Volume Spread Analysis Theory

Volume Spread Analysis is the study of Price in relation to its corresponding

volume. Volume Spread Analysis identifies the underlying reasons behind the
market behaviour or movement. If a trader anticipates a bearish or bullish
movement then there must be an underlying reason behind it. Volume Spread
Analysis tracks down the professional activity or the moves of the smart money.
Smart Money in this context is the Big Banks, Hedge Funds and Large Financial
Institution having hefty pockets to move the market the way they want. Smart
Money often manipulates the market and hunt down the stop losses of the herd
(large number of retail traders). Hence, 90% of retail traders lose money due to
smart money manipulation. Since retail traders trade with traditional technical
analysis using indicators and price action and even patterns using text books
contexts so it is easier for smart money to track down the stop losses of masses and
hunt them. Smart money leaves footprints in the form of price action patterns but
since everyone is trading price action pattern in the same way so it becomes easier
for smart money to take down the herd. This introduces flaws in traditional
technical analysis. Fundamental Analysis on the other hand is overwhelmingly
broad spectrum and hence introduces paralysis by analysis bias in trading. Price
Action Technical Analysis is also very subjective which means that everyone will
draw chart patterns, trend lines and Support Resistance Lines in a different way
making price action prone to imperfection. Fundamental Analysis is also very
subjective too. Many traders have found success by combining price action with
fundamental analysis but this method adds to complications. Trading can be
consistently profitable if a trader makes sound decisions based on Skewed high
risk reward Ratio high probability setups with simplicity. Traders who combines
both school of thoughts in trading (i.e. Fundamental Analysis and Technical
Analysis) believes that Fundamental Analysis answers why to enter the market and
technical price action analysis answers when to enter the market. Volume Spread
Analysis answers both why and when of the market. It also eliminates subjectivity
from trading and while price can be manipulated by professional activity, volumes
can’t be manipulated. Thereby, Volume Spread Analysis is one of the best way to
understand market psychology and sentiments. VSA can be used in any market like
forex, stocks, Indices, commodities, and Futures. Many people might argue that in
forex Volumes are useless as it is decentralized market having no real volumes.
This is incorrect as forex has Tick Volumes which is proxy to real volumes and
correlates it 90% of the time. VSA methodology can also be applied to any
timeframe. According to my experience, the effectiveness of Volume Spread

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Analysis has been found all time frames. Originally, Volume Spread Analysis was
developed during the same time as of Elliot Waves and Gann. Meanwhile, Elliot
Waves and Gann were compared to astrology, Richard Wyckoff came up with
more logical theory of Volume Spread Analysis. Some of the Key People who
contributed to the development of Volume Spread Analysis were Richard
Wyckoff, Charles Dow, Jese Livermore, Tom Williams, Gavin Holmes, Anna
Coulling, Richard Ney, Rafal Glinicki, William Peter Hamilton, Robert Rhea, E.
George Schaefer Philip Friston, Gary Dayton, David Weis and Tim Rayment.
Some of the popular technical trading methods which have stood the test of time
are as follows:
 Harmonics Patterns Trading (Developed by Scott Corney)
 Price Action Trading (This includes Horizontal Support & Resistance
Lines/Zones, Role Reversals Support & Resistance Zones/Lines, Trend
lines, Supply & Demand Zones, Role Reversals Supply & Demand Zones,
Pivot Points, Fibonacci Retracements, Fibonacci Extensions, Candlestick
Patterns, Divergence, Moving Averages and Bollinger Bands Squeeze &
Spikes).
 Chart Patterns Trading (This includes Head & Shoulders Top, Head &
Shoulders Bottom, Double Top, Double Bottom, Triple Top, Triple Bottom,
Rounding Top, Rounding Bottom, Cup and Handle, Symmetrical Triangle,
Ascending Triangle, Descending Triangle, Broadening Triangle, Rising
Wedge, Falling Wedge, Symmetrical Channel/Rectangle, Ascending
Channel, Descending Channel, Peanuts, Flags, Bump & Run Reversal, Bear
Traps and Bull Traps).
 Elliot Waves Trading (Developed by Ralph Nelson Elliot and Robert
Prechter)
 W.D.Gann Theory (Developed by William Delbert Gann)
 Andrew Pitchfork Theory (Developed by Andrew Pitchfork)
 Wyckoff’s Volume Spread Analysis/Tape Reading (Combinations of Dow
Theory and VSA) (Developed by Richard Wyckoff, Charles Dow, William
Peter Hamilton, Robert Rhea, E. George Schaefer, Jese Livermore and Tom
Williams)
The primary problem with Chart Patterns, Harmonic Patterns, Price Action, Elliot
Waves, W.D.Gann Theory and Andrew Pitchfork Theory is the subjectivity which
means every trader trades them differently and the other problem is that these
patterns are Classical text book patterns which everyone is using and is readily &
widely available across the internet. This makes them prone to smart money

