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What is Volume Spread Analysis? : ( HEMANT )
| From : Hemant Parikh at 11:00 AM - Jan 26, 2012 (28 days ago) |
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. There are professional car dealers, diamond merchants and art dealers as well as many others in unrelated industries. All of these professionals have one thing in mind; they need to make a profit from a price difference to stay in business. The financial markets are no different. Doctors are collectively known as professionals, but they specialize in certain areas of medicine; the financial markets have professionals that specialize in certain instruments as well: stocks, grains, forex, etc.
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 and the closing price on the spread of that bar .
With these three pieces of information a properly trained trader will clearly see if 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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Thanks for the information Hemant Ji.
Friends, you may check the link below to see the video on this wonderful strategy :-
http://www.informedtrades.com/blogs/magic/684-review-volume-spread-analysis-videos.html
Dear Hemant Ji,
plz give an example of VSA so that all of us us could understand and use the same in our trading.
.thanks & regards.
Spread analysis has lost its steam in todays world of DERIVATIVEs which are traded using computer algorithms.
It works best during low volatility and investing days which were prior to 2008 and somewhat during 2010 when VIX was low.
awesome sir.
thanx bolke thak jayenge hum.. but aap mat thakna...
God bless u
thnaks very informative.
as always.
best of luck for u r bright future.
Always you are really very helpful by providing informative articles.
Tnx,
Sakthi
Hello Hemanth Sir
Very good and useful articals from you, continue the same
hemachand thalla
Sir,
Thank you.
Valuable piece of Information.
Can you add examples to the above discussion,
to help understanding better.(Nifty futures Movement)
Thanks in advance
Excellent piece of knowledge Spreading is none other than HEMANTH BHAI.
An Honest man wants more and more people learn.
Regards
Hemnat bhai u spread good knowledge. thanks sirji.
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