Volume Spread Analysis in Trading

 VSA only gives Entry and exist point on any stock, but volume price
action gives better understanding where it is good to take action on
certain point.

MARKET STRUCTURE With Respect to Volume Spread Analysis

Let us understand bullish trend formation. The bearish trend turned
into the bullish trend
Price goes through 4 phases. These are
Phase A. Stopping the previous bearish trend
Phase B. Construction of the cause (accumulation). Buy volume thorai
huncha but Sell Volume also decrease hudai janch.
Phase C. Test for confirmation (testing supply after accumulation). Sell
volume thorai la decrease hudai jancha tara buy volume dherai la increase
hudai jancha
Phase D. Bullish Trend out of range.

How to analyze volume activity in the chart

1. Through volume price action(VPA) = wave or trend Analysis
2. Through volume spread analysis (VSA) = Single candle analysis (It
provided pinpoint from where price will turn. It develop by analyzing
volume and bar graph but we use candle )
  Let’s understand how to differentiate different types of
volumes like
1. Average volume
2. Below average volume
3. High volume
4. Ultra-high volume
Now we have four types of volume. Let’s find out in the chart
Volume always moves in a cycle.
Rule -: You can visually compare Mountain Peaks to identify volume peaks
structure. The key is to understand the structure of the peak clearly. Volume
peak has the following characteristics:
Rising Volume — Peak (Highest Point)— Falling Volume

Average and Above Average Volume: Above Average Volume is the

Highest Volume in the current session which is higher than the average
volume but it is lower than the previous peak Volume. Average Volume is
the volume that coincides with Moving Average 20 of the volume indicator
High volume and Ultra-high volume: high volume is volume equal to the
previous pick volume. Ultra-High Volume is the Highest Volume in the
current session. It is higher than the previous peak volume.
Bearish and Bullish Volume
Bearish Volume is marked in Red, and it shows bearish activity. Bullish
Volume is marked in green, and it shows bullish activity. If demand volume is
greater than supply volume then overall bullish volume
VOLUME SPREAD ANALYSIS (VSA) in Trading
In volume spread analysis few facts which we are required for chart analysis.
These facts are:
1. price movement,
2. volume (the strength of the trading)
3. the relationships between price movement and volume (harmony or
divergence)
 4. the time required for all the movements to run their respective action
Components of volume Spread Analysis:
1. The Volume (i.e. activity),
2. The Spread (i.e. range of the price bar)
3. The Close (the closing price of the current bar)
Spread: Spread is the difference between the Opening and closing of the
price. See the diagram below for further illustration.
Volume: Volume is the activity of the frequency of transaction of the price
change during a specified period of time.
Close: Close price tells us where the balance point is at the end of the
period.

Upside move with respect to volume

1. Smart money has no interest in the upside – Low volume.
2. Smart money is selling into the public buying – Higher volume.
Fig 1
Harmony= Big spread of candle with avg volume (MA20) then trend continue
DIVERGENCE
Case 1 = Big spread of candle with below avg volume (MA20). No smart
money active means then is no smart seller trend will likely to reverse ( kati
below hunu parcha)
Case2= Big spread of candle with Ultra high volume (MA20).Smart money
active means Smart buyer market order hit so trend will reverse ( No big
buyer will purchase in market rate they put limit in certain point if price hit
then point they will buy it (( kati high hunu parcha)

FIG 2
Harmony=Small spread of candle with below avg volume (MA20) then trend
continue
DIVERGENCE= Small spread of candle with Above avg volume (MA20) then
trend reverse

Fig 3

Harmony= Pin bar candle with avg volume Or High volume (MA20) then
trend continue
HARMONY= Small spread of candle with Above avg volume (MA20) then
trend continue