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manipulation. Wyckoff’s VSA Methodology is clearly the best method among all
these patterns due to three main reason:
 It is non subjective (It has 0 subjectivity).
 It is not prone to smart money manipulation as the method itself is used for
detecting smart money activity.
 It figures out the underlying reasons behind the market movements and also
understands the cause of imbalance between supply and demand.

Components of volume Spread Analysis:

1) Spread: Spread is the difference between Opening and closing of the price.
See the diagram below for further illustration.
2) Volume is the activity of the frequency of transaction of the price change
during a specified period of time.

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 3) Bearish and Bullish Volume: Bearish Volume is marked in Red and it shows
bearish activity. Bullish Volume is marked in green and it shows bullish
activity.

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 4) Above Average High Volume: Above Average High Volume is the Highest
Volume in the current session which is higher than the average volume but it
is lower than the previous peak Volume. Average Volume is the volume that
coincides with Moving Average 20 of the volume indicator.

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 5) Ultra-High Volume: Ultra High Volume is the Highest Volume in the
current session. It is higher than the previous peak volume.

Peak structure is the structure that looks like a mountain Top. See the picture
below:

You can visually compare Mountain Peaks to identify volume peaks structure. The
key is to understand the structure of the peak clearly. Volume peak has following
characteristics:
Rising Volume Peak (Highest Point) Falling Volume

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There are two major applications of VSA namely tracking of SOW (Sign of
Weakness) and tracking of SOS (Sign of Strength).
SOW occurs when the Demand is exhausted (Buyers Exhausted) after uptrend and
Supply increases (More Sellers come in). This imbalance between supply and
demand causes the market to fall.
SOS occurs when Supply is exhausted (Sellers exhausted) after downtrend and
Demand increases (More Buyers come in). This imbalance between supply and
demand causes the market to rise.
SOS = Demand > Supply
SOW = Supply > Demand
There are 4 stages of VSA.
1) Accumulation: This Occurs when Supply and Demand are in equilibrium to
each other after exhausted mark down move. Re-accumulation also occurs
when Supply and Demand are in equilibrium after mark-up move.
2) Mark Up: This occurs when Demand becomes more than supply causing an
upward bullish rally after accumulation and re-accumulation process
3) Distribution: This occurs when Supply and Demand are in equilibrium after
the exhausted mark-up move. Re-distribution occurs when Supply and
Demand are in equilibrium after mark down move.

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Mark Down: This occurs when Supply becomes more than Demand causing a
downward drop after distribution and re-distribution phase.

Note: ACCUMULATION AND DISTRIBUTION ZONES CAN ALSO BE

CALLED RANGE OR CONSOLIDATION OR CONGESTION

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Types of SOS:
1) Down thrust:
Down thrust is the bullish pin bar or pin bar styled Doji bar having an ultra-high
volume or above average high volume. The Spread of the down thrust bar is
extremely low meanwhile the volume is relatively high. VSA suggests that if the
spread is low then the volume should also be low. In this case there is an anomaly
between spread and volume which signifies that there is more demand than the
supply causing price to rise up in near future.

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 2) Selling Climax:
Selling Climax is the high spread bearish candle closing well off the lows having
noticeable downward rejection wick projected on ultra-high or above average high
volume. High spread rejection low volume anticipates that the market will rise up
soon because there is more demand than the supply. Selling Climax has a
downward wick whose size is approximately 25%-50% of the candle’s body size.

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 3) Bearish Effort < Bearish Result:
High Spread Bearish Candle whose spread is larger than the previous candle’s
spread but its volume is lower than the previous candle’s volume. VSA suggests
that if there has been no effort made then there should not be any result. This
Anomaly between Price and Volume increases demand and reduces supply causing
the market to rise in future. An effort (volume) has not been made but there is a
result (Spread).

