Supply/Demand, VSA, Wyckoff with Petefader

pandras82 · November 8, 2011, 4:20pm

I hope it is not forbidden here to play a little quiz.

What do you think guys about this? Where the price will move? Any idea with explanation?

pandras82 · November 8, 2011, 4:32pm

tehmac:

Thank you so much for this thread. It is invaluable! May I ask for some guidance on the following stock - how would you interpret the bars?

As well as the attachment below, here is a link to a much clearer/larger image. ht tp://oi39.tinypic.com/1zbdi7o.jpg

We had a few months accumulation area/trading range, which it then broke out from.

I bought in here on the breakout from the trading range.

VERY HIGH volume wide range bar appears here. Could be hidden selling?

Even higher volume and wide spread closing on the lows (and even opened up). A classic upthrust with obviously a lot of selling going on. I chose to get out at end of the day on this bar. This would seem pretty standard, correct? I’ve seen this scenario appear often, and inevitably, it results in a retrace of some kind.

The retrace is showing no supply bars (I think). The volume comparisons confuse me here and later on in the chart. It is low volume in relation to the first 3 volume bars when the rally began, but it is still high compared to volumes when in the trading range. Which should I compare it to? I am now looking for a successful test to enter again after I see these no supply bars.

A low(?) volume test that is successful on bar 6.

I enter long again here at the close of this bar. HOWEVER, I am worried that it is showing NO DEMAND. Is this something I should be worried about at this point?

The bars around this point all show tails above (in the area of previous supply). Having seen the no demand at 6, I am worried that these upthrust type bars may mean I have entered incorrectly?

I am still in the trade and the volumes increase and go through the area of supply. Is this volume again considered VERY HIGH volume, like the bars at 2 and 3, or is this now simply HIGH or NORMAL volume when you look at it against the retrace. Again, what am I to compare the volume to? I am now worried I may see the same pattern that occurred during bar 2 and 3.

It is not an upthrust like bar 3, but it is on very high/high(?) volume again and closes off the highs in the middle of the bar. Is this a point I should be getting out? Or does it simply show that we don’t know who is winning the battle?

The stock gaps down big on the open after an RNS statement from the company is issued (standard requirement after a large move in the stock) stating that they are aware of the surge in price and that there is no imminent news. People get spooked on these RNS’s and often sell out of fear. This bar has high volume also and closes in the middle. Again, what should I be taking from this?

The market gaps up and goes higher on even higher volume again. Is this a good sign that the drop was in fact full of big buyers taking advantage of the fear drop? However, with the higher volume, does this again involve a lot of selling? I think we need to wait for the next bar?

A mid close on still quite higher volume. More churn between buyers and sellers. Is this a negative sign after bar 11? I don’t know how to interpret this.

General Questions
I know that weakness comes in on up bars and strength comes in on down bars, but despite reading Master the Markets and a lot on VSA, I am still slightly confused. Should we be analysing all down bars when during a rally also? For example, even if I have seen no signs of weakness on the up bars, if I see volume that is high volume (or at least not low volume) on any down day/bar, I get worried that this is more supply appearing in the market. These down day bars are irrelevant if I see no weakness on up bars though, right? Because smart money can only get out on up bars.

Last question: How is the market able to move up again in the above chart at point 6 and onwards, after the heavy selling by big money at point 3?

Thanks a lot. Your thoughts are very much appreciated.

How is the market able to move up again in the above chart at point 6 and onwards, after the heavy selling by big money at point 3?

I only try to answer this but notice I am a newbie.

Smart money monitors the market all the time and make their decisions based on the market movement. At point 2 they were already bearish. Then they made an upthrust to stop out sellers (who also discovered that the market is weak) and sucked up buyers. They got a lot of money. Then market conditions showed that lower prices were impossible so they finished to sell. Smart money swim with the market all the time and they have an advantage to know before anybody else what is the right direction. The market moves whereever it wants to. Smart money cannot manipulate it all the time.

Hummels · November 8, 2011, 4:59pm

Who knows? I think we have a bullish tendency, but whether we see re-accumulation or distribution will be visible when price tests the area of that upthrust.

First we see ultrahighVol on sellClimax, stoppVol. Price goes into range (accumulation) and then shakeout/ successful-test with a following markup and an easy rally. Then the upthrust (‘hidden’ UT I suppose, with that doji in between), but it is on relatiely low volume. The low vol is also due to the time of day, but even on a similar time of day in two prior instances we had very similar volume: first within accumulation and the second time as price was pushing through resistance. So if the UT is genuine, I expect higher volume. When price falls after the UT we get steadily higher volume on narrow spread, which looks like accumulation. The main reason why I suspect re-accumulation is the relatively low volume at the peak.

