Next we come to topic of volume. CV had raised a valid question on this. How high is high and how low is low? For this we should have a reference volume which can used to compare with the daily/bar volume. The simplest way is to have 30 day/bar moving average of the volume. From the very little experience I have in VSA I feel that the 30 day/Bar simple moving average of volume serves the purpose quite well. We will take it as the stating point. Mike had pointed out another method. We can discuss these further in the thread later as points of refinement after we establish the basic indicators of VSA. Again as a starting point we will define any volume above 1.8 times the average as “High volume”. Volume above 3 times the average would be termed “Ultra High” volumes. Volume below 0.7 times the average volume will be “low volume”.
Finally…. we will step in the actual VSA. VSA measures the weakness and strength of individual bars. In addition it looks at the background strength/Weakness. So we have to always look out for Weakness in a uptrend and for strength in a down Trend.
Each bar could be characterized to indicate Strength or Weakness based on the Spread and volume.
We will start with looking out for weakness. First we will look into one of the most easily identifiable and strong indication of weakness which is commonly called the UPTHRUST Bar. And what a day to talk about Upthrust… The charts are full of them today…Even the nifty is showing a Upthrust…of course not a one of the ideal one. But distinct weakness shown on the nifty.
What is an UPTHRUST BAR ?
An Upthrust Bar is a wide range bar, with a high volume and closing down. It indicates that the prices were marked up during the day (for simplicity we use day, it is equally applicable on all time frames), the Trading activity was High as indicated by the High volume and the prices dropped to near the low (or to the low) towards the closing hours.
Looking the SM perspective what happened was that the SM marked up the prices in early trading hours indicating strong bullishness. Enticed by this bullish move the weak money also rushed to acquire the stock. Shorts if any would also have rushed for cover. Meanwhile the SM is quietly distributing their holding to the weak money. In the later part of the day the SM drastically marks the price down trapping the weak money holding stocks at much higher prices.
In order to make this ideal, the Upthrust normally appears after a wide range upbar with high volume. This makes it easy for the SM to markup the price and entice the weak money. Most of the time the Upthrust will be moving into new higher territory. The High of this bar will be much higher than the previous high.. High volume should be an important consideration.
