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Crowd Behavior

In this lesson you will learn how the marketrs aremanipulated through some simple, yet extremely powerful,

psychological factors.

People come to the markets hoping to catch some "easy

money" or to "get rich quick". Sometimes it takes a lot of

money, but it doesn't take much time to nd out how wrong

they are. !rowd behaior can help you a great deal in

understanding how the markets really work. #he markets

trade on the sentiment of the crowd and the crowd's

sentiments are based on emotions. In the nal analysis,

people trade based on one emotion$ fear. #he markets

manipulate this emotion.

The term Collective Behavior refers to social processes

and events which do not reect existing social structure(laws, conventions, and institutions), but which emerge in a

"spontaneous" way...Collective behavior, a third form of

action, taes place when norms are absent or unclear, or

when they contradict each other.

The crowd, or herd, or retail trader, has exhibited

behaviours that have proven to be consistent over time.

!rom the above deniton of Collective #ehavior, these

behaviours can be boiled down to two primary reactions to

maret changes$ one is spontaneity, which is better dened

as panic, and the other is confusion. #oth are derivitives of

fear and the product of being uninformed about the most

important underlying process of maret dynamics %

psychology.

%&ikiooks(

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)reed leads to price chasing and oer*trading. #he crowdsees the market making a large moe and they panic,

fearing they will miss out on some quick, easy prots. +s a

group, they usually pull the trigger ust as price has reached

the top or bottom. #hen they are confused why this keeps

happening to them. #hey wait, watching the market moe

swiftly the other way and ump in again. -r, after suering

as losses mount, they get out only to see the market

suddenly turn back, making gains in the direction they ust

exited and leaing them een more confused.

&hat is being referred to by "the !rowd" is the largest

group of traders and, as a group they make decisions based

on emotions. +s a group they possess the greatest amount of

capital /liquidity0 in the markets and are the easy pickings

for the professional group we'll be dening later as Smart1oney /S10.

&hen comparing indiidual professionals to indiiduals in

the crowd, the professionals hae relatiely enormous funds

at their disposal. &hen comparing groups, the crowd has the

greater amount of funds by far. #rying to control a market

on a dollar for dollar basis would be futile for theprofessional. #hey don't hae enough money to control a

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market, but they do hae enough to cause psychological

reactions in the crowd.

+nyone who is confused as to how the markets work is easilymanipulated. !onfusion feeds fear and fear breeds panic.

2ear comes in two forms$ the fear of losing money and the

fear of missing out on a big moe /greed0. #his works in

eery scale and time frame.

!harles 1ackay's famous book, &xtraordinary 'opular

elusions and the adness of Crowds, is a collection of

stories about crowd behaior in the market place. #he

stories can be seen working on charts eeryday. +n enduring

bull market leads the crowd to beliee the trend cannot end.

Such optimistic thinking leads the crowd to oerextend itself

in acquiring the obect of the mania. 3entually, fear takes

hold when they start to reali4e the market is not as strong as

they thought. Ineitably the market collapses and the fear

turns to panic.

#his is the nature of the crowd$ a collection of usually calm,

rational indiiduals getting oerwhelmed by emotions. #hose

who study human behaior hae repeatedly found that the

fear of missing an opportunity for prots and the fear of

great loses easily outweight rational behaior. +t its

fundamental leel, these fears consistently oerwhelm the

crowd.

"Perhaps neer before or since hae so many people taken

the measure of economic prospects and found them so

faourable as in the two days following the #hursday %56th

-ctober 7858( disaster". 9.:.)albraith * The *reat Crash

+-. ;oweer, "-n 1onday the real disaster began".

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#he disaster of 7858 continued down, then up< horror, then

hope, then horror, for = months. It sunk the bulls, the

speculators, the bottom shers, the momentum trackers, the

chartists, the alue inestors * eeryone. >irtually no*onewho had eer been inoled in the markets came out of the

other side with any money at all.

It is crowd psychology that forms the basis of professional

manipulation$ selling when the crowd is buying and buying

when they are selling. Professional manipulation could not

work if the eicient market hypothesis were true, since

prices would only be determined by fundamentals.

#his1atter.com, in an article about market sentiment,

describes it like this$

To explain these maret dynamics, the maret is conectured

to be primarily composed of - groups$ informed players and

the much larger group of uninformed players. The informedplayer is considered to be the professional, who understands

the valuation of assets according to fundamentals, but the

uninformed players have little or no understanding of asset

valuation, and, thus, is not a factor in their buying and

selling decisions.

There are also li/uidity players, who are maret participants

that buy or sell, not because of maret forecasts, but

because of organi0ational obectives or because they need

the money, as when a pension fund needs to mae payments

to retirees or a mutual fund needs to sell to pay for

redemptions, 1owever, li/uidity players are not thought to

have a signicant e2ect on prices most of the time, because

their actions, motivated by individual needs, are not

concerted.

http://thismatter.com/

http://thismatter.com/

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3ince the uninformed masses are a much larger group, they

also have more money, and, thus, are a more important

determinant of maret prices. 1ence, because maretsentiment seems to be more important in the pricing of

securities than fundamentals, a trader who accurately

forecasts maret sentiment will be more successful than one

who only considers fundamentals. 4n this way, even informed

players are swayed by the crowds.

+s you can see, crowd behaior is no secret to the

professional trader. #he crowd still reacts to the market

based on their emotions of greed and fear * and the

professionals use this against them. 2or the professional,

prots come, not so much from market analysis and

technical indicators, it comes from manipulating the greed

and fear of the crowd.

The "Psychology of the Crowd" is the second guidingprinciple of Smart Money.

Smart Money Dened

In this lesson you will learn who comprises the group we

shall be calling Smart 1oney /S10.

5olume 3pread 6nalysis />S+0 is the study of the market

forces of supply and demand and the manipulation of those

forces through the psychology of crowd behaior. #he cause

of price moement is the imbalance between supply and

demand in the market. #his imbalance is created by the

actiity of Smart Money .

?ichard @. &ycko carefully studied the 3mart oney traders of his time and discoered that all markets

http://en.wikipedia.org/wiki/Richard_Wyckoff

http://en.wikipedia.org/wiki/Richard_Wyckoff

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are moed by the big players he called the Composite

7perator /!-0. -f course there are many deep pocket

traders who make up the !-, but it is much easier to

consider them all as a single entity. +mong these tradersare 1arket 1akers, Specialists, Institutions, 8arge

Traders /see #he !-# ?eport0 who proide liquidity for

!ommercials hedging a market, and, with the eer

adancing computer systems, @ark Pools, and the

mathematical whi44es known as 9uants.

Simply put, &ycko felt that an experienced udge of the

market should regard the whole story that appears on #he

#ape as though it were the expression of a single mind. ;e

felt that it was an important psychological and tactical

adantage to stay in harmony with this omnipotent player

the so*called composite operator. AThe successful trader

must endeavor to ascertain what is in the bac of the head

of that fellow and to anticipate his moves: for he is

constantly expressing his intentions by what he does and the

way he does it: by the urgent or leisurely character of his

buying or selling: by the volume of the stocs he deals in,

the width of their swings, especially in the leaders.B

?eferring to this group as Smart Money has adantages.

&hether Smart 1oney is working as an indiidual such as a

http://en.wikipedia.org/wiki/Market_maker

http://www.bearfactsspecialistreport.com/Specialist%20Information.htm

http://www.informedtrades.com/blogs/magic/983-futures-cot-report.html

http://www.investopedia.com/articles/trading/09/dark-pool-liquidity.asp

http://www.forbes.com/2008/02/06/croesus-chronicles-darkpools-oped-cz_rl_0207croesus.html


http://www.bearfactsspecialistreport.com/Specialist%20Information.htm

http://www.informedtrades.com/blogs/magic/983-futures-cot-report.html

http://www.investopedia.com/articles/trading/09/dark-pool-liquidity.asp

http://www.forbes.com/2008/02/06/croesus-chronicles-darkpools-oped-cz_rl_0207croesus.html

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1arket 1aker or a group of analysts within an institution

such as a bank, they hae more information, extensie

training and experience, super computers with massie

amounts of data, and a huge fund of money. #hey do nothae to be in direct communication to work as a !-, but

their goals are the same * prot. !ombine this with the same

or ery similar conclusions about the present state of supply

and demand and their moes in the market will naturally

seem coordinated and this coordination will result in the

massie moement of funds. /Some who speciali4e in the

2orex markets think these markets are too big for S1 to

manipulate * that is their lose. /pun intended00

efore moing on, it is important you thoroughly understand

this concept of the S1 trader. +s an indiidual or group in

an institution, they are rst and foremost 36;T . #hey

do not work hapha4ardly or intuitiely. #hey plan and then

launch, with military precision, a campaign to get their

price. &ho do they get their price fromC #he herd. So this"campaign" is psychological in nature.

asically they all work the same way and it adds up to one

entity$ S1, with lots of money. y studying the actions and

reactions of S1 you can understand their behaior. y

learning their methods for conducting a campaign, you can

follow them and add your money to theirs when they make a

moe.

4f you don<t agree with the concept of a C7 or 3, then the

rest of this course is not for you.

Smart Candlestic Patterns

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#he three lessons in this module are to help you gain the

correct perspective for trading the markets using >S+.

+long with this new perspectie, you should deelop a new

attitude$ a predatory attitude where you oin Smart 1oneyin their campaign to reliee the crowd of their cash. #hese

lessons may touch on some topics you are unfamiliar with,

but they will be coered in detail in later lessons. 2or now,

ust focus on mentally separating yourself from the crowd so

you can follow in the footsteps of Smart 1oney.

&hen studying candles there are a few principles you should

understand. #he rst is the terminology being used. 1ost of

the literature refers to a candle that is going up in price as

ullish and when going down as earish. #his can be

confusing because it is only half the story. :eep in mind that

there are basically two opposing groups at work in the

markets, the "@umb 1oney" /the crowd or herd0 and the

"Smart 1oney" /big money including the manipulators *

institutions, fund managers, specialists, market makers,dark pools, Duants, etc...0. asically$ for every buyer in the

maret there is a seller .

2rom this larger perspectie, the " #ull" and " #ear "

terminology refers to the crowdEherd mentality * @umb

1oney /@10. !ontinuing from this oerall perspectie, it is

generally understood that the Smart 1oney /S10 is thinking

opposite of @1. So, if a security or market is said to be

"bearish", the S1 is thinking about buying, their

"contrairian" sentiment is actually "bullish".

#o make trading easier you hae to stop thinking from the

@1 perspectie. #he S1 perspectie thinks in terms of

Suppy and @emand. +nd, from this perspectie,

+ccumulation and @istribution refers to the actiities of the

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smart money. &hen dumb money is bullish, smart money has

already bought /at the bottom0 and has an oer*Suppy of

stock and is, therfore, turning to a phase of @istribution *

selling.

!heck this graphic from tradingday.com

&here S1 thinks opposite of @1, @1 does not think

opposite to S1. ased on emotions, @1 reacts to S1. #he

two emotions at work with @1 are fear and greed.

2or beginners this perspectie is especially hard to grasp

because most, nearly all, of the trading literature is written

from the @1 perspectie. #ake this description in a tutorial

gien at #radingday.com

" =ow there is only one reason why traders would increase

demand by stepping up to buy the stoc, and that is because

they thin that the stoc will go up in the near future. 3o by

observing the candlestic color and si0e, the astute

candlestic reader is able to deduce exactly what other

traders are thining, and that is that they thin the stoc

price will go higher in the future."

http://tradingday.com/

http://www.tradingday.com/c/candlesticks/candlesticks4.html

http://tradingday.com/


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+s noted in the graphic, the S1 /Sellers0 already owns the

stock and is gradually selling at higher and higher prices.

&hen the @1 /uyers0 are glowing with greed, the S1 will

induce fear by short*selling the stock. #he price will stall,@1 will start getting out of their long positions, then the

price will start down.

S1 will begin coering their short positions /uying0 at

lower and lower prices. 2inally, when price is much lower,

S1 will start accumulating a new supply of stock * going

long.

@1 will look at a candlestick pattern trying to guess if it

means the price will rise or fall. 2or the S1 it is merely

watching supply and demand to see if it's time for

accumulation or distribution.

2or instance, take the four dierent consolidation patterns

of candlesticks. #hey are 70 earish !ontinuation, 50 ullish

!ontinuation, F0 earish ?eersal, 60 ullish ?eersal.

#hough these use the @1 terminology, you must learn to

interpret them as S1 and see the accumulation or

distribution phases.

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#radingday.com describes describes these in the usual way,

for instance$ The Bearish Continuation Consolidation

Pattern$

"3everal strong bearish candlestics precede the #earish

Continuation pattern where the bears are clearly in control

(!igure +-).

"The bears and bulls then begin to battle by pushing the

stoc up and down in price in a tightly formed consolidation

0one.

"The narrowing si0e of the candlestics toward a line of

support indicates that the bears are winning the battle. The

bulls nally weaen and allow the bears to penetrate the

line of support, at which time the bears /uicly con/uer new

territory by taing the stoc to lower prices.

"#y recogni0ing the consolidation pattern the trader is ableto short the stoc ust after the stoc breas the line of

support, and prot from the sharp move downward.

"The cause of the sharp sell o2 is fueled by the emotions of

the traders watching for the outcome of the battle. Traders

who bought the stoc in the area of consolidation in hope of

a rally o2 of support, are now scrambling to exit their losing

positions."

1eanwhile, S1 is accumulating at lower and lower prices.

&ithout haing big money you cannot trade exactly like S1.

ut by watching S1 through this perspectie of how to read

candlesticks will better enable you to trade without greed or

fear and, hopefully nd the "sweet spots" for greater gains.



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It is adisable to study the basic candlesticks and their most

reliable patterns in the context of supply and demand. #his

short cut will add strength to your chart reading.

The Case against Candlesticks$

1ost of the following lessons will be referring to only

the !#!, $ow and Close /;G!0 of price*bars from bar*

charts, not candlesticks. #he rst two graphics will show

how this is applied to candlestricks where the green*

candlestick represents the !lose being higher than the -pen

and the red*candlestick is the !lose lower than the -pen.

Since the -pen is of no consequence in >S+, the price*bars

are isually easier and less distracting. +s seen below, the

up and down candles are structurally the same. #he price*

bars, beside them, are much dierent and, on some

platforms /see below0, can be color*coded to gie more

information than simply whether the -pen or !lose was

higher.

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+n UpClose Bar is dierent than an UpBar . #he Hp!lose

means that price !losed in the upper FJ of the price*bar.

&hereas, the UpBar Close is higher than the !lose of

the preious bar.

!ontinuing$

MidClose K the close is between FJ*LJ

WideSpread K If the spread is about 7MJ of aerage in thepresent range.

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NarrowSpread K if the spread is about MJ of aerage in

the present range.

%ichard &yco'

?ichard @emille &ycko /Noember 5, 7OLF K 1arch 78,

78F60 was a stock market authority. In the -ctober 55

issue of Technical 6nalysis of 3tocs > Commodities ?ichard

@. &ycko was named one of the e #itans of #echnical

+nalysis. 2rom the man who didn't think much of chartist, he

became the premier chart reader of our time. #here

are purists who run forums dedicated to his approach. #here

are those who hae adapted his methods and built platforms

such as #om &illiams' >olume Spread +nalysis with #rade)uider and #odd :ruger's new platform using &ycko

!andle >olume +nalysis. +nd there are those who hae

created do4ens of indicators based on his approach.

http://www.informedtrades.com/479540-review-day-traders-bible.html

http://www.traderslaboratory.com/forums/f131/

http://www.informedtrades.com/blogs/magic/684-review-volume-spread-analysis-videos.html

http://traderscode.com/educationaltradingcourses.html


http://www.tradeguider.com/

http://www.informedtrades.com/479540-review-day-traders-bible.html

http://www.traderslaboratory.com/forums/f131/

http://www.informedtrades.com/blogs/magic/684-review-volume-spread-analysis-videos.html



http://www.tradeguider.com/

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&ycko went to work on &all Street as a young man. ;e

was ery successful and soon owned his own brokerage rm.

;e also printed an extremely popular market letter. In

addition, &ycko published the nation's rst nancial

maga4ine entitled "#he 1aga4ine of &all Street". In

addition, he deeloped a signicant stock adisory serice

and employed a large analytical sta. #hough &ycko died

in 78F6, thecourse he wrote in 78F7 is still being sold for

7 today. In 78OM, the &ycko 1ethod became part of

#he )raduate !erticate in #echnical 1arket +nalysis at

)olden )ate Hniersity in San 2rancisco, !alifornia, HS+.