@Tehmac: I’m a newbie, so I hope I get this right. The pins on bars on/around bar 7 show wicks on relatively low volume within an area that was defined by the pin on bar 3. The low volume here is an indication of exhausted selling pressure. The pin on bar3 definbes the area where resistance is tested, and it is now tested on low vol, which means little remaining supply in this case. The vol increases as price goes into markup and breaks resistance.

The_Home_Of_Golf · November 8, 2011, 6:01pm

Whe you originally gave me this answer Pete my chin went down a bit cos I don’t have MT4. I trade a micro account, ( just a newbie, started with $400 in May, tanked it down to $43 in no time, since end of May I’ve traded it back up to current $140 )

Anyway, just worked out how to get tick volume on to my charts and started reading your original thread first.

Just thought I’d say thanks.

HoG

Danny_K · November 8, 2011, 6:26pm

I don’t know what broker you use but you could download IBFX MT4 platform and open a demo account and use it for Volume instead. As Pete mentioned earlier in the thread this broker is good for Volume. You can still execute your trades with your current broker, just use the volume on the other. I’ve used their Volume for a while and it’s one of the best I’ve tried so far. Just thought I’d tell you

SagiCZ · November 9, 2011, 2:03am

Thanks, it makes perfect sense. I was always wondering how to determine if there is gonna be another leg up. Now I see. I agree that my trade was risky and I got lucky. Next time I will wait for the down move to start first. :13:

tehmac · November 9, 2011, 2:32am

Something else is also confusing me. You talk a lot about low volume showing at support as meaning there are few buyers (not a good sign) and that high volume on a pin bar at support means strong buying (a good sign), however, does this not go against the idea of a SUCCESSFUL TEST?

I was under the impression that when price comes down to a support level, it is testing for sellers that will push the price down further. They are trying to see how many people really want to impede the price from rising. Therefore, a high volume pin bar/test, shows that yes there was plenty of buying going on, but also that there was plenty of selling too. This is why VSA talks about having to come back to TEST this area for a second time. Sometimes it moves after a high volume test, but often it will come back. If it comes back and tests this area again and finds a low volume pin bar/test, then this means that there are very few sellers left, and the price is free to rise.

Is this not contrary to your view or how you are interpreting this action? Thanks.

The_Home_Of_Golf · November 9, 2011, 2:52am

Thanks for the advice. Will have a look at it

Danny_K · November 9, 2011, 2:59am

tehmac:

Something else is also confusing me. You talk a lot about low volume showing at support as meaning there are few buyers (not a good sign) and that high volume on a pin bar at support means strong buying (a good sign), however, does this not go against the idea of a SUCCESSFUL TEST?

I was under the impression that when price comes down to a support level, it is testing for sellers that will push the price down further. They are trying to see how many people really want to impede the price from rising. Therefore, a high volume pin bar/test, shows that yes there was plenty of buying going on, but also that there was plenty of selling too. This is why VSA talks about having to come back to TEST this area for a second time. Sometimes it moves after a high volume test, but often it will come back. If it comes back and tests this area again and finds a low volume pin bar/test, then this means that there are very few sellers left, and the price is free to rise.

Is this not contrary to your view or how you are interpreting this action? Thanks.

Maybe you want Pete to answer this but anyway I think what you mean is when you see high volume at support, let’s say on the 61.8 fib you’ll see price starts to accumulate there for a while AND when it’s ready to move up it usually moves up a bit and pulls back a little bit to test the supply, usually just 1 or 2 bars with low volume, this is called No supply. This tells us that the markup is ready start.

I hope this answers your question

tehmac · November 9, 2011, 3:06am

Thanks for the reply. It’s just confusing to me that Pete always seems to enter on these high volume pin bars at support, when in my eyes that is a successful test on high volume, which is showing that yes the market is ready to move up, but buyers beware, and VSA teaches us that it’s better to enter on a low volume successful test (or no supply?) as sellers are exhausted and the full up move can begin.

Also in the same light, how can you tell the difference between NO DEMAND bars (small upbar on volume less than previous two bars) in an up move (a bad thing), and bars that signify that there are fewer sellers near a resistance line (a good thing). Both can look the same. Thanks.