SIGN OF STRENGTH BASED ON VOLUME SPREAD ANALYSIS

Re call the market structure that we have discussed above
Sign of strength means. The stopping action of the downtrend
Phase A. Stopping the previous bearish trend (the sign of strength)
Again recall the volume interpretation
• Smart money has no interest in the upside – Low volume.
• Smart money is selling into the public buying – Higher volume.
 The ultra-high volume-the classic trap of “Smart Money
Now we have found two important rules for volume spread analysis
 Rule Number 1-‐ Weakness appears on an Up candle. Supply
when it comes, it comes on an up candle.
 Rule Number 2-‐ Strength Appears on a Down candle. Demand
when it comes, it comes on a down candle.
Some volume spread analysis that suggests the end of the downtrend. These
are
1. Selling climax
2. Stopping volume
3. End of falling market
Now we will discuss these 3 pointers
What is a selling climax?
This condition marks the end of the approaching end of a particular
downtrend. This panic selling by retailers (or the public) creates an extreme
expansion of the price spread and an expansion of the volume, this action
may occur over one day or over several days which is matched by buying
(demand) of:
1. experienced smart money
2. large interests
The classic characteristics of a selling climax:
 There must be a trend to reverse. (after a significant extended down
move on the time frame of interest )
 The trend will accelerate to the downside with wide spreads down
closing in the middle or high
 Volume expands dramatically
 Often occurs one more than one bar
 Must be tested for entry
A selling climax is generally followed by a secondary reaction why?
Two possible outcomes after selling climax
1. Either the professional money is BUYING into the SELLING [see the end
of a DOWN market].
2. There is a trading range OR technical support level to the left and.
(trend continuation)
Let’s first understand for a trend continuation after selling the
climax
If buying during the Selling Climax was principally for the purpose of
supporting prices temporarily and checking a panic or relieving a panicky
situation, this support stock will continue after a technical bounce from
support. If price supply sufficiently to drive prices through the lows of the
climax day and bring about a new decline, that is, a resumption of
liquidation.
Trend reversal after selling climax
After a technical rally, if prices test climax low with volume decreasing and
hold around or above the climax lows, then we have an indication of support
and the completion of liquidation. This tells us that there is no selling
pressure or no Supply, (i.e. no more sellers) an obvious conclusion that the
market is going to rally as shown on the right side of the image
If the ‘test’ is successful, we can expect higher prices, especially if the test is
on low volume and narrow spread down bar into the same area where you
first saw the very high volume. This is a strong BUY signal.
Time To Buy The Market AFTER TEST
1. Look for selling climax
2. Wait for the successful test(lower volume and narrower spread)OF
selling climax day low
3. Any reversal candlestick pattern(like engulfing or outside bar or pin
bar)
4. Buy above that candle
5. STOP LOSS below the low
Stopping volume
What is stopping volume?
 To stop a down move and demand must overcome the supply
 It is the volume of smart money coming into the market and stopping it
from falling further
 What is happening is that the weight of the selling pressure has
become so great at this point, that even the smart money moving into
the market has the insufficient muscle to stop the market from falling
in one session. It takes two or three sessions for the brakes to be
applied and is like our tanker.
Characteristics of stopping volume
 Demand overcoming supply
 Occur after an extended down move
 Volume expand significantly
 Bar close-mid or high and body narrow (lower shadow)
 Often occurs one more than one bar. The first bar close may be low
2nd bar close-mid or high

Two possible outcomes after seeing stopping volume

If the volume had represented SELLING, how can the spread be narrow?
There are only two possible outcomes for a narrow spread DOWN-day on
very high volume.
1. Either the professional money is BUYING into the SELLING [see the end
of a DOWN market].
2. There is a trading range to the left and the professional money is
prepared to absorb the buying from traders from the support region.
Trend continuation after seeing stopping volume
This topic will be covered in the next separate article
Trend reversal after seeing stopping volume
After seeing the stopping volume. If the ‘test’ is successful, we can expect
higher prices, especially if the test is on low volume and narrow spread down
bar into the same area where you first saw the very high volume. This is a
strong BUY signal.
How to trade after seeing stopping volume?
Time To Buy The Market AFTER TEST
1. If the day closes on the lows, you now have to wait to see what
happens the next day.
2. If the next day is level or up, this must surely show buying on the
previous day as well.
3. wait for the market to come back down into the area of stopping
volume on LOW VOLUME narrower spread
4. The time to buy the market is when we begin to trend up As the trend
begins. Any reversal candlestick pattern (like engulfing or outside bar
or pin bar). This shows us that there are no sellers or no Supply
 5. Buy above that candle
6. STOP LOSS below the low

