Volume Spread Analysis

hi karthik,

pls clarify whether the enc. parsvnath chart is a uptrust or not when you have time ........ also seems like bearish engulfing satisfies all the conditions of a uptrust bar , is it true ?

Hi rajaram

Nice to see you on this thread. Looking forward to active participation from you.

Yes you are right, It is definitely a Upthrust in the Parsvnath Chart enclosed by you.

A bearish engulfing satifies the conditions of an Upthrust if the volume is high on both candles.

Also note that the upthrust could be any other candle pattern like Dark cloud cover ..even a marubozo though very rare. A grave stone Doji with high volume would also be Upthrust.

regards

Hi Karthik,

Could you please clarify why the chart for Reliance shows a closing of 422.07.

Thanks & Regards
ken

Ken

The Reliance chart shown is that of 2005. So the closing is correct.

Of course the date shown at the top is the current date because the cursor line selction was at the current date. So when we export to file in Amibroker the date selected is the same as the selected cursor date and if nothing is selected shows the last bar date. I purposely did not select any bar as there would be white vertical line in the chart image which is an irrantant.

regards

here is the chart again with the proper dates

NO DEMAND BAR


Next we will look at another indication of weakness, the “No Demand Bar”.

According to trade Guider/ tom Williams an Ideal No demand bar is a Upbar bar with narrow spread closing in the middle or lower and the volume is less than the volume of the previous bars. Though this is their basic definition I have seen subtle difference in the No Demand bar throwing up different commentaries.

But in general any narrow spread low volume Upbar closing in the lower half of the bar indicates No demand.

What does this No Demand Bar indicate?

A No Demand bar indicates that there is no support from the SM. The SM is not interested in higher prices and they are not supporting the stock. Whatever buying or selling is from the stray weak money entering and exiting.

Consequently this indicates weakness. The No Demand bar does not indicate any immediate reversal. While analyzing a No demand bar we have to look at the prevailing background.

Does the background reflect weakness in terms of Upthrust or Pseudo upthrust? If the background is weakness the No Demand bar indicates enhanced weakness.

If the background does not show weakness the No demand bar does show weakness and does not necessarily Indicate reversal. It only shows lack of participation from SM. We may soon see the SM moving in to take the stock up further. So it would be wait and watch time.

yes karthik, also noted the volume part and other candle patterns that satisfies upthrust.......but one small request ,if possible,can you please present the charts in candle sticks format ....

Rajaram

I am posting the Bar charts since in VSA the open is not really taken into account. Candle stick charts would not give a correct picture and the tendency would be think in terms of the hanging men and pregnant ladies

I do understand the candle stick guys would like to compare the VSA with their methods. So whenever possible I would post both the charts.

regards

We will explore a little more on weakness indications. Upbars with high volume with narrow spread and closing in the middle or low indicates that supply is swamping the demand. This kind of bars would normally be seen near resistance lines. This by itself does not portend great weakness. But the following bars would indicate whether the supply is persisting or not. Persisting supply would definitely reinforce weakness. Enclosing the chart of L&T for the recent times when supply came in at the resistance line. The next bar shows that supply has decreased which encouraged the SM to push further. But the move faltered at the next level.

Some thoughts..

It is quite difficult to code all the VSA condition into indications. So eyeballing the chart becomes quite necessary to come to proper conclusions.

I am not teaching VSA here. I am just sharing a few things I learned and many things are my own interpretations. Hence if someone feels that a particular interpretation is wrong, do feel free to point out/discuss. That way we can arrive at better understanding of VSA.

Let us move on.

Currently we are discussing weakness. One last indication before we take up strengths is called Effort without Result

After accumulation phase is over the SM gets ready for the Mark Up Phase. In order to move the stock up the SM has to put in some effort. The effort to move the market up can be seen as wide spread upbars closing near the top with increased volume. The volume would never be excessive. It is easy to identify these bars.

If the effort to move up results in the stock moving up, the effort has yield the desired result. Many times you will find an effort to move up bar and the next bar would be high volume bar closing near the low indicating large supply coming in swamping the demand. So the effort to move up has not yielded the desired result. Frequently you would find such a situations at high resistance / high supply areas.

These Efforts without result are good indications of weakness. Most of the times you will find the stock moving down or side ways after this failure. This is because the SM would rather wait for the supply to vanish before repeating the effort. The SM will then test the market for supply before trying to move up further. The repeat move could be good entry points.

Actually though the VSA does not take into account the OPEN, I have noticed that an ideal Effort to Move up bar would open near the low and close up near to high. This is a deviation I have taken from the general VSA concept in my analysis.

Now let us move on to the indication of strength. One of the most powerful indication of strength is the Testing for Supply.

After down trend when the SM has accumulated enough and is ready to move the stock up again they test if there is still supply present. Also in an uptrend if the SM encounters large supply they would pause till the supply disappears. Then they would check again to see supply is present.

The Testing for supply is done by rapidly marking down the price. If the stock recovers towards the high and the volume is low it would mean that there was no supply. If the volume is high and if the stock fails to recover it would mean that there still supply present. Low volume or less trading activity indicates a successful test.

A TEST bar typically dips into a previous high volume area and recovers to close near the high on low volume.

A test bar viewed in isolation does not signify anything. It necessary to look at the background to ascertain the strength of the Test bar. If there has been absorption volumes just before the Teat bar the strength of the test bar becomes more significant.