Beware the News

ALWAYS check when the News items are coming out.  You can do this by going to www.forexfactory.com and generally only take notice of the News items that have a high impact (coloured red).  I made the mistake today of not checking the News.  Take a look at the 10 minute chart of the Dow Jones below.  At Point A I went short (an upthrust).  However, at Point B the market turns around and we have what looks like a test/shakeout, so I get out.  The market then falls, to my annoyance, but on seeing the turn around at Point C (a down-bar, low volume, closing in the middle), I go long (buy), and make back my losses.  So ..... break even today too!

I then (obviously too late) checked the News, and there was News came out at 3pm - hence the confused signals.  If I had known News was coming out I would have been wary, and probably not entered the market until seeing a principle as a reaction to the News coming out - hence I would have saved myself the hassle.

When not to trade

Sometimes the market will go sideways, and even though you believe it to be weak or strong, if you enter a trade and nothing happens after 5 or so bars, then it is time to consider getting out.  I believed the market to be weak today at the market open, which, at the time of writing, appears to be the case.  But for most of the day it has gone sideways, then when it finally dropped, there was no clear evidence that it was going to do so at that time.

So no trades today.  I'm off to the supermarket.  Deep joy.  But I would not be surprised if I came back later to see there was an opportunity whilst I was out ..... happens so much!

Ignore the signals at your peril

Tom Williams often says "ignore the signals at your peril".  I did just that today and only managed to break even.  Below is a 15 minute chart of the Dow Jones, followed by a 10 minute chart.  If we focus on the 15 minute chart we see at Point A what we call preliminary buying.  As the market has fallen (and I was short at this point), high volume comes in, and the software has picked this up and given a green signal.  At Point B we see confirmation of this - a test/shakeout, at which point I closed out at took a 20 point loss.  However, on seeing the market's change of direction, I went long and closed out at a 20 point profit, so broke even overall.

Take a look at the second chart (10 minute), at Point A.  It was at this point that I closed out my second trade, and took my profit.  The bar at Point A has low volume (volume less than the previous two bars), as it approaches a resistance level (see the black line above).  Always be careful to watch what the market does at these levels of support or resistance.  If it approaches a resistance level on no demand (volume less than the previous two bars) then beware - this could be a sign that the market will turn around.  In fact, the next bar was down, but the bar after that continued up.  It can be annoying to watch the market go your way when you've closed out, but be happy with your profits.  There will always be another day.  It is caution and consistency that is the key to success.

Never try to tell the market what to do.  On my first trade I was convinced the market was bearish overall (by examining the daily chart), so even when signs of strength were coming in on the lower timeframes I chose to ignore them, thinking that the market will continue down.  The market may well be bearish, and finish down overall today, but in the meantime it will whipsaw, go up, down, sideways - this is how the professionals like to knock us out of the market.  So always beware, take notice of the signals, and use the utmost caution.

Trade the Trend

The chart below is a 10 minute chart of the Dow Jones.  Although the title of this post is 'Trade the trend', I saw an opportunity for a short position at Point C.  At Point A we see that the market has come up to a resistance level, marked R3.  My Tradeguider software makes it possible to put in support and resistance lines.  They are important levels.  Many traders use these levels, so they are significant and must not be ignored.  Watch the market as it approaches these levels.  If it is slow and approaches a resistance level on no demand (volume less than the previous two bars), as it has at Points B and C, then it is possible the price will fall in response.  Also, the bar at Point A has very high volume signifying possible selling by professional money, and hence a sign of weakness.

Now I say 'trade the trend', because the trend is very powerful.  Any trades against the trend (like I did today) are risky, and don't expect them to last long.  If the market is bullish then any down-moves might be small.  The power is in the trend.  However, as I was out this afternoon and looking for a trade in the evening I took this short position (sold) at Point C.

A lesson

Yesterday (Monday) I took a small loss - 10 points.  There is always a lesson to learn when this happens, and it's always tempting to walk off and try to forget what happened.  The best thing to do is to go back and look at what you did.  The chart below is a 5 minute chart of the Dow.  I saw a test in a rising market in this chart at Point A.  The market did not respond and instead went sideways, at which, at a 10 point loss I got out of the trade.  It turns out my analysis was correct - the market went up.  However, the lesson is - stick to your trading plan.  My plan says to trade on the 10 minute chart, and because I did not do this, and knowing this, I lost courage and closed out.  So stick to the trading plan, no matter how tempting it is to do the opposite!