Finding Entry Opportunity using Volume Spread Analysis in Trading

In this article, I am going to discuss Finding Entry Opportunities using
Volume Spread Analysis in Trading. Please read our previous article,
where we discussed Volume Spread Analysis in detail. At the end of this
article, you will understand the following pointers.
1. Finding support and resistance based on volume spread
analysis
2. Testing (most important concept of volume spread analysis)
3. Entry opportunity based on testing
Finding Support and Resistance
Risk to reward is favored when we trade from support or resistance
level. Generally, trade entry types are
1. Reversal from support or resistance zone
2. Pullback entry after some retracement
3. Breakout of support and resistance
SUPPORT
Support as the “buying, actual or potential, sufficient in DEMAND to halt a
downtrend in prices for an appreciable period.” and possibly reverse it, start
prices moving up again
RESISTANCE
Resistance is the selling, actual or potential, insufficient supply to keep
prices from rising for a time. and possibly turn back, its uptrend
How to find support and resistance zone?
 Rejection from an area
 Flipping zone
 Fibonacci retracement
These are the Support and Resistance zone from where we have to find
opportunities for trading. Generally, trade entry types are
1. Reversal from support or resistance zone
2. Pullback entry after some retracement
3. Breakout of support and resistance
So the support and resistance for day trading is
 Weak Highs/Lows.
 Previous Day’s High/Low
 Day high or low
Testing
The most important concept of volume spread analysis
What is testing?
 The test is required to confirm a trend
 Usually, a successful test tells you that the market is ready to move
immediately, while a higher volume test usually results in a temporary
move and will be a re-test of the same price area again at a later time.
 Important support and resistance points for testing include Weak
Highs/Lows. Previous Day’s High/Low and day high / low
Why do we place such importance on this action?
Let’s discussed an uptrend (all concepts opposite to downtrend)
The test is employed to make sure that all the selling (supply) pressure has
been absorbed in the accumulation phase, and this is done with a test of
supply.
Many times, smart money is just testing the strength of either buyers or
sellers. Usually above or below important reference points. As smart money
doesn’t want 2 things to happen
1. If they don’t find any supply below or demand above an important
reference then they are confident to move the prices in the opposite
direction of the test.
2. But if they do find it, then they usually follow through and test the next
reference for the same
Our entry decision is to depend open the test
So our entry decision is to depend open the test from this support and
resistance zone
 Rejection from an area
 Flipping zone
 Fibonacci retracement
TESTING SUPPLY (Opposite of Demand)
Rule: Too much supply the market will fall, if there is no more supply the
market must go up
Testing types (DEPEND OPEN THE SUPPORT AND RESISTANCE ZONE
TYPE)
1. Test in a Rising Market – Test in an up-trending market (trending )
2. Test after Temporary Weakness – Also seen in an up-trending market –
(PULLBACK)
3. Test into an area of High Supply – Testing into the area of Stopping
Volume or Selling Climax (reversal or absorption)
Test variation
 Single candle test
 Swing test
SINGLE CANDLE TEST
Testing supply in an uptrend
Characteristics
 In a bullish trending market
 A down bar, on reduced volume and narrow spread
 The key is the volume. It should be less than the previous candle
 Closes can be on the highs, but better when in the middle or near the
high
 A successful low volume test tells you that the market is ready to rise
immediately
Fig 1
Case 1= Market is trending because of 2 green candle with high volume and
red candle with low(smart money want to test whether there is any supply)
Case2= Market is trending because of 2 green candle with high volume and
red candle with High volume( smart money will try to remove supply so
market will go down)
Entry after seeing no supply candle in an uptrend
 No Supply candle means that there is a lack of supply and demand is
overpowering supply causing the price to rise in the future.
 Please note that the No Supply candle is a continuation signal, not a
reversal signal.
 The background is important here, this is only an entry to the long side
if you have strength in the background, not weakness means if it
appears after bullish momentum
1. Since we have the Bullish momentum. We can go long during an
uptrend whenever no Supply Signal appears
2. When you see No Supply with climactic action in the
background this indicates higher prices so enter a buy order
above the high of the no supply candle
SWING TEST FOR REVERSAL
When the market is testing supply any down-move dipping into an area or
price range where there was previous high volume (previous selling), which
then returns to close on, or near the high, on lower volume, is a clear signal
to expect higher prices immediately. This is a successful test. Lower volume
depicts that the amount of trading that took place on the mark-down was
reduced, that now there is less selling when previously there had been a lot
of selling. At this point, it is now important to see how the market- reacts to
the strength seen in the testing.

