VSA analysis: who inherited here?
We are looking for major players and traps in the market by analyzing volumes and spreads
Each trader has his own path. You do not have to think about the question of why price movements occur, catch the signals of the trading system and ultimately come to purchase or to create robots. Which are deprived of emotions, and the keys are pressed faster than a person. However, if every bank, hedge fund or other major player used exclusively automated trading, then such a profession as an asset manager would cease to exist. In the meantime, these people live, feel good financially and try to better understand the market. Not so easy? Difficult! But the game is worth the candle!
In order to understand the system, you need to decompose it into parts. In this regard, the use of indicators seems to be a road to nowhere. Averaged indicators distance us from solving the main problem – understanding the nature of the movement of elements. On the contrary, the pairwise analysis seems to be the right decision. And if earlier in my blog I operated solely on prices, now they will also add volume. Its value reflects the interest of investors in this instrument. It can be ordinary (medium), low, high and very high. The range from minimum to maximum in the VSA analysis is usually called a spread, and depending on the location of the closing price, an up-bar or down-bar is allocated. It is also important in which part of the spread the trading day closes.
Basic concepts of VSA analysis
The simplest technique for using VSA analysis is to search for anomalies. When the market moves at medium volumes, it looks natural. As soon as there is a low or, on the contrary, excessively high interest of investors in an asset, it’s time to think about why? The impressive volume in a trending market allows you to find the footprint of a major player, which is guided by the principle ” when everyone buys, a good time comes to sell .” Low volume is a trap signal. Demand for the asset is sluggish, there is a check for serious opponents. If they are not there, then the price will most likely go in the direction opposite to the current closing.
Daily Volume Analysis USD / CAD
On the daily USD / CAD chart, in the conditions of a pronounced bullish trend, an excessively high volume arose at bar No. 1. This is an up-bar with a close near the middle of the trading range. Quite possibly, we found a large seller. In the near future, he will begin to test the strength of his opponents. Low volume at bar # 2 with a close up signals a bullish trap. A favorable situation is developing for a U-turn, and our main task is to jump into the same boat with a huge “bear”.
Work strategy based on VSA analysis on a USD / CAD chart
A pending sell order is set at the minimum of trap bar No. 2. A protective stop is at the peak of the recent price swing. In the future, as USD / CAD quotes fall, it shifts down, which allows us to realize the principle of ” keep losses low and let profit grow .”
The same thing happens on the daily AUD / USD chart in a downtrend. Due to its substantial volume, a large buyer was seen at bar No. 1. Bar No. 2 is characterized by a low interest in sales, which allows us to talk about a “bear trap”. The return of the pair quotes to its maximum serves as the basis for the formation of long positions.
Strategy based on VSA analysis on the AUD / USD chart
VSA analysis is multifaceted; it includes a wide range of tools used to allow a trader to take a step towards understanding the nature of price fluctuations. We will continue this discussion in subsequent articles.