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 4) Bearish Effort > Bearish Result:
Low Spread Bearish Candle having spread lower than the previous candle’s spread
but its volume is higher than the previous candle’s volume. VSA suggests that if
the effort has been made then there must be a result. In this case there is an
anomaly (disagreement) between volume and price resulting demand to become
more than the supply and causing price to rise in near future. An effort (volume)
has been made but there is no result (Spread).

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 5) No Supply Bar:
A low spread bearish candle having downward wick whose volume is lower than
the previous two candles’ volumes. No Supply bar means that there is lack of
supply and demand is overpowering supply causing price to rise in future. Please
note that No Supply Bar is a continuation signal not a reversal signal. No supply
bar is effective only if it is appears after bullish momentum or appears after SOS in
the direction of the trend.

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 6) Pseudo down thrust:
Pseudo down thrust is the bullish pin bar or pin bar styled doji bar having low
spreads whose volume is lower than the previous two candles’ volumes. This
suggests that there is no supply or lack of supply. Lack of supply means that
demand will overpower supply causing price to rise in near future. Please note that
Pseudo down thrust is a continuation signal not a reversal signal. Pseudo down
thrust is effective only if it is appears after bullish momentum or appears after SOS
in the direction of the trend.

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 7) Pseudo Inverse down thrust:
Pseudo Inverse down thrust is an inverse bullish pin bar (or pin bar styled doji bar)
having low spreads and its volume is lower than the previous two candles'
volumes. This suggests that there is no supply or lack of supply. Lack of supply
means that Demand will overpower supply causing price to rise in near future.
Please note that Pseudo inverse down thrust is a continuation signal not a reversal
signal. Pseudo inverse down thrust is effective only if it is appears after bullish
momentum or appears after SOS in the direction of the trend.

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 8) Inverse down thrust:
Inverse down thrust is the inverse bullish pin bar or pin bar styled doji bar having
low spreads and projected on ultra-high or above average high volume. VSA
suggests that if the spread is low then the volume should also be low. In this case
there is an anomaly between spread and volume which signifies that there is more
demand than the supply causing price to rise up in near future.

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 9) Failed Effort Selling Climax:
Failed Effort Selling Climax is the variation of Selling Climax having no (25%-
50% of body size) downward rejection wick. It has higher spread than the previous
candles and its volume is also higher than the previous candle. There is an anomaly
between Volume and Price as compared to previous candles. However, the next
candle is bullish, absorbing the entire bearish effort. We can go long here.

There can be another variation of down thrust in the form of long legged Doji Bar
or Spinning Bottom having ultra high volume or above average high volume. Its
spread is extremely low meanwhile its volume is ultra high or above average high.
VSA suggests that if the spread is low then the volume should also be low. In this
case there is an anomaly between spread and volume which signifies that there is
more supply than the demand causing price to fall in near future.
There can alse be another variation of psuedo downthrust in the form of long
legged doji bar or Spinning Bottom having low spreads. Its volume is lower than
the previous two candles' volumes. It is a variant of no demand bar. This suggests
that there is no demand or lack of demand. Lack of demand means that supply will
overpower demand causing price to fall in near future.

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Types of SOW:
1) Up thrust:
Up thrust is the bearish pin bar or pin bar styled doji bar having an ultra-high
volume or above average high volume. The Spread of the up thrust bar is
extremely low meanwhile the volume is relatively high. VSA suggests that if the
spread is low then the volume should also be low. In this case there is an anomaly
between spread and volume which signifies that there is more supply than the
demand causing price to fall in near future.

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 2) Buying Climax:
Buying Climax is the high spread bullish candle closing well off the highs having
noticeable upward rejection wick projected on ultra-high or above average high
volume. High spread rejection low volume anticipates that the market will fall soon
because there is more Supply than the Demand. Buying Climax has an upward
wick whose size is approximately 25%-50% of the candle’s body size.

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 3) Bullish Effort < Bullish Result:
High Spread Bullish Candle whose spread is larger than the previous candle’s
spread but its volume is lower than the previous candle’s volume. VSA suggests
that if there has been no effort (Volume) made then there should not be the result
(Spread). This Anomaly between Price and Volume increases supply and reduces
demand causing the market to fall in future.

