VSA in 10 Lessons

by Oleg Alexandrov

chartreading.pro

Last update: 25 October 2021

Table of Contents:

● Introduction
● Lesson 1. End of Rising Market
● Lesson 2. Bag Holding
● Lesson 3. No Demand
● Lesson 4. No Supply
● Lesson 5. Selling Climax
● Lesson 6. Buying Climax
● Lesson 7.
● Lesson 8.
●
INTRODUCTION

What is VSA? VSA – Volume Spread Analysis – is a universal approach to assessment of

the strength and weakness of the market on the basis of analysis of the price and volume
action.

● Volume is a size or quantum;

● Spread is a difference between high and low or a bar range.

VSA contains a set of patterns (signals), which help an analyst to interpret the current market
situation with consideration of the previous background and with a view to the future.

This method became popular in many countries due to its specific features:

● VSA divides the market participants into strong professionals and weak beginners;
● it works with the demand and supply powers;
● it does not use indicators. You will not find RSI, MACD and Stoch in the charts of
the VSA founder Tom Williams.

In our following articles on the VSA and cluster analysis topic, we will speak about:

● how to perceive VSA patterns. Each article will be devoted to one or two patterns;
● how to combine the cluster analysis with VSA for increasing the exchange trading
efficiency.
THE STORY OF THE VSA FOUNDER
A boy was born in a small Austrian town Lithgow on January 4, 1929. The parents named
him Tom. The full name is Thomas George Williams. When he was 2 years old, the family
moved to Brighton, England. When he was 16, he started to work in a cinema hall and
studied to become a male nurse. In 1960 Tom moved to Beverly Hills, California, to try his
luck.

He had a SRN (State Registered Nurse) medical certificate and found a job where he looked
after an old stock exchange tycoon who managed a trading syndicate. Tom got interested in
stock trading and asked the tycoon (the name is not mentioned) to teach him to understand
the stock market. Then Tom was employed by the syndicate. His work was to build charts.
There were no computers at that time and traders built stock trading price and volume charts
using a piece of paper, pencil and ruler.

The picture above shows Tom Williams, who demonstrates the metal ruler he used to draw
trend lines and price bars 50 years ago.

Tom properly performed his duties, but he still could not perceive the real market mechanics.
Then the syndicate sent him to the Stock Market Institute to study Wyckoff methods. And
there, day after day, Tom started to perceive the real rules of the cunning market.

I never heard a true thing about market actions on TV or from papers. As a trader, you
will see that you are always misinformed by lies, fraud and false information. And, on
the basis of this false information, you and thousands of other traders will never
understand what a true intention of the market is.
Tom Williams.

Twenty years later, Tom moved back to England, being already an experienced trader. His
approach to the market analysis was based on the Richard Wyckoff principles, but it was
simplified a bit. For example, Tom did not build the Wyckoff Wave, did not use
point-and-figure charts and indicators developed by the Wyckoff followers. Tom called his
approach VSA, founded the Genie Chartist company, and started to popularize the Volume
Spread Analysis.

The geniechartist.com web site is not available anymore, but there is its copy in the Internet
archive (unfortunately, without pictures). This is what Tom Williams writes on the main page
of that website, where the Internet learnt about VSA for the first time:

Believe me, the markets move under pressure of big blocks of professional money,
changing the demand and supply balance one way or another, which you can read if
you learn how to do it and become a keen observer.

We all heard how experts from the financial markets department told us that one or
another market went up, down or aside for one specific reason or another. For
example: “the oil price went up and the stock market went down”.

Of course, the oil price will later change and the stock market will go up, but it seems
that nobody would never want to explain this evident inconsistency. A simple truth lies
in the fact that nobody knows why news made markets move one way or another. In
fact, the news do not move the markets. They follow the markets.

The prices are determined by demand and supply. When the demand is strong and
supply is limited, the prices go up. When the demand is weak or supply is excessive,
the prices go down. The market can even go up in spite of a negative information
background.

The key to successful trading is identification of the supply and

demand balance in the market.
Many traders have a gut feeling about this balance without making efforts. These are
born traders, who, as it seems, are always on the right side of the market, but if you
cannot do it instinctively, you can learn how to do it with the help of the Volume
Spread Analysis. And you will be astonished to realize how much you can learn in a
short time.

Tom Williams passed away on November 7, 2016, in his house in Worthing, a small town on
the southern shore of England. But his system continues to develop.

Tom opened the door into the Volume Spread Analysis describing the End of Rising Market
pattern. We will also start from this pattern.
Lesson 1. END OF RISING MARKET PATTERN
A very eloquent name. By the way, many VSA patterns are self-explanatory.

Tom Williams describes the End of Rising Market pattern as follows:

Let us assume that the stock market was in a bullish move for several months and everybody
is trying to catch the leaving train. The news is good, your friends already made good money
on trading stock and all experts in the media and on TV predict even higher prices.

Professional money, however, has different ideas.

If we build a chart and see a day similar to the one that is marked with an arrow in the chart,
what VSA – volume and spread analysis – can say about it?

We used DJI, the Dow Jones Index; a day timeframe; the end of 2018. This is a relevant
replacement of the original picture of Tom Williams, which fell into oblivion.

There is good news and the volume is very high. The prices grow and everything
looks good – correct? Except for the fact that the price spread is narrow.

The high volume tells us that there is a big activity in the market, but if the demand is
high we expect that the spread will be wide and the price will sharply go up. But it
does not happen.

Let us look at some popular mass media pages dated September 21, 2018. The picture
below shows what happened on that day.
True professionals arrogantly announced that dangers of the global trading evaporate and
the Dow Jones Index confidently grows.

But something went wrong. The VSA pattern turned out to be more shrewd than “talking
heads”, since the stock market plunged into a lengthy bearish dive.

What was the real reason? The VSA founder Tom Williams explains:

Perhaps, what happens is that market makers (who can see both sides of the market) have
big orders for selling, posted a bit above the market. Execution of these sell limit orders
restricts the growing potential of the market, which results in a narrow spread. By itself it is
not a signal for selling, but a clear sign of the fact that professional money is not interested in
growth at the moment and it is a sign of weakness.
So, the End of Rising Market pattern is:

● a narrow spread;
● the closing price is higher than that of the previous day (bar);
● the closing price is usually in the middle or near it;
● the volume is significantly above the average;
● in the background – the period of upward movement;
● the next bar (day) – the price usually goes down, confirming weakness on the End
of Rising Market pattern;
● the news background is good. Sometimes the End of Rising Market emerges when
the price reaches a new record high or crosses the round psychological level.

Let us consider some more examples of the End of Rising Market pattern in different markets
with the use of the instruments of the cluster analysis of the ATAS planform.

VSA END OF RISING MARKET PATTERN IN THE GAZP MARKET

For the sake of fairness let us acknowledge that you do not come across ideal VSA patterns
in harsh reality too often, especially in the day periods of the market volatility. That is why let
us look into the intraday charts in our search for useful End of Rising Market examples. Let
us study the Gazprom stock market and unwind the time to the end of November in order to
find a typical story.

Everything started from an information bomb in the mainstream financial media.

This news says:

Potential of the Gazprom stock growth on the dividend subject is assessed in

8-20%

Increase of dividend payments of Gazprom at 2018 year end up to double values can
become a driver of the growth of prices up to USD 2.7-3.0 (RUB 180-200) by 8-20%.

According to the media, the Gazprom management prepared a recommendation for an

increase of dividend payments of the company previously fixed for 3 years until 2020 at the
level of about USD 0.12 (RUB 8) per share. It is assumed that if the decision about the
dividend increase will be made, the increased payments will take place by the 2018 year
results. According to the media, the Gazprom dividends can become “double-valued”, which
gives ground to hope for the long-ago announced transition to the payment of 50% from the
consolidated profit by IFRS (International Financial Reporting Standards) on dividends. In
this case, an approximate dividend will be equal to USD 0.24-0.30 (RUB 16-20), which will
bring 9.6%-12% to shareholders at the current market price of USD 2.48 (RUB 166).
The price rushed upward against the background of positive “insider” news in media about a
probable price of Gazprom stock of RUB 200 per share.

Let us check the chart.

The grey bar chart reflects the general volume, the red-green bar chart is the delta or
overweight of buys/sells.

The green arrows point to an indicative bar:

● narrow spread;
● high volume (note the delta. The indicator mainly shows buys. Perhaps, this
volume reflects activity of the buyers who were in a hurry to buy for 160 and sell
later for 200).

This bar corresponds with the ERM (End of Rising Market) criteria, however, the price
continues to grow. Moreover, the stock is traded above the ERM bar during the whole next
day. Why didn’t the market reverse downward?

Recall what Tom Williams said above:

By itself it is not a signal for selling, but a clear sign of weakness.

What happened in reality?

For sure, professional money had more large-scale plans and was not in a hurry to push the
price downward before it accumulates enough shorts. And the bar marked with arrows simply
specified the level where the pressure of a “crowd” of buyers met their first sell limit orders.

The professionals supported the stock price during the next days, warming up the market by
stimulating the retail traders buys and forming, at their expense, a bearish position, since, in
reality, they prepared for a downward movement.

And it started on December 11, when the Gazprom stock dropped by 1.5%. The downward
movement continued down to the low of about RUB 146 per share at the bottom of
December 25, 2018. The reason for beginning of this downward movement was the US call
to the European countries for withdrawing from the Nord Stream-2 pipeline project.

So, what this situation teaches us about. It turns out that using a VSA pattern in isolation
from the general context could be an ill-considered decision. Well, is it worth trusting and
applying it at all?

Definitely yes. Since the principle of order reduction, which lies in the basis of the End of
Rising Market pattern, is a core one. It works in any market/timeframe and ERM features
appear, in one form or another, practically in each downward reversal.

