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Learn to trade Forex using VSA

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Old 12-08-2009, 12:01
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Default Learn to trade Forex using VSA

Hello, I'm an avid trader of forex and I've been trading forex using VSA or volume spread analysis. I have a huge user following on FF where I originally introduced the VSA. I learned this method from Tom Williams who originated the VSA method. I'll be posting information gather from my other threads and posting it here.
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Old 12-08-2009, 12:04
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Default Learn to Trade using VSA (Volume Spread Analysis)

Most traders are aware of the two widely known approaches used to analyze a market, fundamental analysis and technical analysis. Many different methods can be used in each approach, but generally speaking fundamental analysis is concerned with the question of why something in the market will happen, and technical analysis attempts to answer the question of when something will happen.

There is, however, a third approach to analyzing a market. It combines the best of both fundamental and technical analysis into a singular approach that answers both questions of “why” and “when” simultaneously; this methodology is called volume spread analysis. The focus of this article is to introduce this methodology to the trading community, to outline its history, to define the markets and timeframes it works in, and to describe why it works so well.

What is Volume Spread Analysis?
Volume spread analysis (VSA) seeks to establish the cause of price movements. The “cause” is quite simply the imbalance between supply and demand in the market, which is created by the activity of professional operators (smart money). Who are these professional operators? In any business where there is money involved and profits to make, there are professionals.

The activity of these professional operators, and more important, their true intentions, are clearly shown on a price chart if the trader knows how to read them. 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

The market is in one of four market phases: accumulation (think of it as professional buying at wholesale prices), mark-up, distribution (professional selling at retail prices) or mark-down. The significance and importance of volume appears little understood by most non-professional traders. Perhaps this is because there is very little information and limited teaching available on this vital part of chart analysis. To interpret a price chart without volume is similar to buying an automobile without a gasoline tank. 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 spread (range).

Volume always indicates the amount of activity going on, and the corresponding price spread shows the price movement on that volume. Some technical indicators attempt to combine volume and price movements together, but this approach has its limitations; at times the market will go up on high volume, but it can do exactly the same thing on low volume. Prices can suddenly go sideways, or even fall off, on exactly the same volume! So there are obviously other factors at work on a price chart. One is the law of supply and demand. This is what VSA identifies so clearly on a chart: An imbalance of supply and the market has to fall; an imbalance of demand and the market has to rise.
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Old 12-08-2009, 12:06
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Default Following the Smart Money Using VSA

To simplify, trading I use a technique called VSA. Which analyzes the volume,spread and price action to determine entry and exit points. Volume in itself is rarely utilized b/c most volume in the Forex markets is tick volume.However, it is still useful when applying this strategy. When analyzing a pair for potential entry you want to ensure that you look for several steps before entering the trade.

1. What phase is the market in? Markets move in phases. The basic phasing of the market is accumulation, markup, distribution, and mark-down. A basic way to think about this is that the market moves from consolidation phases with low volatility to trending phases with high volatility. This simpler way of thinking is often useful because accumulation and distribution can be hard to identify. Use a 60-minute or 180-minute chart to determine phases. Do this the night before so you are prepared for the next day. Is it trending or consolidating, or has it just broken out of a consolidation? Note trend lines and trend channels, as well as important points of S/R and overbought/oversold areas. These are places trades often set up. Knowing the phase and the market structure (S/R, trend lines, etc.) is a part of knowing the background.

2. What is the background on the current chart? Look for spikes in volume, wide spread bars with closes in the middle. This is the ideal key to current background conditions and what we look for in finding reliable VSA setups.
You may not see this on the current chart, however, so you look for other background conditions. Is the market making higher highs and higher lows? Was there an impulse move to the downside and the current rally is on
receding volume? Is the current chart range-bound? Phase and Background are always the first considerations when reading a chart. Now we can get to the current bars.

3. What is the relative volume on this and the last several bars? Note that we first focus on volume, not the price bar. Compare the volume to the prior bars. Is it higher, lower or about the same? You are looking at activity here.
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Old 12-08-2009, 12:08
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Default Examples of VSA

Here are some live trading examples of VSA or volume spread analysis in action Trading Volume Spread Analysis - Videos
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Old 02-03-2010, 10:08
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Volume Spread Analysis uniquely analyses "activity" on each bar (volume) and analyses what the closing price did as a result. Because 95% of the activity is the professional "Smart Money" Trading Syndicates, this expert system can identify what stance they are taking in the market, ie: buying, selling or not participating. The methodology has been used by the professional trading community since the early 1900's. TradeGuider has computerized it and brought it to the wider market, so retail traders can now even the odds.
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