The ABC’s of VSA: Absorption Volume & Breakouts

By Lauren Snedeker

Today’s Objectives

Define and understand Absorption Volume

Confirming the Breakout Bar

Entering the Breakout Trade

Recognize a False Breakout

What is Absorption Volume?

• Let’s work backwards and review

what we know!

• Take out a pen and paper

and number it 1-5

• Is the sentence True or False?

If False, correct the answer. Ready??????

Quizeroo

1. Volume = the Supply in the market

2. Up Bars on Ultra Low Volume is the Climactic Action

3. The Smart Money sells in rising prices

4. A No Demand bar confirms rising prices

5. Support & Resistance should be ignored

Quiz Answers

1. Volume = the Supply in the market

True

2. Up Bars on Ultra Low Volume is the Climactic Action

False – Ultra High Volume

3. The Smart Money sells in rising prices

True

Quiz Answers Contd…

4. A No Demand bar confirms rising prices

False – No Supply

5. Support & Resistance should be ignored

False – observed

How did you do?????

Absorption Volume

Uptrend Wide Spread Up Bar Closes on the high Ultra High Volume Breaks through an old top to the left

The Exception Principle

What Absorption Volume means

• The Wide Spread Bar = Effort by the SM to push to price up

• The High Close = Interest or Demand for higher prices by the SM (vs an UpThrust)

• The Ultra High Volume = Supply being absorbed or bought or accumulated by the SM

• Must break through an old resistance area

• A genuine breakout is tested within 2 bars

Example 1: SPX 5 Minute

Example 2: ES 5 Minute

B – Test of Supply within 2 bars C – No Supply/Test D – Test

Example 2 - 700 Bar History

Example 3: ES 15 Minute

Example 3: 700 Bar History

Example 3: Support & Resistance

Entry Points

• A No Supply/Test in a Rising Market (uptrend)

• Enter above the high of the No Supply

• A Genuine Breakout is tested within 2 bars

• A down bar on volume lower than the previous 2 bars (pink in TG)

• Next bar closes up

False Breakout vs True Breakout

False Breakouts

False Breakouts Fail on No Demand – they go up on low volume and come right down

Upthrusts further confirm weakness

2 Bar Reversals or No Result after Effort – kill the momentum and stop the buying

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How to Reach Me

Direct Line: 312-373-6294 Email: lauren@tradeguider.com Skype: lauren13sned Facebook: Lauren Snedeker Twitter: @LaurenSnedeker