&ycko's research claimed many common characteristics

among the greatest winning stock market traders of the

time. !ontinuing as a trader and educator in the stock,

commodity and bond markets throughout the early 78s,

&ycko was curious about the logic behind market action.

;e was a contemporary of 9esse Giermore / ;eminiscencesof a 3toc 7perator 0. #he &ycko 1ethod is essentially a

codicil of the best practices reported in ?eminiscences. Gike

Giermore, &ycko was a keen obserer and reporter who

codied the best practices of the celebrated stock and

commodity operators of that era. #hrough conersations,

interiews and research of the successful traders of his time,

&ycko augmented and documented the methodology he

traded and taught. &ycko worked with and studied them

http://wyckoffstockmarketinstitute.com/course.htm

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http://wyckoffstockmarketinstitute.com/course.htm



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all, himself, 9esse Giermore, )ann, 3. ;. ;arriman, 9ames

?. :eene, -tto :ahn, 9.P. 1organ, and many other large

operators of the day. #he &ycko 1ethod may proide some

insight as to how and why professional interests buy and sellsecurities, while eoling and scaling their market

campaigns with concepts such as the "!omposite -perator".

"1e (or she) must study the various swings and now where

the maret and the various stocs stand. 7ne must

recogni0e the inherent weaness or strength in the prices

and understand the basis or logic of movements. 1e (or she)

should recogni0e the turning points of the maret.?

+s &ycko became wealthier, he turned his attention and

passion to education, teaching, and in publishing exposQs

such as #ucet shops and 1ow to 6void Them, which were

run in New Rork's The 3aturday &vening 'ost starting in

7855. Starting as a tape reader, &ycko deeloped a

practical, straight forward bar chart and point*and*gurechart pattern recognition method that has stood the test of

time.

&yco'(s Three $aws

#he mechanics of the markets are so complicated that one

must break it down into some foundational guidelines that

encompass the whole, then build upon that foundation

slowly and methodically until it makes sense and becomes a

high probability, low risk undertaking. y now you should

understand the adantages Smart Money has oer the

crowd and you should be looking at the market from their

perspectie. #he rest of the lessons will focus on the

methods Smart 1oney uses and the Market Dynamicsthose methods are based on.

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ichard D! Wycko" deised three laws that goern market

dynamics. #hese laws tell you how and why the markets

work. #he law of Supply and @emand is the mostfundamental and oerriding aspect of market dynamics. #he

other two laws act on and measure Supply and @emand.

&arning) Do *ot discount these as they are the very #eart o$ Chart eading.

The %aw o$ Supply and Demand

#his law states that when demand is greater than supply,

prices will rise, and when supply is greater than demand,

prices will fall. ;ere the analyst studies the relationship

between supply s. demand using price and olume oer

time.

#he price of eery equity moes up or down because there is

an excess of demand oer supply or supply oer demand. 5.

#he Gaw of 3ort s. ?esults * diergencies and

disharmonies between olume and price often presage a

change in the direction of the price trend.

The %aw o$ &"ort versus esult

#he law of eort s. result states that the change in price

%spread( of a trading ehicle is the result of an eort

expressed by the leel of olume and that harmony between

eort and result promotes further price moement while

lack of harmony promotes a change in direction.

#he Gaw of 3ort /olume0 ersus ?esult /price0 in action.#his law can be seen as working on one bar.

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The %aw o$ Cause and &"ect

#his law states that in order to hae an eect you must rsthae a cause, and that eect will be in proportion to the

cause. #his laws operation can be seen working as the force

of accumulation or distribution within a trading range that

works itself out in the subsequent moe out of that trading

range.

#he idea is to measure this cause and proect the extent of

its eect. #he excesses that deelop in supply and demand

are not random but are the result of key eents in market

action or the result of periods %candles( of preparation.

&ycko teaches what these deelopments are and how to

udge when they are unfolding in time to take adantage of

the excesses in supply or demand that will follow.

#his law is seen working oer a group of bars.

?edmont gies a simple example$

"@ou are looing at a stoc. 4t trades +A,AAA shares and goes

up one point on the rst day. B@ou see the e2ort and result.

The same thing happens on the second day. 7n the third day,

it trades -A,AAA shares and goes up + point. 7n the fourth

day, it trades DA,AAA shares and goes up half a point. 7n the

fth day, it trades EA,AAA shares and is unchanged. BThis

group forms a cause the e2ect of which is emand becomes

exhausted.

"7n the third day, you had to exert twice as much e2ort to

get the same result (as the rst day)," ;edmont noted. "The

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ey to analy0ing supply and demand is that the demand side

burns itself out.

"Fhen the buying is through and satised%there is alwayssupply there. That<s why prices go down faster%because

supply is always there and demand is not. 6ll you have to do

is withdraw people who want to buy and prices fall."

&yco') By the *um+ers

#his lesson will build on the foundation of Wycko"'s Three %aws with his Two *oals for oney anagement, !ive 3teps

to Trading and The !ive 9ualities of a 3peculator .

The Two (oals $or Money Mangement

#hese are simple yet the absolute, most important mindset

eery trader must hae to be successful.

#he rst goal is to Make a Pro)t on a consistent,

worthwhile basis. It is not enough to ust make gains, the

gains must be worthy of your time, risk, and end with

excessie capital. @on't waste your time on a certain winner

if the gains will be mediocre. ;old that capital ready andspend that time nding a better trade. Smart 1oney /S10

will not moe until the conditions are right. #hey will run

tests /more on this later0 to determine the market readiness

for the moe. @on't hae your cash and hopes tied up so you

miss their signals.

#he second goal is the Preservation o$ Capital. 1anage your risk with stops and neer enter a position without a

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predetermined exit strategy.

#o presere their capital, S1 runs tests. #hey do not hae to

be in direct communication to coordinate their eort< they ust understand the dynamics of the market and, by trading

accordingly, it seems they are working in concert. In earlier

lessons you learned that, as a group, S1 has massie funds

at their disposal. ased on the almost certainty they will

make huge gains, they can aord to run necessary tests. Rou

also learned that, as a group, the herd has more funds than

S1, but this group is uncoordinated and oer*reactie.

It is estimated that at any one time 8MJ of retail traders are

on the losing side of a trade. Rour goal is to be among the

other MJ. #his is accomplished by following in the

footsteps of S1. +nd, being unable to run your own test, you

must use sound money management principles. No one and

no group is infallible * not een the best of S1. Sooner or

later, eeryone makes mistakes. &ith sound moneymanagement, some retail traders hae made quite

substantial gains with accuracy rates as low as the FJ

range.

The *ive Steps to Success

Step ,) :now the trend of your security and how it relates

to the general marketC

Step -) Is your security in harmony with the market. #hat is$in an uptrending market is your security showing strength,

http://www.stockmarket-operator.com/money_management.htm

http://www.stockmarket-operator.com/money_management.htm

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in a downtrending market is it showing weaknessC

Step ) @oes your security show a cause that will produce

an acceptable eectC

Step /) Is your security ready to moe /phase0C

Step 0) #ime your trades with a change in the market using

the three laws that goern all market behaior.

"6 good idea is to include seven steps$ visuali0ation for step

one, followed by Fyco2Gs H 3tep ethod, and then some

type of after%action review." Stock1arket*-perator.!om

The *ive +ualities o$ a Speculator

1,2 Self3reliance) a man must think for himself, must followhis own conictions. Self*trust is the foundation of successful

eort.

1-2 4udgment) that equipoise, that nice adustment of the

faculties one to the other is essential to the speculator.

12 Courage) condence to act on the decisions of the

mind.

1/2 Prudence) the power of measuring the danger, together

with a certain alertness and watchfulness, is ery important.

#here should be a balance between the two.

102 Plia+ility) the ability to change an opinion, the power of

reision.

http://stockmarket-operator.com/


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"1abits are safer than rules: you don<t have to watch them.

6nd you don<t have to eep them, either. They eep you"./2rank !rane0

The Maret 5orces of Supply and Demand

#his lesson is a brief introduction to #he 1arket 2orces of

Supply and @emand as seen through >olume Spread

+nalysis.

&arning) This is a ma6or step towards seeing the marets through the eyes of SM.

2irst, the basics from Inestopedia$

3upply and demand is perhaps one of the most fundamental

concepts of economics and it is the bacbone of a maret

economy. emand refers to how much (/uantity) of a

product or service is desired by buyers. The /uantity

demanded is the amount of a product people are willing to

buy at a certain price: the relationship between price and

/uantity demanded is nown as the demand relationship.

3upply represents how much the maret can o2er. The

/uantity supplied refers to the amount of a certain good

producers are willing to supply when receiving a certainprice. The correlation between price and how much of a

good or service is supplied to the maret is nown as the

supply relationship. 'rice, therefore, is a reection of supply

and demand.

1arkets moe o of the imbalance of supply and demand.

#his is what >S+ identies so clearly on a chart$ TiUanimbalance of supply and the market has to fall< an imbalance

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of demand and the market has to rise.

+ccumulation from the SupplyE@emand perspectie is

demand coming in to gradually oercome and absorb thesupply and to support the market at this price leel.

@istribution from the SupplyE@emand perspectie is where

the Supply oercomes @emand and stops the upward moe

and eentually begins the downward moe. @istribution

refers to the elimination of a long inestment or speculatie

position and often inoles establishing a speculatie short

position by professional interests in anticipation of a decline

of price. In the distribution area the professional inestors

or speculators who had preiously bought stock, sell there

stock to the public. #he public buys and it generally buys

because of good news of arious sorts. )ood news on the

company, its product, the economy or any news which will

entice untrained people to rationali4e there buying decision.

#he best news of all is the adancing of the price of a stock.

#here is an important relationship between supplyEdemand

and price. ut there are also other determing factors in a

market. #o illustrate$ suppose brand new 2ords are selling

for 5,. #his means demand will step in for that

commodity at that price. ut, suppose, a 2ord is being

oered for less$ 7,. 9ust considering supply and

demand, one would think that demand would grab it up.

Now lets consider some other factors. In the rst instance

we nd that the the 2prds are all pickup being sold in a

ranch community. &hile, in the second instance the 2ord is

ten years old and has been in a wreck. In this case demand

might not step up at the oered price * or any price.

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Now looking at the rst case$ #he 2ord dealer understood

the communities expectations and supplied those

expectations. In the second case, buyers were lkooking for a

bargain, but expect to nd something driable at that price.#here expectations were not met and, een though there

was supply at their price, demand was neer created.

2or >S+ to work, you must know the circumstances of the

supply at a gien price leel and the expectations od demand

at that price leel.

&ithout any other considerations$

The $aw of Demand states, the lower something's price is,

the more demand there is for it and the relationship between

demand and price is an inerse relationship. +s one goes up,

the other comes down.

The $aw of Suppl y states, the higher something's price is,the more it will be supplied and the relationship between

supply and price is a direct relationship. +s one goes up, the

other goes up.

Now consider the following chart$

#his image has been resi4ed. !lick this bar to iew the full image. #he original image is si4ed L5xM=5.

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#here is nothing in the chart that hints at the reersal at

point +. Price has passed a former demand 4one and olume

is regular. #hen /, the blue box0 comes and area of

consolidation lasting more than three weeks with tight

spreads and slightly lower olume. #hen, suddenly /!0,

olume is up and so is price. In a discussion on this at I2#,

#ekmnd explains point ! ery well$

"3upply and demand is the basic foundation of economics

1owever,...3upply and demand is the e2ect, not the cause.

3omething happens, and supply increases or demand

decreases (or both) causing price to go down, or something

happens and supply goes down or demand goes up (or both)

causing price to go up.

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The "something" is the cause, and the change in

supplyIdemand is the e2ect.

3o, yes, price went up on J3IK'@ because of an increase indemand for the pair. 1owever, it is the cause for the change

in supply and demand that caused the price change.

4n fact, when you boil it all down, trading is the perception

and speculation of what the change in supply and demand

will be.

To put it another way, its not lie a huge bunch of people

coincidentally decided to buy this pair at the exact moment

the Kapan Central #an maes an announcement that will

cause the supply of @en (the currency in circulation) to be

increased by billions of @en."

%I highly recommend his course at 2ree 2orex +cademy(

So, at point + the insiders /other banks in 9apan0 are told ofthe discount rate change coming and price shoots up on the

dollar against the yen. +t area they wait for the public

announcement, then price shoots up again at point !. #here

was a fundamental change that changed expectations that

changed the balance of supplyEdemand and moed the price.

&ycko's third law$ The %aw o$ Cause and &"ect

#his law states that in order to hae an eect you must rst

hae a cause, and that eect will be in proportion to the

cause. #his laws operation can be seen working as the force

of accumulation or distribution within a trading range that

works itself out in the subsequent moe out of that tradingrange.

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7/18/2019 vsaq


#he idea is to measure this cause and proect the extent of

its eect. #he excesses that deelop in supply and demand

are not random but are the result of key eents in marketaction or the result of periods of preparation.

1ore from #om &iliams and becoming a Predator$

TiU+dmittedly easy to identify in hindsight bar by bar. #he

important point is to keep in mind is that all the indications

of weakness must hae been there in the rst place, as themarket was unfolding day by day. Rou will no doubt hae

diiculties in analysing a chart as it unfolds bar by bar until

you hae trained your mind to think like a predator rather

than run and act with the ;erd. Practically all these up bars

on this chart will be accompanied with 'good news' of some

sort. If there is no good news aailable the news media will

simply make it up to explain away the sudden up moe takenplace on any particular day. Rour subconscious mind will be

busy absorbing this information whether you like it or not

and forming an opinion. #o the untrained mind that iew will

be bullish, therefore you will not hae een noticed olume

implications telling you otherwise.TEiU

7olume 8nalysis

In preious lessons you gained a new perspectie for looking

at !andles, !hart Patterns and Indicators. Hse that

perspectie while studying this lesson to establish a clear

understanding of what olume means.

The de)nition o$ volume,

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4n the stoc maret, volume refers to the total number of

shares that exchange hands over any given time period. 4n

any volume bar several types of transactions might be

taing place all at once. They are $ buying, covering shortsells, selling, selling short.

>S+ is not volume analysis, price spread analysis, nor

olume and price analysis on a single bar or candle. 2or

instance$ high olume on an up moe does not necessarily

mean the next moe will be up. #here could hae been

hidden selling within that moe. y itsself and on a single

bar, olume only shows the relatie amount of actiity on

that bar. But- in conte.t with other in$ormation- volume

is the most power$ul indicator in the )nal analysis

/e$ore taking a position!

"4t Bvolume is often looed at for conrming evidence of

price trend and price reversal patterns. !or patterns such as

triangles that are the product of a period of indecision or

consolidation in stoc price, volume is usually light duringthe formation of the pattern and increases on a breaout

from the pattern. !or any pattern or trendline penetration, a

breaout with increasing volume is more an indication that

prices will continue in the direction of the breaout than a

breaout on low volume."

%#rade7.com(

#his is a good time to introduce Tom Williams' perspectie

on The Path o$ %east esistance$

7. It takes an increase of buying /demand olume0,

on UpBars, to force the market up. #he appearance of No

Demand /low olume0 on an up*moe, shows little or no

buying.

http://trade10.com/

http://trade10.com/

7/18/2019 vsaq


5. It takes an increase of selling /supply olume0,

on DownBars, to force the market down. #he appearance

of No Supply /low olume0 on a down*moe shows little or

no selling pressure.

&hich means, if there is no trading going on in one

direction, the path of least resistance is generally in the

opposite direction.

>S+ is the combination of analy4ing olume to the price

spread and close in the context of the background which

includes the general market and multiple timeframes.

In general low volume is the playground of Smart Money .

#his is where they hae the resources to run tests to

discoer the degree of supply or demand, or set traps and

shakeouts against the greater resources of the ;erd and

trying to create as much confusion in the ;erd as

possible. #igh volume means that Smart Money isdecided and working at a specic purpose of manipulating

the crowd psychologically$ they are inducing fear and

gaining greater prots.

5olume is the single most powerful conrming technical

indicator because it is the only indicator which is not

calculated from price. Strong olume during trading day

indicates important market action. Rou hae to pay

particular attention to market action when you see high

leels of olume during these situations$

0! The market is /reaking a signi)cant level o$ support

or resistance!

1! The market is /ouncing $rom a signi)cant level o$

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support or resistance!

@o you see where the arrows point to important olume and

when it happenedC

a. high olume when bouncing from support leel

b. high olume during breakout of trendline resistance

c. again high olume during bounce from supportd. breakout of hori4ontal resistance with aboe aerage

olume

ut you can also nd aboe aerage olume in situations

when a trend is already running.