Another good day

On looking at the daily chart it appears that we are back in the general down-trend, with this week's first two days being down-days.  So my overall analysis was that the market is still weak.  The market opened and went up at first on high volume.  The first chart below is the 30 minute chart of the Dow.  You see at Point A (the market open) we have high volume on an up-bar, signifying possible selling by professional money and hence possible lower prices.  But we want to see how the market reacts to this high volume.  And at Point B we see a down-bar, so we could call both these bars a top reversal, and a sign of weakness.  However, we want to see confirmation that the market is weak.  To myself, a top reversal is not sufficient confirmation to go short (sell).

In the second chart below, which is the 10 minute chart of the Dow (which I follow and make most of trades on), we see at Point A a no demand bar.  After the initial whipsawing at the market open, and high volume (weakness) we get, at Point A, a narrower spread up-bar on low volume (volume less than the previous two bars) - this is no demand, and the confirmation we are looking for to go short.  I went short at the close of this bar - and look at the powerful reaction (on the following bar) to this principle of no demand - a rapid down-bar.  I took 20 points profit.  Another good day.

The Upthrust

A very powerful sign of weakness, and usually a very reliable one too, is the Upthrust.  For an upthrust to be effective there must be weakness in the background.  Study the background of your chart - there must be weakness, ie. evidence of professional money selling, seen as very high volume or ultra-high volume on an up-bar.  Today the upthrust appeared, see chart below.  The upthrust is marked Point A.  It is a bar which has gone up only to fall and close on the low.  This is done to trick traders into thinking the price is going up, and to catch the stops of those who were short (selling).  The price shoots up, triggers lots of stops, knocking those traders out, and shoots down.  I went short (sold) at the close of the upthrust bar and took 20 points profit.  That's it for today.  Going out tonight.

This Week

This week we witnessed what we call a Shakeout on Wednesday, marked at Point A.  A shakeout is a very powerful sign of strength and usually signifies higher prices to come.   The chart below is a daily chart of the Dow Jones.  At Point A (the shakeout) the price shot down significantly during the day only to close on the high.  This is done deliberately to catch stops, to knock traders out of long trades, and to mislead traders into thinking the market is falling.  The following two bars, at Points B and C confirm this shakeout by being up-bars.  These bars have very narrow spreads and show not a great deal of enthusiasm for the upside.  However, Tom Williams (who I saw today) says that the shakeout is the strongest force and this is what influences his analysis that the market is bullish at the moment.  We will wait and see this week.  It is often common for the professional money to test the market on a Monday, which would look like a down-bar, narrow spread, with low volume, and would confirm higher prices for the week.  But this does not always happen.  Always be careful in thinking you can predict the market.  The market is designed to mislead you.  If I do not see a clear principle then I am happy to admit I do not know what the market is going to do!  It's better to be safe than sorry.

A very good day

There are two charts below.  The first chart is the 30 minute of the Dow Jones Industrial, and the second the 20 minute. (Sorry, you will have to scroll down to the second chart as I can't seem to get the charts close together). I could have used any of the 15 or 10 minute charts because they were also showing principles.

To take the 30 minute chart first.  Remember, we always look at the larger timeframes first to get an idea of the general market - weakness or strength.  At Point A we see a sign of weakness - supply coming in, shown by it being an up-bar with increased volume - professional money, at the market open, have driven the price up and sold to the herd.  At Point B we have confirmation of this as the bar is a rapid down-bar.  At this point we want confirmation that the market is weak, and we see this at Point C - the market has gone up (towards that resistance level marked R13026) on low volume - this is no demand - back up to that level.  However, the market, just to trick you, takes the price up at Point D (so the herd think prices are going up), but only for it to fall on the low (similar to what we call an 'upthrust' - also a sign of weakness).  At this point I'm getting excited.  But, being a careful person, I want further confirmation, which I see on Chart 2 - the 20 minute chart. At Point A there is no demand - the market has reached this level and there is little interest in higher prices at that resistance level.

Finally, you will see the market reaction - a rapid down-bar.  I went short (sold) at the close of the 20 minute no demand bar at Point A and took 54 points profit.

Finished for the day.  It is always good to finish 'up' so that you are confident to face tomorrow.  I believe psychology plays the biggest part in trading, and it is the hardest aspect to overcome/manage.  I will talk about this another time.

