Volume Spread Analysis Improved With Wyckoff 2.0

By: readtheticker | Wed, Jul 13, 2011
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Tom Williams

We are great fans of Tom Williams and his two books ('Master the Markets'* and 'The Undeclared Secret that Drive the Stock Market'*) in which he discusses his adaptation of Richard Wyckoff methodology. Tom Williams named his approach the 'Volume Spread Analysis' or 'VSA' and it is based on the bar by bar study of volume (or relative volume), the close and the range of the bar (high less low) to judge the contest between demand and supply.

Wyckoff 2.0 and Volume Spread Analysis

There is a high correlation with VSA and Richard Wyckoff's bar by bar determination, many of the definitions are the same yet the name may differ.

*Note: See our education page for details.

Wyckoff Accumulation Phase Chart

Wyckoff Accumulation Phase Chart

For example:

VSA Definitions Wyckoff Defintions
  Tests
Failed Test
Shakeouts
No demand
No Supply
Stopping volume
Pushing through supply
Upthrust
Selling Climax
Buying climax
Climactic action
Support
Resistance
Trap up/down move
No result after strong effort
Selling/buying pressure
Bottom reversal
End of a rising market
Bag Holding
  Automatic rally
Buying Climax
Backing upto ice
Breaking the ice
Backup to edge of creek
Critical support (creek)
First time over ice
Critical resistance (ice)
Jumping across the creek (or JOC)
Last point of Support (Demand)
Last point of Supply
Mark down
Mark up
Preliminary support (Demand)
Preliminary supply
Sign of strength
Sign of weakness
Secondary test
Terminal shake out (Spring)
Terminal thrust
Up thrust after distributuon
Selling Climax
Trading Range
Up thrust
Reference: Master the Markets Reference: Richard Wyckoff method

 

Wyckoff definitions are designed and named in a manner to support the Wyckoff 9 trading rules through the trading range phases A to E, where as Williams definitions are designed to cover all the bar by bar action no matter the phase. We like both. Both are designed to help judge the contest between supply and demand.

Both Wyckoff and Tom Williams adhere to the importance of market phases ([re]accumulation, [re]distribution, mark up, mark down), but we feel the Wyckoff definitions are tailor made to determine the change over from (re) accumulation to mark up or (re) distribution to mark down more so than Tom Willams defintions, the reader may think this is splitting hairs, but we think this is the case as Tom Williams in his books do not present his definitions in the framework of Wyckoff trading range phases A to E with the 9 Wyckoff trading rules.

Tom Williams VSA trading setups are designed around the Wyckoff phases known as 'Signs of Weakness' (SOW) or 'Signs of strength' (SOS). As these phases are an important part of the Wyckoff trading range D and E phase, (Reminder: Wyckoff D and E phase are the price break out phases) we feel that the VSA setups are best executed only when the pure mark up (or down) phase has been clearly established.

A VSA 'Sign of Weakness' (SOW) setup would consist of a pattern of 3 to 20 bars that include any combination of the following VSA bar types: Buying climax, No Demand, Suppy overcoming demand, Up Thrusts, End of a Rising Market, Top Reversal, Failed Test.

A VSA 'Sign of Strength' (SOS) setup would consist of a pattern of 3 to 20 bars that include any combination of the following VSA bar types: Selling Climax, No Supply, Demand overcoming supply, Test, Two bar reversal, Shakeout, Test of supply after Shakeout, Bag Holding, Test of a Break Out.

In summary our view for better success with VSA trading setups:

1) VSA Sign of Weakness (SOW) setups: Are best executed when a pure mark down phase has been confirmed. Wyckoff 2.0 requires that price be underneath the Gann Angle 1x2 (preferred) or 1x1 and it is best that price is below broken support for a pure mark down phase to present. See the red shade area in the first image above.

2) VSA Sign of Strength (SOS) setups: Are best executed when a pure mark up phase has been confirmed. Wyckoff 2.0 requires that price be above the Gann Angle 1x2 (preferred) or 1x1 and it is best that price is above broken resistance for a pure mark up phase to present. See the blue shade area in the first image above.

When either a pure mark up or down phase can not be established then the phase may either be accumulation or distribution and this market phase was considered by Richard Wyckoff as an unattractive market phase to profit. We also hold this view and we also feel VSA traders should as well.

The reader may be very confused with all the lingo and definitions, after you read the material behind the subject matters the confusion will be removed.

We would also like to bring to the attention of the reader that from out post Wyckoff 2.0 vs Others that everything works when the chart is nice and pretty, and a chart is always very pretty when either pure mark up or down is clearly established.

 


Reading References:
Wyckoff 2.0
Richard Wyckoff method
Master the Markets
The Undeclared Secret that Drive the Stock Market

 


 

readtheticker

Author: readtheticker

readtheticker
www.readtheticker.com/
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We are financial market enthusiasts using methods expressed by the Gann, Hurst and Wyckoff with a few of our own proprietary tools. Readtheticker.com provides online stock and index charts with commentary. We are not brokers, bankers, financial planners, hedge fund traders or investment advisors, we are private investors.

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