leading strategies you could use for trading.
And if you want to show your support, please leave a like to help us with Youtube algorithm and turn on the bell, so you don’t miss when new videos are released. Volume Spread Analysis is the study of Price in relation to its corresponding volume. It basically identifies the underlying reasons behind the market behavior or movement.
If a trader anticipates a bearish or bullish movement then there must be an underlying reason behind it. Volume Spread Analysis tracks down the professional activity or the moves of the smart money. Smart Money in this context is the Big Banks, Hedge Funds and Large Financial Institutions having hefty pockets to move the market the way they want.
Volume Spread Analysis eliminates subjectivity from trading because while price can be manipulated by professional activity, volumes can’t. Thereby, Volume Spread Analysis is one of the best way to understand market psychology and sentiments. VSA can be used in any market like forex, stocks, Indices, commodities, and Futures.
Many people might argue that in forex Volumes are useless as it is decentralized market having no real volumes. However, Forex has Tick Volumes which is proxy to real volumes and correlates it 90% of the time. And yes, VSA methodology can also be applied to any timeframe.
Wyckoff’s VSA is one of the best methods to analyze a market because: • It is non subjective • It is not prone to smart money manipulation as the method itself is used for detecting smart money activity. • It figures out the underlying reasons behind the market movements and also understands the cause of imbalance between supply and demand. First, let’s see the components of volume Spread Analysis: 1.
Spread: Spread is the difference between Opening and closing of the price. 2. Volume is the frequency of transaction of the price change during a specified period of time 3.
Bearish and Bullish Volume: Bearish Volume is marked in Red and it shows bearish activity. Bullish Volume is marked in green and it shows bullish activity. 4.
Above Average High Volume: Above Average High Volume is the Highest Volume in the current session which is higher than the average volume. Average Volume is the volume that coincides with Moving Average 20 of the volume indicator. 5.
Ultra-High Volume: Ultra High Volume is the Highest Volume in the current session. It is higher than the previous peak volume. There are 4 stages of VSA, based on Wyckoff theory.
1) Accumulation: This Occurs when Supply and Demand are in balance to each other after a mark down move. 2) Mark Up: This occurs when Demand becomes more than supply causing an upward bullish rally after accumulation process 3) Distribution: This occurs when Supply and Demand are in balance after an exhausted mark-up move. 4) Mark Down: This occurs when Supply becomes more than Demand causing a downward drop after distribution phase.
Watch this video if you want to know more details about Wyckoff method. There are two major applications of VSA namely tracking of SOW (Sign of Weakness) and tracking of SOS (Sign of Strength). SOW Sign of Weakness occurs when the Demand is exhausted (Buyers Exhausted) after uptrend and Supply increases (More Sellers come in).
This imbalance between supply and demand causes the market to fall. SOS Sign of Strength occurs when Supply is exhausted (Sellers exhausted) after downtrend and Demand increases (More Buyers come in). This imbalance between supply and demand causes the market to rise.
Now let’s talk about the different types of Sign of Strength: 1) Down thrust: Down thrust is the bullish pin bar or the Doji bar having an ultra-high volume or above average high volume. The Spread of the down thrust bar is extremely low meanwhile the volume is relatively high. VSA suggests that if the spread is low then the volume should also be low.
In this case there is a divergence between spread and volume which signifies that there is more demand than the supply causing price to rise in near future. 2) Selling Climax: Selling Climax is the high spread bearish candle closing well off the lows, having a noticeable downward rejection wick, projected on ultra-high or above average high volume. High spread rejection low volume anticipates that the market will rise because there is more demand than supply.
Selling Climax has a downward wick whose size is approximately 25%-50% of the candle’s body size. 3) Bearish Effort < Bearish Result: This is High Spread Bearish Candle whose spread is larger than the previous candle’s spread but its volume is lower than the previous candle’s volume. VSA suggests that if there has been no effort made then there should not be any result.
This disagreement between Price and Volume increases demand and reduces supply causing the market to rise in future. An effort (volume) has not been made but there is a result (Spread). 4) Bearish Effort > Bearish Result: This is Low Spread Bearish Candle having spread lower than the previous candle’s spread but its volume is higher than the previous candle’s volume.
In this case there is a disagreement between volume and price resulting demand to become more than the supply and causing price to rise in near future. An effort (volume) has been made but there is no result (Spread). 5) No Supply Bar: This is a low spread bearish candle having downward wick whose volume is lower than the previous two candles’ volumes.
No Supply bar means that there is lack of supply and demand is overpowering supply causing price to rise in future. Please note that No Supply Bar is a continuation signal not a reversal signal. No supply bar is effective only if it is appears after bullish momentum or appears after Sign of Strength in the direction of the trend.
6) Pseudo down thrust: Pseudo down thrust is the bullish pin bar or doji bar having low spreads whose volume is lower than the previous two candles’ volumes. This suggests that there is no supply or lack of supply. Lack of supply means that demand will overpower supply causing price to rise in near future.