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 4) Bullish Effort > Bullish Result:
Low Spread Bulish Candle having spread lower than the previous candle’s spread
but its volume is higher than the previous candle’s volume. VSA suggests that if an
effort (volume) has been made then there must be a result (spread). In this case
there is an anomaly (disagreement) between volume and price resulting Supply to
become more than the Demand and causing price to fall in near future.

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 5) No Demand Bar:
A low spread bullish candle having upward wick whose volume is lower than the
previous two candles’ volumes. No Demand bar means that there is lack of
demand and supply is overpowering demand causing price to fall in future. Please
note that No Demand is a continuation signal not a reversal signal. No Demand is
effective only if it is appears after bearish momentum or appears after SOW in the
direction of the trend.

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 6) Pseudo upthrust:
Psuedo upthrust is the bearish pin bar or pin bar styled doji bar having low spreads
whose volume is lower than the previous two candles’ volumes. This suggests that
there is no demand or lack of demand. Lack of demand means that supply will
overpower demand causing price to fall in near future. It is a variant of no demand
bar. Please note that Pseudo up thrust is a continuation signal not a reversal signal.
Pseudo up thrust is effective only if it is appears after bearish momentum or
appears after SOW in the direction of the trend.

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 7) Inverse Pseudo Upthrust:
It is the inverse bearish pin bar (or pin bar styled doji bar) having low spreads. Its
volume is lower than the previous two candles' volumes. It is a variant of no
demand bar. This suggests that there is no demand or lack of demand. Lack of
demand means that supply will overpower demand causing price to fall in near
future. Please note that Pseudo inverse upthrust is a continuation signal not a
reversal signal. Pseudo inverse up thrust is effective only if it is appears after
bearish momentum or appears after SOW in the direction of the trend.

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 8) Inverse Up thrust:
Inverse Up thrust is the inverse bearish pin bar (or pin bar styled doji bar) having
an ultra-high volume or above average high volume. The Spread of the up thrust
bar is extremely low meanwhile the volume is relatively high. VSA suggests that if
the spread is low then the volume should also be low. In this case there is an
anomaly between spread and volume which signifies that there is more supply than
the demand causing price to fall in near future.

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 9) Failed Buying Climax:
Failed Effort Buying Climax is the variation of Buying Climax having no (25%-
50% of body size) upward rejection wick. It has higher spread than the previous
candle and its volume is also higher than the previous candle. There is an anomaly
between Price and Spread of the Failed Buying Climax as compared to previous
candles. However, the next candle is bearish, absorbing the entire bullish effort.
We can go short here.

There can be another variation of Up Thrust in the form of long legged Doji Bar or
Spinning Top having ultra high volume or above average high volume. Its spread
is extremely low meanwhile its volume is ultra high or above average high. VSA
suggests that if the spread is low then the volume should also be low. In this case
there is an anomaly between spread and volume which signifies that there is more
supply than the demand causing price to fall in near future.
There can alse be another variation of psuedo upthrust in the form of long legged
doji bar or Spinning Top having low spreads. Its volume is lower than the previous
two candles' volumes. It is a variant of no demand bar. This suggests that there is
no demand or lack of demand. Lack of demand means that supply will overpower
demand causing price to fall in near future.

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LONG LEGGED DOJI BAR EXAMPLES

SPINNING TOP / SPINNING BOTTOM EXAMPLES

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An Overview of how VSA works in wyckoff method! (This wil be discussed in
great detail later on in this book)

Now as we have learnt the basics of Volume Spread Analysis, let’s understand the
logical reasoning behind the viability of Volume Spread Analysis. We will look
into two concepts to extract the logical reasoning behind the working of Volume
Spread Analysis.
1) Validation: Validation simply means that volume must validate price and its
spreads. If Spread is low then volume should also be low. If spread is high
then volume should also be high. See the illustration below:

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In the illustration given above, it can be seen that High Spread Candles reflect
High Volumes and Low Spread Candles reflect Low Volumes. We say that
Volume and Price are in validation.

