Helpful Information, Articles, Tips and Tricks
for Day Traders.

Volume Spread Analysis - A Quick Lesson

An up bar or down bar is determined from the previous close to the current close, in whatever timeframe you are working.

Volume - is seen as 'Effort' of 'Force'.
Volume is an important measurement of Market Activity.
At times of high activity (or high volume), volume can be seen as making an 'Effort' or having 'Force' upon price.
Low volume (or activity) can suggest a lack of effort or force on price.

This is because VSA/Wyckoff is built around the three laws
"Supply and Demand"
"Cause and Effect"
"Effort Vs Result"
Weakness, when it is seen, will initially be seen on an Up Bar.
Strength, when it is seen, will initially be seen on a Down Bar.


These two comments are strongly pushed during educational VSA webinars, and they can confuse many, especially when getting started.

What they are saying is not that every decent up bar is weak (or that every decent down bar is strong) but that in a strong market (for instance), when serious weakness does eventually enter a market (weakness which will possibly change the overall trend), it will be initially on an up bar.
Obviously the reverse is also true, In a weak market, when serious strength does eventually enter the market (strength which will possibly change the overall trend), it will be initially on a down bar.

So whenever a widespread up bar is encountered (often on a good news announcement), particularly one with quite high volume, be wary (or aware) that although the bar may look really strong and full of buying, it may be a sign of potential weakness, or possibly the beginning of weakness entering the market (further price action is used to measure this potential weakness or strength).
When this occurs, the high volume can only be present if someone is happy to be selling, satisfying all of the demand which has been generated.

This is because larger holders cannot easily just sell their holdings, so when they choose to begin reducing their holdings. They generally need a positive event (such as a good news announcement) to increase demand in the market substantially, and then they can sell into the strong demand that the announcement encourages.

At times these events can be strung out for multiple days (if the news is good enough). Where these larger holders may even 'keep the price up' by buying some more when necessary, if demand begins to wane a little, attempting to give the market confidence the higher prices are justified, and encouraging further buying (finance news services may also be used to ferment further interest, especially in larger cap stocks, or particularly interesting news).

Price Action & Volume - as Information

Another interesting and intuitive way of looking at price action and volume is as "Stored Information".
In turn this is why a shorter timeframe has much less of an influence on the chart than a longer timeframe like a weekly chart (for instance).
In general a single bar has an influence of (roughly) 1 to 3 future bars (depending on its strength - as volume), so a potentially strong or weak 10min bar will have about 10 to 30 minutes of influence on the chart (remembering that if further strong or weak bars keep coming after the initial one, the influence of strength/weakness on the chart will cantilever forward), and vice versa, the potentially strong/weak weekly bar will have up to 1 to 3 weeks of future influence on the chart.
The reason for this is the 'stored information' (as price action and volume) within each bar. There is so much more stored information within a weekly bar, as there is, compared to a 10min bar (for instance).
All this stored information makes a big difference, not only to the further price action on the chart, but also to potential support and resistance (SR) levels.
That is why a weekly SR level is so much stronger on a chart, than a 10min SR Level is.
The weekly SR level has so much more information contained within it, and it is all that stored information which makes the weekly SR level much stronger, and vice versa, the 10min bar has only 10 minutes of price action and volume contained within it, and so in comparison, it cannot be as strong