Please also note that Pseudo down thrust is a continuation signal not a reversal signal. Pseudo down thrust is effective only if it is appears after bullish momentum or appears after Sign of Strength in the direction of the trend. 7) Pseudo Inverse down thrust: Pseudo Inverse down thrust is an inverse bullish pin bar (or doji bar) having low spreads and its volume is lower than the previous two candles' volumes.
This suggests that there is no supply or lack of supply. Lack of supply means that Demand will overpower supply causing price to rise in near future. Again, Pseudo inverse down thrust is a continuation signal not a reversal signal.
Is effective only if it is appears after bullish momentum or appears after Sign of Strength in the direction of the trend. 8) Inverse down thrust: Inverse down thrust is the inverse bullish pin bar or doji bar having low spreads and projected on ultra-high or above average high volume. VSA suggests that if the spread is low then the volume should also be low.
In this case there is a disagreement between spread and volume which signifies that there is more demand than the supply causing price to rise in near future. 9) Failed Effort Selling Climax: Failed Effort Selling Climax is the variation of Selling Climax having no downward rejection wick. It has higher spread than the previous candles and its volume is also higher than the previous candle.
There is a disagreement between Volume and Price as compared to previous candles. However, the next candle is bullish, absorbing the entire bearish effort. Now let’s talk about different Types of SOW Sign of Weakness: 1) Up thrust: Up thrust is the bearish pin bar or doji bar having an ultra-high volume or above average high volume.
The Spread of the up thrust bar is extremely low meanwhile the volume is relatively high. VSA suggests that if the spread is low then the volume should also be low. In this case there is a disagreement between spread and volume which signifies that there is more supply than demand causing price to fall in near future.
2) Buying Climax: Buying Climax is the high spread bullish candle closing well off the highs, having noticeable upward rejection wick, projected on ultra-high or above average high volume. High spread rejection low volume anticipates that the market will decrease soon because there is more Supply than Demand. Buying Climax has an upward wick representing 25%-50% of the candle’s body size.
3) Bullish Effort < Bullish Result: This is a High Spread Bullish Candle whose spread is larger than the previous candle’s spread but its volume is lower than the previous candle’s volume. VSA suggests that if there has been no effort made, then there should not be the result (Spread). This divergence between Price and Volume increases supply and reduces demand causing the market to decrease in future.
4) Bullish Effort > Bullish Result: This is a Low Spread Bullish Candle having spread lower than the previous candle’s spread but its volume is higher than the previous candle’s volume. VSA suggests that if an effort has been made then there must be a result (spread). In this case there is a disagreement between volume and price resulting Supply to become more than Demand and causing price to fall in near future.
5) No Demand Bar: This is a low spread bullish candle having upward wick whose volume is lower than the previous two candles’ volumes. No Demand bar means that there is lack of demand and supply is overpowering demand causing price to fall in future. Please note that No Demand is a continuation signal not a reversal signal.
No Demand is effective only if it is appears after bearish momentum or appears after SOW Sign of Weakness in the direction of the trend. 6) Pseudo upthrust: Psuedo upthrust is the bearish pin bar or doji bar having low spreads whose volume is lower than the previous two candles’ volumes. This suggests that there is no demand or lack of demand.
Lack of demand means that supply will overpower demand causing price to fall in near future. Also, Pseudo up thrust is a continuation signal and not a reversal signal. So, is effective only if it is appears after bearish momentum or appears after SOW Sign of Weakness in the direction of the trend.
7) Inverse Pseudo Up thrust: It is the inverse bearish pin bar (doji bar) having low spreads. Its volume is lower than the previous two candles' volumes. .
This suggests that there is no demand or lack of demand. Pseudo inverse upthrust is also a continuation signal and not a reversal signal. Pseudo inverse up thrust is effective only if it is appears after bearish momentum 8) Inverse Up thrust: Inverse Up thrust is the inverse bearish pin bar (or doji bar) having an ultra-high volume or above average high volume.
The Spread of the up thrust bar is extremely low meanwhile the volume is relatively high. VSA suggests that if the spread is low then the volume should also be low. In this case there is a disagreement between spread and volume which signifies that there is more supply than the demand causing price to fall in near future.
9) Failed Buying Climax: Failed Effort Buying Climax is the variation of Buying Climax having no upward rejection wick. It has higher spread than the previous candle and its volume is also higher than the previous candle. There is a divergence between Price and Spread of the Failed Buying Climax as compared to previous candles.
However, the next candle is bearish, absorbing the entire bullish effort. I hope you realize that that the Volume Spread Analysis is a very powerful technique which unfolds the true sentiment and order flow of the market. If you enjoyed this type of content and want more Wyckoff and Volume Spread Analysis videos, leave us a like to show your support and to help us with Youtube algorithm and in future videos we’ll go even deeper with more advanced strategies that can be applied to day trading and swing trading.
Until next time.
