Wyckoff's basic principles

Wyckoff had three basic principles

Supply and Demand

Cause and Effect

Effort and Result

The current day VSA available in the market still relate to these tenets.

Much later in the 70s Tom Williams who worked with a syndicate (read… Smart money) for 15 years, developed on the Wyckoff’s work and came up with Volume Spread Analysis and later commercialized it. (The critic would say ..why commercialize it, he could have made money himself). Now many more companies offer their own concoction of VSA, hawkeye traders and genie software to name a few.

Tom William’s VSA basically ignores the open of a bar and uses high, Low and Close. This is where it basically differs from classical candlestick analysis. Most commercial vendors claim to use more than 300 indicators to analyze each bar. I have seen that some of the VSA vendors use other indicators though not explicitly.

One thing is certain that the availability of basic information on VSA is scarce. I have come across much discussion on other forums on VSA. However most revolve around commercially available packages. Our intention in this thread will be to explore the basics so that each one of us can arrive at our own convenient VSA analysis.

The SM basically moves the market in four phases as follows

1. Accumulation
2. Markup
3. Distribution
4. Mark Down

Most of you may be fully aware of these. Still we will look at these phases more in details as this would help us to understand the SM operation better which in turn would give a better perspective to VSA.

There will not be any demand for something when there is plenty of it available and nobody wants it. As the availability decreases and more people want it then the demand increases. So the first thing the SM does is find something that is available a plenty and cheap. The next step is to create a scarcity of the same and get people interested in it which in turn generates the demand. This is first phase which is Accumulation.