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Toms Vsa Principles

The document outlines 9 principles of signs of weakness (SOW) and 9 principles of signs of strength (SOS) in financial markets according to Tom Williams' VSA (Volume Spread Analysis) method. The principles of SOW include up bars with narrow spreads and low volume indicating lack of demand, while principles of SOS point to bottom reversals where a down bar is followed by an up bar closing at highs as signs of strength. The document provides detailed explanations of each principle to help traders interpret market signals using volume and price action.

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100% found this document useful (1 vote)
583 views4 pages

Toms Vsa Principles

The document outlines 9 principles of signs of weakness (SOW) and 9 principles of signs of strength (SOS) in financial markets according to Tom Williams' VSA (Volume Spread Analysis) method. The principles of SOW include up bars with narrow spreads and low volume indicating lack of demand, while principles of SOS point to bottom reversals where a down bar is followed by an up bar closing at highs as signs of strength. The document provides detailed explanations of each principle to help traders interpret market signals using volume and price action.

Uploaded by

harishgarud
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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TomWilliamsVSAPrinciples

Page1of4
SignsofWeaknessSOW
SOWPrinciple1
Upbaronanarrowspread,closemiddleorlow,volumeveryhighorlow.Weaknessalwaysappearson
anupbarbecauseprofessionalsellinghastosellintoasurgeofbuying.Thenarrowspreadindicates
supply.Somethinghascappedthetopendofthemarket.Selling,orlackofdemandfromprofessional
moneyaretheonlytwothingsthatcandothis.Ifthevolumeishighplusthiswillshowsupply.Ifthe
volumeislowthiswillshowlackofdemand.Checkforoldresistancelevelstotheleft.
SOWPrinciple2
Marketsareconstantlybeingtraded.Asuddendownmovewilllockmanytradersintopoorpositions
astheywaitandhopeforarallytogetoutwithlittleornoloss.Ifafterareactionthemarketthen
startstogoup,thenanyoldresistantlevelwillrequireefforttogoupandthroughtheseoldhighs
becausetheyhavetoovercomethesellingfromtheselockedintraders.Toapproachanoldhighon
lowvolumeandnarrowspreadsindicatesthattheoldhighsarenotgoingtobepenetratedbecause
thereisnodemand.Ifthemarketisnotgoingtogoupthenitisgoingtogodown.
SOWPrinciple3
ThisisknownaseffortversusResult.Anyindicationofstrengthyoushouldexpectastrongmarket.If
thenextbarisdownonawidespreadclosingonthelowsandthelowandthecloseislowerthanthe
previousbarthisisacountermandingsignal.Youdonotfightthemarketbutyouhavetoassumethat
therehasbeennoresultfromtheSOSthereforethemarketmustbeweak.Iftheoriginalindication
wasgenuineSOSthenprofessionalmoneywouldimmediatelymoveintothemarketgivinghigher
pricesnotlower.
SOWPrinciple4
TheUpThrust.Upthrustsarethereforaverygoodreasonandthatistotriggerstopsinaweak
market.However,manychartpatternslooklikeUpThrustsbutfailtoliveuptheirpromises.TheUp
Thrusthastolookright.Ithastobeintherightplace.Manyarecreatedinastrongmarketbygapping
upattheopeningthenfallingoffforarestonlytocarryonup.Thegenuineonesareeasytosee.
BasicallyyoushouldhaveSOWinthebackgroundnotSOS.
SOWPrinciple5
Upbaronvolumelessthanthe2previousbars.Thisindicateslackofdemandfromprofessional
money.Thiscomesintoitsownonshorttimeframes.
TomWilliamsVSAPrinciples
Page2of4
SOWPrinciple6
Adownbaronawidespreadplusclosingonthelowpushingdownandthroughaprevioussupport
level.

