“Anyone who buys or sells stocks, bonds or commodities for profit – a speculator, but only if he enjoys the intellectual foresight. If he does so, he just plays games of chance. ”
Richard D. Vaykoff (Wyckoff), American pioneer of technical analysis of shares.
“The method of trade and investment in the Shares” Richard Vaykoffa passed through time, becoming a classic
His first job in 1888, at age 15, was distribute shares, rushing back and forth on Wall Street, delivering and exchanging securities and payments to brokerage firms. By 1898, he moved to the auditor’s another brokerage firm, and gave his first $ 1,000 of profit on the stock market, selling 300 shares of the company, which released a new product – pneumatic horse collar. The age of 25 he opened his own brokerage office.
As a broker, he saw behind the scenes game of large speculators, and understood “that there is an opportunity to assess the future course of the market for his own actions … that the actions of the shares reflects the plans and objectives of those who dominate them … that the basic law of supply and demand governs all changes in prices; that the best indicator of the future course of the market – the ratio of supply to demand. ”
Richard Vaykoff used the volume of transactions and price band to determine whether the model represents the accumulation or distribution, and then organize their market activity in the total sequence.
In the early 1900’s, he began to publish his research and advisory letters. He first published his method of technical analysis in 1908, and later, in the 1931st – and the related training course. His technique involved the use of histograms, noughts and crosses and wave charts for the analysis of market fluctuations. It was based on a simple approach of observation forces of supply and demand, in order to determine the direction of their changes, and attempts to identify markets with the highest immediate potential to most effectively use the capital trader.
The basis of demand and supply analysis is the study of individual bar chart and monitoring market reactions in relation to their volume, as well as the use of trend lines or support and resistance lines for tracking market movements. Hollows and peaks forming process, which Vaykoff connected several key concepts used by all swing traders. This is the “culmination of sales / purchases” (selling climax) and “secondary reaction” (secondary reaction).
The culmination of Sales – final panic dumping of shares, which snapped up a large number of speculators with common sense. The vertical graph index culmination Sales predicts sudden, unusually high volumes – the sellers desperate to get rid of the losses. The price range usually falls and expands, the closing price is getting closer and closer to the minimum of the day. Professionals come in the day, showing the large volume and closing price near the maximum
For sim should Technical Rally, often caused by short covering. Volume decreases and the price range is higher at the rally. The uninitiated it seems that the market soon turned into a bull. But in reality, the following secondary reaction will show where the market is going to run really, it will force buyers during the climax of Sales If customers during the peak did not intend to keep their purchases – maybe it was just interesting to try to support prices – that these actions market will be discarded from the first time – the usual technical rally. If this new proposal is too large to swallow his customers, the market reacts to price drop below the low of the day climax of Sales, and soon followed by a new fall
But if the market reacts to the rally shrinking the volume and prices, which remain at or above the low of the day culmination of Sales, this is a sign that the tumult of sales has stabilized, that the power purchase again comes to the market, and the rise in the offing.
An experienced analyst Vaykoffu who sees the culmination of sales as a combination of excessive volume and extremely low prices followed by rising prices and low volume, turn to the secondary reaction, as the foundation for the next forecast. If the price rollback resist higher minimum peak, it would indicate that the decline has reached bottom, and the final confirmation of an important reversal in prices will rise above the maximum of the Technical Rally.
The highest price rally – an important reference point, called the “point of resistance” because it is the most recent growth ceiling prices. His pair of – “point of support ‘- the most recent minimum market place where price stopped falling. Break a maximum – the point of resistance, or low – point of support, especially with the growing volume will be a strong pointer to future actions of the market.
Bull Market
During the climax of Sales usually start with three options for the purchase. The first – immediately after the climax, with a warrant stop-loss at two or three points under the purchase and a one – two points (or 0.75 – 1.5 per cent of the price) below the low of the day climax. Second chance to enter a long position – after the secondary reaction will show consumers the opportunity of growth – falling volume and prices above the minimum peak.
This type of reaction, it is believed, is expanding the “zone of support” and the index goes to “springboard”, ready for growth. Third, but the worst-case for purchase – the average peak, the highest price of the Technical Rally, a point of resistance. Here I have to buy is on the growth, rather than turning points, and the risk is significantly higher. Stop-loss should still be kept below the minimum climax and secondary reactions. These minimums may be tested several times before you start the bull market. However, a longer period of testing, the lateral movement increases the likelihood that the price movement would be significant.
