Volume Spread
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Volume Spread
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Most traders are aware of the two widely known approaches used to analyze a market- fundamental analysis and technical analysis. Many different methods can be used in each approach, but generally speaking fundamental analysis is concerned with the question of why something in the market will happen, and technical analysis attempts to answer the question of when something will happen.
Volume Spread Analysis, however, is a third approach to analyzing a market. It combines the best of both fundamental and technical analysis into a singular approach that answers both questions of 'why' and 'when' simultaneously.
© Tradeguider Gibraltar Ltd. All rights reserved.
Most traders are aware of the two widely known approaches used to analyze a market- fundamental analysis and technical analysis. Many different methods can be used in each approach, but generally speaking fundamental analysis is concerned with the question of why something in the market will happen, and technical analysis attempts to answer the question of when something will happen.
Volume Spread Analysis, however, is a third approach to analyzing a market. It combines the best of both fundamental and technical analysis into a singular approach that answers both questions of 'why' and 'when' simultaneously.
1 thought on “Volume Spread Analysis in Trading”
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In this article, I am going to discuss Volume Spread Analysis in Trading. Please read our previous article, where we discussed Volume Price Action Analysis in detail. At the end of this article, you will understand the following pointers.
Let us understand bullish trend formation. The bearish trend turned into the bullish trend
Price goes through 4 phases. These are
Phase A. Stopping the previous bearish trend
Phase B. Construction of the cause (accumulation)
Phase C . Test for confirmation (testing supply after accumulation)
Phase D. Bullish Trend out of range.
We will come to this market structure later. Just understand the overall concept
Let’s understand how to differentiate different types of volumes like
Now we have four types of volume. Let’s find out in the chart
Rule -: You can visually compare Mountain Peaks to identify volume peaks structure. The key is to understand the structure of the peak clearly. Volume peak has the following characteristics:
Rising Volume — Peak (Highest Point)— Falling Volume
Average and Above Average Volume : Above Average Volume is the Highest Volume in the current session which is higher than the average volume but it is lower than the previous peak Volume. Average Volume is the volume that coincides with Moving Average 20 of the volume indicator
High volume and Ultra-high volume: high volume is volume equal to the previous pick volume. Ultra-High Volume is the Highest Volume in the current session. It is higher than the previous peak volume.
Bearish Volume is marked in Red and it shows bearish activity. Bullish Volume is marked in green and it shows bullish activity. If demand volume is greater than supply volume then overall bullish volume
In volume spread analysis few facts which we are required for chart analysis. These facts are:
Spread: Spread is the difference between the Opening and closing of the price. See the diagram below for further illustration.
Volume: Volume is the activity of the frequency of transaction of the price change during a specified period of time.
Close: Close price tells us where the balance point is at the end of the period.
Read Part1 and Part2 for a better understanding
Re call the market structure that we have discussed above
Sign of strength means. The stopping action of the downtrend
Phase A . Stopping the previous bearish trend (the sign of strength)
Again recall the volume interpretation
• Smart money has no interest in the upside – Low volume.
• Smart money is selling into the public buying – Higher volume.
Now we have found two important rules for volume spread analysis
Some volume spread analysis that suggests the end of the downtrend. These are
Now we will discuss these 3 pointers
This condition marks the end of the approaching end of a particular downtrend. This panic selling by retailers (or the public) creates an extreme expansion of the price spread and an expansion of the volume, this action may occur over one day or over several days which is matched by buying (demand) of:
Two possible outcomes after selling climax
If buying during the Selling Climax was principally for the purpose of supporting prices temporarily and checking a panic or relieving a panicky situation, this support stock will continue after a technical bounce from support. If price supply sufficiently to drive prices through the lows of the climax day and bring about a new decline, that is, a resumption of liquidation.
After a technical rally, if prices test climax low with volume decreasing and hold around or above the climax lows, then we have an indication of support and the completion of liquidation . This tells us that there is no selling pressure or no Supply, (i.e. no more sellers) an obvious conclusion that the market is going to rally as shown on the right side of the image
If the ‘ test ’ is successful, we can expect higher prices, especially if the test is on low volume and narrow spread down bar into the same area where you first saw the very high volume. This is a strong BUY signal.
If the volume had represented SELLING, how can the spread be narrow? There are only two possible outcomes for a narrow spread DOWN-day on very high volume.
This topic will be covered in the next separate article
After seeing the stopping volume. If the ‘test’ is successful, we can expect higher prices, especially if the test is on low volume and narrow spread down bar into the same area where you first saw the very high volume. This is a strong BUY signal.
Please watch the following video if you want to learn and understand Volume Spread Analysis in the Trading concept in a better way.
In the next article, I am going to discuss Reversal Candlestick Pattern Analysis in detail. Here, in this article, I try to explain Volume Spread Analysis in Trading . I hope you enjoy this article. Please join my Telegram Channel and YouTube Channel as well as my Facebook Group to learn more and clear your doubts.
Hello, Thx for your very good explanations.
I have got one question regarding the volume indicator: The bars of the standard MT4 volume indicator just tell you whether the volume was higher in comparison to the previous bar (then the current bar becomes red or vice versa.
But when I see it right, your volume indicator shows red bars for example when the selling power was higher. And the volume is displayed by the hight of the volume candle.
When I understand it right the standard MT4 indicator does not show whether the selling power was higher but only the volume quantity.
Could you please let me know which volume indicator you use,
Your email address will not be published. Required fields are marked *
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Home > Articles > What is Volume Spread Analysis?
What is Volume Spread Analysis?
July 21st, 2021
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Gavin Holmes, author and CEO of TradeGuider, explained that Volume Spread Analysis (VSA) is a combination of two other analysis techniques – Fundamental Analysis and Technical Analysis. In his recent NinjaTrader Ecosystem webinar, An Introduction to SMART Wyckoff Volume Spread Analysis , Holmes defined Fundamental Analysis as being “concerned with the question of why something in the market will happen”, in contrast to Technical Analysis which “attempts to answer the question of when something will happen”. VSA, then, seeks to answer both “why” and “when” simultaneously by analyzing three main things: volume, spread and closing price.
How can Volume Spread Analysis identify the moves of ‘big players’ in the market? The key, according to Holmes, is that “Volume = Activity”. There may be low volume, ultra-high volume, or even just average volume, but each one reveals something important about the activity occurring in the market. When combined with spread and closing price, volume can tell an important story about what these ‘big players’ are doing in the market. You can think of VSA as aiming to reveal the “consensus of opinion” of Smart Money Traders.
In this short clip, Gavin Holmes defines Volume Spread Analysis and begins to explain how it can be applied to a market. If you are interested in learning more about Volume Spread Analysis, be sure to check out Holmes’s full webinar .
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