Volume Spread Analysis

Vipin


Trading the breakout form the TR can be very tricky.

We had a nice thread on "Breakouts" long back. Check this thread out. You will also learn about "Traders Remorse" and "Bull Traps"....

http://www.traderji.com/technical-analysis/3392-breakout.html?highlight=breakout

Thanks Karthik for sharing the link to Breakout thread.
I envy you guys who had such a nice disucssion on various trading topics in the past and I was not part of that..

Anyway, let me enjoy breakout thread. Hope you will unearth some more such hidden gems for us in future too.

Happy Trading

True AW, We had great discussions in this forum..The Friday chat room sessions were real fun.. great learning... it was very good as long as it lasted.. till the omnipresent pivots became the demigod and holy grail of all trading systems...

A very interesting setup has emerged on the Monthly Charts Of Nifty (Cash Segment) which i wanted to share with my fellow traders.

Background : Accumulation and Mark-Up

The bar where Sign of Weakness is written is worth watching. Look at the volumes of the bar and its spread. The bar is on a very narrow spread and the volumes are Ultra-High , also the close of this bar is below the previous bar. This is An End Of A Rising Market as the shares are now being transferred to Weak Holders.There cannot be a better example of Sign of Weakness that this.

Cheers

Hi lnangia,

Pardon me for my ignorance, but could you explain a bit more on why its a sign of weakness?

As i understand the weakness comes in to the picture when there are no more buyers at higher prices, which means that there is a) No volume b) the close is lower than the close of previous day.

In this particular chart that you have given,i can see the upthurst bar , defined by High volume, wide range bar in which the close is near to low. its a definite sign of weakness if:

a) the next bar is a down bar with huge volume, showing the SM has started to bring down the prices, by coming as a huge buyers at lower prices and the sellers have no option but to sell at lower prices therefore the close was near the low of the day.

b) Its a narrow range bar with low volumes showing that the SM is no longer selling it at higher prices( it usually happens after the distribution phase, so they dont own most of the stocks ) so the high, low and the close are "narrow ranged" .

This charts' weakness point is the bar next to the upthurst bar.

Am i right ?

Hi Vipin. The high Volume Upbar where Mark-Up is written can also be looked at as Selling Climax because of the excessive volumes . The fact that the Upthrust has closed below Selling Climax gives more insight to the fact that Supply > Demand. An Upthrust is the biggest sign on weakness and its a Narrow Spread Bar. We make a comparison of the spread and volumes with the previous bars , this helps us decide if the spread is Narrow , Average or Wide and same is the case for volumes. Everything needs a parameter for comparison and this is ours if VSA is used.

Once this is clear look at the Selling Climax (Widespread on High Volumes) and then look at the Upthrust (Narrow Spread on High Volumes). If the High Volumes meant buying on the Selling CLimax then why did the next bar close below it ? On the Upthrust Bar why is the range capped on High Volumes? If the high volumes indicated buying then the Range of that Bar should also be wide and not narrow. The reason is because that the market makers do not want to put up the price against them.

A 2 Bar confirmation is more than enough to understand the extent of Weakness. Weakness can be spotted much easily and quickly in a chart as compared to Strength. If a conservative approach is taken perhaps a person could wait for more supporting evidence. Maybe a 3bar or 4bar confirmation. You could even wait for the Low of Selling Climax to be taken out. People often say that never trade against the trend and you could precisely do that by shorting on the Low of Selling Climax.


Cheers

Thanks Inangia, for taking time and effort to answer my childish queries but could you explain in little detail what you meant by the last sentence of yours?


What i think that the next bar closed below it because there were no more buyers at higher prices, or testing for demand, so it closed down. The very next bar on which you have written weakness there is almost no volume as compared to previous bars so i think thats where we can actually say with confidence that there is weakness in the market.

Thanks.
Vipin.

Hi Vipin. 1st of all its lnangia as in lalit and not I . And i'm more than happy to help mate.

I agree with the fact that demand has dried up. However if you look closely its a Monthly Chart. The Low volumes at the extreme right edge of the chart mean nothing as of now because they are a representative of the data of July and the analysis can only be done when the month is over.


Cheers

I wouldn't be wrong if I said that this was one of the best threads on the forum when it was active. I would have loved to be a part of the discussion too.

My problem is that I can't come to terms with Upthrust being a bar closing down etc so it is a little difficult for me to understand when everyone says upthrust and markup but I did understand the V-P concept and again I don't remember candlestick pattern names but the psychology behind the cause of the pattern to identify bullishness/bearishness of the pattern. So a discussion on VPA/VSA would be difficult but it would be great if we could analyse some stocks.

I'm sure this time it won't be a monologue because there are a lot of new members who believe in "learning to catch fish"

So I'll post a stock chart, I've been tracking - SUZLON

In this case the volume was actually decreasing just before the decline began. Although the volume on the decline was higher than the vol on the previous retracement the volume seems to be lower than on the advance to the highs.

Please post your views on this stock.

LT, to read volumn I prefer to use indicator like OBV (though it has its own limitation)..
It gives nice picture of cummulative volumn which is lot more meaningful then
looking at individual volumn bars.

In simple terms - If OBV rising, volumn is on bullish side, if it is falling, volumn is on bearish side, You can apply HH/ HL or LH/ LL concepts on OBC line and lookfor divergence
with price.. (to catch contra-trend opportunities) or look for convergence to go with the trend.

Happy Trading