Price 8nalysis

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In this lesson on analy4ing price and it's spread, it is

important to understand the causes that eect changes in

the Price Spread. Since ichard Wycko" , the make up of

the indiiduals and institutional traders that made up his"Composite 2perator " has somewhat eoled. &ith

internet access, the markets hae become internatonal and

trading in some markets such as futures and forex are open

56 hours. !omputers hae adanced and are programmed to

trade and, through articial intelligence, to learn patterns

and eole their own systems. -ther groups, with special

access, form Dark Pools of funds. Gager institutions such as

banks and other hedge funds hae hired mathematical

wi4ards called +uants who work on analy4ing the markets

through super computer modeling and deising special

instruments /such as !@Ss0, and trade with huge amounts of

money that is highly leeraged. #hey quantify, een create

markets, then moe them.

#he centerpoint in all this are the Market Makers /110and Specialists. #hey are responsible for

keeping their markets liquid for the buying and selling of

securities. + 1arket 1aker is a bank or brokerage company

that maintains an ask and bid price. In &kipedia's

description you'll see how those responsible for liquidity in

the markets rst hae ob to do, then they hae hope.

"6 maret maer is a company, or an individual, that /uotes

both a buy and a sell price in a nancial instrument or

commodity held in inventory, hoping to mae a prot on the

bidIo2er spread, or turn."

In that description you see that they are "hoping to make a

prot". asically they make their prots by taking the

dierence in the +sk*id spread. #hey often must proide



http://www.alphatrade.com/techSupport/marketMakers.html



http://www.alphatrade.com/techSupport/marketMakers.html

7/18/2019 vsaq


liquidity by taking the other side of some transactions * and

they often nd opportunity to enter transactions for the

simple purpose of making a prot for themseles or their

rm. &ith a little hair splitting, the "hope" is exactly thesame as eeryone elses, including the S1 * they are, in fact,

functioning as S1. So, when referring to S1, this includes

this aspect of these professionals. #hat is, their prot motie

as seen by their stepping in to buy or sell /a cause0 makes

them adust the price spread formula /the eect0 up or

down.

&hen a buyer's bid meets a seller's oer or ice ersa, the

stock exchange's matching system will decide that a deal

has been executed. In the Hnited States, the New Rork Stock

3xchange /NRS30 and +merican Stock 3xchange /+13V0,

among others, hae @esignated 1arket 1akers, formerly

known as Specialists, who act as the oicial 11 for a gien

security. #he 11 proide a required amount of liquidity to

the security's market, and take the other side of trades whenthere are short*term buy*and*sell*side imbalances in

customer orders. #his helps preent excess olatility, and in

return, the 11 is granted arious informational and trade

execution adantages.

Hnder normal conditions the 11 lets the computer handle

all the orders coming in based on a idE+sk formulas /see

below0. &hen the market gets out of hand the 11 can stop

all transaction until they can reestablish order. #hey may

also adust the formula to gain prots for their rm or to

accomodate orders from special clients of their rm.

In general this is how it works$

Bid Price

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#he bid price represents the highest priced buy order that is

currently aailable for the market /i.e. the highest price that

a trader is willing to pay to go long0. #he bid price is thesame as the highest priced limit order on the buying side of

the so*called order book.

#he bid price is the price that is receied wheneer a trader

places a market sell order /i.e. a market order to go short0.

#he reason for this is that a market sell order is always lled

at the best aailable price, and for a sell order, the best

aailable price is the highest buy order.

3sk Price

#he ask price represents the lowest priced sell order that is

currently aailable for the market /i.e. the lowest price that

a trader is willing to pay to go short0. #he ask price is the

same as the lowest priced limit order on the selling side ofthe order book /the leel 5 market data0.

#he ask price is the price that is receied wheneer a trader

places a market buy order /i.e. a market order to go long0.

#he reason for this is that a market buy order is always lled

at the best aailable price, and for a buy order, the best

aailable price is the lowest sell order.

%ast Price

#he last price represents the most recently traded price /i.e.

the price at which the last trade occurred0. #he last price

will moe back and forth between the bid and ask prices as

selling and buying orders are lled. 2or example, if a trader

places a market buy order, the last price will moe to the ask

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price, as the market buy order is lled. !onersely, if a

trader places a market sell order, the last price will moe to

the bid price.

%Source$ daytrading.about.com(

#hey are responsible for maintaining order in the market for

a stock and posting the best buy and sell orders rst. 1arket

orders are orders to buy or sell a contract at the current

best price, whateer that price may be. In an actie market,

market orders will always get lled.

+s you can see, a single order coered through the matching

system will cause the price to moe and another single order

the opposite way will easily cancel out the eect. If orders

come in on one side faster or in greater quantity /olume

increases0, the price will be forced to adance in that

direction. #hese high olume moes can cause a large

spread in the price. If, howeer, large olume moes are

nearly matched between one side and the other, the pricespread will be ery small. If price is going up and olume is

going up at the close of a bar, then the next bar will continue

up and ise*ersa.

In the nal analysis, it is not important to know who is doing

what to whom. #he important concept to grasp is that there

is a cause which is seen in olume and it has an eect that is

seen in the price spread. &ycko goes on with this

conceptual model of his !- in such a way as to not een

think of them as people * ust a market mechanism you need

to be "intuitiely" aware of. #his 1arket 1echanism is what

we are referring to as Smart Money .

#his is why the price spread is so important. +s &illiams

puts it$

http://daytrading.about.com/




7/18/2019 vsaq


"5olume 3pread 6nalysis sees to establish the cause of

price movements and from the cause predict the future

direction of prices. The cause is the imbalance between3upply and emand in the maret which is created by the

activity of professional operators. The e2ect is either a

bullish or bearish move according to maret conditions

prevailing...4t is the close study of the reactions of the

specialists and maret maers which will give you a direct

access to future maret behaviour..."

It is not enough, howeer, to simply place a large order. #he

timing must be right * perfect. +gain, the professional trader

will rst plan and then launch, with military precision, a

campaign to get their price.

%esistance and Trends

#his lesson is on the so*called Support and esistance andtheir relationship to Supply and Demand as seen

inTrends. &hy "so*called Support and ?esistance"C

In 4olume Spread 3nalysis #rend lines only represent

resistance$ either resistance to supply , or resistance to

demand. ?emember$ arets move o2 of the imbalance of

supply and demand. 6n imbalance with greater supply and

the maret has to fall: an imbalance with greater demand

and the maret has to rise.

#herefore$ an im/alance o$ Supply is a Down5Trend

where the trend is running under the Supply5%ine

esistance. #he market is being 1arked @own as Smart

Money +ccumulates /buys0 more and more of the market's

supply at lower and lower prices.

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%Source$ Stock!harts.com(

#he opposite is true of the UP5Trending market, the

trend is running over Demand5%ine esistance as the

market is being 1arked HP. S1 is @istributing /selling0 to

the market's @emand*Gine ?esistance at higher and higher

prices.

%Source$ Stock!harts.com(

Trends and Time

1oing on with studying the market background through

>S+ comes Trading anges, Trend 6ones andTrend

Clusters. #hese hae the added alue of proiding a time

http://stockcharts.com/




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value for measuring market moes. y taking a look at the

background of the market and how it functions within trends

it is possible to foresee future areas of supply and demand

resistance.

Measuring Trends$ there are three methods of measuring

trends$ Trend lines, which measure the angle, there are

two types of trend lines$ the normal use and the reverse use.

#hrusts are used to measure each drie up W drie down.

#he third measurement is the #al$5Way Point which is an

indication of comparatie strength and weakness of the

correction. &ycko found this ery important and it shows

up in other methods such as bs, +! patterns, etc. It is

usually a point at which S1 takes a break to reassess the

situation.

#al$5Way Points are used as a measurement of relatie

strength on a rally or reaction. Hnlike other methods which

add additional measures /Piot Points, 2ibs, etc.0, the half*way point does hae a much better reliability. +s an

example$ if a stock moes from M to M= the distance of six

points and then reacts, the half*way point would be half of

that six points or at MF. ?eerse the process for calculating

the half*way point on a rally following a decline. 3xample, if

a stock moes down from F to 57 a distance of nine

points. #he half*way*point would be at half of that distance

and is 6 X points added to 57 gies a half*way*point of

5M X. @o not expect to go to the exact half*way point. #he

moe must only come within the icinity of an area of supply

and demand resistance.

Trend ange and 6ones

#his is like olinger ands or Stochastics on steroids. #he

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bottom trend line is the support line and the top line as the

supply line. In the bottom #rend Yone S1

nds strength deeloping as ;esistance to 3upply and the

opposite for the upper 4one * weakness deelopingas ;esistance to emand.

In the chart below it can be seen how #om &illiams /#&0

diides a Trend %ange into upper quarter and lower

quarter * the battleground. It is in these resistance Yones

where potential breaouts or reversals are most likely to

occur.

&hile the market moes towards a trend line it is in

the Path o$ %east esistance. &hen it penetrates a Yone

special conditions come into play. If the market is heading

up within the Trend %ange it will require &"ort to push

through as will be seen in higher olume$ it will take

professional actiity, money and eort to change this trend

or no eort to reerse. #he exact opposite works for inasioninto the lower #rend Yone. If their is to be a breakout it can

often come as a )ap.

&"ort versus esult

3 wide spread up/ar on an increase in volume-

punching up and through a trend line- while the ne.t

day7/ar is level or even higher! 8ou are now e.pecting

higher prices! 2n any low volume down day7/ar will

con)rm this view! DownBars on low volume- especially

on narrow spreads shows that there is little selling

pressure on the market- con)rming that the market is

a strong one! #owever- i$ the $ollowing /ars are seen

to /e up on low volume- narrow spreads- even closing

in the middle or low then the market is a weak one!

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There is no e"ort to go up! %#&(

Trend Clusters

#&'s Trend Clusters are the creation of an automatic trend

line system for the >S+M computer program he deeloped

/later to become #rade)uider0, that automatically draws

trend clusters on his charts. #echnically, these are not

trendlines but what is commonly referred to as Support

and esistance lines showing where price reacted in the

past either by consolidating for a period or bouncing.

I don't hae the platform so the usual sEr lines will hae to

do. ut, #&'s approach to Trend Clusters can still, I1-,

power up these areas. +s he puts it$

" 6s you will see, professional traders want to test or to cross

resistance with the least e2ort to them. To cross resistancewill cost the maretmaer money which they would lie to

avoid. =ote how the highs and lows may be testing the

resistance, but the closing price tends to avoid the clusters.

To penetrate old resistance there might be a sudden wide

spread down on high volume, punching through, or a gap

down Bthis is lie umping the hedge. @ou may see a drift

sideways, then amble through the 0one, or a snap move

down through a gap. Fhy this should happen is always open

to discussion. The professionals in the marets are aware of

resistance levels, not through some complex theoretical

analysis, but because they have the orders on their boos

and they can see both sides of the maret as the orders from

around the world arrive. They will also see when it becomes

di2icult to attract business at certain prices Bno demand.

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Fhat we can be sure of is that resistance to price movement

is a reality whether upwards or downwards."

#his image has been resi4ed. !lick this bar to iew the full image. #he original image is si4ed OLLxM67.

The Beginning o$ a Down Trend

1arkets do not like ery high olume on up bars because

something big is happening. 3ither you hae seen a uying

!limax which will mark the end of a rising market. -r

professional money is prepared to buy stock from old locked

in traders from the last preious high. #his is not charity

work by the money men but absorption because they are stillbullish and are anticipating een higher prices.

The Beginning o$ an UpTrend

#o create a maor up trend you need to see the extremes of

this process at work. #his is known as a Selling !limax and

will mark the low point of the trend. #he Selling !limax

phenomenon occurs when there has been a maor transfer of

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stock from weak holders, that is *traders, who hae been

locked*in at higher prices suering the fear and pressure of

losses which cannot be tolerated any longer, decide to sell.

%#&(

8ccumulation and Distri+ution) Part ,

#his lesson and the next will breakdown two of Fyco2<s

aret 'hases, 3ccumulation and Distri/ution, into their

own phases. @ierent aspects of these phases will be further

broken down in later lessons. In general, these phases show

the "foot prints" of S1. #his is the basic layout of the

!ampaigns S1 uses to make ports. In practice their will be

some slight dierences especially with the number of #ests,

#raps and Shakeouts. +nd, in some markets, the %ine o$

%east esistance might be so easily exposed that tests,

traps and shakeouts are not een necessary for S1 to start

taking prots, while other markets with need seeral.

#ake special notice of the ery important relationship deeloping between olume and price spread.

Wycko" Phases o$ 3ccumulation

It is possible that phase + will not include a dramatic

expansion in spread and olume. ;oweer, it is better if it

does, because the more dramatic selling will clear out more

of the sellers and pae the way for a more pronounced and

sustained markup.

&here a Trading ;ange /#?0 represents a reaccumulation /a

#? within a continuing up*moe0, you will not hae eidence

of PS, S!, and S#. Instead, phase + will look more like phase

+ of the basic &ycko distribution schematic. Nonetheless,

phase + still represents the area where the stopping of the

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preious trend occurs. #rading range phases through 3

generally unfold in the same manner as within an initial base

area of accumulation.

Phase Z #he function of phase is to build a cause in

preparation for the next eect. In phase , supply and

demand are for the most part in equilibrium and there is no

decisie trend. +lthough clues to the future course of the

market are usually more mixed and elusie, some useful

generali4ations can be made.

In the early stages of phase , the price swings tend to be

rather wide, and olume is usually greater and more erratic.

+s the #? unfolds, supply becomes weaker and demand

stronger as professionals are absorbing supply. #he closer

you get to the end or to leaing the #?, the more olume

tends to diminish. Support and resistance lines usually

contain the price action in phase and will help dene thetesting process that is to come in phase !. #he penetrations

or lack of penetrations of the #? enable us to udge the

quantity and quality of supply and demand.

Phase ! Z In phase !, the stock goes through testing. It is

during this testing phase that the smart money operators

ascertain whether the stock is ready to enter the markup

phase. #he stock may begin to come out of the #? on the

upside with higher tops and bottoms or it may go through a

downside spring or shakeout by rst breaking preious

supports before the upward climb begins. #his latter test is

preferred by traders because it does a better ob of cleaning

out the remaining supply of weak holders and creates a false

impression as to the direction of the ultimate moe.

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+ spring is a price moe below the support leel of a trading

range that quickly reerses and moes back into the range.

It is an example of a bear trap because the drop belowsupport appears to signal resumption of the downtrend. In

reality, though, the drop marks the end of the downtrend,

thus trapping the late sellers, or bears. #he extent of supply,

or the strength of the sellers, can be udged by the depth of

the price moe to new lows and the relatie leel of olume

in that penetration.

Hntil this testing process, you cannot be sure the #? is

accumulation and hence you must wait to take a position

until there is suicient eidence that markup is about to

begin. If we hae waited and followed the unfolding #?

closely, we hae arried at the point where we can be quite

condent of the probable upward moe. &ith supply

apparently exhausted and our danger point pinpointed, our

likelihood of success is good and our rewardErisk ratiofaorable.

Phase @ Z If we are correct in our analysis and our timing,

what should follow now is the consistent dominance of

demand oer supply as eidenced by a pattern of adances

/S-Ss0 on widening price spreads and increasing olume,

and reactions /GPSs0 on smaller spreads and diminishing

olumes. If this pattern does not occur, then we are adised

not to add to our position but to look to close out our

original position and remain on the sidelines until we hae

more conclusie eidence that the markup is beginning. If

the markup of your stock progresses as described to this

point, then youll hae additional opportunities to add to

your position.

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Rour aim here must be to initiate a position or add to your

position as the stock or commodity is about to leae the #?.

+t this point, the force of accumulation has built a goodpotential as measured by the &ycko point*and*gure

method.

In phase @, the markup phase blossoms as professionals

begin to moe into the stock. It is here that our best

opportunities to add to our position exist, ust as the stock

leaes the #?.

Wycko" Schematics o$ 3ccumulation

PS Z preliminary support, where substantial buying

begins to proide pronounced support after a prolonged

down*moe. >olume and spread widen and proide a signal

that the down*moe may be approaching its end.

S! Z selling clima. , the point at which widening spread

and selling pressure usually climaxes and heay or panicky

selling by the public is being absorbed by larger professional

interests at prices near a bottom.

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+? Z automatic rally , where selling pressure has been

pretty much exhausted. + wae of buying can now easily

push up prices, which is further fueled by short coering.

#he high or this rally will help dene the top of the tradingrange.

S# Z secondary test, reisiting the area of the selling

climax to test the supplyEdemand balance at these price

leels. If a bottom is to be conrmed, signicant supply

should not resurface, and olume and price spread should be

signicantly diminished as the market approaches support in

the area of the S!.

The Creek is a way line of resistance drawn loosely across

rally peaks within the trading range. #here are, of course,

minor lines of resistance and more signicant ones that will

hae to be crossed before the markets ourney can continue

onward and upward.

