You have heard of Volume Spread Analysis and the value it might add to your analysis. Together, let’s take the first step to understanding VSA. Forex flash vsa indicator for tradestation this guide, you will find that VSA is an intuitive method after all. VSA is the study of the relationship between volume and price to predict market direction.
Is the closing price near the top or the bottom of the price bar? There are three big names in VSA’s development. Jesse Livermore spoke of a theory based on market manipulation. He also worked his theory in his legendary trading career. However, he did not pass down concrete trading methods. His legacy is that of a trader and not an educator. It was Tom Williams who used the term to describe the methods he built based on the Richard Wyckoff’s ideas.
Tom Williams’ books and software has helped to propel the concepts of VSA among traders. The basic idea is that the public can only make money from the markets if we understand what the professional traders are doing. And professional traders are not small players. Hence, they leave their footprints in volume data. When the professionals are active, the market shows high trading volume.
Conversely, when the market volume is low, the professionals might be holding their horses. It follows that in order to get a sense of what the big guys are up to, looking at just price action is not enough. We need to look at price together with volume. Does VSA work in all markets? VSA focuses on price and volume and seeks to find the actions of professional traders. Hence, as long as a market has a group of professionals and offers reliable price and volume data, the trading premise of VSA holds. However, in the spot forex market, volume is a tricky concept.
You will not get actual traded volume. You get tick volume which measures the times the price ticks up or down. If you intend to use VSA methods for trading spot forex, you need to decide if your source of tick volume is a reliable proxy for actual volume. How do we use VSA to trade? I will not sugar-coat the fact that VSA is difficult to master. This is because traders have interpreted various VSA concepts differently. To trade well with VSA requires years of practice and market observation.