Volume Spread Analysis | Share Market Learning Series | Technical Analysis | Price Action | Price pattern with volume

Volume Spread Analysis

Volume Spread Analysis is a type of technical analysis which uses candlestick patterns and volume to analysis instrument.

About VSA:

• Volume spread analysis (VSA) is a technical analysis that deals with the relationship between volume and the spread of a candlestick to identify market trends and trading opportunities: 
• VSA tries to establish cause of price movment, from the cause, we tries to predict future direction of instrument.
• Volume is the key indicator for the professional trader, Volume means activity going on in market.
• VSA emphasize on imbalances between supply & demand in market.
• VSA guides you to relate volume with price action.
• Most obvious statement about volume is "Market will move up when there is more buying than selling (Demand > Supply) and move down when there is more selling than buying (Supply > Demand).
• Price can move with less volume too, but that is due to "momentum" which cause movement even when the volume started to reduce.

Common Terminology:

• Price Spread

is the difference between the highest and lowest trading points reached during particular timeframe.

• Volume

Volume shows the activity of trading during a specific period. 

• Bullish Volume

is increasing volume on up moves and decreasing volume on down moves.

• Bearish Volume

is increasing volume on down moves and decreasing volume on up moves.

• Up bar

is price increasing on volume less thn previous two bars with narrwo spreads indicating no demand.

• Down bar

is price dropping on volume that is less than previous two bars, especially if spreads are narrow, with price closing in middle or high of bar, indicating no selling pressure.

 

Accumulation & Distribution:

Accumulation:

• Accumulation means buy as much of stocks, without significantly putting price up against your own buying, untill few or no more shares available at th price level u have been buying at.
• Accumulation happens usually happens after a bear move.
• Once most stock has been removed from hands of other traders in accumulation, there will be little or no stock left to sell into a mark-up in price (Which causes price to drop)
• Thus resistance to higher price has been removed.

Distribution:

• At potential top of bull market, professional sell stocks bought at lower levels.
• They place large orders to sell but at a specified price range which is called distribution.
• They have to accomplish selling without putting the price down against their own or other traders selling.
• Once this selling completes at higher prices, process of distribution is done.

Note:

• VSA: means looking at spread of candle & combining it with volume activity.
• Always do VSA with respect to the context (where we are in market).
• Significance of VSA reduces from higher timeframe to lower timeframe.

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