9ump the Creek Z the point at which price umps through

the resistance line< a good sign if done on increasing spread

and olume.

S-S Z sign o$ strength, an adance on increasing spread

and olume.

GPS Z last point o$ support, the ending point of a reaction

or pullback at which support was met. acking up to an GPS

means a pullback to support that was formerly resistance,

on diminished spread and olume after an S-S. #his is a

good place to initiate long positions or to add to protable

ones.

Springs or Shakeouts /coered in detail in later lessons0

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usually occur late within the trading range and allow the

market and its dominant players to make a denitie test of

aailable supply before a markup campaign will unfold. If

the amount of supply that surfaces on a break of support is ery light /low olume0, it will be an indication that the way

is clear for a sustained adance. ;eay supply here will

usually mean a renewed decline. 1oderate olume here may

mean more testing of support and a time to proceed with

caution. #he spring or shakeout also seres the purpose of

proiding dominant interests with additional supply from

weak holders at low prices.

+ series of S-Ss and GPS proides good eidence that a

bottom is in place and price markup has begun.

/Source$ ndarticles.com0

8ccumulation and Distri+ution) Part -

In this lesson you will learn the particular details ofthe Distri/ution Phase. #here are some concepts that will

be touched on brei[y, but they will be coered in detail in

later lessons. #hese phases are essential to understanding

the future moement of the market. &hen they are

understood in general, then the specic tactics used to moe

the market will nearly perfect the timing of those moes.

#hen using >S+ as the nal analysis will gie you the exact

timing for entries and exits.

Wycko" Phases o$ Distri/ution

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Phase + Z In Phase +, demand has been dominant and the

rst signicant eidence of demand becoming exhausted

comes at preliminary supply /PSR0 and at the buying climax

/!0. It often occurs in wide price spread and at climactic olume. #his is usually followed by an automatic reaction

/+?0 and then a secondary test /S#0 of the !, usually upon

diminished olume. #his is essentially the inerse of phase +

in accumulation.

+s with accumulation, phase + in distribution price may also

end without climactic action< the only eidence of exhaustion

of demand is diminishing spread and olume. &here

redistribution is concerned /a trading range within a larger

continuing down*moe0, you will see the stopping of a down*

moe with or without climactic action in phase +. ;oweer,

in the remainder of the trading range /#?0 for redistribution,

the guiding principles and analysis within phases through

3 will be the same as within a #? of a distribution market

top.

Phase Z #he building of the cause takes place during

phase . #he points to be made here about phase are the

same as those made for phase within accumulation, except

clues may begin to surface here of the supplyEdemand

balance moing toward supply instead of demand.

Phase ! Z -ne of the ways phase ! reeals itself after the

stando in phase is by the sign of weakness /S-&0. #he

S-& is usually accompanied by signicantly increased

spread and olume to the downside that seem to break the

stando in phase the S-& may or may not Afall through

the ice,B but the subsequent rally back to a Alast point of

supplyB /GPSR0, is usually unconincing for the bullish case

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and likely to be accompanied by less spread andEor olume.

Gast point of supply gies you your last opportunity to exit

any remaining longs and your rst initing opportunity toexit any remaining longs and your rst initing opportunity

to take a short position. +n een better place would be on

the rally that tests GPSR, because it may gie more eidence

/diminished spread and olume0 andEor a more tightly

dened danger point.

+n upthrust is the opposite of a spring. It is a price moe

aboe the resistance leel of a trading range that quickly

reerses itself and moes back into the trading range. +n

upthrust is a bull trap Z it appears to signal a start of an

uptrend but in reality marks the end of the up*moe. #he

magnitude of the upthrust can be determined by the extent

of the price moe to new highs and the relatie leel of

olume in that moement.

Phase ! may also reeal itself by a pronounced moe

upward, breaking through the highs of the trading range.

#his is shown as an upthrust after distribution /H#+@0. Gike

the terminal shakeout in the accumulation schematic, this

gies a false impression of the direction of the market and

allows further distribution at high prices to new buyers. It

also results in weak holders of short positions surrendering

their positions to stronger players ust before the down*

moe begins. Should the moe to new high ground be on

increasing olume and relatie narrowing spread, and price

returns to the aerage leel of closes of the #?, this would

indicate lack of solid demand and conrm that the breakout

to the upside did not indicate a #? of accumulation, but

rather a formation of distribution.

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Successful understanding and analysis of a trading range

enables traders to identify special trading opportunities with

potentially ery faorable rewardErisk parameters. &hen

analy4ing a trading range, we are rst seeking to uncoerwhat the law of supply and demand is reealing to us.

;oweer, when indiidual moements, rallies, or reactions

are not reealing with respect to supply and demand, it is

important to remember the law of eort ersus result. y

comparing rallies and reactions within the trading range to

each other in terms of price spread, olume, and time,

additional clues may be discoered as to the stocks

strength, position, and probable future course.

It will also be useful to employ the law of cause and eect.

&ithin the dynamics of a trading range, the force of

accumulation or distribution gies us the cause and the

potential opportunity for substantial trading prots. #he

trading range will also gie us the ability, with the use of

point*and*gure charts, to proect the extent of the eentualmoe out of the trading range and will help us determine if

those trading opportunities faorably meet or exceed our

rewardErisk parameters.

Phase @ Z Phase @ arries and reeals itself after the tests

in phase ! show us the last gasps or the last hurrah of

demand. In phase @, the eidence of supply becoming

dominant increases either with a break through the ice or

with a further S-& into the trading range after an upthrust.

In phase @, you are also gien more eidence of the probable

direction of the market and the opportunity to take your rst

or additional short positions. Rour best opportunities are at

rallies representing GPSRs before a markdown cycle begins.

Rour legging in of the set of positions taken within phases !

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and @ represents a calculated approach to protect capital

and maximi4e prot. It is important that additional short

positions be added or pyramided only if your initial positions

are in prot.

Phase 3 Z Phase 3 depicts the unfolding of the downtrend<

the stock or commodity leaes the trading range and supply

is in control. ?allies are usually feeble.

#his image has been resi4ed. !lick this bar to iew the full image. #he original image is si4ed =7MxF=L.

Wycko" Schematics o$ Distri/ution

PSR Z preliminary supply , where substantial selling

begins to proide pronounced resistance after an up*moe.

>olume and spread widen and proide a signal that the up*

moe may be approaching its end.

! Z /uying clima. , the point at which widening spread

and the force of buying reaches a climax, and heay or

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urgent buying by the public is being lled by larger

professional interests at prices near a top.

+? Z automatic reaction. &ith buying pretty muchexhausted and heay supply continuing, an +? follows the

!. #he low of this sell*o will help dene the botom of the

trading range /#?0.

S# Z secondary test, reisiting the area of the buying

climax to test the demandEsupply balance at these price

leels. If a top is to be conrmed, supply will outweigh

demand and olume and spread should be diminished as the

market approaches the resistance area of !.

S-& Z sign o$ weakness, which will usually occur on

increased spread and olume. Supply is showing dominance.

-ur rst Afall on the iceB holds and we get up try to forge

ahead.

The :ce Z a way line of support drawn loosely under

reaction lows of the #?. + break through the ice will likely

be followed by attempts to get back aboe it. + failure to get

back aboe rm support may mean a AdrowningB for the

market.

GPSR Z last point o$ supply . +fter testing the ice /support0

on a S-&, a feeble rally attempt on narrow spread shows us

the diiculty the market is haing in making a further rise.

>olume may be light or heay, showing weak demand or

substantial supply. +t GPSRs the last waes of distribution

are being unloaded before markdown is to begin. GPSRs are

good places to initiate a short position or to add to already

protable ones.

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H#+@ Z upthrust a$ter distri/ution. Similar to the spring

and terminal shakeout in the trading range of accumulation,

a H#+@ may occur in a #? of distribution. It is a more

denitie test of new demand after a breakout aboe theresistance line of the #?, and usually occurs in the latter

stages of the #?. If this breakout occurs on light olume

with no follow*through, or on heay olume with a

breakdown back into the center of the trading range, then

this is more eidence that the #? was distribution, not

accumulation. #his H#+@ usually results in weak holders of

short positions giing them up to more dominant interests,

and also in more distribution to new, less*informed buyers

before a signicant decline ensues.

"6ccording to Fyco2, who was a contemporary of Charles

ow and ;ichard 3chabacer, technical analysis is not

merely the use of timing tools to monitor for a directionalbias, specic trends or trading setup. !or him, technical

analysis can ascertain if trading is recommendable. 4t can

also help reduce ris through the timing of the trade

location nearest to initial support or resistance levels. The

Fyco2 se/uence is composed of si. main price and

volume patterns that were determined through Fyco2<s

analysis of individual bar charts and maret action in

relation to volume."

Strength vs &eaness

In this lesson you will learn how to ealuate the Strength or

&eakness in a market. 4t is not enough for 3 to simply

place a large order. The timing must be right % perfect. They

will rst plan and then launch, with military precision, acampaign to get their price. &ho do they get their price

7/18/2019 vsaq


fromC #he herd. So this "campaign" is psychological in

nature. Gook how #om &illiams politely describes a bull and

bear market$

" 3 Bull Market occurs when there has been a substantial

transfer of stock from &eak ;olders to Strong ;olders,

generally, at a loss to &eak ;olders.

Strong #olders are usually those traders who have not

allowed themselves to be caught in a poor trading position.

They are happy with their position, they are not shaen out

on sudden down moves or suced into the maret at or near

the tops. 3trong holders

are basically strong because they are trading on the right

side of the maret. Their capital base is usually large and

they can read the maret and now how to trade it. 3trong

holders tae losses fre/uently but the losses are low

because they close out any

poor trade fast and tae account of these losses along withother trades which are generally much more protable.

" 3 Bear Market occurs when there has been a substantial

transfer of stock from Strong ;olders to &eak ;olders,

generally at a prot to the Strong ;olders."

ost traders new to the maret very easily become Weak

#olders. They cannot really accept losses as most of their

capital is rapidly disappearing. They are on a learning curve.

Fea holders are those traders that have allowed

themselves to be <4oced%in<

as the maret moves against them, and are hoping and

praying that the maret will soon move bac to their price

level. These traders are liable to be shaen out on any

sudden moves on bad news. These traders have created

7/18/2019 vsaq


poor trading positions for themselves, and are immediately

under pressure if the maret turns against them.

+ccording to &illiams$ "There are two main principles atwor in the stoc maret which causes a maret to turn.

#oth these principles will arrive in varying intensities

producing larger or smaller moves."

Principle 2ne

#he herd will panic after substantial falls and start to sell

usually on bad news.

"6re the trading syndicates and maret maers prepared to

absorb the panic selling at these price levelsL (must be on

a DownBar ). 4f they are, then this is a strong sign of

strength."

Principle Two

#he herd will at some time after substantial rises as seen in

a bull market become annoyed at missing out on the up*

moe and will rush in and buy, usually on good news. #his

includes traders that already hae long positions, and want

more.

"6re the trading syndicates and maret maers selling into

this buyingL (must be a UpBar ) 4f so, then this is a strong

sign of weaness."

2or a market to moe up you need buying, you need to see

an increase in olume, not a decrease, but not excessie

olume, where supply may be swamping the demand. If you

obsere that the olume is low as the market moes up you

7/18/2019 vsaq


know this has to be a false picture. #his low olume is

caused by the professional money refusing to participate in

the up moe, usually because they know the market is weak.

Now to use this to expand on the lesson about ;esistance

and Trends$

Sign 2$ Strength /SoS0$ is an action which shows

that emand is in control. #he SoS should hae good

@emand on the Hp 1oe, a &ide Sread and Increasing >olume on the Hpside. + SoS is usually is preceded by a #?

and a stock can continue in a #? until it either has a So& or

a SoS. #he SoS shows that @emand is in control$ the >S+

characteristics are that it has a &idening Spread and an

Increase in >olume as eidence of good @emand.

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7/18/2019 vsaq


Sign 2$ Weakness /So&0$ is an action which showsthat 3upply is in control. #he reaction will decline with a

widening spread, increased price weakness and increased

olume as eidence of increased, heay selling. #he So& is

also usually proceeded by a #?.


arets do not lie very high volume on up bars because

something big is happening. &ither you have seen a #uying

Climaxwhich will mar the end of a rising maret. 7r

professional money is prepared to buy stoc from old loced

in traders from the previous high. This is not charity wor

by the money men but absorption because they are still

bullish and are anticipating even higher prices. %#&(

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&nd o$ a ising Market

+n UpDay , on high olume, with a narrow spread, into newhigh ground.

+ #uying Climax in an indiidual stock is usually easy to

recognise. #he stock has already been in a bull moe, but

suddenly the price starts to rocket up. #he news is good, in

fact ery good. #he ;erd gets excited on all this actiity and

starts buying.

#his image has been resi4ed. !lick this bar to iew the full image. #he original image is si4ed LF8xM68.

*inding Strength in a DownTrend

-ne of the most powerful ways to nd indicators of strength

is testing for Supply. #hey do this to see if there is still any

7/18/2019 vsaq


supply left. #hey do this by quickly lowering the price Z if

the price closes near the top and has low olume it indicates

that there is no supply. +nother big sign of weakness is

an 6bsorption 5olume #ar . It indicates that the downtrendwill soon stop and either reerse or range.

The Beginning o$ an UpTrend

#he eginning of an Hp#rend starts /e$ore the down

trend ends. It is the last phase of the down trend the herd

has liquidated their long positions and possibly are taking

short positions. #he maor moe to change the trend will

come when S1 unloads most of their holdings.

Climactic 8ction

The business of accumulating a stoc is lie any other

campaign. 4t re/uires planning,good udgement, e2ort, concentration, trading sill and

money to buy stoc in very

large amounts without putting the price up against your own

buying. %#om &illiams /#&0(

The terms "bear" and "bull" are thought to derive from the

way in which each animal attacs its opponents. That is, a

bull will thrust its horns up into the air, while a bear will

swipe down.

%Source$ Inestopedia(

Nailing market tops and bottoms is impossible, but there are

signs that increase the probabilities during relatiely shorter

timeframes or trends. +dd to that the ability to

recogni4e Tests and Traps S1 uses to3hae7ut resistance/detailed in later lessons0 and the S1 !ampagn lights up.

7/18/2019 vsaq


Notice that single bars are ealuated as clues, multiple bars

reeal tactics, but the campaign comes in waes of

accumulation and distribution based on the leels of supply

and demand. @uring these waes are the phases of 1ark Hpor 1ark @own which tend to run as #rends.

#his image has been resi4ed. !lick this bar to iew the full image. #he original image is si4ed LF8xM68.

Trends

6 maret moves up not necessarily because there is more

buying than selling going on, but that there is no substantial

bouts of selling Bprot taing to stop the up move. aor

buying Bdemand has already taen place at a lower price

level during the accumulation phase, until substantial

selling starts to tae place Bappears as excessive volume on

up bars the trend of the maret will still be up. 6 bear

maret taes place not because there is necessarily more

7/18/2019 vsaq


selling than buying as the maret falls day after day, but

because there is insu2icient buying Bsupport from the maor

players to stop the down move. 3elling has already taen

place during the distribution phase at a higher price leveland until you see buying coming into the maret Bexcessive

volume on down bars, the maret will remain bearish.

There is little or no support in a bear maret Bbuying so

prices fall. 1erein lies the reason marets fall much faster

than they rise... %#&(

Clima., the peak, the extreme or the end of something and

as the point of highest dramatic tension or a maor turning

point in the action. Some synonyms are$ top, pinnacle,

height, maximum, consummation, culmination or turn of the

tide. &hat does a climax doC + climax stops a trend either

temporarily or permanently depending on the subsequent

action. + climax is preceded by some sort of a trend.

Climactic action is hall%mared by wide spreads up on veryhigh volume, but the price does not respond upwards. 6

good trader will now be looing to short the maret or sell

calls on any low volume up%move (no demand). %#&(

#here are two tactics that are used when a #rend is about to

reerse$ the Selling Clima. and Buying Clima. .

+n important point here is to know the tactics

of ;etracements versus ;eversals. etracements hae$ a

lack of olatility< small Spreads< and decreased

>olume. eversals, on the otherhand, hae$ increased

>olatility< large spreads< increasing olume. #o see this on a

chart simply draw arrows for the stock moement and the

olume. In retracements the arrows are in the same

direction< in reersals the arrows will be in opposite

7/18/2019 vsaq


directions.

The Buying Clima.