Characteristic of SWING testing candle

1. A down bar, on reduced volume and narrow spread
2. The key is the volume. It should be less than the previous two bars
3. Closes can be on the lows, but better when in the middle or near the
high
4. Follows a Sign of Strength (selling climax or stopping volume)
ENTRY AFTER SEEING SWING TEST
YOU MUST have strength in the background, such as stopping volume or
selling climax. Place a stop under the low of the climactic bar and place a
buy order above the test bar. A test can fail and you can re-test an area
several times before the market moves up, so placing an order above the
test lets the market come to you. If the test fails you are not in the position.
Results based on testing volume
 LOW VOLUME TEST
 HIGH VOLUME TEST
If there is still too much supply a test can fail and if you see a failed test in a
weak market it confirms that the market will continue to fall.
If the stock recovers to the high and the volume is low it would mean that
there was no supply. If the volume is high and if the price fails to recover it
would mean that there is still supply present.
Low volume test
When the market is testing supply any down move dipping into an area or
price range where there was previous high volume (previous selling ), which
then returns to close on, or near the high, on lower volume, is a clear signal
to expect higher prices immediately. This is a successful test.
Lower volume depicts that the amount of trading that took place on the
mark-down was reduced, that now there is less selling when previously there
had been a lot of selling. At this point, it is now important to see how the
market- reacts to the strength seen in the testing.
With the test now confirmed the insiders can move the market higher to the
target distribution level, confident that all the old selling has now been
absorbed
What price action should follow after a successful test?
If you are in a bearish market, you may see at times, what appears to be a
successful test. However, if the market does not respond to what is normally
an indication of strength after a successful test, then this shows further
weakness.
Any testing that does not respond immediately with higher prices, or
certainly during the next candle or so, can be considered an indication of
weakness. If it were a true sign of strength, the smart money would have
stepped in and would be buying the market – the result of this smart money
support would be the beginnings of an upward trending market. The
specialist or smart money is never going to fight the market. If in the smart
money view, the market is still weak these days, he will withdraw from
trading. The market will then be reluctant to go up, even if it looks as if it
should go up because there was little or no selling on the ‘test’ candle
High volume test
However, what if the test fails and instead of low volume appearing there is
high volume, which is a problem? This has resulted in sellers returning in
large numbers and forcing the price to lower.
While a higher volume test usually results in a temporary move and will be a
re-test of the same price area again at a later time. This action sometimes
results in a “W/M” pattern. This volume price action is sometimes referred to
as a “double bottom (W)/double top (M)”. The “W” shape volume price action
results from the action of re-testing an area that had too much supply
before. Vice versa for the “M” pattern
 SUMMARY VOLUME SPREAD ANALYSIS
(VSA) IN TRADING

 VSA ONLY GIVES ENTRY AND EXIST POINT ON ANY STOCK, BUT VOLUME
PRICE ACTION GIVES BETTER UNDERSTANDING WHERE IT IS RIGHT OR
WRONG TO TAKE ACTION ON CERTAIN POINT.
 UNDERSTAND BULLISH TREND FORMATION (THE BEARISH
TREND TURNED INTO THE BULLISH TREND)
 Price goes through 4 phases. These are
Phase A. Stopping the previous bearish trend
Phase B. Construction of the cause (accumulation). Buy
volume thorai huncha but Sell Volume also decrease hudai
janch.
Phase C. Test for confirmation (testing supply after
accumulation). Sell volume thorai la decrease hudai jancha
tara buy volume dherai la increase hudai jancha
Phase D. Bullish Trend out of range.

