VSA Trading Strategy

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VSA (Volume Spread Analysis) Trading Strategy

In this article, I am going to discuss VSA (Volume Spread Analysis) Trading Strategy in detail. Please read our previous article, where we discussed Spring and Upthrust Trading Strategy. At the end of this article, you will understand the following three VSA Trading strategies.

1. The Shakeout
2. Stop Hunting
3. Outside Reversal Pattern

Introduction to VSA trading strategy

Today we will discuss volume spread analysis intraday trading strategy. Basically, the volume spread analysis entry strategy is based on reversal trading. That means finding a turning point in a trend either

• Trend reversal or
• Pullback reversal

Today will discuss pullback reversal. I mean how to make a trade based on volume spread analysis in an existing trend

Note: – today we will discuss only finding an entry in an uptrend. Exact opposite of downtrend

Volume spread analysis that suggests a sign of the end of downtrend or end of the pullback in an exiting uptrend are

1. Selling climax
2. sopping out volume
3. End of a falling market

The above points are discussed in this article Volume Spread Analysis

4 step Process for Volume Spread Analysis (VSA Trading) Entry

1. Identify the trend
2. identify the sign of weakness in an exiting uptrend
3. Wait to test the weakness for confirmation of the continuation of the uptrend
4. Look for any bullish reversal candlestick pattern for entry

In our Previous article, we have discussed

1. First, identify the sign of weakness
2. Wait to test the weakness for confirmation of trend cont…

Today we will discuss

1. Look for any reversal candlestick pattern for entry

Bullish VOLUME PRICE SIGNAL CANDLESTICK PATTERN FOR ENTRY

1. OUTSIDE/ ENGULFING
2. STOP HUNTING
3. SHAKEOUT

Outside Reversal Pattern

We have discussed this article here .so please go through this article for more information

Outside Reversal Pattern

BULLISH OUTSIDE REVERSAL PATTERN STRUCTURE

1. The first candle is a narrow range candle or Doji
2. The second candle completely engulfs the first candle and closes above the first candle high.
3. The second candle is low below the first candle low, but the close must be above the first candle close and high above the previous candle high
4. The second candle should be accompanied by a high volume

Background:

The background is extremely important. You should see strength in the background. You should see strength in the background with stopping volume or a selling climax OR an end of a falling market

Stop hunting

Also called pin bar or spring or upthrust

Go through the below article for more information

Spring and Upthrust Trading Strategy

PIN BAR Trading Strategy

Logic

Smart money placed limit sell order above resistance and limit buy order below support to absorb panic buying or selling by retailers for breakout trading entry by placing stop loss buy order above resistance or stop loss sell order below support

Why do they do it?

The main objectives are:

1. To get volume
2. Avoid Slippage due to  big order
3. Smart money testing demand above old resistance before moving down or testing supply below support before moving up

Spring is an example of a “bear trap”. WHY? Because price drop below support appears to signal resumption of the downtrend. But In reality, the drop marks the end of the downtrend, thus “trapping” the late sellers or bears.

The strength of the sellers can be judged by the depth of the price drive to new lows below the support and the relative level of volume on that penetration.

A spring involves the penetration of a well-defined support level on low or moderate volume .think if a stock going to break the support, it must break with high volume. The spring action shows that the stock trying to break down and failed. It is an important sign of strength

Background:

The background is extremely important. You should see strength in the background. You should see strength in the background with stopping volume or a selling climax OR an end of a falling market

The Shakeout

As the name suggests shaking out weak holders in an existing uptrend shaking out weak buyers

CRITERIA for shakeout for long

• FAILURE TO FOLLOW THROUGH AFTER BREAKING a well-defined SUPPORT or resistance
• Widespread down closing on the middle or low of the candle
• Volume can be high or low.
• Engineered to catch stops and induce selling

WHY shakeout? FORM OF MANIPULATION

Let’s discuss an uptrend

• If this is seen in an uptrend it is a very strong buy opportunity. Think of Smart Money, they have to buy at lower prices and will do anything to get the price down to buy more of the instrument they are accumulating.
• Design to lock in weak shorts and shakeout early longs
• SHAKEOUT is a maneuver used to catch stops and trap breakout traders. It is often observed right before the market is about to take off in a particular direction.
• SHAKEOUT can be a sign of strength or a sign of weakness depending on the direction of the SHAKEOUT

Background:

The background is extremely important. You should see strength in the background. You should see strength in the background with stopping volume or a selling climax OR an end of a falling market

Future DIRECTION

A ‘Shakeout’ on low volume is really a violent test and has the same effect. It shows supply has disappeared and you would expect higher prices.

A ‘Shakeout’ on high volume shows demand was prepared to absorb the supply on that bar but they would likely want to test that supply in the future. Any low-volume testing back into the area of the Shakeout would be a strong SOS.

Where appear shakeout

1. In clear support or resistance level or
2. In a Well-defined trading range

Shorting AFTER you see a shakeout pattern

• In an existing uptrend, you can buy above the shakeout candle
• For trend reversal wait for no demand candle then buy above the candle

Please watch the following video if you want to learn and understand the VSA Trading Strategy concept in a better way.

In the next article, I am going to discuss the Option Chain Analysis in Trading. Here, in this article, I try to explain VSA (Volume Spread Analysis) Trading Strategy. I hope you enjoy this VSA (Volume Spread Analysis) Trading Strategies article. Please join my Telegram Channel and YouTube Channel as well as my Facebook Group to learn more and clear your doubts.