There are two types of buying climactic action seen in the

indices with only one maor distinction. 6fter a substantial

bull move has already taen place, the maret moves even

higher on wide spreads up. *ood news, excitement, elation

abounding. @ou observe the volume is Jltra%high. This

indicates that you may have seen a buying climax. %#&(

If the olume is seen to be exceptionally high, accompanied

by narrow spreads into new high ground, you can be assured

that this is a \buying climax. It is called a buying climax

because to create this phenomenon there has to be a huge

demand for buying from the public, fund managers, banks

and so on. It is into this buying fren4y, that syndicate traders

and market*makers will dump their holdings, to such an

extent that higher prices are now impossible. In the lastphase of the buying climax, the market will be seen to close

in the middle or high of the bar.

#hose traders that hae been waiting to buy start buying *

afraid they will miss out on a bigger moe up. 3en traders

that already hae positions, buy more. #his gies the S1 a

chance to unload huge amounts of their holdings in this

stock, bought at lower leels, without moing the price down

against their own selling. +fter this uying !limax they sell

the stock short, knowing that there is no support or demand

at these high prices. #his process guarantees huge prots.

The #uying Climax /!0 is the climax ending an uptrend.

#he buying gradually builds up W builds up and nally

comes in with a rush until it exhausts itself on the !. #he

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! has increased olume and a widening spread as it moes

up. 2ollowing a ! one of two things can occur, either

a 6utomatic ;ally /+?0 or a lateral moe. #his in turn is

followed by one of two things$ either a continuation of theuptrend or a3econdary Test /S#0. If the supply is to weak to

drie the stock down or demand to strong to allow it to go

down instead of haing the +? the stock will hae the lateral

moe. Hsually howeer, it will hae some form of an +?.

#hat +? may hae increased olume, heay olume or no

olume. It may hae wide price spread, or relatiely narrow

price spread.

#his image has been resi4ed. !lick this bar to iew the full image. #he original image is si4ed =F=xM7=.

The Selling Clima.

#he news will denitely be 'bad' #his, together with the pain

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of preious falls will panic the herd into selling. #his will

gie S1 the opportunity to place substantial amounts of

money into the market at bargain prices. Hltra wide spreads

down, with exceptionally high olume, usually closing on ornear the highs of the day. If the price action does not close

on the highs but on the lows and the next day is up closing

on the high, this can be regarded as similar action. +dd

more bullishness if the news is really bad. %#&(

#he classic characteristics of a selling climax$

• +bnormally large olume

• &ide spreads

• +n acceleration of the downtrend

In the chart below there is a #est for supply /5nd bar in red

box0, then only light olume and a Spring #rap. #his was the

go*ahead for the rally to begin.

ack to &ycko$ "+bnormally large and swift olume

expansion marks a turning point."

The Tests

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#his lesson details Supply and Demand as seen

through 4olume Spread 3nalysis when S1 tests the

market. #hese tests amount to discoering SupplyE@emand

and the "footprints" of S1 through #om &illiams' /#&0 %ow

4olume ule. #his is all taken out*of*context of the

background /trends, timeframes, sEr, etc.0 which was the

subect of earlier lessons.

Understanding and ecogni;ing the Market *orces o$

Supply and Demand

1arkets moe o of the imbalance of supply and demand.

#his is what >S+ identies so clearly on a chart$ 6n

imbalance of supply and the maret has to fall: an imbalance

of demand and the maret has to rise.

;ere it's turned around to see how the market moes on No

Demand or No Supply . #here are two %ow54olume

Tests S1 uses before turning a market that are somewhat

easy to spot.

#he rst test here illustrates weakness before a bearish

moe, that is, weakness in an uptrend /"weaness appears

on up bars" #&0.

No Demand Bar, a narrow spread Hpar with low olumethat !loses in the lower half of the price*bar.

#he =o emand #ar shows there is ery little actiity from

the S1. It is this "no demand" from S1 that causes a market

to reerse on the tops. #he low olume shows that their

participation is limited in the up moe because they know

the market is weak. #heir campaign will include giing themoe an extra nudge to clear any stops. In the end,

7/18/2019 vsaq


triggering stops is a ery protable manouer for them. #his

is one of the times they will trade away from the true alue

of the market to cause confusion * then panic * when the

market turns.

#hose traders who were anticipating the top and took short

positions with stops in that area are forced to coer away

from the true alue then get them back at a lower price. +t

this time, the news is talking up the bull market day * if the

reporters haen't done it on their own, there is always an

analyst /manipulating S10 calling in.

#he No Supply ar is another narrow spread downbar with

low olume that closes in the lower half. It is used to nd

strength in a downtrend /"strength appears on down barsC"

#&0. ;ere we're looking to establish the cause of certain

price moements. #he AcauseB is quite simply the imbalance

7/18/2019 vsaq


between supply and demand in the market, which is created

by the actiity of S1 or olume. #he eect is a change in

price. >olume is the S1 indicator. #hese low olume bars

indicate S1 is mostly inactie, watching their tests forstrength or weakness to unfold.

#his is the opposite of what retail traders asume. #he 3dge

for S1 is their condence and deep pockets. #hey can risk a

large amount of money during their campaigns to rake in

huge gains during the 1ark*Hp or 1ark*@own phase.

efore S1 can start an uptrend they must remoe supply

from the market * accumulate. #he supply they hae

accumulated is intended to be distributed at higher and

higher prices during the 1ark Hp Phase. If they start the

1ark Hp Phase before supply has been remoed, it could

cost them substantially /in time and money0 when hidden or

unforeseen supply shows up. #hey might also lose their edge

for creating panic in the retail sector * in this case greed$ thefear of losing out during the up moe. #he No Supply ar

test is an essential tactic in S1's campaign to turn the trend

up.

Tom Williams' &.ception to the %ow 4olume ule

They say that it is the exception that proves the rule, and

there is an exception to this one. This is one reason rigid

mathematical rules run into trouble. The maret is dynamic,

showing the action of human traders, but it still shows logic.

7nce the logic is recognised the confusion disappears.

4f there is a low volume up day on the very rst day of anybrea%out from a genuine accumulation area, the result is

7/18/2019 vsaq


often a rapid one day up move from the accumulation area

on low volume. This is =7T a sign of weaness. The wide

spread up and out on the rst day from a genuine

accumulation area on low volume is caused bya shortage ofstoc. 4n accumulating stoc, as we saw earlier, the trading

syndicates would have removed most of the supply that is

available at those price levels. This low volume up move out

of an accumulation area is therefore an indication of

strength. The di2erence is that you will have a buying phase

during the previous few days or bars, not signs of weaness.

ost up moves on low volume are a sign of weaness.

1owever, try to recogni0e the reasons. *enuine no demand,

or low volume up%dayIbar, always has maret weaness in

the bacground which the professional money has seen.

More $rom Tom Wiliams and /ecoming a Predator

6dmittedly easy to identify in hindsight bar by bar. The

important point is to eep in mind is that all the indicationsof weaness must have been there in the rst place, as the

maret was unfolding day by day. @ou will no doubt have

di2iculties in analysing a chart as it unfolds bar by bar until

you have trained your mind to thin lie a predator rather

than run and act with the 1erd. 'ractically all these up bars

on this chart will be accompanied with <good news< of some

sort. 4f there is no good news available the news media will

simply mae it up to explain away the sudden up move taen

place on any particular day. @our subconscious mind will be

busy absorbing this information whether you lie it or not

and forming an opinion. To the untrained mind that view will

be bullish, therefore you will not have even noticed volume

implications telling you otherwise.

Traps and Shaeouts

7/18/2019 vsaq


#his lesson illustrates the most powerful tactics S1 uses to

manipulate the herd. + #rap sucks a trader into a position

and locks them in. Gock*In is the psychological state of mind

which exists when an indiidual beliees that he cannot

aord to liquidate a position. + Shakeout forces traders out

of positions they are holding. #his is often a single moe that

accomplishes both purposes$ either an Upthrust or Spring.

#hese are not always used during reakouts or ?eersals.

Sometimes S1 nds it unnecessary for the a market and

won't expend the extra eort and funds required. ut ifthese tactics are used, they are ery easily recogni4ed and

powerful indications of a big moe coming.

The UpThrust Trap

#he rst #rap illustrated comes during a ;e%istribution in

the ar%own 'hase in a downtrend. S1 has accumulated

more Supply and is ready to sell. #he chart below shows

the UpThrust Trap /aka$ #ull Trap0. #his is a wide spread

Hpar with an increase in olume, punching up through a

trend line.

7/18/2019 vsaq


%Source$ Rour#rading!oach.com(

Price has rallied into the Supply*Gine ?esistance. S1 begins

the Hp#hrust #rap and quickly buys on higher olume

causing a Spike in the price spread. #he ;erd umps in at

the higher price leel. #hen, ust as quickly, S1 sells. #he

;erd is trapped. #he smarter ones will sell while the price is

falling, thereby, cutting their losses short< the dumber ones

will hold longer hoping for a miracle reersal to sae them

from their rapidly growing losses.

http://yourtradingcoach.com/


7/18/2019 vsaq


%Source$ Rour#rading!oach.com(

#he aboe chart shows the Spring Trap /aka$ #ear Trap0 as

the reerse of the UpThrust Trap, though less olume was

needed for S1 to acheie their goal. #he herd's short sell

triggers are hit and they panic as price turns against them.

+s can be seen in the blue boxes, this is not the rst time

these suckers hae fallen for this setup, nor the last] #hese

are head*fakes /aka$ !alse #reaouts0 by S1 and, as can be

seen, easily readable in a chart when the setup is

understood.

The everse UpThrust %or Professional Support(

#his action is ery similar to a Selling Clima. but on a far

lesser scale * a mini 3elling Climax. Rou still hae a wide

spread down day, often driing down into recent or new low

ground, then closing at or near the highs on high olume.

+dd more bullishness if the news is bad. +ny down day on

low olume %no selling( after this eent, especially if it closes

in the middle or high of the day. #his is a strong indication of



7/18/2019 vsaq


market strength because supply that was there preiously

has now disappeared. #his S1 buying %absorption of the

supply( will usually stop the down moe. #he more liquid the

market, the more buying they will need to stop the downmoe. #he four maor currencies are good examples of liquid

markets. ;ere substantial olume is usually required oer

seeral days to stop a down moe.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

^^^^^^

Shakeout, + deliberately forced price reaction, whose

purpose is that of stimulating public selling in order to

facilitate the 6ccumulation of speculatie positions.

Terminal Shakeout, vs 7rdinary 3haeout (73)$ the

4!!&;&=C& between the #erminal Shakeout and a

ordinary 3haeout is that the ordinary 3haeout occurs in

an J'F6; trend. The Terminal 3haeout occurs at the

&= of the 6CCJJ86T47= area and at the &= of aT;64=* ;6=*& or a 3J''7;T 6;&6. Fhile the ordinary

3haeout occurs in an J'F6; trend. 6n ordinary

3haeout maybe dened as a sharp 7F=F6; T1;J3T

occurring in an J'F6; T;&= without extensive previous

preparation. 4t is executed for the purpose of buying all the

stoc possible from F&6M or 5J8=&;6#8& holders, it is

';&C&& #y an J'F6; move. The ordinary 3haeout is

characteri0ed by ';4C& F&6M=&33 and usually an

4=C;&63& 578J&. 4n other words a F4& 3';&6 and

some 4=C;&63& in 578J&. 1owever, the 578J& maybe

14*1, &4J or 87F. Fhen there is 3J''8@ on the

3haeout itself it must be tested by a 3&C7=6;@ T&3T.

The secondary test should have a =6;;7F 3';&6 and a

&C;&63& 578J& compared to that of the 7;4=6;@

316M&7JT. This indicates that there was less 3J''8@ on

7/18/2019 vsaq


the secondary test then there was on the 3haeout and the

buyers then M=7F that the stoc is 6*64= prepared to

75& J' with relative 36!&T@.

%Source$ stockmarket*operator.com(

#ecause of the huge volume of trading it will tae

professional buying or selling to mae a di2erence large

enough for us to read the variations in the price spread and

the volume with condence. This fact alone tells us that

there are professionals woring in all the marets. These

traders by their very nature will have little interest in your

nancial well%being. 4n fact they are predators looing to

catch your stops and mislead you into a poor trade given the

slightest opportunity. The continuous price /uotes

throughout the trading day will show a high, low, close and

volume for the time frame you are using (tic volume isgenerated if real volume is withheld). @ou now have the



7/18/2019 vsaq


information to determine the true balance of supply and

demand.

This sill will tae you up to a new and exciting level of

expertise. %#&(

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

^^^^^^^

The Spring

+ 3pring is &illiams' renement of &ycko\s concept of

a Terminal 3hae%7ut. + Spring is a penetration below a

preious support area which enables you to udge the quality

and quantity of supply on that penetration. #he critical thing

that is shown by the Spring is the amount of Supply that

comes out on the drie to new low ground and how well that

Supply is absorbed.

Fithout accumulation every rally is doomed to failure.Fithout distribution every down move is also doomed to

failure. &very move is directly lined to the amount of

shares that have changed hands, which creates an

imbalance of supply and demand, tipping the move one way

or another. %#&(

+ denitie case of &"ort getting esults.

The Cree

&ycko was always dissecting and drawing meaning from

olume strengths and weaknesses. ;e was also focusing on

price retracements relating to olume surge. #his lesson will

illustrate, in a creatie way, how S1 oercomes Supportand esistance. +reas of ?esistance /@emand0 are

7/18/2019 vsaq


represented as a Creek and areas of Support %Supply(

are :ce.

9umping the Creek as dened by &ycko refers to aparticular price pattern hugging a steady line of resistance,

the \!reek, and then suddenly exploding beyond it * a

breakout.

#his breakout if followed by retracement of lighter olume,the price will hug back to support or resistance.

Hsually on the way back to the Cree, the price will not

break through the !reek and should turn around and head

up. &ycko referred to this retracement as coming /ack to

:ce. ;e called it Ice because the line which was originally

the !reek has become impermeable. #he Ice is the former

support area at the bottom of the #? which then becomes a

Supply area.

acking up to the edge of the !reek is normally a potential

SoS. +fter umping the !reek the backup to the edge is

usually the reaction to the ?ally of the 9umping of the !reek

and comes to rest on support aboe the !reek.

Cross or Kump the Cree (K6C)$ either minorImaor. To ump

7/18/2019 vsaq


(rally) above the Cree (drawn trendline) or ow of supply.

This ump or crossing is a 3ign 7f 3trength (3o3). =ow

where is the CreeL 6fter much searching for the answer to

this /uestion r. &vens nally reached the conclusion thatthe C;&&M is F1&;& the #7@ KJ'&. 6pplying this to

the maret, the C;&&M is F1&;& the 578J& C6& 4=,

where the &!!7;T the 'J31 the '7F&; came in. 4t is

important to recogni0e that there is no one exact way of

drawing these crees. o some experimenting with them,

you may wish to draw the Cree lightly in pencil on your

chart and continue the Cree as long as it is useful, then

later, either erase the Cree, or a branch of the Cree, or

perhaps remove it from your chart altogether. 1owever,

leave the important crees on your chart as they can be

&NT;&&8@ 1&8'!J8 in drawing your attention to the

&&T4=* of supply in a TI; and in assisting in dening the

probable extent of the reaction, that is the #6CM J', which

is liely to occur after a possible crossing of the Cree. 4t

will be especially helpful in drawing your attention tosituations where a stoc falls bac into the edge of the

Cree, because every so often it does that and every so often

that little old boy scout sort of drowns. 7ur problem is =7T

to drown with him. %&ycko(

7/18/2019 vsaq


Fhen the price of an issue leaves a trading range to the

down side, there will fre/uently be what Fyco2 refers to as

a fall through the ice. 4ce is identied as the 0one of supportdened the bottoms of previous reactions in the action. The

fall through the ice occurs when the price trades through

this 0one on widening spread and increasing volumes. The

fall trough the ice is not a primary trading opportunity.

1owever, the rally that follows the fall through the ice can

develop into a primary trading position. This advance is

identied as the rally bac to the ice. The purpose of the

rally bac is to conrm that the former support provided by

the ice has been converted to resistance. Fhen this

conrmation is in place, the price can resume down side

progress. The rally bac that is liely to provide the best

entry point on the short side if it unfolds on narrowing price

spreads to the up side and declining volumes as the price

approaches the 0one of former support. own trends that

develop as the price leaves a trading range consist of aseries of thrusts and corrections. The correction of each

thrust can provide a primary trading position if it is

completed in the vicinity of the halfway point of the previous

thrust to the down side and if it unfolds on declining

volumes.

