Forex Volume Spread Analysis

Since forex is not a centralized market, there is no accurate volume data for traders. However, Volume Spread Analysis has been quite popular among traders. The tick volume data coming from the broker is used to determine the current forex market volume.

What is Volume Spread Analysis?

Tom William is the creator of Volume Spread Analysis, who worked with Richard D. Wyckoff and transformed his classic techniques into modern trading. It is a great trading technique that uses tick volume with the help of a custom indicator, 20-period SMA, and eight different buy and sell patterns. The patterns are complex and may not be easily understood by beginner traders.

However, the Volume Spread Analysis comes with automated software that alerts whenever there is an opportunity. Though it is expensive for many, traders can work around the volume patterns and use them in daily trading. Here’s what the VSA chart looks like:

Volume Spread Analysis chart
Volume Spread Analysis chart

The analysis also uses the concept of support and resistance to complement the trading with better odds of success. Moreover, there are OHLC bars instead of candlesticks.

How to trade Volume Spread Analysis?

Several strategies can be used in the Volume Spread Analysis. However, the eight patterns are popular. They include signs of weaknesses:

  • End of a Rising Market
  • No Demand
  • No Result from Effort
  • The Upthrust
  • No Demand in a Down Trend
  • Wide Spread Down Bar Through Previous Supply
  • Buying Climax
  • Top Reversal

The eight signs of strength include:

  • Bottom Reversal
  • Stopping Volume
  • Test in a Rising Market
  • Wide Spread Up Closing on the High
  • Bag Holding
  • Selling Climax
  • The Shakeout
  • No Supply – Selling Pressure

The major trading method is based on a simple rule that there must be a trend of at least 18-20 bars. A high volume indicates the reversal, and the price bar must close around the middle.

Buy Strategy

Let’s find VSA buy setup:

Volume Spread Analysis buy setup
Volume Spread Analysis buy setup
  • You should wait for a very high-volume bar, and the price bar should close off the highs near the mid or lows.
  • You should mark the high and low of the price bar and wait for a downside breakout.
  • After the breakout, you could take the position or wait for the retest of the bar’s high.
  • You could place stop-loss below the high of the bar.
  • You could place the take profit around the next resistance level.

Sell Strategy

Let’s find VSA sell setup:

Volume Spread Analysis sell setup
Volume Spread Analysis sell setup
  • You should wait for a very high-volume bar, and the price bar should close off the lows near the mid or highs.
  • You should mark the high and low of the price bar and wait for an upside breakout.
  • After the breakout, you could take the position or wait for the retest of the bar’s lows.
  • You could place a stop-loss above the low of the bar.
  • You could place the take profit around the next support level.

Conclusion

Volume Spread Analysis is a wonderful trading technique. However, it requires plenty of practice to master different patterns. Each pattern may have a certain failure rate as well. Therefore, you should be careful while using the technique on your live account. I would start on a forex demo account to begin with and see how things go.