The market has just begun to climb ripe for climax purchases and corrective fall. Key points here are: Daily highs, moving higher, but the buyer refuses to follow the price, the closing price only varies from one day to the next, but the incident indicates the amount of sagging demand. Like the climax of Sales, Purchases climax is characterized by sudden increase in volume. When the day a large volume
sets a new high, but closes near minimum, a correction will come soon.
When the price range begins to fall, analysts look for signs that the market will be able to get out of the corrective decline. The decrease in the declining prices – a bullish sign that the sellers do not have pressure on the market. When the session is closed for a correction about its maximum, it is a sign that the correction is almost over and there is a new opportunity for purchase. True bullish behavior resumed when the price ranges and closing prices are moving higher, accompanied by gradually increasing volume.
As soon as the closing price rise closer and closer to the last point of resistance, the natural reaction of the market is uncertainty. The index varies in a narrow range, absorbing the proposal anxious buyers, who bought near the top of the latest and now even trying to quit.
This absorption or accumulation can be distinguished from its opposite, the distribution process, with several factors: When the price reaches the lower end of the narrow range trading volume remains low, the lowest level trading range is less than halfway to the last point of support for the market and when lows again begin to move upwards, the volume consistently increased – the typical behavior at the end of accumulation period, before growth.
During the growth phase of code quickly, like a rocket increases the price and volume. After this steep rise, he may fluctuate in a narrow range. Again, look for lows, support area for this uncertainty and the reaction volume – are the keys to future events. If the volume decreases rapidly when the minima are falling, this indicates that the market is not ready to become a top-down, and soon a new growth occurs.
Long-term growth raises prices in proportion to the volume. If the price indicates a lower growth in the increasing volume, the market warned about the period of distribution. Rise seduced the crowd to buy, and large speculators can profitably sell, or distribute, their assets. Signal peak during the period of distribution – a sharp increase in the price and output, which warns that the foot should move up close to recent lows, preparing for the correction.
Correction
Reaction – the fall of range trading and closing prices, while the volume remains high, says that large speculators are still sold out, and supply exceeds demand. If the market has grown to such distribution, the correction can be serious and may be a reversal point.
Comparison of this behavior with the behavior in previous reactions gives us the prospect of supply and demand. It really approaching a significant reaction recalls a turning point, the time come to close all long positions and go short in the profit from the fall.
Vaykoff considers it necessary to liquidate investments and to stand by and let the market decide how serious move down. Even if the rollback will be temporary, he argues, its value can significantly damage the capital, and some transactions may, and does not recover. With increasing purchasing power can be opened again when the market will show a new bullish trend.
Just as the growing market for testing previous highs, falling market checks the previous lows, and decreases sharply towards the level of support, almost guaranteeing a future attempt to rise, as some buyers feel that stocks are cheap again, and bearish traders get out of their short positions.
The question in such cases is so – how much will rally? It is permanent or temporary? Large speculators can immediately release the code back to former highs, where they rasprodadut large volumes. They allow buyers to former highs tired to keep the losses, and then release the price – if you feel that the price can go much higher than the former level. They need a significant acceleration to ensure a return on the stocks that they would have to buy from someone who bought at the former highs.
Most likely, they will try to limit the rise in value enough to keep buyers of their initial sales of large volumes in a vise, to dissuade fans from short sales, while they sold more shares in the new, lower the rally. This kind of motion appears, if the index grows to about half of the previous move, but the volume is not increasing at the same rate as in the previous motion. This indicates that buyers are overcrowded, and large speculators are trying to bid Bida; rally exclusively technical, supply outstrips demand, and it is time to short positions.
Attempts to rise may continue, but after more than one period of the distribution of the index is likely to be in a critical situation. If only the invisible demand buyers will find wings, drop proportional distribution period, is inevitable.