%Step four of the &ycko 1ethod(

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Sign 2$ Strength (373)$ is an 6CT47= which shows that

&6= is in control. The (373) should have *77

&6= on the J' 75&, a F4& 3';&6 and

4=C;&634=* 578J& on the J'34&. =ow let us deal

briey with the (373). The 3igh of 3trength and the

Crossing of the Cree are often two ways of looing at the

7/18/2019 vsaq


36& 6CT47= and the #6CM J' to the edge of the C;&&M

very often is the (8'3) 8ast 'oint of 3upport. This (373) is

usually is preceded by a TI; and a stoc can continue in a

TI; until it either has a (37F) or a (373). The (373) showsthat &6= is in C7=T;78 the 'rice > 5olume

characteristics are that it has F4&=4=* 3';&6 and an

4=C;&63& in 578J& evidence of the good &6=. This

is ';75&= and followed by the ;&6CT47= to the (8'3),

that (8'3) should have a =6;;7F4=* of the 3';&6 and a

&C;&63& of 578J& compared to the (373) indicating

the 86CM of 3J''8@ on the ;&6CT47=

#his image has been resi4ed. !lick this bar to iew the full image. #he original image is si4ed LFOxMM.

7/18/2019 vsaq


Sign 2$ Weakness (37F)$ is an action which shows that

3J''8@ is in control. The reaction will decline with a

widening spread, increased price weaness, and increasedvolume, evidence of increased and heavy selling, this is

#&6;431. The (37F) is usually proceeded by a TI;. 4f the

TI; was in an uptrend it would have been stopped by the

('3@), (#C), (6;), (3T). The TI; will end, on the far right

hand side, it may end its move with a classic (JT) or (JT6)

or it may =7T. 4t may simply have a (37F) and a (8'3@)

with perhaps lower tops and lower bottoms. 6ny possible or

potential (37F) must be conrmed, denied or left in doubt

by the 3J#3&9J&=T rally. The critical thing is =7T 17F

!6; the stoc rallies, the critical thing is 17F it ;6884&3.

4f it rallies with a gradual decrease in demand, evidenced by

a narrowing spread and decreased volume, and with a lower

top this C7'6;6T45& lac of &6= would ';75& and

C7=!4; that the previous reaction was a (37F). Thus 7

=7T tae a speculative position until you see an (JT) or an(JT6), or where there is no (JT), the rst place to tae a

position is on the (8'3@) after the (37F) and aim to

pyramid with the coming trend.

%Source$ stockmarket*operator.com(

*ews 9vents

In this ery important lesson you will learn about

the Triggers S1 uses for their high olume moes.

News comes from ournalists who could be reporting from a

biased source$ a S1 manipulatie liar or an analyst who is

trying to get the public inoled in a scheme to manipulate a

market. 3en taking a contrarian iew doesn't help because

we don't know exactly what the plan is or the timeframe.

http://www.stockmarket-operator.com/



7/18/2019 vsaq


#hey could be trying to get a push going to add to their

market or simply setting*up the ;erd for a quick [eecing.

1arket information on futures contracts is public andaailable through regularly scheduled company releases and

goernment reports. 3conomic reports are issued by the

goernment and, unlike company announcements, are not

dependent on boardroom meetings, management turnoer,

insider information, oicer incenties, and personal or

corporate agendas.

&conomic 3nnouncements can hae a huge impact on the

market< therefore, knowing how to interpret and analy4e

them is important for all inestors. Some of the most

important economic indicators include$ the eige ook,

!onsumer !ondence Index /!!I0, )ross @omestic Product

/)@P0, ;ousing Starts, 9obless !laims ?eport, Non*2arm

Payroll, etc.

"aret aers base their bids and o2ers on information

you are not privileged to see. They now of big blocs of buy

or sell orders on their boos at particular levels and the

general ow of the maret. These wholesalers of stocs also

trade their own accounts. 4t would be na.ive to thin they

are not capable of temporarily maring the maret up or

down as the opportunity presents itself, trading in the

futures or options marets at the same time. They can easily

mar the maret up or down on good or bad news, or any

other pretence. They are not under the severe trading

pressure this has put on all other traders, because they are

in tune with real picture and in most part it is they that are

doing all the manipulating. This is good news for us because

we can see them doing this in most cases fairly clearly and

can catch a good trade if we are paying attention. Fhy play

7/18/2019 vsaq


around with the pricesL They want to trap as many traders

as possible into poor positions. 6s an extra bonus for them

this also includes catching stop loss orders."

%#om &illiams /#10(

8isten to the =ews by 6ll eans #ut...

6lways say to yourself "#JT " 4s the professional element

going to mar the maret either up or down on this news, to

better their own trading positionL 4s the maret basically

strong or weaL 4f the maret loos strong, is this apparent

bad news giving you a chance to buyL Fhat is the volume

telling youL 8ow volume for example on a down dayindicates <no selling<. 1igh volume on a down day with the

7/18/2019 vsaq


next day level or up: indicates <buying<. Bnote both on a down

day. =ews can never change the trend of a maret. Fhat is

the bacground historyL =ews can never change the

foundations that any particular move is based on. 4f themaret has already seen substantial falls, is this bad news

going to nally shae the wea holders out of the maret

allowing a maret turn and giving a good buying pointL

@ou will always see the specialist and maret maers playing

around with the prices on news. This is acceptable as long

as you are expecting them to do this, and not surprised or

taen in when it happens. %#1(

&hen approaching a maor announcement, the risks ump

up. 2irst, is the news going to be interpreted as good orbadC #hen, you hae to be fully prepared and in early

because the announcement will probably create such a wide

spread it isn't worth the slippage, and moe so fast your

platform won't be able to get you in at a good price

afterwards no matter how fast your trigger nger is. So,

back to basics$

Williams' Principle 2ne

7/18/2019 vsaq


The herd will panic after substantial falls and start to sell

usually on bad news. Then as yourself$

6re the trading syndicates and maret maers prepared to

absorb the panic selling at

these price levelsL (must be on a down bar). 4f they are, then

this is a strong sign of

strength.

Williams' Principle Two

The herd will at some time after substantial rises as seen in

a bull maret become annoyed at missing out on the up%

move and will rush in and buy, usually on <good news<. This

includes traders that already have long positions, and want

more. Then as yourself$

6re the trading syndicates and maret maers selling into

this buyingL (must be a up%bar) 4f so, then this is a strong

sign of weaness.

:now where the market is as to Strength and &eakness in

relation to Supply and Demand.

&"ort without esult

6 maor sign of weaness is &2ort without ;esult. There is

an e2ort to go up (Jp#ar on the Chart below) which fails %

chec the volume, and is conrmed on the very next bar

(own#ar). 6fter the results on these two bars, 3 gets out% 5olume dips. The up move is over.

7/18/2019 vsaq


&hat does this meanC Probably no news eent will be able to

push this market up during these time periods. ut S1 has a

campaign that is longer term. 2rom the preiousmanoeuers, what would the herd be thinkingC

#he inestment S1 makes to get what they want is too high

to allow much risk of failure. #hey are not in this to

supplement their income. #hey are in it to brag about how

much they will make this year or to buy a new yacht next

year.

ottom line$ don't base a trade on the news or a coming

announcement, read the chart and understand the campaign

S1 is running. If it's going to be big, then look for the

trigger be timed with a news [ash or economic

announcement. If you understand the cause that is

deeloping, you will know what the eect will be when S1

pulls the trigger.

#ow to analy;e &conomic 3nnouncements

4f you loo at a data calendar (see here for a calendar and

here for my essay) you can nd out when certain data are

released...The &mployment ;eport essay (here) explains

how the #ureau of 8abor 3tatistics calculates the numbers

that are included in the report: in this essay, we explore the

announcement process, that is how analysts forecast the

data, how the consensus forecast is obtained, what are

Owhisper? numbers, the loc%up and what happens at E$PA

am on the rst !riday of the month. !or the purposes of this

essay 4 will use the monthly announcement of the &mployment ;eport but the same analysis could be applied

7/18/2019 vsaq


to other announcements...

6t E$PA am the data are released and broadcast on the news

wires and television: but before then there areapproximately -A ournalists who have seen the data and

written reports at the Oloc%up? (see here for an excellent

essay describing the loc%up). 6ccredited ournalists from

maor news organi0ations receive the data release a half%

hour early and prepare their articles that can be released at

exactly E$PA (they are Oloced up? in a room where they are

not allowed to contact the outside world before the o2icial

release). The data are usually available to senior

government o2icials the night before the release so that the

appropriate cabinet secretary can be prepared to spea ust

after the release.

Then at E$PA the data are released to the public: typically

the data are announced on television (C=#C and

elsewhere), via paid data services to their clients, on newswires and on the web sites of the agencies that release the

data. Traders often react to the initial announcements and

analysis by the reporters in the loc%up before: later analysts

will release comments on what the data really mean through

to their traders, through wire services and in letters to

clients (a service performed by the author of this article).

#ut an hour later there is another announcement and a

month later a revision and ve years after that a benchmar

revision and the data will loo very di2erent.

%?ead the entire article

at$ Hnderstanding#he1arket.com http$EEunderstandingthem

arket.comECp^6L(

Sometimes, it's pretty simple to scalp a news eent in 2orex.

http://understandingthemarket.com/

http://understandingthemarket.com/?p=47%5D


http://understandingthemarket.com/



7/18/2019 vsaq


-n the release, the pair will spike one way or the other * it

doesn't matter if the news is good or bad * then drop back

before it trails o into the actual reaction. 9ust wait for the

spike to back o then ump in for the ride the other way.Sometimes, if you are fully prepared, you can see the setup

coming and catch both sides of the spike.

The <5$actor

and hence trend reversals come as a surprise to them, as

the past performance doesnGt guarantee the future. The

trend reversal during intra%day and for the long term is a

http://ipredictindices.com/blog/forecast-algorithm-market-moves-and-the-x-factor

http://ipredictindices.com/blog/forecast-algorithm-market-moves-and-the-x-factor

7/18/2019 vsaq


maor component to be understood well to be a successful

trader.

The traders at any given buy or sell level, will view the samelevel di2erently depending on the news

or sentiment.The maret maersIfacilitatorsIoperators use

di2erent strategies, news and rumors, political

developments etc to their advantage to bring in swings

within the maret. They create a bullish mood to sell and

bearish mood to buy. They never do hat%trics. The shift in

trading 0one causes confusion and comes as a surprise to

the trader who fails to act smartly and as a result

misunderstands the direction of the maret.Meep in mind

that the operators create the maret sentiments and act

against the traders from time to time.

Jnderstanding the intention of the operator from time to

time and trade accordingly will give promising results. #ut

how do we understand when they bring in changes in levels faster than we thinLQ

Bottom %eversal) Step3+y3Step

*irst, &hat news is there to eect your 1arketC

Second, &hat is the Sector or Index #rend for your 1arketC

Third, &hat Phase is your market inC

7/18/2019 vsaq


*ourth, @raw the #rading ?ange /sEr0 lines.

*i$th, @etermine the Gine of Geast ?esistance

It is through the Phases of the #? that we can distinguish +ccumulationEre*+ccumulation from @istributionEre*

@istribution.

Trading anges are places where the preious moe has

been halted and there is relatie equilibrium

between Supply and Demand. It is here within the #? that

dominant and better informed interests conduct campaignsof +ccumulation or @istribution in preparation for the

coming moe. It is this force of +ccumulation or @istribution

that can be said to build a !ause which unfolds in the

subsequent moe.


1arkets do not like ery high olume on up bars because

something big is happening. 3ither you hae seen a uying

7/18/2019 vsaq


!limax which will mark the end of a rising market. -r

professional money is prepared to buy stock from old locked

in traders from the last preious high. #his is not charity

work by the money men but absorption because they are stillbullish and are anticipating een higher prices. %#&(

+ buying climax in an indiidual stock is usually easy to

recognise. #he stock has already been in a bull moe, but

suddenly the price starts to rocket up. #he news is good, in

fact ery good. #he ;erd gets excited on all this actiity and

starts buying.

The Buying Clima.

#here are two types of buying climactic action seen in the

indices with only one maor distinction. +fter a substantial

bull moe has already taken place, the market moes een

higher on wide spreads up. )ood news, excitement, elation

abounding. Rou obsere the olume is Hltra*high. #his

indicates that you may hae seen a buying climax. %#&(

#hose traders that hae been waiting to buy start buying *

afraid they will miss out on a bigger moe up. 3en traders

that already hae positions, buy more. #his gies the S1 a

chance to unload huge amounts of their holdings in this

stock, bought at lower leels, without moing the price down

against their own selling. +fter this uying !limax they sell

the stock short, knowing that there is no support or demand

at these high prices. #his process guarantees huge prots.

*inding Strength in a DownTrend

-ne of the most powerful ways to nd indicators of strength

is testing for supply. #hey do this to see if there is still any

supply left. #hey do this by quickly lowering the priceZif the

price closes near the top and has low olume it indicates

7/18/2019 vsaq


that there is no supply. +nother big sign of weakness is an

absorption olume bar. It indicates that the downtrend will

soon stop and either reerse or range. Ret another sign of

strength is a reerse upthrust_ t means the trend willusually reerse immediately. %>S+ Duick )uide(

+s can be seen in the chart aboe at rst there is high

olume to stop the trend * S1 is oer*matching the new

@emand of the late*comers with a high olume of Supply.

#he market could moe sideways while S1 absorbs the

remaining supply and runs tests. &hen S1 is coninced

there is no supply left they will use an Hp#hrust #rap to

lock*in the ;erd. #heir udgement is clouded by the rapid

mark*up with its accompanying good news, and the

anticipation of een higher prices.

Phase +$ 3xhaustion of Supply * Supply has been dominant

but is near exhaustion. #he price looks good to S1 and they

are preparing to resist further decline /Support0 the priceleel.

Supply5%ine esistance /Price Support0

+n imbalance of Supply is a @own*#rend where the trend is

running under the Supply*Gine ?esistance. #he market is

being 1arked @own as S1 +ccumulates /buys0 more and

more of the market's supply at lower and lower prices.

Price has rallied into the Supply*Gine ?esistance. S1 begins

the HP#hrust #rap and quickly buys on higher olume

causing a Spike in the price spread. ulls ump in at the

higher price leel. #hen, ust as quickly, S1 sells. #he ;erd

is trapped. #he smarter ones will sell while the price is

falling, thereby, cutting their losses short< the dumber ones

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will hold longer hoping for a miracle reersal to sae them

from their rapidly growing losses

1arket reaches good buying leel for S1 /!ampaign begins0

Selling Clima. /S1 buys /coers shorts0 on bad news0$ a

sharp @ownar / @ownar are strength0 closing on the low.

#he olume is high. #he next bar reerses up closing on it's

high, the olume is also high. #hese two bars are Stopping

>olume and will mark the low for the coming Shakeout.

#he +ccumulation /of outstanding supply0 phase has begun.

#he No Supply ar is another narrow spread @ownar with

low >olume that closes in the lower half. It is used to nd

strength in a downtrend /"strength appears on down barsC"

#&0. ;ere we're looking to establish the cause of certain

price moements. #he AcauseB is quite simply the imbalance

between supply and demand in the market, which is createdby the actiity of S1 or olume. #he eect is a change in

price. >olume is the S1 indicator. #hese low olume bars

indicate S1 is mostly inactie, watching their tests for

strength or weakness to unfold.

The UpThrust Trap /3haeout0$ ig Spread through ;igh

of ?ange closing on low with lower olume.

>olume becomes high, but the bars are closing in the

middle. #his is a sure sign that professionals traders are

absorbing the selling from fearful traders.

Spring Trap, ;uge >olume, huge spread closing near ;igh.

#he Spring #rap /aka$ ear #rap0 is the reerse of the

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HP#hrust #rap, though less olume was needed for S1 to

acheie their goal. #he herd's short sell triggers are hit and

they panic as price turns against them. #hese are head*fakes

/aka$ 2alse reakouts0 by S1 and easily readable in a chartwhen the setup is understood.

VOLUME PRICE OR SPREAD ANALYSIS---------------------------------------------------------------

We can use this Volume Price Analysis - VPA or Volume Spread Analysis -VSA for Analysis

the DSE General Index of Dhaka Stock Exchange price as well as all other volatile & active

stocks in the market.

------------------------------------------------------------------

There will not be any demand for something when there is plenty of it available andnobody wants it. As the availability decreases and more people want it then thedemand increases. So the first thing the SM does is find something that is available aplenty and cheap. The next step is to create a scarcity of the same and get peopleinterested in it which in turn generates the demand. This is first phase which is

Accumulation.

ACCUMULATION

Accumulation is a process through which the SM acquires a large quantity of thestock at the lowest possible price. Accumulation is a subtle, sophisticated and slyprocess of cornering a huge quantity of the stock that makes the following phasespossible and worthwhile. nce a large quantity has been absorbed the number offloating stock reduces and the demand increases. This makes possible the next phaseMarkup.

