Market Manipulation Rigged Markets Smart Money

Market Manipulation Rigged Markets Smart Money

volume spread analysis

Wyckoff’s chart-based methodology rests on three fundamental “laws” that affect many aspects of analysis. According to the VSA method, if spread size is average and the size of the volume bar is greater or lesser than average, then there is smart money in simple words. A low volume indicates that smart money is not interested in buying anymore. High Volume means big traders are selling to retail traders by buying. Whereas the three Wyckoff laws provide a big-picture foundation for the Wyckoff method, the nine buying and selling tests are a set of narrower, specific principles to help guide trade entry.

volume spread analysis

Although the market reversed downwards eventually, the stopping volume offered a well-timed bullish entry. Following its signal to take on a bullish position, there was ample profit potential. This is a simple cycle, and it continues on all timeframes. Now I will explain to use volume and Spread to identify accumulation and distribution in the market to capture the mark-up or markdown phase.

Market phases in volume spread analysis

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VSA looks at the interrelationship between three variables on the chart in order to determine the balance of supply and demand as well as the probable near term direction of the market. These variables are the amount of volume on a price bar, the price spread or range of that bar (do not confuse this with the bid/ask spread), and the closing price on the spread of that bar. For the correct analysis of volume, one needs to realize that the recorded volume information contains only half of the meaning required to arrive at a correct analysis. The other half of the meaning is found in the price range.

Example #3: Sideways Price Action

These simple examples belie the extent of the subtleties and nuances of such analysis. Although this article focuses exclusively on stocks, Wyckoff’s methods can be applied to any freely-traded market in which large institutional traders operate, including commodities, bonds and currencies. The law of supply and demand determines price direction. This principle is central to Wyckoff’s method of trading and investing. When demand is greater than supply, prices rise, and when supply is greater than demand, prices fall. The trader/analyst can study the balance between supply and demand by comparing price and volume bars.

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Also, at this phase, the insiders have already moved the price from the wholesale price to their target retail level. After this test of demand is complete, they start a new wave of selling pushing the price lower. They test because they don’t want to continue buying and then be met with a new wave of selling from retail investors. In testing, the insiders start a minor selling campaign where they sell low volumes of the assets with the aim of creating demand and moving the price up. Volume Spread Analysis is one of the most important concepts of technical analysis. This concept has been clarified by Dr Alexander Elder, one of the biggest developers of technical tools and authoring a number of top-selling financial books.

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However, the optimal approach depends on how you define this volume pattern and the context in which it appears. It will draw real-time zones that show you where the price is likely to test in the future. Video 2 – The importance of identifying climactic volume spikes before a trade set up.

If the volume is unexpectedly higher than all the other volume bars (at least the last 61 bars) then it will be considered as a very High Volume bar. It reveals a lot of information regarding the activity of professional traders. Volume spread analysis or VSA trading is a technical analysis method that is used to forecast price by using volume in forex or stocks trading.

What is Stopping Volume in Volume Spread Analysis (VSA)?

It is the close study of the reactions of these specialists, market makers,  professionals, or  “Smart Money‘’which will enlighten you to future market behaviour. Wyckoff developed a uniquely effective method to identify price targets for both long and short trades using Point and Figure (P&F) charts. Mr. Wyckoff observed numerous retail investors being repeatedly fleeced. His time-tested insights are as valid today as they were when first articulated.

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Analyzing volume, or price for that matter, is something that cannot be broken down into simple mathematical formulae. Without proper logic, you will not be able to forecast properly and can win a few trades, but you will fail in the long run. The volume spread analysis method gives us the way to read the method of market makers. If the price is in a bearish trend then big players have already sold from higher price, and it will continue until markdown phase completion. After the markdown phase, the accumulation phase starts, now big players are buying at wholesale rate. In the distribution phase, big players will sell at higher retail prices.

Nine Buying/Selling Tests

Due to this difference, they lend themselves to varied interpretations. Reviewing all of them will give you a rounded sense of the different scenarios involving this powerful bullish pattern. It is not the original volume like in stocks because of a decentralized system. Let’s talk about the four phases of a bullish trend reversal. In Volume Spread Analysis, the price goes through four phases. Simply means a trend reversal in price occurs through four phases.

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