Volume Spread Analysis

So what if you dont want to use Order Flow to time your trades? Well I have another trump card, Volume Spread Analysis [VSA]. VSA charts are simple bar charts with the VSA rules as propounded by the legendary syndicate trader Tom Williams are plotted on. I have shared the Amibroker AFL for the same in the resources section below.

So read on to know more about this fantastic timing tool…..

Volume Spread Analysis Explained

VSA is volume spread analysis. The name suggests that it incorporates inputs from volume traded, spread or range of the bar and finally the close of that bar relative to previous bar. Based on this information the legendary syndicate trader Late Tom Williams designed this incredible trading system. His objective was to match the smart money trading in the markets. According to him smart money has inside information, better resources and greater market understanding. Common wisdom suggests that high volume on a move is good, and points towards continuation. But VSA system looks at other factors such as range and the position of the close to determine the truth.

Volume Spread Analysis Rules

Based on the volume, spread or range of the bar and the close, Tom Williams devised a number of rules. Each rule pertains to a certain condition and tells us some valuable piece of information. We can trade with ease using that information. The whole objective is to determine which side the smart money is trading from. These rules when programmed into a technical analysis software can give signals directly on the chart. We can trade with ease using such signals. Please click here to check out the Amibroker AFL.

Volume Spread Analysis Indicator / System

It is always a good idea if you can use certain level of automation in your trading and analysis. Keeping this in mind I have programmed the most useful signals into Amibroker using AFL.  This program plots the signals directly on the chart to help you read the markets at lightening speed. To make it more useful I have also included volume profile as well as VWAP. Using these two indicators along with VSA I can incorporate auction market theory principles into it. This gives a multi dimensional approach to trading. And it is essential when you are trading a volatile instrument such as Nifty Share Price.

Volume Spread Analysis Made Simple

This system has been complicated by some traders and hence traders avid it. On some occasions it has been simplified beyond necessity, and projected as a buy sell system. But it is neither of the two. The programming automates just the rules of VSA, but not the interpretation or decision making. As I reiterate it during my market profile videos the importance of context, it applies here too. And that is why I have incorporated volume profile into VSA to give the analysis some depth of context. This integration has made it easy for traders to make sense of the VSA signals and put each and every signal in proper context. Check out the chart below where I have applied Volume Profile, VWAP and VSA to Nifty Share Price.

Volume Spread Analysis

Volume Spread Analysis & Wyckoff

Richard Wyckoff has been one of the pioneers in identifying the market cycle phases. There is R N Elliott who also have proposed the wave structure of market development. What sets Richard Wyckoff apart is his work on the the accumulation and distribution patterns. His analysis was the first to focus on the actions of smart money, people with capital as well as the knowledge of the markets and sometimes exclusive information. His accumulation and distribution schematics have provided an insight into the mechanics of the the big traders. Tom Williams another legend brought Wyckoff Trading Method on smallest of time frames. Thanks to these two legends we can use VSA which is based on Wyckoff Trading Method as a great timing tool in the market. After all what is all the analysis worth if you cannot convert it into profitable trades.

VSA Resources

Forum: Traders Laboratory 

Forum: Forex Factory

Amibroker AFL (Please Share To Unlock This AFL)

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Volume Spread Analysis with Volume Profile

Color Coded Volume Indicator


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