Accumulation normally takes place in congestion areas. !ongestion area are mostlysideways range bound movements where the stock appears to have no interest to

either move up or move down. The SM ensures that the stock is contained below acertain upper level which is the supply area. At the same time the SM also supportsthe prices above a certain lower line which is the support area. The stock moves

within an upper resistance or supply area and a lower support area.

The congestion areas are characteri"ed by #ndecision. ne of the most importantcharacters of congestion areas is the $ow %olume. &hen most traders are bullish or

bearish the volume is high. $ow volumes indicate indecision among the traders on bullishness and bearishness.

Ah.. Sounds easy''.. &ell the problem is that congestion areas are seen in both

accumulation areas as well as (istribution areas ''' oh , &ell that is not the onlyproblem'''. There will be periods where no one seems to be interested in the

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stock' the pattern of price movement most of time very similar to the congestionpattern'..

So the naturally the question is how one would ascertain if the pattern is reallyaccumulation in progress''. A little later on this and other congestion patterns'..

So the question was ')ow one checks if the congestion area is really anaccumulation area. There are a few things to lookout for..* + irst, the indecision should be quite visible. #n other words the volume should below and quite. -o huge volume upsurges. ven if the volume is relatively higher therange between up day volumes and down day volume should be narrow. + Second, the spread of the bars /)igh 0 $ow1 should be narrow. + Third, the volume should shrink near the support line and expand near the

resistance line. + ourth, the stock should be trading in a range for some weeks if not months.

Also you may see some shakeouts in the trading range. The SM would temporarilydrive down the prices below the support line in order to takeout the stop losses andpanic the weak hands into selling. 2ou will see the stock bounces back above thesupport line immediately. 3y this process the SM is shaking out the weak moneyfrom the stock. or most of us it is 4ust a failed breakout. Sometime the stock insteadof bouncing back would continue to drop if there was too much supply. So tradingthese breakouts could be tricky.

Also it would a good sign if the stocks trading range is much above the support line.-ormally we would see some of the above signs if not all in the accumulation area.There are many other patterns which signify accumulation. Some of them arerounding bottoms, reverse head and shoulder and double bottoms /or 5&61 patterns.ach could be explained in terms of SM activity. )owever we would go into thedetails now. ne thing to keep in mind when evaluating patterns is that it is veryimportant to check the volume pattern as well. or an example we will look at the chart of )!! where a clear accumulationindication was seen 7une 899:*

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A few points about the congestion "one we are looking at for signs of accumulation. #tis important to look at the history of the stock prior to the congestion area. A few

things to look out for'. )as the stock gone through a cycle of accumulation, markup, i!tri"ution anmarko#n previously; &ere there signs of a selling climax 4ust prior to thecongestion; #f so, the SM are really looking out for making another round. r the stock has been languishing aimlessly prior to the congestion "one you arelooking at. #f so, this area you are looking at is not accumulation at all.

&as the stock en4oying an uptrend prior to the congestion; #f so, this could be a re<accumulation going on here.

&as the stock undergoing a minor down trend /after an up move1 prior to thecongestion; &as there a downtrend without selling climax; Then this could meanthere is re<distribution in progress and it may be advisable to look out for sign ofdistribution. /#f you are wondering what is selling climax.. don=t worry.. we will takeit up in detail later.1

MAR$ UP

-ow we come to the next phase in the game plan of SM, namely 5Mark >p6. nce thesmart money has a cornered a huge chunk of the stocks they are ready for the nextmove. The idea is to 4ack up the prices so the SM can fill their pockets. Typically you

will see the low are getting higher. The closes are slowly getting nearer to the high.The prices are getting higher on lower volumes as there is very less supply. Thereactions happen much higher than the support line. Then ..the stock shoots through the resistance or supply line with higher volume. orthat matter the stock need not exhibit the characteristics mentioned above. Suddenlyit can 4ust pop out of the congestion "one.

#t is better to take note on the volume at this 4uncture. The volume need not be veryhigh at all. Since there is no supply /SM have the ma4ority of the floating stock1. #f the

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volume is moderate we should see it coming in strongly soon. therwise the move will collapse and stock would return to the base. &e should see a large swift increasein the volume in case of a genuine breakout. The stock should be closing near the top.

Also too much volume is not good. #t would mean too much supply is coming in.)eavy volume with the stock closing in lower half would definitely mean supply

coming in. Typically an ?@9 increase in volume with the close near the top wouldindicate a successful breakout. The breakout is 4ust the beginning. Then the stockmoves up in stages. ach stage would be an advance at higher volumes and aretracement at lower volumes. The retracement is mainly due to short term traders

booking their profits. The SM also starts the distribution during the retracement. Thepoint at which the retracement stops become important. These should be above theprevious retracement stops. #n simple terms as Saint would put it the stock is makinghigher high pivots and higher low points.

&e will also see sideways movement during the up move which would be congestionareas. &e need to pay lot of attention to these congestion areas for this could be final

distribution areas before the mark down begins. Also it pays to give attention to volume during retracement and congestion areas. #ncreasing volumes near supportline and low pivots indicate problem. #f the increase is dramatic then it is time to re<evaluate your position. inally the stock could make a climax run where the price and

volume explode. The shorts run for cover and the green horns rush in not to be leftout... like cattle rushing into a abattoir. Soon rapid markdown starts leaving the weak money holding the bag and he SM their cash. 7ust enclosing a chart with similar conditions mentioned above*

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Blease do note that here we are talking about more of an idealistic picture. #n realityit could be more complex and many a time difficult to decipher. 3ut then practiceman one perfect.

DISTRI%UTION

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-ow let us come to the third phase in the SM game plan which is 5(istribution6.(istribution is the process where the SM is offloading their accumulated stock at amuch higher price. #t is not very easy to spot distribution. Many a times you will not see any congestion

areas. The >B move may slowly deteriorate and start rapidly deciding after a furl ofheightened activity. The &yckoff puritans may disagree here. #n mark up phase after the stock has run up for some time you will the volumediminishing and the spreads narrowing. The angle of ascent becomes lesser andlesser. The stock trend may even flatten. This would mean that the demand is dryingup. The buyers are not willing to pay a higher price for the stock. Also sellers arereluctant to offload their positions hoping and waiting for a better price. #t is here theSM slowly start offloading their stock. Much care is taken not to make it visible.

%olume is never too high. Brices are support at certain levels so that there is nopanic. )ere it is important to take note of the volume price pattern and angle of

ascent. Too steep an ascent is also a problem. Suddenly you will see the stockdropping down like stone from its high perch.

#t is at the top you will see patterns like )CS and double Tops which are distributionpatterns. Many times it is hard to maintain any semblance of the uptrend continuing and so asideways congestion move ensues. The congestion "one will be quite similar to the"one we discussed earlier for accumulation. 2ou will see the price being supported atsome support level and being contained within a resistance level. The points to takenote are the same ones we talked about in the accumulation "one. 7ust like in the

shake outs in the accumulation "one you will see a shakeout in terms of up thrust bars. ne has to be very careful trading the breakout from the distribution "one. #f itturns out to be the final climax move you will be left holding the bag. 3ut then thestock may goes for another up move. )ere looking for uptrusts and other weakindication becomes necessary. &e will be talking about these indications later. #n the final climax run the stock explodes in terms of volume and price. $ike # said

before the breakout traders , greenhorns rush in and the shorts will run for cover.Then you will see many >ptrust 3ars where distribution takes place with maximumprices. There could be a series of >ptrusts and then''.3A-D'.. the stock dropsdown like a stone.

MAR$ DO&N &e now come to final step in the SM game plan, the 5Mark (own6. &hen the SM hasdisposed off most of the accumulated stock they start the most dramatic move ofcrashing down the prices. Suddenly supply comes in plenty overwhelming thedemand. The price starts tumbling. The spreads dramatically widen. There is panicselling from investors. 3ut the prices drop so rapidly and most of the investors and

green horns that entered late never get a chance to off load there holdings.

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$ike the markup phase we will see some rallies in the downtrend. These are more offreactions. ither the SM themselves try to shore up the price for their last bit ofholding. (ay traders, 5%alue #nvestors6 trying to bottom pick and the green hornstrying to 5Average6 contribute to these rallies. ur friend Saints calls averaging

5!atching a dropping knife6. # cannot find a better description for 5Averaging6. #t is better to note the volume during the rallies. 2ou will find the volume is more ondown days and less on up days. &hen the rally fails the average investor panic andstart selling and that accelerates the fall. #t may take weeks for the down trend to reach the bottom. The end is generallyindicated by a stopping volume or an absorption volume. The SM may be absorbingthe stocks to start the game again. 2ou would find a )igh volume bar with longspread and closing near the top. #t is during the mark down phase you will see rallies like the 5(ead !at 3ounce6. Bay

attention to the volume pattern during these rallies.

The mark down phase is the most depressing and cruel part of the SM game plan. 3ythe end of it the SM would be taking delivery of his brand new class 3en" while theaverage investor is scouting for a buyer for his run down maruti.

f course the Markdown phase does offer good opportunities to smart investors whoare adept in short side trades. 3ut the mark down phase has a silver lining' towards the end it offers the smartinvestors many opportunity to enter into some really profitable trades. &e will

discuss all these later.<<

Volum' Spr'a Anal(!i!-ow that we have a general idea about the SM operation we can step into the worldof %SA.

%SA involves analy"ing each bar with respect volume, spread and close. &e willignore the open. Also while analy"ing the bar action we will also keep in mind thegeneral background of the market.

VOLUME SPREAD ANALYSISinally'. we will step in the actual %SA. %SA measures the weakness and strength ofindividual bars. #n addition it looks at the background strengthE&eakness. So wehave to always look out for &eakness in a uptrend and for strength in a down Trend. ach bar could be characteri"ed to indicate Strength or &eakness based on the

Spread and volume.

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&e will start with looking out for weakness. irst we will look into one of the mosteasily identifiable and strong indication of weakness which is commonly called the>BT)F>ST 3ar. And what a day to talk about >pthrust' The charts are full of themtoday'ven the nifty is showing a >pthrust'of course not a one of the ideal one. 3ut

distinct weakness shown on the nifty.

&)at i! an UPT*RUST %AR + An >pthrust 3ar is a wide range bar, with a high volume and closing down. #tindicates that the prices were marked up during the day /for simplicity we use day, itis equally applicable on all time frames1, the Trading activity was )igh as indicated

by the )igh volume and the prices dropped to near the low /or to the low1 towardsthe closing hours.

$ooking the SM perspective what happened was that the SM marked up the prices inearly trading hours indicating strong bullishness. nticed by this bullish move the weak money also rushed to acquire the stock. Shorts if any would also have rushedfor cover. Meanwhile the SM is quietly distributing their holding to the weak money.#n the later part of the day the SM drastically marks the price down trapping the

weak money holding stocks at much higher prices. #n order to make this ideal, the >pthrust normally appears after a wide range upbar

with high volume. This makes it easy for the SM to markup the price and entice the weak money. Most of the time the >pthrust will be moving into new higher territory.The )igh of this bar will be much higher than the previous high.. )igh volume

should be an important consideration. &hat are the Things to $ooks for in a >ptrust;?. )igh %olume and )ow high;8. &ide Spread;G. !lose, near or on the $ow;H. &hat was the previous bar action;@. (id the bar into new territory;I. #s the stock in an up trend;

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The Answers for the above would decide how potent the >pthrust is* )igh volume >pthrust are a sure indication of weakness, higher the %olume thestronger the indication. #t may be even wise to get out of the stock if the >pthrust hasultra high volume. &ider the spread more potent the >pthrust $ower the closer the stronger the indication of weakness. #deally it should closeshould be the $ow. #f the close is towards the middle it would mean than the SM wasnot successful in marking the price down. There was too much demand.

An ideal >pthrust will move into new territory. The )igh will be very much higherthan the high of the previous bar. This means the SM was really successful in

marking the price up and many traders get trapped into bad positions in the end ofthe day. >pthrusts are effective when the trend has been in force for some time. Sometime

you would find weak up thrusts in early trends. Many times you will >pthrusts with low volume. # call them Bseudo >pthrusts. Theseare not effective as the >pthrust. 3ut are still signs of weakness..


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&e looked at the >pthrust and Bseudo >pthrsts.. &e also looked at what to look forin an >pthrust 3ar. The obvious next question would be &)at to o #)'n #' !'' an Upt)ru!t.

The next bar after the >Bthrust is very important. That helps us decide our action. #f the next bar is a (ownbar closing down it is clear that the weakness and set in andthe immediate trend is reversing. )ere again the volume is an important indication.#f the volume is high then it time to get out and wait to short. #f the volume is low the

weakness is not so pronounce and it may be worthwhile to wait and watch next barmovement. )ere the spread and the position of 3ar also give clues. #f the 3ar is wideclosing down the weakness is more pronounced. Also if the high of the bar is towardsthe low of the >pthrust bar the weakness is enhanced. #f the down bar is with low volume and closing >p then the weakness of the upthrust

bar is still in question. &e have to wait for the enxt bar for confirmation. #f the 3ar after the >pthrust bar is an >pbar closing up then it would mean that the

weakness pro4ected by the upthrust is negated.

$et us look at another indication of weakness. #f the stock has been moving up on ahigh volume and then we encounter a down bar closing down towards low on high

volume is a sign of weakness. %olume need not be very high. #deally the volumeshould be higher than the previous two bars.

#f you look at the enclosed chart the stock was moving up on higher volume. Then we

have the down bar closing down near the low. The volume is higher than the previoustwo bars. $ooks like the SM have been distributing. The next bar looks more like atest for supply. The volume is low and the stock closing up. The low volume indicatessupply is lower. Then again a downbar on higher volume. The weakness is morepronounced now. &hat followed is obvious'


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NO DEMAND %AR According to trade DuiderE tom &illiams an #deal -o demand bar is a >pbar bar with narrow spread closing in the middle or lower and the volume is less than the volume of the previous bars. Though this is their basic definition # have seen subtledifference in the -o (emand bar throwing up different commentaries. 3ut in general any narrow spread low volume >pbar closing in the lower half of the

bar indicated -o demand.

&hat does this no (emand 3ar indicate;

A no (emand bar indicates that there is no support from the SM. The SM is notinterested in higher prices and they are supporting the stock. &hatever buying or

selling is from the stray weak money entering and exiting. !onsequently this indicates weakness. The -o (emand bar does not indicate anyimmediate reversal. &hile analy"ing a -o demand bar we have to look at theprevailing background. (oes the background reflect weakness in terms of >pthrust or Bseudo upthrust; #fthe background is weakness the -o (emand bar indicates enhanced weakness.

#f the background does not show weakness the -o demand bar does show weaknessand does not necessarily indicate reversal. #t only shows lack of participation from

SM. &e may soon see the SM moving in to take the stock up further. So it would be wait and watch time.

&e will explore a little more on weakness indications. >pbars with high volume withnarrow spread and closing in the middle or low indicates that supply is swamping thedemand. This kind of bars would normally be seen near resistance lines. This by itself does not portend great weakness. 3ut the following bars would indicate whether thesupply is persisting or not. Bersisting supply would definitely reinforce weakness.

nclosing the chart of $CT for the recent times when supply came in at the resistanceline. The next bar shows that supply has decreased which encouraged the SM to push

further. 3ut the move faltered at the next level.

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$et us move on'.

!urrently we are discussing weakness. ne last indication before we take upstrengths is called 5E//ort #it)out R'!ult

After accumulation phase is over the SM gets ready for the Mark >p Bhase. #n order

to move the stock up the SM has to put in some effort. The effort to move the marketup can be seen as wide spread upbars closing near the top with increased volume.The volume would never be excessive. #t is easy to identify these bars. #f the 5effort to move up6 results in the stock moving up, the effort has yield thedesired result. Many times you will find an effort to move up bar and the next bar

would be high volume bar closing near the low indicating large supply coming inswamping the demand. So the effort to move up has not yielded the desired result.requently you would find such a situations at high resistance E high supply areas. These fforts without result are good indications of weakness. Most of the times you

will find the stock moving down or side ways after this failure. This is because the SM would rather wait for the supply to vanish before repeating the effort. The SM willthen test the market for supply before trying to move up further. The repeat movecould be good entry points.

T'!t /or Suppl(-ow let us move on to the indication of strength. ne of the most powerful

indication of strength is the 5Testing for Supply6.

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After down trend when the SM has accumulated enough and is ready to move thestock up again they test if there is still supply present. Also in an uptrend if the SMencounters large supply they would pause till the supply disappears. Then they wouldcheck again to see supply is present.

The Testing for supply is done by rapidly marking down the price. #f the stockrecovers towards the high and the volume is low it would mean that there was nosupply. #f the volume is high and if the stock fails to recover it would mean that therestill supply present. $ow volume or less trading activity indicates a successful test.