 HOW TO ANALYZE VOLUME ACTIVITY

I. Through volume price action(VPA) = wave or trend Analysis
II. Through volume spread analysis (VSA) = Single candle analysis (It
provided pinpoint from where price will turn. It develop by
analyzing volume and bar graph but we use candle)

 HOW TO DIFFERENTIATE DIFFERENT TYPES OF VOLUMES

1.Average volume
2.Below average volume
3.High volume
4.Ultra-high volume
NOTES:
 AVERAGE VOLUME IS THE VOLUME THAT COINCIDES WITH MOVING
AVERAGE 20 OF THE VOLUME INDICATOR
 ABOVE AVERAGE VOLUME IS THE HIGHEST VOLUME IN THE
CURRENT SESSION WHICH IS HIGHER THAN THE AVERAGE VOLUME
BUT IT IS LOWER THAN THE PREVIOUS PEAK VOLUME.
 HIGH VOLUME HIGH VOLUME IS VOLUME EQUAL TO THE PREVIOUS
PICK VOLUME.
 ULTRA-HIGH VOLUME IS THE HIGHEST VOLUME IN THE CURRENT
SESSION. IT IS HIGHER THAN THE PREVIOUS PEAK VOLUME.
 BELOW AVERAGE VOLUME: BELOW 20 MOVING AVERAGE

 VSA PROVIDE SINGLE CANDLE ANALYSIS BUT PRICE VOLUME PROVIDE

MARKET ANALYSIS ( WAVE ANALTYSIS)

Bearish and Bullish Volume

 VOLUME SPREAD ANALYSIS (VSA) in Trading
 IN VOLUME SPREAD ANALYSIS A FEW FACTS WHICH WE ARE REQUIRED
FOR CHART ANALYSIS. THESE FACTS ARE:
 PRICE MOVEMENT,
 VOLUME (THE STRENGTH OF THE TRADING)
 THE RELATIONSHIPS BETWEEN PRICE MOVEMENT AND
VOLUME (HARMONY OR DIVERGENCE)
 THE TIME REQUIRED FOR ALL THE MOVEMENTS TO
RUN THEIR RESPECTIVE ACTION

o Components of volume Spread Analysis:

 The Volume (i.e., activity),
 The Spread (i.e., range of the price bar)
 The Close (the closing price of the current bar)
 NOTES:
 Spread: Spread is the difference between the Opening and closing of
the price. See the diagram below for further illustration.
 Volume: Volume is the activity of the frequency of transaction of the
price change during a specified period of time.
 Close: Close price tells us where the balance point is at the end of the
period.
Fig 1
Harmony= Big spread of candle with avg volume (MA20) then trend continue
DIVERGENCE
Case 1 = Big spread of candle with below avg volume (MA20). No smart
money active means then is no smart seller trend will likely to reverse ( kati
below hunu parcha)
Case2= Big spread of candle with Ultra high volume (MA20).Smart money
active means Smart buyer market order hit so trend will reverse ( No big
buyer will purchase in market rate they put limit in certain point if price hit
then point they will buy it (( kati high hunu parcha)

FIG 2
Harmony=Small spread of candle with below avg volume (MA20) then trend
continue
DIVERGENCE= Small spread of candle with Above avg volume (MA20) then
trend reverse

Fig 3

Harmony= Pin bar candle with avg volume Or High volume (MA20) then
trend continue
HARMONY= Small spread of candle with Above avg volume (MA20) then
trend continue