Danny_K · November 9, 2011, 4:12am

Well you should see stopping volume before a no demand bar shows up. However you can see volume decreasing during an upmove and that should tell you that this is not a healthy upmove. This does not show on just one single bar.
To break resistance it usually requires high volume aswell.

Feel free to right me if Im wrong though.

pandras82 · November 9, 2011, 4:43am

Looks like we are having our spring to end this so long accumulation phase…What do you think?

SagiCZ · November 9, 2011, 4:43am

Did you mean Buying Climax? I think we should still make a difference between NO DEMAND and NO SUPPLY.

NO DEMAND confirms weakness in a downmove (Purplepatch’es strategy) or after BUYING CLIMAX (VSA)

NO SUPPLY confirms strength in an upmove or after STOPPING VOLUME.

Am I correct?

petefader · November 9, 2011, 6:49am

Nice to see so many posts, I’ll go over them as soon as I get a chance. Yesterday showed more supply than demand, then…

pandras82 · November 9, 2011, 8:00am

Absolutely righ! Price skyrocketed up more than 200 pips. The chart was nzdjpy 28 of october 2011, 15 gmt

pandras82 · November 9, 2011, 8:42am

Spring has been completed…

petefader · November 9, 2011, 8:55am

If you mean the pop below Nov. 1st low, it’s just starting to form…a bit soon to be sure. The 15, 30, 1hr and 4hr all showing a pin below that support. 5 min stopping volume. See how smaller TF look from here and where 1 hr closes, first things first.

petefader · November 9, 2011, 10:35am

Daily shows significant level, but not going to be aggressive picking the bottom. The short entries were before I was on, so maybe no trade for me today.

euu1.bmp (1.15 MB)

SagiCZ · November 9, 2011, 10:50am

I grabbed 18 pips on one of the down moves. Just scalping. These conditions are not for me. One can never know where the [B]REAL BOTTOM[/B] is :rolleyes:

Hummels · November 9, 2011, 3:13pm

tehmac:

Something else is also confusing me. You talk a lot about low volume showing at support as meaning there are few buyers (not a good sign) and that high volume on a pin bar at support means strong buying (a good sign), however, does this not go against the idea of a SUCCESSFUL TEST?

I was under the impression that when price comes down to a support level, it is testing for sellers that will push the price down further. They are trying to see how many people really want to impede the price from rising. Therefore, a high volume pin bar/test, shows that yes there was plenty of buying going on, but also that there was plenty of selling too. This is why VSA talks about having to come back to TEST this area for a second time. Sometimes it moves after a high volume test, but often it will come back. If it comes back and tests this area again and finds a low volume pin bar/test, then this means that there are very few sellers left, and the price is free to rise.

Is this not contrary to your view or how you are interpreting this action? Thanks.

I think VSA is all about context. We can have a bar+vol that looks exactly the same in two situations, but it tells a completely different story because the background is different. I have made a chart to depict my understanding of the matter.

In 1a and 1b the BuyClimax is on higher Vol then the SellClimax. This tells us that we have an overall dominance of supply. The SellCilmax may be the start of a short retrace and thus Re-distribution, or it may be a genuine start of Accumulation. However, if we compare the volume of BuyClimax and SellClimax then the comparison tells us that supply is dominant and the probability of the SellClimax being the start of Re-distribution is higher, and the probability of the SellClimax being the start of Accumulation is lower.

Now let’s compare the areas where 1a and 1b go into testing. In 1a the Vol is rising, this tells us that there is still a lot of supply. In 1b the Vol is falling, this tells us that there is little supply left. However, since we determined that in a larger context supply is still dominant, we should be cautious in looking for long trades. Our expectation is that even if we get a rally, it will not get very far.
Furthermore, let us consider the possibility that we do indeed have a Re-distribution going on, in that case the low Vol in the test area is consistent with Re-Distribution, because it shows that there is no demand to work against lower prices.

2a and 2b show a completely different picture, because here demand is dominant. In 2a the market isn’t ready yet, the test is on too high Vol. In 2b we have strong demand in the background and very little supply left in the test area.

Of course first the test needs confirmation in the form of a reaction. And then we will be looking for a long entry around the resistance area when a NoSupply bar shows up which will tell us that there is no supply left to resist higher price to break out of resistance.

So, in a nutshell, before we can go long we need to have had successful low Vol test of the support area. But we also want to see the correct background where demand shows a dominance over supply. And if demand enters the picture on relatively low Vol, then we don’t have a dominance of demand.

Friends, if I have made a mistake in my interpretation, please correct me.