A TST bar typically dips into a previous high volume area and recovers to close nearthe high on low volume.

A test bar viewed in isolation does not signify anything. #t necessary to look at the

background to ascertain the strength of the Test bar. #f there has been absorption volumes 4ust before the Teat bar the strength of the test bar becomes moresignificant.

STOPPIN0 Volum'-ow we will move further. The next %SA indication we will discuss is called theStopping volume, also called absorption volume.

-ormally in a down trend you will see a down bar with high volume bar closing on

the upper side. This is called a Stopping volume. This indicates that the SM isabsorbing all the stocks. The SM has decided to start the game all over again andhave decided to stop the down tide and start accumulating. As a result the stock willsoon see side ways movement or go into a long accumulation phase. #n effect thestopping volume or absorption volume indicates that the long bearish move is likelyto end soon.

An #deal Stopping %olume bar will be down bar with high volume and closing nearthe top. )owever most of times you would see the close on the upper half of the bar.

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Stopping volume occurs after long down trend. Stopping volumes are basically alertto the impending reversal.

No Suppl(-ext #ndication we are going to look at is called 5-o Supply6. As the name signifiesthis bar indicates absence of supply and indicates strength. The -o Supply bar is a narrow range low volume down bar closing in the lower half.The -o Supply bars are found in the early 3ottom reversals and indicate strength. #tis also common to find these bars in an up trend which are indications ofcontinuation of the trend. They would also be found on consolidation bases. A -o Supply indication has to be read in context with background. At bottomreversal areas they indicate there is no supply available. Then the SM gets ready for

mark up. )ence they indicate strength especially if they appear beforeEafter test bars.


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(uring up moves a -o supply could indicate non participation from SM. #M) thisis one of the difficult indication to interpret.

VOLUME at Support an R'!i!tanc'

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An important thing to note here is that the Fesistance areas do not represent largesupply waiting to be dumped. #n the same way the Support areas do not represent ahuge demand waiting to lap up all the supply coming in.

#t is better to consider the resistance areas are "ones where selling pressure increase

and support areas represent "ones where buying pressure increases.

-ow the question is what Fesistance and support has to do with %SA; As mentionedearlier the SM generally give due respect to the Fesistance and Support areas as theyrepresent "ones of Selling pressure and 3uying pressure.

#n general increased volume with increased spread as the stock approaches aresistance area is a bullish sign. alling volume and decreased spread would meanthat stock would be stalled at these areas.#n the same way decreased volume and spread as the stock approaches support areais sign that the stock would take support in that area and reverse. #ncreased volume

and spread would indicate that chances of the stock breaking the support are more.

#f Fesistance areas are crossed with high volume it is a sign of bullishness and if thecrossing is with low volumes caution is advice. #n the same way if supports are

broken with high volume it is a sign of bearishness and low volume crossing should be viewed with caution. Doing short on a low volume break of support could result ina bad trade.

The SM often attempt to push through the Fesistance areas with a huge volume.These are clearly evident on the charts in terms of high volume wide range bars.

#n general it always pays attention to resistance "one even if you are using you owntrading systems. &hen 53uy= signals are generated near resistance "ones one has to

be careful.

TRADA%LE %ASES DURIN0 TREND C*ANNEL

Accumulation bases can be found in various shapes and si"es. The most common

recogni"able one is the one where the stock moves sideways in a narrow range andthe volume has dried up.. )owever we will also find rectangular bases where thestock moves up and down but restricted within a wider range. 2ou will find weaknesscoming in at the top of the range and strength at the bottom of the range.

Many of the ranges are easily tradable. or a trader or investor with longer term view the idle time to get in would be when the stock bounces back from the support line.This way it the stock breakout he would have the idle entry point. )e also has theoption to quit at the stock fails to cross the resistance at the range top, or a shortterm trader who is adapt in trading the long and short this kind of base providesgood opportunities to go long at the support line and go short at the top of the range.

)ere is 4ust an example of tradable base*

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Introduction to Volume Spread Analysis (VSA) You have heard of Volume Spread Analysis and the value it might add to your analysis.

But it sounds like a convoluted trading method with uncommon terms like “No Demand

Bar and “Stopping Volume.

!s VSA really that inaccessi"le#

$ogether% let&s take the 'rst step to understanding VSA.

(ith this guide% you will 'nd that VSA is an intuitive method after all.

()A$ !S V*+,- S/0AD ANA+YS!S 1VSA2#

VSA is the study of the relationship "etween volume and price to predict market

direction.

http://2.bp.blogspot.com/-l0oDfQRYESI/TluOJHpcHUI/AAAAAAAAALs/gRbWW0BfjxU/s1600/VPA-10.jpg


http://dsediscovery.blogspot.com/p/volume-price-analysis.html#mWStK3jRkzqOeiQO.99






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!n particular% it pays attention to3

4 Volume

4 0ange5Spread 1Di6erence "etween high and close2

4 7losing /rice 0elative to 0ange 1!s the closing price near the top or the "ottom of the

price "ar#2

()* !NVN$D VSA#

$here are three "ig names in VSA&s development.

4 8esse +ivermore

4 0ichard (ycko6

4 $om (illiams

8esse +ivermore spoke of a theory "ased on market manipulation. )e also worked his

theory in his legendary trading career. )owever% he did not pass down concrete trading

methods. )is legacy is that of a trader and not an educator.

0ichard (ycko6 was much more interested in education. $o 'nd methods that work in

the markets% he interviewed top traders including 8esse +ivermore. (ycko6 proposed the

idea of a “7omposite $rader that em"odies the entire market. )e used the “7omposite

$rader to e9plain the market phases of accumulation% markup% distri"ution% and

markdown.

Neither 8esse +ivermore nor 0ichard (ycko6 used the term “Volume Spread Analysis. !twas $om (illiams who used the term to descri"e the methods he "uilt "ased on the

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0ichard (ycko6&s ideas. $om (illiams& "ooks and software has helped to propel the

concepts of VSA among traders.

()Y D*S VSA (*0:#

$he "asic idea is that the pu"lic can only make money from the markets if we understand

what the professional traders are doing. And professional traders are not small players.

$hey play "ig.

)ence% they leave their footprints in volume data. (hen the professionals are active% the

market shows high trading volume. 7onversely% when the market volume is low% the

professionals might "e holding their horses.

!t follows that in order to get a sense of what the "ig guys are up to% looking at ;ust price

action is not enough. (e need to look at price together with volume.

D*S VSA (*0: !N A++ -A0:$S#

VSA focuses on price and volume and seeks to 'nd the actions of professional traders.

)ence% as long as a market has a group of professionals and o6ers relia"le price and

volume data% the trading premise of VSA holds.

Almost all 'nancial markets 1stocks% futures% fore92 seem to 't the "ill.

)owever% in the spot fore9 market% volume is a tricky concept. You will not get actual

traded volume. You get tick volume which measures the times the price ticks up or down.!f you intend to use VSA methods for trading spot fore9% you need to decide if your source

of tick volume is a relia"le pro9y for actual volume.

)*( D* ( ,S VSA $* $0AD#

! will not sugar<coat the fact that VSA is di=cult to master. $his is "ecause traders have

interpreted various VSA concepts di6erently. $o trade well with VSA re>uires years of

practice and market o"servation. 17onsider how much time 8esse +ivermore% 0ichard

(ycko6% and $om (illiams spent studying the markets.2

Nonetheless% we can still improve our trading with "asic VSA concepts that are easy to

understand. )ence% in this 'rst guide% we will look at two simple VSA concepts.

4 No Demand

4 No Selling /ressure

VSA BASIC CONCEPTS

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?. N* D-AND *N ,/ BA0

!f the market rises with contracting spread and volume% the market is not showing

demand. (ithout demand% it is not likely to continue rising.

$o 'nd “No Demand "ars3

?2/rice closed higher than the previous "ar.

@2Volume is lower than past two "ars.

2Spreads 10ange2 are narrow.

@. N* S++!N /0SS,0 *N D*(N BA0

!f the market falls with decreasing spread and volume% the market is not interested in

selling.

$hus% it is not likely that the market will continue to fall.

$o 'nd “No Selling /ressure "ars3

?2/rice closed lower than the previous "ar.

@2Volume is lower than past two "ars.

2Spreads 10ange2 are narrow.

VSA $0AD!N CA-/+S

!n the two e9amples "elow% we will use a @<period simple moving average as our trend

indicator. *ur aim is to use the concepts of “No Demand and “No Selling /ressure to

'nd trend retracement trades.

!n the charts "elow% ! have marked the “No Demand "ars with red arrows and the “No

Selling /ressure "ars with green arrows. 17lick on the images to Eoom.2

?. N* D-AND BA0 F /*$N$!A+ S)*0$ $0AD

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$his chart shows the daily "ars of Deere G 7ompany 1D2.

?2$his "ar punched "elow the S-A and hinted at an impending "ear trend.

@2$hese three consecutive “No Demand "ars con'rmed the lack of market interest to

resume the "ullish run.

2)ence% we had a great conte9t for considering a short trade.

@. N* S++!N /0SS,0 F /*$N$!A+ +*N $0AD

$his chart shows the daily "ars of $he /roctor G am"le 7ompany 1/2.

?2$he market was in a strong "ull trend and remained a"ove the S-A.

@2!n this sideways pull"ack% we o"served three “No Selling /ressure "ars.

2$hey hinted that the "ears are not forthcoming% and the stage for a "ullish retracement

trade was set.

H2$his "ullish /in Bar o6ered the ideal setup "ar.

()0 7AN ( +A0N -*0 AB*,$ VSA#

VSA is gaining in popularity% and there is no lack of resources to advance your

understanding.

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But ! am sure that no software will "ring you trading success unless you truly understand

the VSA principles. )ence% you should de'nitely learn as much as you can a"out VSA%

"efore relying on a software for your analysis.

0+A$D V*+,- S$0A$!S

$hese are not classic VSA methods% "ut they will help you understand the interaction

"etween price and volume.

?2+ow Volume /ull"ack

@2+ow Volume /ull"ack 19panded2

2Anchor Bars

H2*n<Balance Volume

7*N7+,S!*N F VSA

Volume is valua"le "ecause it o6ers another market dimension for analysis. Volume is

also dangerous "ecause it confuses those who do not understand it.

$ake one step at a time. /ick up VSA concepts steadily and use them in your trading

prudently. *nce volume starts to make sense to you% you will see progress "ut

improvements will not come overnight.

CHECKIST !O" VO#$E SP"EA% ANA&SIS ' SHO"T NOTES

Volume Spread Analysis F look into volume% spread and close. we will also keep in mind

the general "ackground of the market.

7hecklist

$he "est entrances within a trend is when we see a no supply 1within an uptrend2 or a no

demand 1within a downtrend2. (hy# $he professionals 1market makers and syndicates2

want to test for professional interest in a given direction. $he tests 1no supply% no

demand2 give us an idea of the supply5demand "alance and professional interest and

thatIs what weIre looking for to determine strength and weakness.

No supply3 A "ar that goes up% yet closes o6 its highs and has lower volume than the

previous "ars.

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No demand3 A "ar that goes down yet closes o6 its lows and has lower volume than the

previous "ars.

7heck"ook for going long3

?. )igher highs5lows

@. No e9cess supply coming in.

. No supply

7heck"ook for going short3

?. +ower highs5lows

@. No e9cess demand coming in.

. No demand

9its3 9cess supply5demand coming against you on lower $JIs or NDIs5NSIs in the other

direction.

Notes taking from /DJ 'les from Volume Spread Analysis "ook.

$he S- "asically moves the market in four phases as follows

?. Accumulation

@. -ark ,p

. Distri"ution

H. -ark Down

?2 *ne of the most important characters of congestion areas is the +ow Volume. (hen

most traders are "ullish or "earish the volume is high.

@2 Accumulation area3 a2!ndecision should "e visi"le. "2 volume should "e narrow. 1low

and >uite2. No huge upsurge. c2 $he spread of the "ars1)igh<+ow2 should "e narrow. d2

Volume should shrink near the support line and e9pand near the resistance line. f2 check

on the volume pattern as well.

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Breakout

$he volume need not "e very high at all.

Since there is no supply 1S- have the ma;ority of the Koating stock2.

!f the volume is moderate we should see it coming in strongly soon. *therwise the move

will collapse and stock would return to the "ase.

(e should see a large swift increase in the volume in case of a genuine "reakout.

$he stock should "e closing near the top. Also too much volume is not good. !t would

mean too much supply is coming in.

)eavy volume with the stock closing in lower half would de'nitely mean supply coming

in. $ypically an ?LM increase in volume with the close near the top would indicate a

successful "reakout.

$he "reakout is ;ust the "eginning. $hen the stock moves up in stages.

ach stage would "e an advance at higher volumes and a retracement at lower volumes.

$he end of downtrend is generally indicated "y a stopping volume or an a"sorption

volume. $he

S- may "e a"sor"ing the stocks to start the game again. You would 'nd a )igh volume

"ar with long spread and closing near the top.

,pthrust Bar

An ,pthrust Bar is a wide range "ar% with a high volume and closing down 1 towards

closing hours2.

,pthrusts with low volume < ! call them /seudo ,pthrusts.

$hings to look out for in ,pthrust%

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?2 )igh Volume and )ow high#

@. (ide Spread#

. 7lose% near or on the +ow#

H. (hat was the previous "ar action

L. Did the "ar into new territory#

. !s the stock in an uptrend#

(ider the spread more potent the ,pthrust .

+ower the closer the stronger the indication of weakness.

!f the close is towards the middle it would mean than the S- was not successful inmarking the price down. $here was too much demand.

OOO$he ne9t "ar after the ,pthrust is very important. $hat helps us decide our action.OOO

,p"ars with high volume with narrow spread and closing in the middle or low indicates

that supply is swamping the demand. $his kind of "ars would normally "e seen near

resistance lines. $his "y itself does not portend great weakness. But the following

"ars would indicate whether the supply is persisting or not.

No Demand Bar

No demand "ar is a ,p"ar with narrow spread closing in the middle or lower and the

volume is less than the volume of the previous "ars. A No Demand "ar indicates that

there is no support from the S-.

OOO(hile analyEing a No demand "ar we have to look at the prevailing "ackground.OOO

!f the "ackground does not show weakness the No demand "ar does show weakness and

does not necessarily !ndicate reversal. !t only shows lack of participation from S-. (e

may soon see the S- moving in to take the stock up further.

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$esting for Supply

$he $esting for supply is done "y rapidly marking down the price.

!f the stock recovers towards the high and the volume is low it would mean that there

was no supply.

!f the volume is high and if the stock fails to recover it would mean that there still supplypresent.

+ow volume or less trading activity indicates a successful test.

A TEST ar typically dips into a preious *i+* olume area and recoers to

close near t*e *i+* on lo, olume-

I. t*ere *as een asorption olumes /ust e.ore t*e Test ar t*e stren+t* o.

t*e test ar ecomes more si+ni0cant-

Stopping Volume F normally in downtrend

Down "ar with high volume "ar closing on the upper side. $his is called a Stopping

volume. $his indicates that the S- is a"sor"ing all the stocks.

OOAn !deal Stopping Volume "ar will "e down "ar with high volume and closing near the

topOO

)owever most of times you would see the close on the upper half of the "ar.

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0everse ,pthrust

,pthrust "ar we will 'nd in a "earish move a )igh volume wide range up "ar with the low

chartering into new lows and the closing will "e near the high.

$he reverse ,pthrust is rare and is found rarely at "ottoms.

Any high volume wide range up"ar in a down trend would indicate strength.

No Supply Bar3

<!ndicates a"sence of supply and indicates strength

No Supply "ar is a narrow range low volume down "ar closing in the lower half.

A No Supply indication has to "e read in conte9t with "ackground.

$hey indicate strength especially if they appear "efore5after test "ars

0esistance Area and support Area

0esistance areas are Eones where selling pressure increase and Support areas represent

Eones where "uying pressure increases.

11Increased olume ,it* increased spread as t*e stoc2 approac*es a

resistance area is a ullis* si+n-

Jalling volume and decreased spread would mean that stock would "e stalled at these

areas.OOO

11%ecreased olume and spread as t*e stoc2 approac*es support area is si+n

t*at t*e stoc2 ,ould ta2e support in t*at area and reerse-

!ncreased volume and spread would indicate that chances of the stock "reaking the

support are more.OO

0$0A7-N$%

?. +ack of volatility

@. Small spreads

. Decreased Volume

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0V0SA+%

?. !ncreased Volatility

@. +arge spreads. specially 6ort to Jall "ars.

. !ncreasing volume

vsaq

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