Bear market
In the case of downward trend, we assume that the market is maturing and moving down the fall. The first attempt to find the bottom, called a “preliminary support” (preliminary support). In such a day will be observed a certain increase in the volume, and the market finds some support, or make short-term at least. This point can not be foreseen, could only watch as it happens or see a fait accompli. However, inside the channel downward trend should be a strong bullish recovery. After this first minimum fluctuation occurred and the market reacts to a slight increase, the declining trend restored and sweeps away the last long positions in peak sales. On this day there is a significant increase in volume and price range changes. If by the end of the day prices rise, it shows that the last long positions have been washed away.
The next is “auto rally” (automatic rally), relating mainly to the closing of short positions. In general, the volume while raising small. None of the major market participants or the institutional not yet offer significant long positions. For automatic rally should be a “secondary test” (secondary test). This re-testing the minimum level of peak sales. Typically, the market makes a higher low during this second test. After passing the second test, established a trading range, which can last for a sufficient time. The market eventually will show that he is ready to break out of this trading range, demonstrating a “sign of strength” (sign of strength). This is a strong push upward, showing increase in step-up momentum and is accompanied by an increase in volume. The reaction that follows this “sign of strength, often expressed in a simple side pause, marked, however, the decline in the volume and compression of the price range. This is called the “last point of support” (last point of support) and is the last chance to get on board before you start the trend. Fig. 3 shows the top “Sequence Vaykoffa, including A culmination of purchases; In-automatic reaction, C-secondary test; D-Breakthrough below support (which Vaykoff called ice) -” a sign of weakness “and E – Rally back to the” ice “, forming “bear flag”.
Two other models, described Vaykoffom, “spring” (Springs) and “push up” (upthrusts), also provide the swing trader to key points of support, as described testing or false breakouts that occur with fluctuations in the price of a trading range.
“Spring” occurs when the market breaks through support and then quickly restored. At the break there is little and the market is trying to shake off the weak long positions. Model “push up” occurs when the market is testing the upper level of trading range, but quickly meets oversupply. Each of these models means “rejecting the price” (price rejection) and provides an opportunity for short-term trading in the opposite direction. False breakout establishes well-defined level of risk, and in the general case, the market should move so as to test the opposite end of the trading range. Fig. 4 shows an example of “spring” (C) and pushes the top (A and B). These false breakouts lead to fluctuations in the opposite direction to the other end of the trading range. (Note that the points D and E – are good examples of “bull flag”).
After the big market move, comes a period of consolidation. Multiple “springs” (A, B, C and D) and the “bumps up” (E and F) form the potential for short-term trading, as shown in Fig. 5.
Vaykoff developed an index, consisting of five leading stocks, designed to be an early indication of reversal of market fluctuations. Shares in the index could be replaced by other securities, are active leaders in the appropriate time. He used the line graphs (also called wave charts) to determine the early reversal of the critical points of hesitation, because they help keep track of market response to pulses of purchases or sales. The theory was that the five leading papers must be the most sensitive. Length and time of each wave reveals the technical strength of buyers and sellers. Principles of evidence / not confirmed, were also used when comparing the index with the market leaders in general.
Vaykoff also put in its general methodology for the use of graphs “tic-tac-toe” to determine the possible length variations, in the case of a breakthrough market sidelines or graphic formations. While even a rough assessment of the potential swing or the target level was very useful, the real swing trader knows that the best method is to observe the price band and waiting for the moment when the schedule fluctuations show signs of a turn, instead of “scalp” a small profit, leaving deal too early.
Despite the fact that the analysis of short-term fluctuations are often used to identify a specific pricing model for trade is important to understand that the main effort Vaykoffa, above all, was the formulation of comprehensive approach to trade securities as a business as a whole. The main goal – the commission deals with the minimum of risk, using only the best conditions in the market, when all the favors the deal, and made a conscious decision about when to withdraw from this transaction. Avoiding large losses – is the guiding principle of swing trading. When in doubt, do not do anything. Learn to wait and watch.
Vaykoff was the first who seriously studied the behavior of seals within the zones (congestion areas), test purchases and sales, three-dimensional characteristics and searching for clues to identify potential reversal points. He also sought opportunities to respond to market fluctuations, in contrast to Shabakera, who often entered the market on the basis of identafikatsii breakthrough graphics formation. At that time, as measured by counting Shabaker aims of the movement in different price models, Vaykoff used schedule “tic-tac-toe” to determine the price targets fluctuations. However, while he urged the judge on the market to follow the market action, pricing band, and taking what the market itself is giving you.