2) Anomaly: Anomaly occurs when the validation between price and volume is
violated. Anomaly creates distortion in Dow Theory and also creates
imbalance between supply and demand. Let’s consider an illustration given
below:

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In the illustration given above there is an anomaly between volume and price
which shows the imbalance between supply and demand. This imbalance between
supply and demand creates SOW (Sign of Weakening) and Sign of Strength (SOS).
SOS and SOW have been discussed above in this book.
Now I believe, you can understand the logical reasoning behind the creation of
SOW and SOS. Now let’s understand how SOS and SOW can be explained by
Volume Price Anomaly.
1) UP Thrust (SOS): Up thrust is the narrow spread bearish pin bar or pin bar
styled doji bar or long legged doji bar projected on ultra-high volume or
above average high volume. There is an anomaly between price and volume
in an up thrust. Up thrust bar is formed in an uptrend and shows the
exhaustion or weakening. See the illustration given below.

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 2) Down Thrust (SOS): Down thrust is the narrow spread bullish pin bar or pin
bar styled doji bar or long legged doji bar projected on ultra-high volume or
above average high volume. There is an anomaly between price and volume
in a down thrust. Down thrust bar is formed in a down thrust and shows the
Strength. See the illustration given below.

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 3) Effort with no result: Bearish effort with no result (SOS) is a wide spread
down bar projected on low volume. It appears in a down trend. Bullish effort
with no result (SOW) is a wide spread up bar projected on low volume. It
appears in an uptrend. See the illustration below.

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 4) Less Effort with high result: Less bearish effort with high result (SOS) is a
low spread bearish down bar on high volume. It appears in a down trend.
Less Bullish Effort with high result (SOW) is a low spread bullish down bar
on high volume. It appears in an uptrend. See the illustration below.

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 5) Inverse Up thrust and Inverse down Thrust: Inverse Up thrust (SOW) is a
low spread Bullish Inverse Pin Bar or Inverse Pin Bar Styled Doji Bar
Projected on a High Volume. It appears in an uptrend. Inverse down thrust
(SOs) is a low spread Bearish Inverse Pin Bar or Inverse Pin Bar Styled Doji
Bar Projected on a High Volume. It appears in a down trend.
See the illustration below.

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 6) Buying/Selling Climax: Buying Climax (SOW) is a wide spread up bar
projected on a high volume. Buying Climax has an upward rejection wick.
The wick must be 25%-50% of the candle’s body size. Selling Climax (SOS)
is a wide spread up bar projected on a high volume. Selling Climax has a
downward rejection wick. The wick must be 25%-50% of the candle’s body.
You might be surprised how there is anomaly between volume and price in
case of Selling/Buying Climax since they have high spreads projected on
high volume. Well the simple way to understand the anomaly is in terms of
rejection. When Buying Climax have an upward rejection wick of 25%-50%
then it means sellers are trying to stop an upward momentum and so the
volume must reduce but the high volume signifies that there is an anomaly.
Similarly, When Selling Climax have a downward rejection wick of 25%-
50% then it means that buyers are trying to stop a downward momentum so
volume must reduce but the high volume signifies that there is an anomaly.

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 7) No Demand/No Supply and their variants: Let’s First consider the variants
of No Supply Bars: No Supply Bar, Pseudo down Thrust and Inverse Pseudo
down thrust. Now let’s consider the variants of No Demand Bars: No
Demand Bar, Pseudo Up thrust and Inverse Pseudo Up thrust. No Demand
occurs when a low spread up bar is projected on a volume lower than its
previous two candles’ volumes. No Supply occurs when a low spread down
bar is projected on a volume lower than its previous two candles’ volumes.
There is no anomaly between price and volume in this case but lack of
supply or demand signifies the imbalance between supply and demand
which causes the price to move as a result of this imbalance. See the
illustration below:

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By understanding the logic behind the volume spread analysis, we can summarize
the three main laws of Wyckoff’s principle:
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  The Law of Supply and Demand: Imbalance between supply and demand
causes price movements in the market. This includes: No Demand, No
Supply, Low Volume Retest of SOW/SOS (This will be covered in detail
later on in this book), Spring Tests (This will be covered in detail later on in
this book) and Accumulation/Distribution (This will be covered in detail
later on in this book).
 The Law of Effort vs Result: The anomaly between volume and price causes
the weakness (SOW) or strength (SOS) in the market.
 The Law of Cause and Effect: The Law of cause and effect = The Law of
Supply and demand + The Law of Effort Vs Result.
So far we have discussed VSA effect on single candle. Now let’s discuss VSA
effect on Multiple Candles. See the illustrations below:

In the above illustration, first candle has low spreads accompanied by low volume.
The price is validating volume. The spreads of second candle increases relatively
to the previous candle’s spreads and volume also increases relatively. Once again

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price is validating volume. The spreads of third candle is larger than the previous
candle’s spreads and volume also increases relatively. The price is validating
volume. We also have another validation here and that is with increasing upward
momentum, volume also increases. The spreads of fourth candle is larger than the
previous candle’s spreads and volume also increases relatively. The price is
validating volume. We also have another validation here and that is with increasing
upward momentum, volume also increases.