This is how unconventionally the ERM pattern looks like in the event of a false breakout of
the day’s high in the Volume type chart. It is the same market – the Gazprom stock. One bar
equals the 10 thousand contracts volume
Let us consider it in more detail. The intraday chart shows the trading dynamics as of
January 25, 2019. The general volume is shown on the volume indicator in grey (it is nearly
the same on the majority of the bars, since we selected the Volume type chart), while the
delta is red and green.

The price made an effort, closer to the end of the main session, to break the high of the
range formed during the first hours of trading. However, what does the chart tell us?

The chart never lies. Tom Williams

When making a breakout effort, the delta becomes practically completely green (trades on
the exchange are initiated by buyers), however the price progress is not big and the spreads
become narrower. That is, the buys that reflect:

● entries into longs of buyers “for a breakout”;

● exits from shorts of the sellers that set stop loss orders above the day’s high level
(someone, for the sake of good order, “hid” the stop behind a “reliable” resistance
162.0) …
… met sell limit orders of professional intraday players that aimed to get a quick profit from
the subsequent down movement by 70 kopecks. Well, the price reversed upwards later, but it
is, as they say, a completely different intraday story.

Let us consider one more example of the End of Rising Market pattern. This time, an
example from the futures market.

END OF RISING MARKET IN THE RTS FUTURES MARKET

“Good” news came on December 7.

his news says:

December 07, 2018, 20:04

The RF stock market went up against the background of rallies in oil prices and
strengthening of the rouble

However, what does the chart say? It can give a topical information about the demand and
supply balance if you can read VSA patterns in the chart.

The picture below shows the RTS index futures trading chart with an hourly timeframe. (By
the way, Tom Williams used the HLC (High Low Close) bar charts without the opening price).
The arrow points at the bar, which corresponds with the VSA End of Rising Market criteria:

● the prices grow but the dynamics slows down, which results in a narrow spread;
● a high volume, which is evidently uncommon for the bars with such a spread.

The next bar is closed lower. Tom Williams said that the bar, which goes next after End of
Rising Market, should be closed lower, confirming a real weakness hidden behind that
pattern. Note that the delta is positive. Tom Williams did not say anything about the delta
since he did not use the cluster analysis.

However, ATAS provides us with an opportunity to look deeper into the End of Rising Market
bar/candle in order to efficiently assess the situation. We can see predominance of the
buyers (green color on the delta). But if these buys represent a real power, why did the price
go down on the next bar? Perhaps, because the executed buy orders represent:

● entries into longs of the buyers, that get into a trap, “for a breakout”;
● exits from shorts of the sellers that set stop losses above the highs levels of
December 4-5. Those who hid the stop behind the 116000 level also “burnt down”.
These are “poor quality” buys. The futures passed from professionals to the “crowd”, which
suffered (as usual) losses and did not get profit from the further price reduction from 116000
down to 101640 (-12%) on the low of December 24.

This reversal is more transparent in the cluster chart.

1. End Of Rising Market. Note the bright green color on the Cluster Statistic
Indicator;
2. The aggregation of red clusters shows levels, at which professional money
“showed its cards”. It started to sell aggressively;
3. The seller’s aggression is evident, but ERM was the first sign.

Download ATAS and analyze reversals on peaks. You are sure to find a splash of buys
against the background of the narrowing spread as a predecessor of a change of the market
mood from bullish to bearish. And note that End of Rising Market works better at the levels
where there are signs of weakness already.

We continue to analyze VSA through the use of modern instruments for the market
analysis and move to another pattern – Bag Holding
Lesson 2. VSA BAG HOLDING PATTERN
The Bag Holding pattern is a mirror reflection of the End of Rising Market pattern. It is an
“upside down” situation.

The name implies “hold your bag wider”.

The VSA Bag Holding pattern is:

● a narrow spread;
● the closing price is lower than the previous bar;
● the closing price is usually in the middle or close to it;
● the trading volume is much higher than the average one;
● the background – the period of downward movement;
● the next bar – the price usually goes up, confirming a hidden force on the Bag
Holding pattern or is traded for a short period without changes on a small volume;
● the news background is negative. Sometimes the Bag Holding emerges when the
price reaches a new record low or when there is a downward breakout of the round
psychological level.

This is how one more VSA expert Philip Friston (a close partner of Tom Williams and
manager of a hedge fund. He trades stock on the London Exchange, having started to study
VSA in 1989) describes the Bag Holding:

The bar description:

● A down bar
● A narrow spread with an ultra high volume.

It is a rare pattern, but one of the strongest ones. It should be in the area of
new lows. A point is achieved when the crowd is in panic and sells the stock at the
lower price limit. The narrow spread tells you that professionals consume the whole
supply that comes to the market (efficiently holding the bag in order to collect panic
sells – the name originates from this situation). If they would not have done it, the
spread would have been wide. There should be a clear downward trend in the
background. Remember: in order to stop the downward movement in the market the
demand should exceed the supply, which causes this movement. Naturally, this should
appear on down bars.
As well as the End of Rising Market, the Bag Holding pattern is a rare thing in its ideal form.
However, the principles that are characteristic for this pattern could be found, in one form or
another, on many important lows.

Let us consider some examples.

VSA BAG HOLDING PATTERN IN THE MSFT STOCK MARKET

On September 3-5, Microsoft was the news headliner in the American stock market. Its
management decided to buy Nokia for USD 7 billion. The media covered this situation with
pessimism, as if the plan was doubtful, risky and could result in losses. This negative news
background accompanied the stock drop by 5% with the growth of volume.

Let us consider the chart in detail. The price went down on September 3 with a gap on
opening (the gap brings “dramatism” to the drop and urges the public to panic sells). On
September 4 (the bar is marked with an arrow) the drop slowed down, the spread became
narrower, but the volume was very high – 2 times bigger than the average one.

Those were the days when Tom William conducted webinars for VSA students. As usual, in
the end of the webinar, he invited his students to ask questions. The author of this article
asked him whether the September 4 bar is a true Bag Holding pattern. Tom said that it was
not the Bag Holding in its pure form, because even the local low was not reached, but this
bar was definitely a sign of strength.

The price dynamics stabilized during the next days. And on September 10, 2013, the stock
started an outstanding up-trend from the level of USD 31 per share. The growth lasted for 5
years and the stock went up to USD 113 per share (+250%) in 2018, making Microsoft a
company with the biggest capitalization in the world.
What really happened? As you can guess, professional money used the price drop following
“the bad news” on September 3 in order to consume the panic sells. The price and volume
interaction testifies to it – the spread becomes narrower and the volume is high without
development of the bearish dynamics. Having accumulated the MSFT stock, the demand
and supply balance changed and the growth was not late in coming.

VSA BAG HOLDING PATTERN IN THE CRYPTOCURRENCY MARKET

In an ideal situation, the Bag Holding appears only on an important low, which occurs twice a
year or even more rarely. However, the principle that lies in the basis of this pattern,
manifests itself, one way or another, in all markets, timeframes and chart types.

In order to confirm this bald statement, let us launch ATAS Crypto and open a nonstandard
tick chart of the BTCUSD cryptocurrency pair on the Bitfinex as of January 26, 2019.

1. Arrow 1 points at the volume splash (mostly sells) after a sharp drop. This
moment, with certain reservations, corresponds with the Bag Holding criteria. The
previous two bars had a smaller volume but a wider spread. This observation is
sufficient to assume the strong player’s support. The next bars confirm this
assumption. Note the delta after the Bag Holding. It changes from red into green
telling us that professionals moved from buys at buy limit to buys at the market
price.
2. The second episode is too far from the classical Bag Holding signal, but,
nevertheless, certain specific events also take place here. Perhaps, minor sellers
thought that the downward trend would continue (which was suggested by the
 bearish signals of popular indicators) and decided to open shorts. But their sells
met buy limit orders of professionals, the delta turned green from red and the
cryptocurrency price went up fixing losses of “the crowd”.

Let us find the Bag Holding on the Moscow Exchange.

VSA BAG HOLDING PATTERN ON A USD/RUB FUTURES

A bar, which corresponded with the Bag Holding criteria, appeared in the intraday SiH9 chart
on January 18, 2019. Look at the picture below (the timeframe is 3 minutes).

The red arrow points at a narrow candle (assess a difference between the high and low).
Note the delta behavior and the level, at which the VSA Bag Holding pattern appeared.

Perhaps, it is a manipulation on the evening session opening. The price was moved down,
under the local lows, in order to “knock out” stop losses of the buyers. After crossing the local
low level, the spread becomes narrower, the volume is above average and sells predominate
(stop losses of hens came into action and the eggs got into the wolf’s basket).
The volume is also high on the next candle with a long bottom shadow and strong closing
and the delta turned green. For sure, the manipulator completed his black mission on killing
stops and moved from the buy-limit tactics to the buy-market one, pushing the price up.

The cluster chart clearly shows what happened.

1. The main accumulation of the buyers’ stop losses was here. At the expense of
their activation, the professional buyers built up their long positions even more.
2. The price was moved a bit lower in order to disappoint those who thought “whew,
it missed by an inch” a couple of minutes ago. But the red color goes pale and
there are less stops.
3. And when a cunning professional cleaned up the level from stops and filled up his
“bag”, he started to buy aggressively at market prices, pushing the price up, the
sign of which is the overweight of buys 56% on the Cluster Statistic Indicator.

What happened the next day? January 19 was traded with a positive dynamics. But the
buyers, who “hid” their stops under the local lows on January 18 failed to make a profit on it.
Summary
We considered two VSA patterns: End of Rising Market and Bag Holding. They are “twins”
and are mirror reflections of each other.

Let us refer now to the primary source – the Wyckoff System. Richard did not use eloquent
names, such as End of Rising Market or Bag Holding, for individual patterns in his works. To
explain a situation he used the Law of Effort and Reward term. What effort and reward did
he mean?

