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Volume Spread Analysis ( Part I): A New Way to Look at Markets

Larry Swing - Feb 6, 2008

What is a spread? In VSA, a spread is the distance between the bar’s high and the low within a timeframe being analyzed. Normally,
a set of bars are analyzed against one another for comparison. If a bar has a large spread, it usually provides clues to the smart
money’s buying or selling. On the same note, a small spread next to these large spread bars give hints to the smart money’s
willingness to hold or exit their current positions. Grouping several bars together provide a bigger picture of the possible intentions of
the specialists, market makers and insiders.

Here are the basic rules on analysis:

1. Increased volume on up-moves indicates bullish smart money and increased volume on down-moves indicate bearish smart
money. This is common sense; higher prices are pushed by buying volume. Prices moving higher without increased volume show no
interest from specialists, institutions or smart money.
2. Decreased volume on down-moves indicates lack of supply and decreasing volume on up-moves indicates lack of demand.
Lower prices are helped by selling volume. Lack of volume while prices are moving down shows supply is decreasing. Smart money,
institutions, and specialists are not participating.
3. If there is a bar with a wide spread (lengthy high and low) accompanied by high volume, this bar is analyzed to find how much of
the possible smart money is in the volume of this bar.

Figure 1 Wide Range Bars

4. If the following bar closes below the previous bar’s close but in the middle or higher of its own bar, then smart money has been
detected.
5. Extremely high volume is considered a negative not a positive to the advancement of the trend. Looking at opening gaps as an
example. These gap bars with high volume are well over 5 to 10 to 20 times greater than their average daily volume and are
considered unhealthy trend. The move should have steady high volume, not explosive volume.

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Volume Spread Analysis ( Part I): A New Way to Look at Markets http://www.mrswing.com/artman/publish/printer_4214.shtml

Figure 2 Extreme Volume

6. While the opening is not important the close is extremely important. This shows how important shadows are in VSA.

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Volume Spread Analysis ( Part I): A New Way to Look at Markets http://www.mrswing.com/artman/publish/printer_4214.shtml

Figure 3 Long Shadows

7. When the bar has a small spread, volume plays an important role in determining supply or demand. This is an early indication if
the thrust of the previous bars (with large spreads) will have follow-through or not. If the bar closes in the middle or on the opposite
side of where thrust, then there is the possibility the top or bottom is near.

Figure 4 Narrow Range Bars

8. The test is by far the most important part of VSA, a revisit near the lows or the range off the lows hint at where the smart
money may want to be, up or down.

The next article will go into further details with examples on how VSA is applied.

© Copyright 2008 by MrSwing.com

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Volume Spread Analysis (Part 2) http://www.mrswing.com/artman/publish/printer_4478.shtml

From MrSwing.com

Volume Spread Analysis (Part 2)

Larry Swing - Feb 8, 2008

As for the identifying tops, just the opposite applies. YHOO has been moving higher on steady volume. Then it topped off with a
higher volume than any recent days (bar with green arrow). So far it was a normal day. What is important was the following day (bar
with blue arrow) where the high was higher than the previous bar, but it closed at the low end of the bar on higher volume than the
previous day. This indicated there was more selling than buying. By seeing higher volume than the previous day, it shows the
sentiment is changing, either by the smart money or participants who previously have not taken are now coming in to close their
positions.

Figure 3

As for results in the following days show, although the volume subsided, the prices have already begun moving down. A test is
normally used to find out if there is any more demand (or supply on downtrends). This is usually smart money (specialists or market
makers) that will move the prices up to find out if more orders coming in to push it up further. When smart money move it near the
highs and don’t see more orders (low volume), they usually enter in the opposite direction and push it down to get others to join in and
push it even further.

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Volume Spread Analysis (Part 2) http://www.mrswing.com/artman/publish/printer_4478.shtml

Figure 4

The chart above shows the test (bar with red arrow). Prices were pushed back toward the high (green arrow) on low volume
indicating there were no more buying orders coming in. This gave smart money the opportunity to push prices down without buying
resistance. The next few bars show the snowball effect: by pushing prices down, they got the others to join in as well.

As the charts show, sometimes just by observing bar ranges and bar closes with volume can tell a lot what smart money is doing and
not doing; all this without other indicators. Sometimes keeping it simple can bring a lot more value. With time and close observation,
VSA can prove to be an invaluable method in tracking what the smart money is doing.

© Copyright 2008 by MrSwing.com

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Volume Spread Analysis with Candlesticks (part 3) http://www.mrswing.com/artman/publish/printer_4546.shtml

From MrSwing.com

Volume Spread Analysis with Candlesticks (part 3)

Larry Swing - Feb 16, 2008

Hammer – These two names are the same but on the opposite ends of the trend. The hammer is found at the bottom of a downtrend
while the hanging man is found at the top of an uptrend. The shadow is usually twice as long as the body and the body is usually on
top of the shadow (below the shadow for the hanging man). The closing price can be above or below the opening price.

Figure 3 A hammer appeared with the gap on high volume. The low was made that day.

Shooting Star – In a bullish uptrend, this bar is seen as a possible reversal, normally accompanied by high volume. The body is usually
half the size of the shadow. The shadow means that the buying and selling were equal measure, indicating that the bulls are in no
better strength than the bears. The selling are drawing more participants in, closing below the opening.

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Volume Spread Analysis with Candlesticks (part 3) http://www.mrswing.com/artman/publish/printer_4546.shtml

Figure 4 Example of a shooting star, part of VSA where the new high is made on low volume.

Although candlesticks are extremely helpful, VSA adds an extra dimension to it, involving volume to confirm what has already been
taught. VSA and candlesticks confirm each other’s meanings can bring very powerful signals to watch for reversals and take
appropriate actions. Unusually high volume usually appears during trend changes, it is no surprise that these are periods where the
media usually mentions volume.

© Copyright 2008 by MrSwing.com

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