In the above illustration, first candle has low spreads accompanied by low volume.
The price is validating volume. The spreads of second candle increases relatively
to the previous candle’s spreads and volume also increases relatively. Once again
price is validating volume. The spreads of third candle is larger than the previous
candle’s spreads but the volume decreases relatively to the previous volume. The
price has an anomaly with volume. We also have another anomaly here and that is
with increasing upward momentum, volume is decreasing. The spreads of fourth
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candle is larger than the previous candle’s spreads but the volume of fourth candle
is lower than the volume of the third candle. The price has an anomaly with
volume. We also have another anomaly here and that is with increasing upward
momentum, volume decreases.

In the above illustration, first candle has low spreads accompanied by low volume.
The price is validating volume. The spreads of second candle increases relatively
to the previous candle’s spreads and volume also increases relatively. Once again
price is validating volume. The spreads of third candle is larger than the previous
candle’s spreads and volume also increases relatively. The price is validating
volume. We also have another validation here and that is with increasing
downward momentum, volume also increases. The spreads of fourth candle is
larger than the previous candle’s spreads and volume also increases relatively. The
price is validating volume. We also have another validation here and that is with
increasing downward momentum, volume also increases.

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In the above illustration, first candle has low spreads accompanied by low volume.
The price is validating volume. The spreads of second candle increases relatively
to the previous candle’s spreads and volume also increases relatively. Once again
price is validating volume. The spreads of third candle is larger than the previous
candle’s spreads but the volume decreases relatively to the previous volume. The
price has an anomaly with volume. We also have another anomaly here and that is
with increasing downward momentum, volume is decreasing. The spreads of
fourth candle is larger than the previous candle’s spreads but the volume of fourth
candle is lower than the volume of the third candle. The price has an anomaly with
volume. We also have another anomaly here and that is with increasing downward
momentum, volume decreases.

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Stopping Volume
This is what the price action looks like as the brakes are applied by the insiders,
and is generally referred to as stopping volume. As I have said many times before,
the market is like an oil tanker. It never reverses on a dime for many reasons, not
least because just like a super tanker it has momentum, and therefore takes time to
respond, once the brakes are applied.

In Fig given above we are in a strong down trend, the price waterfall has been in
action and the market has been moving lower fast. However, the insiders now want
to start slowing the rate of descent, so start to move in and begin the buying
process. This buying is then seen in subsequent candles with deep lower wicks, but
generally with relatively deep bodies. However, for additional strength in the
signal, the close of the candle should be in the upper half of the open and close
price. This is not a hard and fast rule, but generally describes the candles as shown
in Fig given above.