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Test in a rising market

The chart below is just a 2 minute chart of the Dow.  I've used this to show you a clear test in a rising market, which is a very powerful sign of strength, and I traded this and made 10 points.  Point A marks the test.  It is particularly powerful because a sign of weakness appeared on the previous bar, but was immediately tested (at Point A).  Professional money took the price down and found no interest in lower prices (seen by the very low volume), so there was only one way to go - up!

Frustrating

Today I took no trades.  I have to go out in a minute.  But 10 minutes before the market open I saw a lovely set-up, but because it was so close to market open I did not take it.  See chart below.  At Point A we have a sign of weakness - possible supply coming in, seen by the higher volume (it appears low, but remember this is Globex trading - out of hours trading - so the volume will be low compared to trading hours) - but we still have a sign of weakness.  At Point B we see that area tested, on low volume (volume less than the previous two bars).  This is no demand.  You can see the reaction to the no demand bar - a lovely down-bar.  If I'd taken this trade I would have done very well.

Trading can be frustrating at time.  We hesitate and miss trades.  But it's important to stick to your trading plan, that you know is reliable.

Thanksgiving in US

Not a great deal to report this week, only that I have not been able to trade due to plumbers and electricians invading the house, power on and off constantly, and Thanksgiving (a day off)!  I thought however, I'd show the daily chart of the Dow.  See below.  At Point A we see what looks like a 'spring' bar.  The bar before has a very narrow spread, and has closed in the middle.  A down-bar with a narrow spread closing in the middle, at the bottom of a trading range, could be strength, and this was confirmed by the following blue up-bar.  We see we have what looks like a bullish market at the moment, but there is little 'cause' at the bottom of the chart to fuel a large up-move.  But we will wait and see.  Point B is a test bar (very strong), but it is not all that obvious.  A nice clear test would be a down-bar, narrow spread, closing middle or high, and the volume less than the previous two.  However, this bar is still a test, even though it is an up-bar.  The reason is that most of the bar is below the close of the previous bar.  This means professional money drove the price down, only to find no sellers, which means the only way is up.  Note also that the volume is less than the previous two bars' volume.  This is essential for a proper test.  It is possible that the market will go up to that top trendline and bounce off back down.  But ...... we will wait and see what happens next week.

Some excellent opportunities

We are clearly in a bear market at the moment, and it is often easier to trade.  A bear market seems to move quicker than a bull market.  See chart below.  This is a 10 minute of the Dow Jones Industrial 30 future.  At Point A we see very high volume (seen at the bottom of the chart), which means weakness - professional money selling.  Professional money always sell on up-bars, and buy on down-bars.  This is very high volume on an up-bar, meaning they are selling.  The next bar does not look strong either as it does not seem to want to go up above the previous bar.  The next bar (red) confirms this.  If there was buying on the previous bar, this bar would not be down.  Our perfect entry point for a short trade is at Point B.  This is no demand, and proof the professional money are not interested in higher prices.  The bar has gone up, but the volume is low - less than the previous two bars.  I shorted at this point and followed the market down to take my 20 pips.  We had another opportunity at Point C (also no demand), where I shorted and took 20 more pips.  At this point I finished and closed down the computer to go out.  But I thought I'd show another principle which is another sign of a weak market - Point D - the Upthrust.  This is a very powerful VSA principle.  The market has gone up only to fall and close on the low.  This is done deliberately by the market makers to trick traders into buying (thinking it's going up), to catch stops (which those who are short have set) and hence knock them out of the market.  They then drive the market down.  The upthrust is a typical principle seen in a weak market, but it is only an upthrust if there is weakness in the background, ie. selling (high volume on up-bars) as opposed to buying (high volume on down-bars).  Before shorting an upthrust you must make absolutely sure the market is weak.  This would have been a great trade, if I'd been around, but I'm very happy with my two trades.

Why it's important to stick to your trading plan

You will always hear that a good trader has a trading plan.  A trading plan should be your 'Bible' or 'blueprint' for your trading - your personal strategy of how you will analyse the market and execute and manage your trades.

Your trading plan will specify what you are looking for before you take a trade, when you will take the trade, where you will put your stops, what your target is, how much money you will risk, and when you will get out of the trade.  Every trader has his/her own specific plan personal to them, because everybody has a different amount of capital to use, different levels of experience and confidence.  Different plans work for different traders.