Imagine that you drive a car, which moves up a hill. You press the throttle pedal as much as
you can, but the car cannot reach the top of the hill, although the slope is not steep. This is
bad news for the driver. You made a lot of efforts (fuel) but did not achieve the result (the car
failed to get to the top of the hill). Absence of progress, despite the efforts made, gives solid
ground to assume that “something is broken”.

This law acts in the considered VSA patterns:

● End Of Rising Market. Efforts of the buyers (a high green volume on the delta) do
not produce a significant result in the price growth (a narrow spread on the up bar);
● Bag Holding. Efforts of the sellers (a high red volume on the delta) do not produce
a significant result in the price reduction (a narrow spread on the down bar).

If something that worked in the 20th century continues to work in the 21st century, it is worth
using. You can apply the cluster analysis instruments for increasing your efficiency. Don’t you
think so?

We will continue to speak about VSA patterns and cluster analysis with No supply and
No Demand. By the way, No Supply is one of the favorite patterns for entering a long position
of Tom Williams, whose story we already told you before. When conducting webinars and
sending weekly market reviews to his subscribers, Tom always focused on a search for No
Supply. He also called it Test of Supply or just Test.

We will consider the Tom’s chart and his description of Test of Supply a bit later, and now we
start with No Demand.

Lesson 3. NO DEMAND
Let us consider this VSA signal from the point of view of the economic theory, addressing the
Wikipedia. The picture below shows a graphical interpretation of the Law of Demand.
 The classical law states:

The size of demand decreases as the price on a commodity increases, in other words,
there is an inverse relation between the size of demand and the price, when the price
growth reduces the demand size and reduction of the price leads to the growth of the
demand size.

Let us consider a practical example.

Let us assume that one apple seller named Ahmed opened a shop on a Dusseldorf market
where he never traded before. In order to understand what price he should ask for, he
changed the price every day:

1. Monday. EUR 5 per kilo. 10 kilos sold;

2. Tuesday. EUR 10 per kilo. 1 kilo sold;
3. Wednesday. EUR 3 per kilo. 25 kilos sold.

This is the law of demand in action. The higher the ASK price, the less are the buyers (real
demand).

As a result, Ahmed realized that he should ask for EUR 4 per kilo on this market, because it
is an optimum price, which would provide him with sufficient cash receipts and trading
volume.

What is this theoretical preface and fictional story for? Because the Law of Demand from
the textbook of an economics student acts the same way both on a vegetable market and in
any financial market, whether it is a stock, oil futures or cryptocurrency exchange.

The only difference is that some markets are more stable than others. In other words, the
apple market is subject to such factors as seasonality and productivity. And having realized
where the level of a fair / optimum price is, you can be sure that in future the balance of the
demand and supply will not deviate from it for more than conventional 10% during a year.

Financial markets are different. Securities, currencies and other exchange instruments are
very sensitive to a big number of influences. It happens quite often when a common stock
increases (or decreases) in its value by 20-30% during one day after a newscast.

Let us consider a bitcoin, for example.

The amplitude of the price fluctuations in this market is 2-3% on a standard day. However,
can the VSA and No Demand signal help to identify seemingly unforeseen steep dives?

Yes, they can. The VSA No Demand pattern sends a signal that the current price in the
market is too high. Examples will follow further.

Launch the ATAS Crypto and open the BTCUSD exchange rate chart from the Bitfinex
cryptocurrency exchange. The chart has the volume indicator (grey bars) and the delta
indicator (red and green bars) laid over it and showing an overweight of the executed selling
and buying orders respectively.

On May 11, 2018, (the candle is marked with red arrow No.1) the bitcoin price dropped
from 9,018 down to 8,333 at the day low. It was the beginning of the downtrend, which lasted
for many days and ended in the summer, when the bitcoin found its support at the 5,800
level.

The market behavior on the eve of this long downward movement was quite interesting. Note
the trading volumes on May 4-5. The price was above 9,500 and volumes were nearly two
times less than average ones, which means that there were less trades than usual. Perhaps,
the market participants were not interested in that price.
Who was in deficit in the market? If the buyers, they were not satisfied with the high bitcoin
price. If the sellers, they did not want to sell the cryptocurrency cheap. And the fall on May 11
clearly answers this question by going down on a growing volume. So, we read information
from the chart, which tells us that the Bitfinex cryptocurrency exchange had a deficit of
buyers at the beginning of May, that is why there was a small number of trades.

Comparing this situation with the one of Ahmed from Dusseldorf, we can make a conclusion
that bitcoins in the beginning of May 2018 at USD 9,500 is like apples at EUR 10 per kilo.

Continue to read the chart. Trading volumes on May 19-21 were not high at the 8,300 price
per bitcoin. The downward movement started on May 22 (red arrow No.2) on the growing
volume and even accelerated the next day. It gave the ground to assume that effective
demand rapidly goes down.

he deficit of buyers on June 7-9 (low trading volume) was fixed at the level of 7,500. This
confirmed the fall on the growing volume with predominance of sells on June 10 (red arrow
No.3).

Bouncing from the 5,800 support level in June, the bitcoin broke the 8 thousand level in the
end of July. Many traders started to say that “crypto is on a roll again”, “to the Moon” and
planned to buy a new Lambo. But look at the volumes.

The volumes are very low on July 28-29. And the accelerating downward movement from
July 30-31 (red arrow No.4) with the growing number of sells told us in the chart language –
there is no demand above 8K.

Those situations, which the market experienced on the eve of the

falls that are marked with red arrows, are the No Demand pattern.
The simple economic principles, which are in the basis of the Law of Demand and Supply,
work in any market. As soon as the growing price ceases to satisfy buyers, the trading
volumes go down. Figuratively speaking, the market climbs up the Mount Everest and
reaches the thin air zone. As well as a mountain climber needs oxygen, the market needs
demand. That is why the further price reduction is natural and the growing volume revives
trading, letting in more buyers who are ready to spend money and buy goods (bitcoin,
currency, stock – anything).

In order to avoid a situation when the price drop catches you off guard, learn to identify the
No Demand pattern in your working market/timeframe.

HOW TO DETECT THE NO DEMAND SIGNAL IN THE CHART

This is how a VSA strategy expert Philip Friston describes the No Demand signal:
 The up bar on a narrow spread was closed in the middle with a low volume or lower
than the previous two bars. It could be a down bar if its top is higher than the previous
bar. This shows that professional money were not interested in higher prices at that
moment. If a price spread is bigger than a narrow one, it still might show a weakness.

Pay special attention to the background. If the previous several bars show signs of
strength, this indicator might be the reason of the fact that the market plans to have
some rest during several bars, since the professionals stepped aside for a while
before starting the upward movement.

The next bar should be a down bar for confirming the No Demand. If the background
has strength, expect testing of the supply or the up bar on the increased volume (an
effort to push through this sign of weakness). If there are other signs of weakness in
the background, expect price reduction. Specialists noticed this weakness and are not
interested in upward movement any more. The further weakness signals, such as
upthrusts, will confirm the bearish mood of the market.

If you are near an old top, it is very unlikely that the market will move up through this
old top when there is no demand. Be careful if you see a down bar with a narrow
spread and lower volume than that of the two previous bars after the absence of
demand. This tells us that there is no pressure from the sellers, which confirms the No
Demand pattern.

Another VSA expert, Sebastian Manby, also pays big attention to the general context of the
market. He uses the Volume Spread Analysis for 20 years already and Tom Williams, the
founder of the VSA, and other professionals in analyzing price and volume call Sebastian
“the chart reading machine”.

Here is a perfect example of the VSA No Demand in an old Sebastian chart (a Dow Jones
Index futures as of 2004).
Sebastian says:

If a peak has been formed but the price continues to move up, it will need to undertake some
effort in order to overcome resistance of the traders that got stuck in loss-making longs on
that peak. And if the market grows towards the previous peak on a narrow spread and low
volume (I marked this situation in the chart), you need to look for entries into shorts and run
out of longs, because the clockwork is ticking and the bomb is about to explode!

So, in general, the VSA No Demand pattern usually looks like:

● an effort of the market to go up and the price slowly moves up, …;

● … but it closes in the middle of the bar or near it;
● a narrow or medium spread;
● a low volume;
● the next down bar on the growing volume is a confirmation of a deficit of buyers.

An important nuance.
No Demand (ND) is a complex phenomenon representing a process, which may run in an
endless number of variations. The VSA strategy reduces the ND detection algorithm to a
check of compliance of an individual bar with the above criteria. A trap appears here. “A
narrow up bar on a low volume – it means ND – should sell” – it is a very light-minded
decision.

How to avoid a trap when reading a chart bar after bar and how to start thinking in
general. Follow the recommendations.

1. First. ND – as it was already mentioned – is a process. It can non-obviously

unfold both inside a bar and over several bars in a row. It should be taken into
account when analyzing the chart using the VSA method, especially when we do
not speak about day periods.
2. Second. Mind the context. The No Demand pattern has a bigger weight if it
manifests itself at the levels with the previous signs of weakness or under
conditions of a downward trend.

These two recommendations are also true, with certain corrections, for the No Supply signal,
which we would consider below, as well as, actually, for other VSA signals.

We had enough of the theoretical stuff, so, let’s do some practical one.

EXAMPLES OF NO DEMAND IN THE MODERN MARKETS

Let us consider an hourly chart of an RTS index futures.
The price went higher than 122,800 during the daytime on February 5. But the trading
volumes went down at this level (arrow No.1), which gave ground to assume the No Demand
situation. After the evening session was opened, there was, most probably, an act of
sabotage: manipulators activated stop losses of the sellers above the local high and reversed
the price down. (It is an upthrust, we will speak about it in our next articles, so, check out our
publications).

The next day, on February 6, the futures price dropped on the opening. The volumes are big
and the delta is bright red. This change in the market behavior testifies to a real weakness
and the No Demand pattern was among the first to send a signal about it. What a trader
should do in such a situation under the VSA strategy? It is logical to implement “a bearish
plan” and look for entries into short positions. The No Demand pattern again will be of use
here.

