This lesson will introduce you to Volume Spread Analysis
(VSA). This is the final analysis that removes the seeming randomness from the markets.
Volume Spread Analysis
is the study of the market forces of Supply and Demand
and the manipulation of those forces through the psychology of crowd behavior
. When you gain an understanding of supply and demand and how crowd behavior works you will see that price is not random.
Volume Spread Analysis is the result of Tom Williams
experience and discoveries applied to Richard Wyckoff's Methods
. Richard Wyckoff's Methods are based on his extensive experience and studies which rely heavily on Jesse Livermore's
(The Reminiscences of A Stock Operator
) discoveries. These three traders came to understand the underlying mechanics of the markets and developed methods to trade them and, later, to teach others how to trade effectively.
Jesse Livermore, aka; the Boy Plunger, discovered how the markets are manipulated and developed methods to profit from these manipulations. Richard Wyckoff codified Livermore's discoveries and methods and applied them to Chart Reading
. Tom Williams added Volume Spread Analysis to Wyckoff's work to reveal the specific tactics used to manipulate crowd behavior and expose the footprints of the Smart Money
In the final analysis, VSA uses three components on the chart to determine the balance of supply and demand as well as the probable near term direction of the market. These components are the amount of volume
affecting the price, the price spread
or range of the price (not the bid/ask spread), and where price closes
. VSA analyses volume and what the price did as a result and relative to the preceding bars on a chart.
But there is much more involved in how and why price moves:
There are periods of consolidation when supply and demand in a market is in relative equilibrium and trending periods when the market is in a phase of accumulation or distribution and the forces of supply and demand are out of balance. It is during these phases of accumulation or distribution that the markets are purposefully manipulated.
In the two lessons in the next module, The Players
, you will learn who is doing the manipulating, and who is being manipulated and how.
Links to Help You Learn More About Volume Spread Analysis
Volume Spread Analysis ( VSA)
Rediscover the Lost Art of Chart Reading: Using Volume Spread Analysis
Volume Spread Analysis With Videos