So today I learnt my lesson again - stick to the trading plan.  It's very easy to get sucked into the market, and usually it's because we are afraid we will miss the move.  Part of my plan is AVOID TRADING AT THE MARKET OPEN.  The reason for this is that the market is too volatile, and even if we get our analysis right, the price movement is so large at the opening that it is easy to be stopped out.  This happened to me today.  I saw a clear sign of weakness just before the market opened, and on it opening I took a short trade.  It moved against me almost immediately and took me out at a 25 point loss.  However, not long after I saw confirmation of that weakness and took another short trade and made my money back with a little extra.  So today not much of a profit, and a lesson learnt.

So my analysis was right, but I did not stick to my plan.  Always be happy even if you finish the day having broken even.  It's better than being at a loss!

Test in a Rising Market

What a beautiful day for trading, and I did not have to sit at my desk long to see the perfect opportunity arise.  This principle is what is known as a test in a rising market - see chart below.  This is a 10 minute chart of the Dow Jones.  The market had already made quite a nice high, and at 3.10pm the test appeared (see Point A).  A test is when the professional money have driven the price down on the bar, found no interest in lower prices, only for the bar to close near the high.  It should ideally be a down-bar, and the volume must be clearly less than the volume on the previous two bars.  At the close of the bar at Point A I went long.  The price broke through the resistance level (Point B at the level of R1) at which point I took my 20 pips profit.

 Note:  It is essential that you wait for the close of the bar.  One minute before the close of Point A it looked particularly weak, as if it were to close at the very low, but at the last minute it closed near the high, giving a completely different picture.  I've seen this happen in all time frames, even hourly bars, so always be patient and wait for the close of the bar before you make your analysis.

Trading using Volume Spread Analysis

Hello,

I've been learning/practicing/losing/winning/crying/laughing/living/dying the stock market using Volume Spread Analysis (VSA) for about four years.  To anyone who is interested in taking up this profession I can say that I have looked around extensively at strategies and many ways of trading, and I can truthfully say that, whilst I would not say that VSA is the only way - I know there are many traders who are very successful using other methods - I know that VSA is the closest you will get to the market.

I spend quite a lot of time with Tom Williams, the inventor of VSA (based on the Wyckoff method), and can say I'm constantly learning from him.  Tom is an ex-syndicate trader who was based in the Beverley Hills back in the 1960s and he had the privilege of learning how the professional (BIG, BIG MONEY) players read the charts.  Tom is a very generous man, likes to help others, and brought his knowledge back to the UK where he programmed it into a piece of software (now known as Tradeguider), wrote a book, and continues to teach others.  Having the privilege of spending a lot of time with Tom has allowed me to pick up a lot of knowledge about the markets and how to read the charts successfully.

To those starting out, I would say that trading is probably one of the hardest professions in the world.  You not only have to learn how to read the charts, but you also have to manage your money, and most importantly - MANAGE YOUR EMOTIONS!  You have to deal with the way the market is manipulated and the tricks the smart money (professionals) use to make you believe your analysis is wrong.

If you want to be successful at trading the stock market using VSA, follow the following steps:-

1.  Read 'The Undeclared Secrets That Drive the Stock Market' by Tom Williams, available at www.geniechartist.com.
2.  Join the VSA Club, run by Tom and Tradeguider - at www.vsaclub.com
3.  Learn all the VSA principles, set up a demo account, and practice, practice, practice.

VSA works.  But you must be PATIENT, DISCIPLINED, AND ACCEPT TOTAL RESPONSIBILITY FOR YOUR ACTIONS - taking responsibility when losing as well as winning means you will learn much quicker and be successful.

As the blog develops I hope to be able to point out the VSA principles and how they work through my trades/charts.

Rita

Dow 8 Nov 2012

Today it was not obvious at all what the market was to do, as after yesterday’s down-day, the market seemed to go sideways until market open.  Upon the market open therefore, it was unclear but I sat and followed each timeframe.  Then at 15.20 my opportunity arose, just what I am looking for – no demand in the 10 minute timeframe.  See chart.  The market had opened at 14.30 only to go up on high volume, but it is important to be aware that this volume is high compared to previous volume because the previous volume is globex volume, so will be low.  After going up there was a top reversal, seen at Point A, followed by no demand (up-bar on volume less than the previous two) at Point B – this indicates that there is little interest in higher prices from the professional money.  It tried to go up, but the low volume (relative to the previous two bars) is low – coloured in pink by the software.  This principle is confirmation of the weakness seen previous (high volume on up-bar followed by a top reversal).  The market immediately reacts with a nice long down-bar.  I sold at Point B and took 20 pips profit.