Note the arrow number 2. It is an effort to go up, but the volumes are small. It is a potential
ND. The market participants do not believe in further growth against the background of a
sharp drop on the market opening. That is why we switch to younger timeframes and check
clusters.
Note the splash of buys (A) in the 122,180 cluster and the following splash of sells (B)
in the 122,140 cluster. Perhaps, these were:

● A – a trap for the buyers and activation of very close stop losses of the sellers.
Perhaps, they opened shorts during the morning sale, but were thrown out of the
market in point A. The professionals accumulated short positions under the hat
using Sell Limits;
● B – the real sells. The incoming aggression of the sellers pushed the market below.
This “breakage” level is now a priority one for opening shorts during the
forthcoming cases of testing (not to be confused with the VSA Test of Supply). As
you can see in the chart, further on the price stayed above 122,100.

Download ATAS and find the No Demand. Analyze the cluster chart and you will surely see
similar processes but in different variations on peaks of the areas with a deficit of buyers.

Another example is from the gold futures market. Let us consider events of February 5-6 on
the Moscow Exchange on an hourly period using the Delta Colored Volume cluster type.
Let us reason for a while:

● A – Most probably, a major player gained a short position on peaks on

February 5 using Sell Limits. It can be seen from splashes of green clusters;
● B – “a breakage” took place here. A major player entered the market with the
market selling orders and started to consume all available BIDs;
● C – the price went up to the level where “the breakage” was fixed or there
was a change in the market mood. However, note that the growth took place on
a low volume. This is the VSA No Demand pattern. Note the “paleness” of the
clusters – it reflects a low trading activity. Most probably, the resistance level, which
was built from the “breakage cluster”, will not be broken and will work properly,
reversing the price downward. A false breakout of the peak of the previous bar
happened on the next bar and the price confidently turned down, confirming
reluctance to attack the area of the yesterday’s weakness. This false breakout was
not a surprise for those who did not fail to read the ND in the chart.

Now, let us consider the “reverse brother” of the No Demand pattern.

Lesson 4. THE VSA NO SUPPLY PATTERN

No Supply, in principle, is “a reversed reflection” of the No Demand pattern
Let us check the Wikipedia again. The picture below shows a graphical interpretation of the
Law of Supply.

This law establishes a direct relation between the price and the volume of supply of a
commodity (stock, contract, currency, etc.). The lower the price (P) of a commodity,
the smaller the quantity (Q) of the sellers, who would agree to enter a trade, will be.

How does the No Supply look in real life?

Let us imagine that your Chinese auntie Aimin went to the market to buy nuts to bake
cookies for her nephew. Alas, she forgot her purse with yuans at home. She was lucky to find
some coins in her pocket. However, the sellers on the market did not want to sell nuts for a
small change. Aimin was very unhappy. One of the sellers noticed that and asked her why
she was so sad. She sympathized with Aimin (she also had several nephews) and agreed to
sell her some nuts at a lower price than it was on the market.
This fictional story shows that sometimes trades in the market are executed at prices that
differ from a fair equilibrium price. However, while the auntie Aimin story can happen in real
life, things are a bit different in the financial market. There is no place for a good nature there
and the trades at a lower than a fair equilibrium price are executed mostly due to
misapprehension of the traders. Richard D. Wyckoff wrote about it in his method, which
became a predecessor of the VSA strategy:

The Wall Street business is financing corporations and trading securities –

stock and bonds – which are a result of this financing. Some papers are good and
some – not much. Those who produce and sell them to the public, know their value
better. The public has a comparatively weak understanding of their real value,
except for well-known papers, which existed in the market for a long time.

Thus, if, for one reason or another, the exchange price deviates from the real value of a
security, this opens a profitable opportunity for entering a relevant position. VSA will help to
identify such a case. It is possible to read the No Supply pattern from the chart, when the
current price of an instrument goes too low in the undervaluation area, using the Law of
Demand and Supply.

Look at a Tom Williams (the VSA founder) chart

Analyze the C bar. This is how Master Tom describes it:

This is a clear test. The price sharply dropped to be closed at the upper quarter
and look at the volume – it is low. It is a very positive sign of the fact that the market is
about to start the bullish movement. Why? Since the markets move the demand and
supply. We saw that the stopping volume entered in Point A and we saw a test in Point
B where the volume was, perhaps, just a bit lower. Now we have a very clear test in
Point C, where the volume is clearly low. This means that there is no inflow of selling
offers in this market. Thus, you should expect higher prices.

Note that Tom uses the “test” term. In order to avoid ambiguity, the “test” term here is short
for “supply test”. The test is conducted with the aim to assess the volume of supply in the
market. A successful test means the No Supply situation.

The “testing” term, which means “a bounce” from a certain level in the classical technical
analysis environment, is different from the “test”, under which Tom Williams usually means
the situation of No Supply, Supply Test. The price increase is implied after a successful VSA
supply test.

So, in general, the VSA No Supply pattern usually looks like:

● a market effort to go down, …;

● … but the closing takes place in the upper part of the bar;
● the volume is low, which shows absence of interest;
 ● the next up bar on the growing volume confirms the NS.

Figuratively speaking the market submerges under the water. As well as a diver needs
oxygen, the market needs supply. That is why it is natural that the price increases and the
growing volume revives trading, letting in the sellers who are ready to exchange their
commodities (cryptocurrency, securities – anything) into money.

EXAMPLES OF NO SUPPLY IN THE MODERN MARKETS

On January 14, 2019, the Savings Bank ordinary stock price formed the day’s low at the level
of RUB 194 per share (going down approximately by 1.7% in relation to the closing level of
the previous day), but the closing price was RUB 196.80 – closer to the day’s high. The
volume was not big – it was smaller than the volume of the previous three days.

A trader who reads a chart using the VSA method can see a bit more if he is equipped with a
footprint. He realizes that the testing showed a deficit of supply at the level of the previous
strong bar on January 9. Tom Williams would surely have said that this test have provided
the professional players with confidence in their intention to move the stock further up. The
chart verified the strong mood of the market and the further breakout of the RUB 200 level
was not long in coming.
Clusters add transparency into understanding the ongoing processes.

1. January 9 – a real power entered the market. Practically all clusters are green.
They demonstrate domination of buyers nearly at all levels. The price rapidly
grows and breaks the resistance level (marked with a blue line). It is a real
demand.
2. The No Supply testing. Note the red area on the test low on January 14. It is a
splash of sells – most probably, it is an activation of stop losses of the buyers,
who were smart enough to go into longs on January 9 but less smart on January
14, when they started to panic and to close manually by stop losses, located in
the break-even zone. The market activity shows absence of a real pressure of
sells and only a preparation for further breakout of the RUB 200 per share level.

One more example. Let us open something non-standard, for example, a 6-hour ADAUSD
chart. It is the cryptocurrency market and data are taken from the Kraken exchange.

● A – the area of active trading. Looking back, we can see that these were panic
sells and a major player “built” a long position on the eve of the growth;
● B – a test or No Supply. The price went down to the previous zone of activity (A),
but the trading volume was microscopic. It means that the panic was consumed
and the market is not interested in trading at those levels and is ready for the
growth phase;
 ● C – a major player confidently consumes ASKs (the green delta) at the breakout of
the resistance level, pushing the price to the upper floors.

SUMMARY
No Demand – is a failed effort of growth on a low volume. The market experiences a lack of
liquidity from the buyers’ side. The further price decrease in a combination with the volume
increase confirms that the market participants are not interested in the price increase.

The No Demand signals have a bigger weight:

● in a combination with other signs of weakness;

● under the downtrend conditions.

If the market still actively grows, showing the bullish mood in the price and volume behavior,
then the No Demand signal could be just a short pause before a new ascending impulse.

The same is true for the No Supply signal but in the opposite direction.

No Supply (or Supply Test or just Test) – is a failed effort to go down on a low volume. The
market does not experience a lack of liquidity from the buyers’ side. There is no interest in
lower levels. The further price increase in a combination with (not extreme) increase of the
volume confirms the bullish mood of the market.

The No Supply patterns have a bigger weight:

● in a combination with other signs of strength;

● under the up-trend conditions.

When the market actively goes down, the No Supply pattern could be just a short pause
before a new descending impulse.

If you are inclined to use investment strategies and wish to buy the stock with the aim to hold
it on a long-term basis, then the No Supply pattern (VSA test) can become your reliable
partner for entering a long.

This is how a professional investor and VSA expert Philip Friston uses the No Supply signal
for entering a trade:

I have my own process of stock selection, which corresponds with my risk profile (but it might
not be good for someone else).
 ● First, I exclude the stock, which does not correspond with my fundamental criteria
(every trader has his own criteria, but my list will include consideration of such
things as the level of depth, cash flow, etc.);
● Then I need to check whether the parent index is in an upward trend and does not
have a significant weakness in the background;
● Then I open the exchange chart and look for accumulation areas in the background
and mark the support and resistance levels;
● Then I ask myself how the stock works in comparison with the parent index. Is it
stronger or weaker?

Then, taking into account the background, I address to the right part of the chart looking for
an entry signal of, say, the test on the growing market, trying to avoid entry slightly below
the important area of resistance.

We contintue with Climax Patterns (Culminating Actions).

So, what are VSA Buying and Selling Climax patterns? The Buying Climax takes place at
the market highs and Selling Climax – at the lows. In general, these VSA patterns are
“brothers”, since the processes, which take place in the market in these cases, are mirror
reflections of each other. And the main specific feature, perhaps, is that the driving force of
the Selling Climax are such human emotions as panic and fear. While the Buying Climax is
driven by greed and easy gain.

Let us consider both patterns in different variations one-by-one. We start with panic.