Analysis by the method of VSA
Shopping tools: Various
Time range: –
Used indicators: the trend channel
Volume of transaction: –
Algorithm tactics:
The concept of the system.
Most traders analyze the market using two approaches: fundamental or technical analysis. Each approach can be used by various methods, but in general you can say that fundamental analysis explains why something happens in the market, while the purpose of technical analysis to answer the question as to when this will happen. But there is another approach to market analysis. It combines the best elements of fundamental and technical approaches, and this combination helps to simultaneously answer two questions: “Why?” And “when?”. This methodology is called “analysis of spreads volume» – volume spread analysis VSA.
In this article we will examine the basic principles of this method of analysis, we consider the history of its development, will tell about the markets and time ranges, in which it works, and, finally, give ideas about how it works.
What is VSA?
The purpose of this type of analysis to establish the causes of price movements. The reason is the same imbalance between supply and demand in the market, which is created by professional market operators. Who are these professional operators? In every business, where money is involved, have their own professionals. There are professionals who work in the field of selling cars, diamonds, works of art, and all they need to profit from their activities. Financial markets are no exception. Doctors – professionals, they specialize in only one area of medicine, as each has its own financial market professionals who specialize in particular instruments: stocks, grain futures, currencies.
The activities of these professionals, and, more importantly, their true intentions are clearly visible on the price chart, if the trader is able to correctly read it. VSA is based on the relationship of three variables on the chart to help determine the demand and supply, as well as possible short-term direction of the market. These variables are: 1) the volume of trading at this price bar, 2) price spread or range of bars (not to be confused with the bid / asks will apply), and 3) the closing price of the bar
These three variables allow an experienced player to clearly see which of the four phases is the market: in the accumulation phase (where the professionals are buying at wholesale prices), raise prices, distribution (the professionals sell at retail prices) or lower prices. Unfortunately, most amateur traders do not understand the meaning and importance of analysis by the method of VSA. Perhaps this is due to the fact that
on this type of analysis is very little information, and it is usually not included in training courses on trading. But try to interpret the price chart without volume, just like buying a car without a petrol tank. To learn how to analyze the data on volume, it must be remembered that the very volume histogram contains only part of the data you need. The second part contains the price chart – it’s about price spread at this bar.
The analysis gives an indication of market activity, while the corresponding price spread shows the price movement in this volume. Some technical indicators allow to combine the volume and price movement, but this approach has its limitations. From time to time the market goes up at a high level, but he can do the same and with a small volume. Prices can suddenly go sideways or fall with the same volume. However, there are other factors at the price chart. One of them is connected with the law of supply and demand. This analysis technique allows the VSA most obvious way to appreciate the imbalance of supply and demand in the market.
Long pedigree.
VSA is an improvement modification technique developed by Richard Vaykofom, who began his career as a stock trader at the age of 15 years. This happened in 1888. By 1911, Vaykoff began to publish weekly market forecasts, and soon reached the peak of popularity. According to rumors, he had more than 200,000 subscribers. In 1931 he published a book which was reprinted many times since then. Method Vaykoffa study the economic departments of universities. Vaykoff did not agree with those market analysts who traded on the graphic formations, determining buy and sell signals. He claimed that the technique of mathematical and mechanical analysis is much less effective than good training and assessment, and the market situation.
Tom Williams famous stock trader in the 60-70-ies in the past 15 years developing a theory Vaykoffa by adding a component of the price spread and its relationship with the volume, as well as the element’s closing price. Williams was in a unique situation that allowed him to develop his own methodology. He had the opportunity to observe the trading activity of the syndicate, in which he worked, and compare it with the price chart. As a result, he was able to bring a number of regularities. In 1993 Williams published his technique in a book called “Lords of markets.”
Universal approach.
Vaykoffa approach is universal and works on all markets. The same is true for technology VSA. It works on all markets and all price ranges, in which the trader is able to obtain data on the volume. In some markets there is a real traded volume, for example, when it comes to bidding on individual stocks in other markets, the trader can receive data by volume, based on the ticks, in the case, for example, about forex. Since forex is no centralized exchange, the real traded volume figures are not available, but this does not mean that the volume of trading in the currency market analysis available.
