Volume Spread Analysis

karthikmarar · #71 19th September 2008, 12:46 AM

Friends

I have covered the basic elements in Volume Spread Analysis.

When I started the thread I was hoping for an active discussion which would eventually lead to a better understanding of Volume spread Analysis. But then the thread turned out to be a disappointing monologue.

There could be many reasons for this. VSA as a concept has not caught the imagination among our members. Or is it that most of our members have not crossed the Indicator stage. Or is it that the concept is a bit far fetched for our members.

On the positive side this thread did attract many from different parts of the world. Since this was a restricted thread they could not post and many conveyed their views by PMs and I did learn a few things from them.

Then the time has come to wrap up this long monologue. I do hope this did help at least a few of our members..

Warm regards

Karthik

rajaram.dilipkumar · #72 19th September 2008, 01:10 AM

friend , just started posting again this week after 3 week break from traderji due to pre-occupation with important assignments hence could not participate in this thread .... just yesterday took a print of the charts and explination for the patterns given by you ...
pls continue your good work as there is a scarcity of educative stuff in the forum these days and this thread has filled the void .

lalpar · #73 19th September 2008, 09:30 AM

Karthik,

I have been following your posts and understadning each and very chart..Only thig is I am not posting but u can always see a THANK YOU for every post of yours...

Keep Continuing your good workkk...

One more thing:Vishal Retail...I had asked a quetion abt in in your thread TECH VIEWS ..do let me know your analyisi on the same

All in all yesterday your post of retracement or reversal was observed by me and based on that I will take a position in NIFTY..Dedfinately this thred is helpful for me so please continue to post...

karthikmarar · #74 20th September 2008, 10:05 PM

Rajaram and Lalith

I will continue posting some example charts in order to provide a better understanding of the concepts of VSA.

Afterall I have to atleast give back a little of what I gained from this great forum.

Like Sint always says... even if one person learn something it is worth all the effort.

regards

karthik

karthikmarar · #75 28th September 2008, 11:33 PM

TREND CHANNELS

Next I will touch on the concept of trend channels. Tom Williams briefly mentions this in his book. He calls then Trading Ranges though I prefer the term Trend channels as in we will find the stock is actually trending up or down when we look at from a wider view. This is actually different form the horizontal trading ranges where the stock movement is sideways. Of course I have taken some deviation from his concepts.

Many times you will find a stock moving in a upward or downward channel. We can draw upper trend lines and lower trend lines and they would almost be parallel. Tom Williams divides this channel into upper quarter and lower quarter and most reactions happen in these quarter. He also calls area above the upper trend line( or supply line) as over bought zone and the area below the lower trend line as over sold zone. The middle area is where we can expect the stock to move anywhere.

But I go a step further and I draw a middle line. The interesting observation here is that it is around this middle or mean line where most we see a conflict or tug of war between the bulls and bears happen and many reactions happen around this line. I call this the “Conflict Zone”.

From a VSA perspective we will find support or strength coming near the bottom trend line. We will also see weakness creeping in in terms of upthurst bars or pseudo upthrust bars near the upper trend line. In most cases the Trend channel is wide enough to give some nice trade opportunities.

Here is n example of downward trend channel

karthikmarar · #76 30th September 2008, 10:30 PM

TRADABLE BASES

Accumulation bases can be found in various shapes and sizes. The most common recognizable one is the one where the stock moves sideways in a narrow range and the volume has dried up.. However we will also find rectangular bases where the stock moves up and down but restricted within a wider range. You will find weakness coming in at the top of the range and strength at the bottom of the range.

Many of the ranges are easily tradable. For a trader or investor with longer term view the idle time to get in would be when the stock bounces back from the support line. This way it the stock breakout he would have the idle entry point. He also has the option to quit at the stock fails to cross the resistance at the range top, For a short term trader who is adapt in trading the long and short this kind of base provides good opportunities to go long at the support line and go short at the top of the range.

Just like the Trend channels described before we can find a zone in the middle of the range which I call the conflict zone where many reactions take place.

Here is just an example of tradable base. More tradable bases will be covered in my other threads.

rajaram.dilipkumar · #77 30th September 2008, 10:50 PM

between 3rd june to 22nd july 08 we had such base in BHEL also ...but often there is a problem with s/l attimes it cracks the lower end of the channel comes back in and again brakes down or cracks the lower end with a huge gap down at the opening bell itself like the nifty did when it was trading between 4200 - 4550 for some weeks...yes these are exceptions though and hence i usually take the second retest of support to entar and not the third or fourth retest ..
karthik , any advice on where we can keep the s/l for this tradable base...

karthikmarar · #78 1st October 2008, 11:50 AM

NIFTY chart is very interesting. A tradable base within a downward Trend channel. Provides a whole lot of possibilities and opportunities.

karthikmarar · #79 1st October 2008, 11:05 PM

Rajaram

Agree, the stop loss for Tradable base is quite a tricky issue. There can be many temporary violations of the support line and the stock would bounce back into the base. Even the example of ABB you can see many time the stock would dip below the support line only to close into the base. Of course the SL should be below the support line. Most tend to keep it at the support line are thrown out of the trade unnecessarily. But how much below is the crucial question. This would depend on one risk potential.

Personally I keep a variable percentage. The down move’s volume and spread normally gives me a good idea of the chances of the impending break of the support. Moves with higher volume and wider spread warn of the impending break. In such moves I tend to tighten my SL. If the move is on lower volumes and smaller spread I tend to give a wider SL. Of course the market would at times fool me on this approach. One more one should remember is that it is always better to acts on signals in the same time frame one is trading. Like a positional trader trading on EOD taking a decision on a intraday move would only be out of the trade too soon.

In case of ABB you can see large support coming in at 725 and again 721 both temporary violation of support line. Hence in future we can expect support at these levels.

regards

karthikmarar · #80 8th November 2008, 02:57 PM

Hi Friends

A Basic AFL for the volume spread analysis and a pdf version of the post is now available for download from my blog. A belated dewali gift

vpanalysis.blogspot.com

Karthik

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