Lesson 5. VSA SELLING CLIMAX

The General Electric stock stably traded at around USD 30 per share in 2016. However,
something went wrong the next year and the exchange trading was closed, in December
2017, at the level of USD 17.45 per share or -44% compared to the price in the end of
December 2016, which was a very bad result, taking into account the global bullish trend in
the stock market in 2017.
The situation became even worse in 2018 and GE stock reached USD 6.66 per share at the
December low. The public went into panic (“GE is USD 6.66 – this stock goes to hell!”) and
sold GE stock in a hurry.

What the chart tells us (timeframe is 1 month). Look at trading volumes and price dynamics.
November volumes grew up to extremely high values (more than 2 times above average). If
this volume represented a true weakness and pressure of sellers, why did the price restored
in January 2019 surpassing the November 2018 high? Perhaps, the panic was bought up at
lows. This assumption is confirmed by our “old friend” – VSA Bag Holding pattern – a narrow
December bar on an extremely high volume (read about Bag Holding above).

Let us consider this situation in more detail on a weekly period, using the cluster type of a
chart in the ATAS platform.
The October 30 news were awful, since Earnings constituted -2.62 instead of expected +0.13
per share. Since then the market submerged into the depths of depression with a frightening
speed.

What clusters tell us:

1. sellers pressure – breakout of the USD 9 per share level;

2. sellers pressure – breakout of the USD 8 per share level;
3. The sellers pressure smashed down support levels and the public gave up
the last hope for recovery. And the major interest, which has no emotions and
knows the true value of stock, decided that the situation was favorable for
accumulation. It entered the market and started to buy the buy limit stock at the
level of 7.40-7.50. A splash of activity in the market profile testifies to it. It is
interesting that, when the general indices of the stock market were at lows in the
twenties of December, the GE stock refused to go down to a new bottom;
4. The panic was engulfed. The sellers’ pressure was exhausted and there is a
deficit of sellers in the market (read more about the lack of supply in the No
Supply article). Note that green clusters became brighter. Proactive buyers
returned to the market. They realized that the panic subsided and the stock is
undervalued and provides an opportunity for investments at the low.

By the way, Baron Rothschild, a British nobleman of the 18th century and a member of the
Rothschild banking family said “the time to buy is when there’s blood in the streets”.
According to some sources, the original phrase was “Buy when there’s blood in the streets.
Even if the blood is your own.” Perhaps, he meant global panics.

Panic sells as the essence of the Buying Climax is quite a frequent phenomenon in the
history of financial markets.

SELLING CLIMAX IN THE FINANCIAL MARKET WAS DESCRIBED IN

DETAIL FOR THE FIRST TIME BY RICHARD WYCKOFF
Let us check the original source. As we already said, VSA is a derivative from the Wyckoff
method. The Volume Spread Analysis strategy emerged as a result of the fact that its
author, Tom Williams, did a training course in the Stock Market Institute, where they teach the
market analysis using the Richard Wyckoff method. And here is what Richard Wyckoff writes
about panic sells in his investment and stock trading course, which is known as the Wyckoff
method:

The selling climax is caused by a panic sell-off of shares (supply) from the public and
other weak holders, which is compared with buys (demand) from:

● experienced operators;
● major interests and sponsors of various stocks, who now see a wonderful
opportunity to cover shorts at low prices, which they sold higher.

Thus, the shares get into strong hands for a short or longer period. Anomalous
volume increase is one of the indicative symptoms of the selling climax, since
both demand and supply should both sharply expand under these conditions.
However, the supply is of bad quality now, while the demand is of good one, and,
since the supply power shall be exhausted further on, the technical rally will follow.

Operators’ buys during a selling climax serve to temporarily support the prices and
control panic or relieve the stress situation. This stock support will be thrown back to
the market at the very first possibility, as a rule, at a technical bounce, which usually
follows the selling climax. These and other bounce sells could increase the market
supply sufficiently to reduce the prices through the climax day’s lows and result in new
reduction, that is a liquidation renewal.

On the other hand, if a secondary reaction follows after a technical rally and the prices
stay at the climax lows or above them, while the volume significantly decreases, we
have an indication that the liquidation has been completed and support comes to the
market again.

Wyckoff also writes that selling climaxes take place in various scales – both on daily/weekly
and short-term periods.
It should be noted that the same principles, which are applied to big fluctuations, are also
applied to small actions and intraday buying and selling waves.

Let us consider panic intraday sells in the S&P-mini futures market.

It is a 20-minute chart of Tom Williams. Here is what the VSA developer writes about the
situation, which took place in the market on August 14, 2009.

Bar A is a Selling Climax. Traders start to panic on sharp price drops,

especially if their positions are on the wrong side of the market. That is why they start
panic sells on Bar A. Professionals will say: “Thank you. We will buy out everything
here and make profit”. This sell panic pushed the market aside.

ANOTHER SELLING CLIMAX EXAMPLE

Let us consider the intraday panic in the gold market on February 25, 2019, in the futures
market on the COMEX exchange.
The gold traded within a range in the afternoon of that day, when “all of a sudden” the price
sharply broke the support level of 1330 and rushed down. The traders, most probably, did not
have the vaguest idea why this sharp reduction happened, started to close longs (manually
or by stop losses) and open shorts in a hurry. They thought: “We will learn soon what
happened”. Bright red clusters on Bar 1 testify to the selling pressure.

However, everything changed on Bar 2 – just like in a thrilling blockbuster. The delta turned
green and proactive buyers decided that the gold is undervalued and provided support,
buying out the full supply that was in the market at that moment. The price gave way and
moved up. This change in the market behavior marked completion of the unexpected
(intentionally organized?) panic.

We considered only some examples.

You shouldn’t expect that one Selling Climax will look the same as another one. You can
observe the same basic features, but the time and value of the price movement and trading
volume, and also the degree and sequence of price bars, nearly always would be different.
Richard Wyckoff

One more example of Selling Climax can be found above (Check Lesson 4 – in the last
ADAUSD chart, A case). You can find more examples in any market.
Lesson 6. VSA BUYING CLIMAX
Before we analyze practical examples, get acquainted with the VSA Buying Climax pattern
description, provided by a VSA expert Philip Friston.

Buying Climax is a bar with a high to super-high volume, closed in the middle. It
identifies professional sells and shows that supply surpassed demand. In order to sell,
specialists should unload in the growing market, selling to “the crowd”. If they had sold
on down bars, the prices would have dropped against them too fast. This bar should
reach new fresh highs.

The upward movement should have been earlier. In the end, “the crowd” loses control
in fear to lose higher prices and buys on the flow of good news. The professional
groups will sell during this insane behavior of buyers.

A down bar for confirming the Buying Climax should be the next. Look at several next
bars for confirmation. Expect to see an upthrust and absence of demand. The next up
bars on a high volume, closed in the middle, may confirm weakness. Remember that
professionals could have more sell orders in their reserves. For this purpose they
would need to support the market within a range. If you see down bars with a low
volume (no supply) or extremely high volume (shakeouts or minor panic sells), closed
in the middle, it means that the market is not ready to fall.

Buying Climax may turn out to be an intermediate stop only. Up bars on a wide spread
with high volume (supply engulfing volume), closed above the previous high,
represent strength.

Philip mentioned good news, which often accompanies the Buying Climax. That is why the
first example of the Buying Climax would be from December 2017, when the whole world
was obsessed with cryptocurrencies.
What the chart tells us?

1. Buying Climax takes place on the wave marked with A arrow (December
7-8). Note the wide price movement. The sweeping amplitude of the price
whipsaw is a sign of professional activity.
2. Peak breakout on December 7-8 happens, most probably, by inertia. The
trading volume is not high at the price quote above wave 1 high. It is a sign of
deficit of buyers.
 3. The down wave goes together with the volume increase, which indicates the
bearish mood. The sellers’ pressure testifies to “a cold shower”, which
extinguished the market, heated to volcanic temperatures.

Note that the Buying Climax is not necessarily the highest point. Moreover, as a rule,
several unsuccessful breakout efforts, undertaken in order to drag more public into buys and
cover close stops of “early bears”, take place after extreme volumes on a runaway price
growth.

BUYING CLIMAX EXAMPLE

Another example from the Russian stock market. The SberBank stock trading was opened
on January 31 at RUB 215.17 per share, renewing multi-month highs. The price actively
moved up after the opening. It seemed like a typical bullish market. Everything was wonderful
except for one “but”. It was a volume. The volume bar chart tells us that the trading volume
during the first 2 hours was nearly RUB 8 billion, which was more than 2 times bigger than
the average level of activity.

Let us look at the cluster chart of the BidxAsk Ladder type.

1. It is the very up-wave during the first trading hours. Note the clusters – they are
practically all green. The delta shows excess of buys over sells in more than 2
times. The public actively bought out the stock like hot dogs. But who was the
 seller? Professional traders used a favourable moment in order to close longs
using sell limit orders above the current market price. This is the Buying Climax
wave.
2. Professionals temporarily supported the stock in order to execute more buy
orders.
3. It is a false breakout, which just teased the buyers and covered close stop orders
of early sellers.

The market still undertook several efforts to surpass the January 31 morning high, but all
efforts failed. Two weeks later, on February 14, SBER was traded lower than RUB 205 per
share.

It is important to understand that the Buying Climax is not an individual bar but a complex
process, which might last for several bars. It starts the distribution stage and forms the
market peak when professional traders sell off the previously purchased papers, using a
powerful splash of the buying activity on the part of multiple minor market participants.

A Climax could be completed within one day or distributed over several days
and the volume could reach unusual values on a day when an extremum point is
registered or several days before this high. Richard Wyckoff.