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What is happening, is that the weight of the selling pressure has become so great at
this point, that even the insiders moving into the market have insufficient muscle to
stop the market falling in one session. It takes two or three sessions for the brakes
to be applied and is like our tanker. Switch off the engines and the ship will
continue for several miles. It's the same with the markets, particularly when you
remember that markets fall faster than they rise. In a market that is being driven by
panic selling, the pressure is enormous.
The insiders move in and manage to absorb some of this pressure with prices
recovering in the session, to close well off the lows of session thereby creating the
deep lower wick. The selling then continues into the next session, and the insiders
come in again with higher volumes, driving the price back higher off the lows, and
perhaps with a narrower body on the candle, signalling that the buying is now
starting to absorb the selling to a greater extent. Next, we see another candle with a
narrower body and a deep wick. Finally, we see our first hammer candle.
The sequence of candles in Fig given above is an almost perfect example, and if
we do see this combination following a sharp move lower, then we would be on
full alert for the forthcoming move higher.
Stopping volume is exactly that. It is the volume of the insiders and professional
money coming into the market and stopping it falling further. It is a great signal of
impending strength, and a potential reversal in the bearish trend to a bullish trend.
It is the precursor to the buying climax which should follow as the last remnants of
selling pressure are mopped up, the warehouses are filled to over flowing, and the
insiders are ready to go. You should be to!!
Topping Out Volume
Price action - weakness
The clue is in the name! Just as stopping volume was stopping the market from
falling further, so topping out volume is the market topping out after a bullish run
higher.
Once again, the market does not simply stop and reverse, it has momentum, both in
up trends and in down trends. The down trend pressure is certainly more intense as
the market is generally moving faster. Nevertheless, in an uptrend we still have
momentum generated by the insiders driving demand. Traders and investors are
jumping into the market, driven by greed and fear of missing out on easy profits.
The volumes are high and rising, and the insiders are now selling into this demand,
driving the market higher into this selling pressure, which is building. This is the
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price action we are seeing reflected in the deep upper wicks to each subsequent
candle.
At this point it is becoming increasingly difficult for the insiders to keep the
market momentum going, as they continue to sell at this level, with the candles
creating the ‘arcing pattern’ as the spreads narrow and the price rise slows.
Volumes are well above average and probably high or ultra-high.

In Fig given above the last candle in this 'perfect' schematic is our old friend, the
shooting star. We are now looking at the distribution phase which then culminates
in the selling climax, before moving off to the next phase of the market cycle.
These then are the candles, candle patterns and associated volume, you will be
looking for in all markets, in all instruments and all time frames. They are the
MAJOR signals which are the wake up call to you as a VSA trader. They may be
on a tick chart, they may be on a time chart. It makes no difference. The analysis of
volume and price makes no distinction. Once you have practised using the basic
principles that we have covered in the last few chapters, and further techniques you
will learn in the following chapters, you will be ready to apply your new found

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knowledge and skills to any market. VSA is simple, powerful and it works, and
once learnt is never forgotten.
There are many other candles and candle patterns in candlestick analysis, but as I
said earlier, this is not a book about Japanese candlesticks. The ones I have
illustrated here, are those that I look for all the time. They are the 'king pins' around
which VSA revolves. Understand and recognise these instantly, and you will be
amazed how quickly you will become confident and assured in your trading
decisions. More importantly, if you have a position in the market you will have the
confidence to stay in that position, and exit when your VSA analysis signals tell
you to close out.
In the next few chapters we are going to build on our knowledge, and add further
techniques, before finally putting it all together with annotated examples from live
charts.

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Low Volume Retest of SOW
We require Retest of SOW only during an uptrend according to the Wyckoff
principle. This is because SOW supports bearish rally which in this case is against
the direction of the trend. So we require Retest of SOW as a confirmation of
having enough energy to fight against the prevailing trend so that we can be
convinced to go short. Retest can come in two forms:
1) Low Volume SOW retest of previous SOW
2) No Demand retest of SOW

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Please note down the fact that we should not consider the high volume SOW
retest of previous SOW. If high volume SOW Retest of last SOW appears then we
should discard the trade. We consider such retest as a failed retest.

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Low Volume Retest of SOS
We require Retest of SOS only during downtrend according to the Wyckoff
principle. This is because SOS supports bullish rally which in this case is against
the direction of the trend. So we require Retest of SOS as a confirmation of having
enough energy to fight against the prevailing trend so that we can be convinced to
go long. Retest can come in two forms:
1) Low Volume SOS retest of previous SOS
2) No Supply retest of SOS
Please note down the fact that we should not consider the high volume SOS
retest of previous SOS. If high volume SOS Retest of last SOS appears then we
should discard the trade. We consider such retest as a failed retest.

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No Retest Condition for SOS:
During an uptrend, we do not require retest of SOS. This is because SOS supports
uptrend. Since we have the Bullish momentum supporting the SOS so we do not
need any further confirmation in the form of retest of SOS to go long. We can go
long during uptrend whenever the SOS signal or no Supply Signal appears.
No Retest Condition for SOW:
During a downtrend, we do not require retest of SOW. This is because SOW
supports downtrend. Since we have the bearish momentum supporting the SOW so
we do not need any further confirmation in the form of retest of SOW to go short.
We can go short during downtrend whenever the SOW signal or no Demand Signal
appears.

170 | P a g e Written by Muhammad Uneeb