The volume provides information about the activity of market operators in each bar. If a large volume of trades, the trader can be confident that in this case, the market left large operator. If the volume is small – the transactions occur between retail traders and operators to operate in the market. For each scenario has its own signals of supply and demand, which help the trader to determine the direction of the market in the medium term. For forex we turn a little later.
Since VSA is a universal method, applicable to all markets, it is also well applicable for all time frames. Regardless of what the schedule used by traders – 3-minute or day or week – the principles of analysis remain the same. Of course, if the proposal is dominated by 3-minute chart, it means that the subsequent downward motion will be less significant than if we had recorded a similar increase in supply on the weekly chart. However, the result will be the same. With excess supply, the price will fall.
Why it works.
Every market is driven by forces of supply and demand: supply and demand of professional operators of professional operators. If the volume of purchases more than sales, the market moves up. If the sales volume of more purchases, the market moves down. Some think that all this is very simple, but really easy to hide behind this rather complicated factors. The main principle is correct, but the demand and supply operate in the market differently. For a market with a rising trend, the volume of purchases exceed sales, but the volume of purchases is not the most important factor in this background. For the rising market that it continues to go up to the absence of large volumes of sales (offers), which could severely hit the market. Only in this case, the market may continue its upward movement.
Most traders forget that a large amount of purchases had already occurred at the initial stage at lower prices, as part of the phase accumulation. A significant amount of purchases by professional operators in the graphs account for the descending bars with a large increase in volume. According to the principles of VSA market strength is determined by top-down bars, while its weakness ascending bars. Agree, this maxim is diametrically opposed to what most traders think about the markets. For the present downward trend must be a lack of buying (demand) to support prices. The only same players who are able to provide large volumes of purchases are professional
operators, but they have sold earlier at high prices during the phase distribution. Professionals are beginning to sell in the bottom-bar with a large increase in trading volume. As a result, the market turns around and goes down because the market is too small volume of purchases. Professional operators are buying on a downward market after the bad news. These bad news encourages herd to sell (almost always at a loss). Professional buying when the market goes down. So it was with the inception of markets, but retail traders simply can not grasp that fact until now.
VSA in action.
Let’s look at how the proposal begins to appear on the market, when the professionals are using growth rates for sales. Figure 2 shows the 30-minute schedule pair dollar / Swiss franc. The market went up until the bar chart does not appear, marked 1. Pay attention to how the increased volume at the bar. The price closed in mid-bar. This is a sure sign that the professionals came to the market and started selling. Trader must look at this bar. If growth of the volume of transactions it reflects the purchase, the price is not closed to the middle of the bar. Because professionals sell large volumes, it should sell for upward bars, when the herd is buying. Thus, they vparivayut your goods unsuspecting public. Very often something like this takes place on the good news, which seem to be bullish retail traders, opening long poiztsii on the market. When this happens, professional operators the opportunity for sales and the opening short positions, so that the market has not comprehended collapse
Well-trained trader understands that if the bar closes in the middle of a large volume of trades, this means that traders bullish, soon may not be losing side of the market. Remember how earlier we said that the professional operators “sell at retail prices, and buy for” wholesale ”
(distribution and accumulation). At the bar, marked by 2, we see how professionals continue to trade. Bar 3 closes lower, confirming a large volume of sales in the previous bars.
Do not be a part of the herd.
Let’s see what happens next. Professionals have sold their assets to the public, which they call “herd” or “weak players. As the price may continue to move up, if money is no longer supported by professionals upward movement, and when the market is no longer willing to buy? Since no one else is able to provide support for the movement of prices, it begins to fall (Figure 3). Again, remember our words: To present downtrend must be a lack of buying (demand) to support prices. The only same players who are able to provide large volumes of purchases are professional operators, but they have sold earlier at high prices during the phase distribution.
When the price drops low enough, the professionals are on the market and start to buy (at wholesale prices) in the “weak players, who are forced to sell with a noticeable loss. Thus, the cycle repeats. So work all markets! As professional operators work in all markets and all time ranges. We considered how the scheme operates on the 30-minute charts, but the situation on daily or weekly about the same. Likewise, this type of analysis is applicable not only to the forex, but all other markets.