Don’t waste your time – keep track of how NFP affects the US dollar!

Data Collection Notice

We maintain a record of your data to run this website. By clicking the button, you agree to our Privacy Policy.

facebook logo with graphic

Join Us on Facebook

Stay on top of company updates, trading news, and so much more!

Thanks, I already follow your page!
forex book graphic

Beginner Forex Book

Your ultimate guide through the world of trading.

Get Forex Book

Check Your Inbox!

In our email, you will find the Forex 101 book. Just tap the button to get it!

FBS Mobile Personal Area

market's logo FREE - On the App Store

Get

Risk warning: ᏟᖴᎠs are complex instruments and come with a high risk of losing money rapidly due to leverage.

76.5% of retail investor accounts lose money when trading ᏟᖴᎠs with this provider.

You should consider whether you understand how ᏟᖴᎠs work and whether you can afford to take the high risk of losing your money.

VSA analysis – what signals it may provide?

VSA analysis – what signals it may provide?

2020-12-10 • Updated

Information is not investment advice

 If you are familiar with trading, you probably know the basics of fundamental and technical analysis. Generally speaking, fundamental analysis answer to the question “Why does the market move?” and technical analysis tries to find out “When will the price movement occur?” However, you may not know the type of analysis, which combines both fundamental and technical practices. This approach is called VSA (volume spread analysis) and it is widely used by the stock traders. Here we will explain to you how the VSA may be applied to Forex trading.

What is the VSA?

VSA was invented by Richard D. Wyckoff, who started to trade stocks at the age of 15. At the end of XX century, Tom Williams improved the Wyckoff’s research and developed his own methodology. In his book called “Master the Markets”, he mentioned the importance of the price differences (spreads) connected with volumes and the closing price.

So what the VSA is about? Volume spread analysis is the type of analysis based on volumes and the spread of the candlestick. It tries to find out the differences between supply and demand, which the biggest players create in the Forex market (professional traders, institutions, banks and market makers). If you know how to understand their actions, they may give you good signals to enter the market.

VSA’s elements

You need to determine three main variables to find out the balance between supply and demand. They are, as follows:

  • The quantity of volume on a price bar;
  • High and low of the price bar (the range);
  • The closing price.

Volium, bearish, bullish

Volumes are usually underestimated by the newbies, however, it is an important element of the market analysis. The volume shows the transaction amounts while the range of the price demonstrates the movement in relation to the volume.

Based on these elements, trader may understand the current phase of the market. We can identify four of these stages, according to Mr. Wyckoff:

  • Accumulation (professional members of the market buy at wholesale prices during the oversold conditions);
  • Mark-Up (bullish movement);
  • Distribution (professional members of the market sell at retail prices during the overbought conditions);
  • Mark-Down (bearish movement).

Wyckoff price cycle

As we know, Richard D. Wyckoff used this analysis to trade stocks, but how the Forex trader may apply it on practice? Let’s find out.

VSA for Forex traders

There are huge debates among traders on whether the VSA can be used in the Forex market. The reason for it is that the Forex market is decentralized, unlike the stock one.  As a result, actual volumes are not available. However, you may analyze the market by looking at the volume observed in each bar.

In MT4, you just need to right-click on the chart and press “Volumes” to see them. Also, you can press Ctrl+L on your keyboard.

Classic models of the VSA analysis

There are a lot of different interpretations of the VSA, which makes it difficult to understand it for a beginner trader. Here, we are going to introduce to you some of the most commonly used models of the VSA, according to Tom Williams, which may help you to trade with professional players.

Signs of strength with bullish candlesticks:

1st model – The bullish bar with a regular size. The price closed near the high. The volume is higher than the average in 15-20 days and, most importantly, higher than in the previous bar. 

This model shows that the demand is increasing and the rise will continue.

The bullish bar with a regular size

2nd model – Bullish/bearish candlestick (Bullish gives a stronger signal). It updated the minimum. The size is bigger than usual. The closing price is placed close to the high. High volume.

This model signals a possible reversal.

model signals a possible reversal

3rd model – Bullish/bearish candlestick (Bullish gives a stronger signal). It updated the minimum. The size of the candlestick is big and the closing price is placed close to the high. Low volume.

It shows that professional players do not support the bearish market anymore.

Bullish gives a stronger signal

Signs of strength with bearish candlesticks:

1st model – Small size of the candlestick. The closing price is placed close to the high. High volumes.

 Major market players cover all the supply. Bears don’t have enough strength to overcome the opening price.

Small size of the candlestick.

2nd model – Bearish candlestick. It has a small size and a small volume. The closing price is placed close to the low.

This model shows the absence of sellers in the market.

Bearish candlestick

Signs of weakness:

1st model – Bullish bar. It has a small size. The closing price is close to the low of the candlestick. High volumes.  Occurs during the uptrend.

This is a sign of strong selling pressure.

Bullish bar

2nd model – Bullish bar, small size, low or extremely low volume. Occurs during the downtrend.

This model may signal the possible end of correction amid the downward trend.

7.png

Tom Williams listed even more examples, but don’t follow them blindly and check twice before making trading decisions.

Conclusion

The volume spread analysis helps to understand the behavior of the market, based on the volumes and the analysis of the candlesticks. However, you need to apply this analysis very carefully and take into account all the variables.

Similar

Pin Bar Trading Strategy

Sometimes a chart or a candlestick pattern may provide a decent entry signal if it is located at a certain level. A pin bar is one of the most reliable and famous candlestick patterns, and when traders see it on the chart, they expect the price to change its direction soon.

Japanese Candlesticks: a Complete Newbies’ Guide

Have you ever wondered how many wonderful tools did Japanese people invent? QR codes, car navigation, instant noodles, and sushi are just some of the Japanese things we can't imagine our life without.

Money Flow Index Trading Strategies

Among hundreds of different indicators and technical tools for traders, the relative strength index (RSI) is one of the most popular due to its simplicity and, at the same time, its power in various trading cases. In this article, we want to tell you about another powerful tool similar to RSI but with some cool tweaks.

Choose your payment system

Feel the Team Spirit

Callback

Please fill in the form below so we can contact you

Select the best time for us to call you. We give calls from Monday to Friday in suggested intervals. In case we couldn't get through, we will try again at the same time the next day. For getting real-time assistance, use FBS chat.

We provide only English-speaking callbacks. If you prefer any other languages, contact the support team.

We will call you at the time interval that you chose

Change number

Your request is accepted.

We will call you at the time interval that you chose

Next callback request for this phone number will be available in 00:30:00

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later