EXAMPLE OF THE VSA BUYING CLIMAX IN THE OIL MARKET

Here is a chart of the Brent oil forward market on the Moscow Exchange. Similar
situations happen on other exchanges, with other instruments and during other periods. You
might believe us or can check with the help of ATAS by yourself.
The described events took place on February 12, 2019. The level of 63 was broken on a big
volume. Note the waves, marked with arrows 1 and 2. The delta is positive and the general
volume is 2 times bigger than average. It is a variant when the climax is distributed over 2
waves and breakout of the round level 6, which attracts buyers from the crowd, works in
favor of professional traders, who are interested in volatility for profit fixation. The red circle
points at the splash of sells in the cluster chart, when, perhaps, professional operators
passed from the sell-limit to sell-market tactics. The Brent price dropped deep below the level
of 63, breaking the support level A, as a consequence of this aggressive change of the
market behavior. The third effort of breaking the horizon of 63 was, most probably, a trap for
bulls who were late. The change of delta from green into red during the third growth effort
testifies to absence of the major interest in holding the price so high.

SUMMARY
Let us describe the Law of Demand and Supply chart in terms of conclusions to this article
in order to understand the idea of climaxes in the financial markets better.
The chart schematically shows the Buying Climax phenomenon. It corresponds with a
general opinion that namely the public “buys out” the market highs. Similar action takes place
from the other side, when the public sells out securities “for cheap”, allowing professionals
accumulating a massive long position.

Why does the public delude itself? The answer is simple – emotions, poor understanding
of the true nature of the market processes and absence of discipline. The exchange is a
market for trading financial products and only few know the real fair (equilibrium) price
of papers, which are quoted on the exchange. Market professionals are among these few.
When the price quote deviates (or it is intentionally deviated?) from the equilibrium value,
opportunities for profiteering emerge. Besides, the process develops by a standard scheme –
a narrow circle becomes richer by the expense of a wide circle.
Lesson 7. VSA Upthrusts
The word ‘Upthrust’ consists of two words: Up and Thrust.

So, it could be understood as ‘a hit directed upward’.

Here is a classical Upthrust, which is given as an example by Gavin Holmes in his book Trading in the
Shadow of the Smart Money (Gavin is a VSA expert and the successor of Tom Williams).

Upthrusts in the 15-minute chart

How the specified bars are described:

1. Note the high volume on that bar. A session has not yet started. It is pre-market. The next bar
was closed with downward movement, which confirms weakness. Tom Williams used to say
that the market does not like up-bars with a very high volume.
2. Bars B and C are Upthrusts. An effort of buyers to break to upper levels, but the closure is at
the low. Such Upthrusts, with the weakness noticed on bar 1, provide reasonable places for
entering into shorts.

Let us consider a cluster chart in order to understand the Upthrust nature better.

Let us take the cryptocurrency market and a fresh peak of the ETHUSD pair (BitMEX data).
This is a tick chart. One horizontal bar (column) reflects 10 thousand trades. This chart type allows
expanding volatility periods and compressing inactivity ranges. Horizontal red and green lines are
signals of the Stacked Imbalance indicator. The grey bar chart in the lower part is the indicator of
volumes with the overlaid delta (pink-green bars).

April 8 was an active day. Perhaps, thanks to positive news, the price broke the level of USD 180 for
ETH in the very beginning of the session. A splash of buying activity reflects critical excess of demand
over supply at the market peak or, in other words, unhealthy turmoil. Stacked Imbalance indicator
activation and green cluster predominance testify to it. However, the whole bullish progress was
levelled out by the selling wave (red cluster predominance) by the end of the session (note: trading in
the cryptocurrency markets is going on day and night and division into sessions is conditional; each
session in the chart lasts from 00:00 until 23:59).

April 9 was a day of uncertainty. It allowed forming the wedge pattern (blue lines in the chart), specific
for a short-term balance of supply and demand.

Interesting (from the point of view of the subject of the article) events took place on April 10:
1. The false breakout of the resistance level. Note the splash of executed buy orders. The
buyers’ activity increase reflects:
a) stop-outs of sellers with close protective orders;
b) entry of buyers into a trap at breakouts.
2. Pressure of sellers. True strength of supply after fake demand. The trap for bulls was closed
and only a small number of survived bears can see profit on the accounts.

When comparing this chart with the reference standard of Gavin Holmes, we can see that the first half
of April 8 was bar 1, which started to form the weakness area, and the combination of cluster bars
1+2 of April 10 was the Upthrusts, which correlated with the bars (number 2) in the Gavin’s chart.
Clusters helped us to see the inner structure of this phenomenon better. Understanding of the
Upthrust nature will help you to notice them when they emerge in the right side of your chart.

Upthrust in the oil market

Let us consider one more Upthrust example, this time from the WTI oil forward market. Below is a
cluster chart of the Range type on CL futures - NYMEX data.

На внутридневном графике от 9 апреля активированы индикаторы Imbalance, Volume, Delta, а

также добавлен индикатор Cluster Search.

1. Buyers pushed the price to the peak of about 64.75 at the beginning of the session, however,
the further selling wave showed that sellers have strength to completely level out the increase
progress.
2. The market tried to take the previous peak by storm after two bounces from the level of 64.35.
Note that:
a) Imbalance indicator was activated;
b) red clusters on the next bar show that sellers appeared immediately. And the price (when
the general volume increased) rushed down and formed Upthrust or false breakout of the
previous peak.
3. This is yet another Upthrust, but VSA experts call it ‘hidden’. A specific feature of a hidden
Upthrust is that it does not make a false breakout over a local peak, but can be formed at the
resistance level without renewing the high. Cluster Search showed buyers activity at this point.
Perhaps, these were sellers who exited from shorts and who had opened positions at the
breakout of the level of 64.35.
How to trade Upthrusts?

Unfortunately (or fortunately), there is no uniform and single approach. Upthrust is just one more
instrument at hand of a professional trader. You yourself decide how to apply it. It depends on your
trading style, personal risk-profile, markets and other factors.

To avoid empty talks, let us consider a specific idea

Let us assume that an oil trader registered Upthrust formation, consisting of two bars, over the level of
64.75 in point 2. He enters into short after closure of the second bar, say, at price of 64.67. And posts
a protective stop over the Upthrust peak at the level of 64.84 (17 points).

Where to put the take-profit? The trader thinks that if he registers a false upward breakout, the price is
not ready to move above the resistance. Then he should expect the support breakout. There is a
concept in the classical technical analysis that, after the range breakout, the price is ready (with a
high level of probability) to pass a distance equal to the value of the broken range.

Then, the take-profit level TP = 64.35-(64.75-64.35) = 63.95 or 72 points from the point of entry into
short of 64.67. Risk-reward relation is 1:4. Not a bad plan, isn’t it? By the way, the oil price in this
specific case reached the take in 4 hours after the Upthrust.

Such setups are not rare and, as a bonus, below are 2 charts from the GBP futures market without
detailed comments.

The first chart shows the general picture:

● formation of the range of 1.3160-1.3090;
● false breakout - Upthrust (note the Imbalance indicator activation);
● bearish breakout of the range;
● achieving the aim of 1.3020. The aim is calculated by the principle described above.
The second chart is a moment of Upthrust in details in the cluster chart:

1. Activation of stop losses of bears and entry of bulls that trade breakouts;
2. Professional sells. Impulses 1+2 form an Upthrust;
3. Upthrust test on the next day;
4. Professional sells.

Figure out where an entry into a short could be and calculate the risk-reward relation. You should like
it. Download ATAS. Maybe, a profitable setup on the basis of Upthrust is formed right now.

Upthrust. Summary.

Let us draw a brief summary. Upthrust - what is it?

● The price rushes up, but falls afterwards in order to close the bar at lows or near them. The
bar looks like a telegraph post.
● Upthrust usually has a wide or medium spread.
● Upthrust is a profitable maneuver of market makers aimed at catching stops of those who are
in shorts and putting a trap for those who are not careful in buys.
● Prices often go up at the session opening or after good news.
● Big volume means professional sells, while small volume shows absence of their interest to
price increase.
● True Upthrusts emerge when there was weakness on the previous bars. For example, logical
places for Upthrust are the final phase of the distribution stage or test of the resistance level.
● Upthrusts can be found in charts of any type, different timeframes and markets.
And, by the way, Upthrust is one of the most favourite signals of a VSA expert Sebastian Manby.

We hope everything is clear about Upthrusts. Let us proceed with Shakeouts.

Lesson 8. VSA Shakeouts

The term Shakeout consists of two words: Shake and Out.

The term is self-explanatory. It reflects what takes place behind candle formations. Major players
often use Shakeout to shake weak holders out of the perspective bullish market.

Shakeouts, like Upthrusts, can be found in charts of any type, different timeframes and markets. The
classical VSA pays a lot of attention to Shakeouts, since they are so specific for stock markets, in
which Tom Williams, the Volume Spread Analysis founder, traded.

Below is the weekly Dow Jones index chart and a classical Shakeout example. Shakeout is marked
with the first arrow.

On that day, May 6, 2010, the stock price in the American stock market started to fall rapidly. There
were no fundamental reasons for that fall. Experts and analysis of financial media just made
assumptions.

“What does it mean?” - Gavin Holmes asked Tom Williams showing the price and volume chart.
“Gigantic Shakeout” - the VSA founder answered. He saw a lot of Shakeouts during his career.

That fall was called Flash Crash and the term became common. If you search for images in Google
using the query ‘Flash Crash’, you will find a library of potential Shakeouts.
Idea of the VSA Shakeout. Shakeout is formed in a strong market in order to reduce the number of
the followers who make money on the asset price increase. Unexpected and rapid price fall, like a
bolt from the blue, stimulates many small traders to sell out their positions in panic. Plenty of stop
losses of buyers are added to the flow of sells. This avalanche of orders for selling assets, which fall
in value, is a good chance for professional traders who know that the current situation is a temporary
manipulation.

An asset moves from weak holders to strong ones during a VSA Shakeout. Note the volume and
bearish progress on the bars marked with arrows. The sellers’ pressure consistently reduces after the
Shakeout on the first arrow. It can be seen from reduction of volume on red down bars and reduction
of breakouts (each new low is just a short-term penetration under the previous local low).

