Volume Spread Analysis (VSA)

What it is

Volume Spread Analysis comes from Tom Williams, a former syndicate trader, in his book Master the Markets. It builds on Wyckoff and reads three things on every bar: volume, the spread (high to low) and where the bar closed.

Some of its signals: no demand is an up bar with a narrow spread on volume lower than the two bars before it, showing buyers aren't interested. No supply is the down-bar mirror. Stopping volume is very heavy volume on down bars in a fall, with closes off the lows, as large buyers absorb the selling. An upthrust is a wide up bar that closes on its low on high volume. A test is a dip into an area of earlier heavy selling on low volume that closes up.

It needs real volume. On futures it uses exchange volume; on spot forex and CFDs only tick volume is available, so the signals are weaker.

How to spot it

• Compare each bar's volume with the previous two or three.
• Look at where it closed within its range, not just its colour.

How to use it

• Use no demand in a downtrend's rallies as a reason to look for shorts, and no supply in an uptrend's dips for longs.
• Use stopping volume as a warning that a fall may be ending.

Common mistakes

• Judging one bar alone, without the trend and the background.
• Trusting forex tick volume as much as exchange volume.

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