Thoughts on VSA

Dear Moderators and dear friend Karthik,

This is not an attempt to mirror or hijack the VSA thread in advanced trading strategies. This is just a thread wherein members desirous of posting comments or contributing to the main thread may post if they don't have sufficent posting privileges for the main thread. If this is not found to be a good idea then the moderators may please remove this thread.

by Karthik

By my experience, I sometimes find it more useful to take the period of the moving average as the period of the cycle of accumulation (a week, only, prior to markup), markup and distibution (a week, only, after distribution) of the pertinent market. This is speeded up by applying 1/3 of the above mentioned period. This probably will give an accurate snapshot estimate of volumes for all phases including congestion. As the usefulness of the information derived by any moving average is directly dependent on the correct adjustment of the period, this will work best if moving averages are used. Disregard this if you are using any other method eg ROC, Fisher transform etc.

I use the values as thus - volume greater than 2.2 times the value of the moving average is classified as excessive. The ideal initial markup should have volumes in the range of 0.7 to max 1.8 at least for two bars/candles. This would indicate that the market is moving up with less supply and the markup would last longer. Volume in excess of these values generally indicates presence of supply from some source and the markup may stall prematurely. In this case one has to assess carefully how much is the marking up syndicate willing to absorb (capacity to absorb will be very less in a bearish scenario. Vice versa in a bullish one ).

Tip-Those who keep an eye on open interest will find it beneficial to use open interest analysis akin to volume analysis. I dare say the open interest will give you forewarning of the impending markup

P.S - Just thought I would kickstart this with my 2 cents. No offense to the original thread intended. You will probably only see me posting if I have something worthwhile to contribute. If not, then silence is always golden .

This can be the shadow thread for the main thread. Members who do not have the posting privilege in the main thread can post here.

I did not elaborate on the volume as I have to still build some base before we go full-fledged on the actual VSA. Your post is a very relevant one. I plan to copy your post to the main thread as and when we approach the issue of average volume and average spreads.

regards

Thanks Karthik!

I am sure as your explanation unfolds, many more members will jump into the fray! Even though what you have kickstarted is the essential underpinnings of the market, not many analyse the markets through this viewpoint. I hope that the exchange of ideas builds up so that we all can keep you busy with some cut n paste! (hey just kidding!).
Regards,

hi
just rmike had put a thought on open interest so i wanted to add some basics of it,,,which i ahve copied and pasted form somewhere,,(long back dont remember the site excatly),,,so i thought to paste it here if helpful ,,on nay way

though i think this is the basic of sock market( open interest can be a evry complcated for a layman )


Open Interest (also known as Open
Contracts or Open Commitments) refers to the number of active or open contracts
for any given security. It applies to the futures and options markets but not to
stocks.
In the futures market it refers to the total number of contracts
long or short in a delivery month or market that has been entered into and not
yet liquidated by an offsetting transaction or fulfilled by delivery. Each open
transaction has a buyer and a seller, but for calculation of open interest, only
one side of the contract is counted.
The open-interest position that is
reported each day for a given market shows the increase or decrease in the
number of contracts for that day in the form of a positive or negative number.
It is one of the foremost tools for confirming trends and forecasting
trend reversals in the futures market.
- Open interest rising along with
prices is a bullish indicator that an uptrend is in progress and is likely to be
sustained. It shows that new money is entering the market.
- Falling
open interest and rising prices is a bearish indicator, suggesting that the rise
is being caused by short sellers covering their positions. The upmove is
unlikely to be sustained because new buyers are not entering the market.
- Open interest in a sideways market can suggest a breakout in either
direction.
- A rise in open interest in a falling market suggests that a
downtrend is in place. New money is entering the market through short sellers.
- When both open interest and prices are falling, this suggests that the
longs are closing out their positions, indicating a trend reversal and an upward
movement in price.
- Static open interest along with rising or falling
prices suggests a possible market top or bottom and trend reversal.
Volume is often used along with open interest. Volume refers
to the number of contracts that have to have been traded within a given session.
Volume precedes price. The higher the volume traded, the more likely a trend
will continue. Rising open interest confirms that new money is supporting the
prevailing trend.
Using volume and open interest together:
Price Open Interest Volume Forecast
Rising Up Up Bullish (trend
confirmation)
Rising Down Down Bearish (possible trend reversal)
Falling
Up Up Bearish (trend confirmation)
Falling Down Down Bullish (possible trend
reversal)

renu

Thank you renu daga ,
i have found this formula from net ,throw some light how to use
"Price-Voume-OI";

D=IIf(V>Ref(V,-1) AND C>Ref(C,-1) AND OI>Ref(OI,-1),5,
IIf(V<Ref(V,-1) AND C>Ref(C,-1) AND OI>Ref(OI,-1),4,
IIf(V<Ref(V,-1) AND C>Ref(C,-1) AND OI<Ref(OI,-1),3,
IIf(V>Ref(V,-1) AND C<Ref(C,-1) AND OI>Ref(OI,-1),0,
IIf(V<Ref(V,-1) AND C<Ref(C,-1) AND OI<Ref(OI,-1),2,1)))));

P=Param( "Periods", 5, 1, 200, 1 );

F1=EMA(D,5);
F=EMA(F1,P);

Plot(F,"P/V/OI",colorGreen,styleLine|styleThick);

Dear Casoni,

That's an afl which was posted by me. Unless I miss my guess it is probably from amibrokerfan . The afl in question has been further refined. Will post it here in it's new avatar if anybody wants it. Plot the afl and you will get an indicator which views the markets (as the name indicates) through the prism of price volume and open interest interaction. However like I said this is the old version. Didn't generate much enthusiam at the time as I recall because getting accurate OI data is always a bit of a problem.

Regards,

P.S - The only thing I require in return is feedback!

That is the Main Problem,after getting the code,everybody becomes silent,no feed back i have lots of semi /under developed ones,no one gave me any feed back.It is not humanly possible for 1 man to persue all aspects of a code.Before actual use so many facets are to be tested.
It actually is a team work,getting 1 code is never going to solve.

Mike, any thing in Metastock..... dont have Ami!!! The formula by Casoni, gave errors in metastock... cud be mistkaes by me while making the indicator.

Casoni, cud you create an indicator in meta with this formula... i cud not !!!

Dear rkkarnani,

Sorry, am an amibrokerfan therefore not conversant with metastock. Will post this indicator's updated version in a new thread. Not posting it here as the discussion generated would digress from the main purpose (VSA) of the thread. Would like to give an explanation on it's logic of construction and use so that similar indicators can be tried out (maybe in metastock format also). Therefore I request your patience till the weekend so that present paucity of time is no longer the stumbling block.

Regards,