This drying out of the selling pressure testifies to the completion of the process of change of securities
owners. Majority of minor traders passed over their assets into the hands of professional players in
panic.

Let us consider several Shakeouts using the cluster analysis instruments.

Example. Shakeout in the market of gold.

Let us take a gold futures cluster chart; day period.

Rapid fall of gold started on Friday, March 1. Practically during the whole fall from 1,310 to 1,290
there were no buys. Analysts decided that the fall was connected with the strong dollar, growth in
stock markets and ISM report.

Such a rapid fall against the negative information background formed psychological pressure on
traders, which lasted the whole week-end. And on Monday, having seen the signs of continuation of
the fall, traders gave up and started to:
 ● sell gold opening shorts;
● close longs.

However, what we see in the chart.

The trading volume was 2 times bigger than the average one on Monday, although the bearish
progress was not that dramatic. Clusters show emergence of buys (green bricks under the level of
1,290). This hidden force was confirmed by absence of down movement on March 5 and 6. And the
effort of bears to renew the downward dynamics on Thursday, March 7, showed absence of supply
(No Supply). And on Friday, March 8, gold started to compensate the fall on the growing (but not
extreme) volume, which is the bullish indication.

Note that the profile shows a splash of activity under the level of 1,290. For certain, these volumes
reflect transition of golden contracts from weak holders into the pockets of professionals.

The growth continued the next week from March 11. Thus, the overall behaviour of the market in the
first half of March gave us one big Shakeout with a false breakout of the psychological level of USD
1,300.

And, by the way, the bar on March 14 has all grounds to call itself an intraday Shakeout.

Example. Shakeout in the cryptocurrency market.

The cryptocurrency market is growing starting from the end of 2018. We are not ready to state that
this is a flight to the Moon, but still: plus 70% from the December 2018 low to the current April 2019
high is a bullish fact, which cannot be discarded.

A VSA analyst will, with a high degree of probability, find Shakeouts in small timeframes within this
rally. Let us take a fresh 4-hour BTC chart. The middle of April demonstrates the pattern, which we
have the right to consider as a Shakeout example.
The price started to move down rapidly from the level of 5,200 on April 15 (perhaps, against the
negative news background). This caused a splash of sells (1). On the one hand, executed sell orders
reflect activation of stop losses of buyers. On the other hand, they reflect entry of emotional bears into
shorts.

However, the next day, after a false breakdown of the round level of 5,000, which marked the
Shakeout bottom, the clusters turned green. We can see predomination (2) of executed buy orders. It
is a true demand on behalf of professional traders, who see growth potential in the short-term
perspective. We have a VSA Shakeout, which covered 2 days.

Really, the coin price rapidly exceeded the Shakeout high and settled over the level of 5,200 after a
small trap for bears (3).

How to trade Shakeouts.

I do not provide guaranteed recommendations that Shakeout trading will make you rich in a couple of
days. Trading is a highly competitive business and to make profit here is not easy. Nevertheless, in
order to increase practical value of this material, we will make conclusions, which are rational from the
point of view of common sense.

If you feel that the panic dried out and the chart confirms entry of buyers, you have new opportunities
for entry into longs in harmony with professional traders.
Say, if you bought at the level of 5,050, your protective order can be set under 5,000 - this area was
already cleaned up from buyer stops and a probability of a lightning strike into the same place is not
big.

The aim is the Shakeout size laid up from its high. It is the same logic as was described for Upthrust,
but in a mirror reflection. We get the take level 5,200+(5,200-5,000)=5,400 and risk-reward relation of
50:150 or 1:3. which is acceptable in trading as a classically recommended proportion.

Note that the Take Profit was reached (4) on April 20.

Analyze the following Shakeouts:

● oil market in the middle of February 2018;
● bitcoin market in the middle of September 2017;
● fake breakout of the level of 1,400 in the AMZN stock market in the end of March and
beginning of April 2018. And also a separate day - June 22, 2018.

Summary

Upthrusts and Shakeouts, in fact, are meant to demonstrate a fake direction of the market movement.

Upthrusts start as seemingly strong upward rushes - fast and on high volumes. Later, however,
buyers discover that they entered into longs at the market peak.

The opposite is similar for Shakeouts, when sellers understand that they threw away a really strong
paper at a low price under the pressure of emotions and news.

Do not let the cunning market deceive you.

Lesson 9. Accumulations
Accumulations and Distributions. Two out of four stages of the market cycle are called by these terms:
 1. Accumulation (Surrender Zone) on lows against the depression background. Represents the
best potential for long trades.
2. Growth (Optimism) of prices.
3. Distribution (Euphoria Zone) on highs against the euphoria background. Represents the best
potential for short trades.
4. Reduction (Fear) of prices.

By their form, Accumulations and Distributions are stages that consist of a sequence of climaxes,
upthrusts, tests and signs of absence of demand and supply.

When analyzing Accumulations and Distributions we would combine previously considered separate
patterns into sets of patterns. It is a specific feature of this article and difference from the previous
ones. Figuratively speaking, if we take the previously discussed patterns as letters, today we will
assemble them into words and phrases in order to read the history of how a financial instrument
changes its trend in the chart.

Accumulations. Description

The Accumulation concept originates from the Richard Wyckoff’s theory.

It’s worth reminding that Tom Williams, the VSA founder, started to trade after studying trading by the
Wyckoff method. In fact, the Volume Spread Analysis is an interpretation of the Wyckoff method made
by Tom Williams.

Accumulation is a trading range at the market lows, at which a financial instrument changes
its owner. As a rule, the major interest (insider, smart money or composite operator) uses the current
market situation in order to accumulate an asset at a low price and gain benefit from its further price
growth.

Signs of Accumulation:
● selling climaxes - panic price falls against the background of ‘bad’ news in mass media;
● springs or false breakdowns (traps for bears);
● supply testing shows exhaustion of the sellers’ pressure. Reduction of volume on reducing
bars in the same area is a specific feature of accumulation, as it will be shown in the next
picture;
● for the stock market - the stock starts to act stronger than the index.

Accumulations. Example 1.

Tom Williams, the VSA founder, himself gives this example of accumulation.

It is a day period; the chart of the ETF FAZ stock. Pink color in the volume bar chart shows that the
volume is lower than the previous two.
● Bar A. January 7, 2010. Sharp fall of the price on a high volume, perhaps, is caused by ‘bad’
news.
● Bar B. Supply testing in the area of Bar A. The volume fell significantly. It shows insufficient
pressure of sellers.
● Bar C. It is the same again. The price fell to the Bar A level. The low volume again shows
absence of sells. Note that the stock acted stronger than the index within the A-C range (the
 index chart is not provided in this article - just take into account that it decreased), ignoring
lows in the general market. It is a sign of strength by itself.
● Bars D&E. We have growing bars with a wide spread. The volume is very high, which might
mean some sells inside. However, the asset acts much stronger than the index, so, potentially
it is a bullish market, when the index will be ready to reverse upward.

Note that the process of accumulation in modern versions of the Wyckoff method is extremely
detailed, as it is shown in the picture below.

It is split into stages and each stage presents specific actions of the price and volume. On the one
hand, it helps to identify the process of asset accumulation by a major player in the chart. On the
other hand, there is a great multitude of variants how accumulation is visualized in a chart. Some
patterns might be absent or not be obvious. This would confuse a hunter for an ideal pattern.

Ability to identify the phase of the asset accumulation correctly is both profitable and difficult. And
there is no other way, since we speak about a point of entry into a low risk long position at the very
beginning of the growing trend.

Accumulations. Example 2.

Let’s consider the accumulation process through powerful cluster charts.

The picture below shows the chart of XBTUSD - a 15-minute timeframe of a bitcoin futures from
BitMEX (May 6, 2019).
 ● Climax. Panic sells started at breaking the 5,600 level, which can be seen from a huge (in the
current period scale) splash of the volume with the negative delta (first red arrow).
● Further efforts of bears to renew the downward movement failed. It can be seen from the
behavior of waves 3 and 5. Downward movement below the 5,600 level took place on a much
smaller volume than the volume on a climax bar. The second red arrow points at an interesting
bar - buyers entered the market and pushed the price up and closed the bar at the high with a
positive delta after a splash of sells at the low. It is an indication of strength.
● The third red arrow marks a barely visible downward wave. Bears managed only to move
closer to the 5,600 level without an effort to break it.
● Green arrows point at successes of buyers. A change in the market behavior, which broke the
resistance line drawn through peaks 2 and 6, marked with the second green arrow, is
especially vivid. Would you have entered into buys in points marked with the first or second
green arrows?

A beginner VSA trader might face a paradox. How comes that the market moves up after a splash of
sells? Because the sells in the beginning of accumulation reflect orders of panicking beginners (or a
crowd, if I may say). Professionals start to accumulate their positions using limit buy orders below the
falling price, absorb the supply and accumulate the coin (share or futures) on their accounts. It
becomes easier to push the price quote up after the supply has been consumed (third red arrow in
the chart above) and they lay their cards on the table starting to send buy-market to the exchange
(green arrows).

The above considered range is a local intraday accumulation of a small scale within the growing trend
on senior timeframes. Small accumulations within the current up-trend are called re-accumulations.

Let’s consider the reason of a medium-term trend, which came into force in April 2019 after
accumulation of bitcoins at the level of USD 4,000 for one BTC. Let’s analyze this process in a cluster
chart with a week period using data from Bitfinex.
We set the ZigZag Pro indicator in the chart, which automatically splits the sequence of bars into
waves and provides a detailed statistics of each wave.
1. A sharp price fall started in November 2018 after a standstill in the 6,000-7,000 range. Bitcoin
was traded below 3,500 in the beginning of December. However, look at the clusters. They
expand, showing that big volumes pass in the market against the background of reduction of
the bearish progress. It is an early sign of accumulation, which means that a major player has
entered the market and consumes the asset against the background of the panic mood,
caused by a fast fall.
2. Volumes fell 2-3 times compared to climax values on wave 1. The pressure of sellers ‘dried
out’.
3. The descending wave 3 confirmed that the market experiences a shortage of supply. Note that
mainly buys took place in March, which can be seen from green clusters.

The price quote ‘shot up’, as a result of accumulation of bitcoins at about 4,000 (which is clearly seen
from the market profile), and quickly reached 5,000, without giving a possibility to ‘late’ bulls to enter
closer to the accumulation area.

Accumulations. Example 3.

While learning to detect accumulation areas, a chart reader by the VSA method would inevitably turn
to history in order to develop his skills. Download ATAS, analyze ranges on historic lows of the
markets of interest. You can track how accumulation developed at any period of any market. Let’s
take, for example, an FB share.
The Facebook stock started to fall sharply in the end of March 2018 against the background of
negative news about data leakage. Do you remember that scandal with Cambridge Analytica? How
did US officials ask Mark their questions?

Let’s see what questions-answers we can find in the chart.

1. The dynamics was obviously bearish starting from March 19, 2018. Pink squares are the
moments of actuation of the Cluster Search indicator, which tells us about huge volumes that
go through the market. The splash of activity at the USD 155 per share level breakout on
March 26 is of special interest. It is noteworthy that the market traded predominantly above
this level in one session, namely on March 28, but the activity was not high. What does it
mean? Has the panic calmed down? Or, more correctly - has a major player consumed the
flow of panic sells, stimulated by ‘awful’ news?
2. The price came back again to the 155 level on April 3, but look at the clusters. They are very
narrow and the profile is thin. It is a deficit of sellers, which means that the pressure of bears
exhausted.
3. The activity went up on April 4, but if the nature of this trading meant weakness, why did the
price grow with a gap the next day?Holding the market above the 155 level on April 6-9
confirmed availability of the bullish interest. And the price quote started a slow upward
movement from the area of panic sells, which is clearly outlined by the market profile during
March 26 - April 4 period. It is a strength area now. A major operator accumulated stock there
and, most probably, he would protect this area.
 4. The price tested the accumulation area at the end of the first summer month. The splash of
activity under the USD 160 level, most probably, reflected activation of stop losses of bulls.
Look at the thin candle profile on April 25. This is No Supply. Deficit of sellers with a strength
area in the background is a sign of a forthcoming rally.

Well, let’s move from Accumulations to Distributions. Distributions are the other side of the process of
Accumulations.

Imagine that you are a wholesaler who bought cheap goods in China in the lump (accumulation),
transported it to the US and now sells it by retail using commercials. The same takes place in the
financial market where assets are moved in time and not between territories. The ‘buy low, sell high’
principle is true and works in any type of commerce.

Lesson 10. VSA Distribution

Distribution is a trading range at the market highs, at which a financial instrument changes its
owner. As a rule, the major interest (insider, smart money or composite operator) uses the current
market situation in order to distribute the asset he owns at high prices.

Wyckoff followers split the distribution range of an asset into the following phases:

The general features are the following:

1. A super-powerful upward impulse passes in the beginning of the distribution area. Usually it is
accompanied by good news in media. A major player, sort of, advertises
stock/futures/currency in order to make minor players snap the instrument up like hot cakes.
 An analyst registers, from the VSA point of view, the buying climax and/or End of Rising
Market.
2. Then the buyers’ pressure exhausts. The upward waves become less powerful. New high is
just a situational overrun of previous records. The major player renders false support to the
market only to buy time and sell more instruments.
3. Downward movement starts on the growing volume (Selling Pressure) after the final false
upward movement (Upthrust) and is accompanied by weak rallies (No Demand).
4. The stock becomes weaker than the index for the stock market.

Let’s see how it looks in reality.

Distribution. Example 1.

Let’s take the EURUSD market, which is very popular among Forex traders. We use the week period,
Delta Colored Trades Histogram cluster type and futures market data.

1. Having jumped above 1.23 in the 20s of January 2018, the EURUSD market attracted interest
of buyers. Probably, good news (no matter what news) encouraged general interest. But look
at the range and volume. Trading was going on quite actively within the range of 1.24-1.25
without a significant continuation of the bullish progress. So, why didn’t the price grow? A
conditional major operator used euphoria for selling, setting the sell limit a bit above the
 current price. It explains a paradoxical fact when a prolonged decrease ‘unexpectedly’ starts
after abnormal sells.
2. The bearish candle confirmed availability of a hidden weakness on previous two ones.
3. The main event this week is inability of the market to break the previous high. Closing at lows
adds weight to the idea that a distribution has started. The price quote moved sideways during
the next weeks, which corresponds with the phase B in the scheme above.
4. Upthrust. A final trap for bulls and activation of stop losses of early bears.
5. Long tails on top show absence of the market desire to move up. Note the activity of bulls on
top of the second candle. If a real strength would have been there, why did the candle close at
lows? Most probably, bulls were closed in a trap here. The cunning market would hardly give
them a chance to exit without losses.

Let’s note that entry into long-term short positions is a bad idea when we speak about initial
distribution phases. The growing weakness and down trend approach become more evident closer to
the range end.

Distribution. Example 2.

Let’s continue to speak about distribution areas in the currency market, but this time we would
analyze faster movements, if it is boring for you to read the weekly timeframe, which we considered in
the example above.

Let’s take a cluster chart of an intraday JPY futures with the 15-minute timeframe. The Cluster
Search, Delta, Volume, ZigZag Pro and the Market Profile drawing tool are activated in the chart.
A narrow range with high trading activity at the 0.0091875 level was formed in the market on May 12.
Why does the chart say that this was a small distribution?
1. A-B. Growth at 12:00 was caused, most probably, by some good news. The Cluster Search
indicator, pointing to the high buyers’ activity, actuated. The price rushed upward. The late
buyers hurried to grasp at the flying away rocket. However, the growing impulse started to
reduce by 13:00 despite the 2 times above average volumes. ‘Too many buyers grasped at
the rocket and it was difficult for it to fly higher’. The market moved sideways.
2. C-D. Analyze this growing wave. It is much weaker by characteristics if compared with the
previous wave 1. The volumes are clearly below the average values although the delta is
positive. The total volume is 15 thousand contracts, according to the ZigZag Pro indicator.
This behavior testifies to reduction of the buyers’ pressure.
3. D-E. Volumes grow on reduction. Sellers achieve progress and push the market out of the
range. If we take activity in the area of 0.0091875 as a dispute between buyers and sellers, it
is evident that sellers provided more arguments and won the dispute.
4. E-F. From the point of view of the Market Profile analysis, we can say that this is the POC
(Point Of Control) level test.From the point of view of VSA, which is focused on a detailed
breakdown of demand and supply balances, low volumes (only 24K for as many as 19 bars)
point at the deficit of buyers. It means that a probability of a breakout of the yesterday’s range
is very low. The version about distribution of contracts at high prices collects a sufficient
number of confirmations and the game on the short side of the market gains priority.

As you can see from the example above, the market profile instrument could be useful for detecting
accumulation and distribution areas. It’s a p-profile at distribution and b-profile at accumulation. Let’s
consider one more distribution example with laying day profiles upon a chart.

Example 3. Distribution in the gold market.

It is a market of gold futures, where a cluster chart covers trading during 4 days - from May 13 until
May 16, 2019, inclusive. Data is from the Moscow Exchange, GDM9 contract, each bar - 750 trades.
May 13. Two ascending waves can be seen. One is quite powerful, reached a serious progress and
broke the round level of 1,300 as a result. The second one showed that the buyers are not ready to
move the price higher. It could be seen from the VSA No Demand pattern (a separate bar marked
with an arrow). Formation of the p-profile gives first warnings about a possible distribution area.

May 14. Trading activity could be described as consolidation (pullback) after activity of the previous
session.

May 15. It is a very interesting day. A splash of buys (green delta) above 1,300 didn’t produce results
in the form of reaching new highs. The price just slightly exceeded the high of May 13 in order to
tease buyers and activate stops of early bears. Note that the Imbalance indicator sent a signal of the
buyers’ activity, which became a reason of formation of a bulge on the day’s profile. Compare waves
1 and 2. The second wave shows a bigger volume but smaller result. The market hit the ceiling.

The price pulled back below 1,300 by the end of the session. Here, an analyst got serious facts in the
chart, which tell him that the market is not ready to move higher. Most probably, all buyers met limit
sell orders. Someone from among serious players wanted to hide his sells. The profile produced one
more p-shape.

May 16. We can see obvious reduction, which was the result of the distribution area. The effort to go
up on the first bar has a far too low volume and the price would not be able to be pushed through the
levels with high volumes of the previous day with such a deficit of buyers. This weak growth is a
reasonable point for entry into shorts against the background of actual weakness, which was noticed
during the previous days.
Summary

Accumulation area is a reason for further upward trend. Professional traders lay the foundation
and accumulate the asset using the current circumstances. You might not have inside information, but
ability to read the chart gives you a chance to be equipped.

Distribution area is a reason for further downward trend. Professionals use a splash of activity in
the market. Interest of mass buyers allows them unloading their longs, accumulated earlier at lows.

Summary
Conclusions for 10 VSA Lessons

VSA founder Tom Williams never used clusters. He started to trade when there were no computers.
Tom Williams built his charts using a ruler. However, the principles, which were developed by Wyckoff
and which served as a foundation for the Volume Spread Analysis, act independent on the chart
types. They are:
- the Law of Demand and Supply;
- the Law of Effort and Reward;
- the Law of Cause and Effect.

Cluster charts just help to see better those market processes, which take place behind the classical
candles and bars.

Knowledge of VSA with modern software provides an unquestionable competitive advantage, due to
which you will be able to study true motives of traders and carry out your operations on the right side
based on facts.