SOWPrinciple7
Strengthappearsondownbarsespeciallyifthebarhasclosedinthemiddle.Herethisisdiscounted
becausethehighishigherthanthepreviousbar.ThisisahiddenupthrustandaSOW.Thisprinciple
arrivesinavarietyofdisguises.
SOWPrinciple8
Asurgeinoptionvolume.Upbarafterarallyandtheoptionvolumeisveryhigh.Professionaltraders
willhaveaverygoodideawhenatophasbeenreachedandwillentertheoptionmarkettohedge
theirpositions.Seemstobecleareronatopthanalowofamarket.SOS
SOWPrinciple9
Buyingclimax.Upbarwithwidespreadsclosingmiddleorlowonultrahighvolume.Verypowerful
SOWiftherearenooldtopstotheleft.Asamarketkeepsongoingupdayafterdayapointwillbe
reachedatsometimewhenmanytradersthathavesoldprematurelyorthosethatarenotinthe
marketcannotstandtheconstanthigherpricesandfrenzygivesthetradingsyndicatesandmarket
makersagoldenopportunitytounloadlargeamountsofstockatahighpricewithouttheiractivity
resultinginlowerprices.Thismarksthehighpointofthemarket.
SOWPrinciple10
Topreversal.Thisisacommonsignofweakness.Thefirstbarismarkeduprapidly,closingonthe
highs(usuallyongoodnews).Thevolumecanbehigh(supplyswampingdemand)orlow(no
demand).Thenextbarrapidlyreversesdown,onawidespread,closingonthelows.Ifthelowand
thecloseislowerthanthefirstbarthisaddstotheweakness.Aswithalltheseindications,itis
importanttoreadthefollowingbarsforconfirmationofcontinuedweakness.

TomWilliamsVSAPrinciples
Page3of4

SignsofStrengthSOS
SOSPrinciple1
Bottomreversal.Awidespreadplusdownbarclosingonthelow.Thelowandthecloseislowerthan
thepreviousfourbars.Followedbyanupbaronawideplusspreadclosingonthehighs.Thisarrives
inavarietyofversionsbutbasicallythefirstdownbarisashakeoutusuallyonsocalledbadnews.
Thesecondbarisrapidlymarkeduptolocktradersin(ifyoushorted)oroutofthemarketifyou
wantedtobuythemarket.(peoplehesitatebuyingbecauseitnowappearsexpensivetotheearlier
price.
SOSPrinciple2
Stoppingvolume.Tostopadownmovedemandhastoovercomethesupply.Theoddwaysupplyand
demandisevidenthere.Asamarketfallsdayafterdayapointwillbereachedwhentheherdcannot
standthelossessotheyalltendtopanicatasimilartime.Ifthepricelevelsreachedarenow
attractivetoprofessionalmoneytheywillstepinandstartbuying.Thisactivitycausesasurgein
volumeastheybuyandcovertheirshortpositions.
SOSPrinciple3
TheTest.ThisisaverycommonSOSfrequentlyseenjustbeforeanupmove.Isalsoseeninarising
marketafteraminorSOWandindicateshigherprices.
SOSPrinciple4
DownbarsclosinginthemiddleonreducedvolumeseenafteranySOWindicateshigherprices.Thisis
astrongSOSinanuptrendafteraSOWbecausethereisnocontinuationoftheweakness.Ifthereis
nocontinuationexpecthigherprices.
SOSPrinciple5
Awidespreadupbarclosingonthehighspushingupandthroughanoldtoptotheleft.Thisis
demandandanefforttogoup.Afterthiseventthemarketusuallyrestsorstartstoreact,youarenow
lookingforindicationsofstrengthtoconfirmthestrength.SOSPrinciple6
SOSPrinciple6
Thisisaverypowerfulindicationofstrength.Firstyouseestoppingvolume(seeprinciple2).The
markethasashortrallyonlytofallagainbackdownintothesameareaasthefirsthighvolumeseen
TomWilliamsVSAPrinciples
Page4of4
duringthestoppingvolume.Thevolumeislow.Ifthespreadisnarrowandorclosingonthehighs
thisisastrongindicationofstrength.
SOSPrinciple7
Thisislavariationofstoppingvolumewhichhasarrivedon2barsratherthanon1bar.Onthefirst
barsupplywassoheavythatprofessionalmoneywasunabletoabsorballthestockdumpedontothe
market.Thisallowsthemarkettofallonthenextbarusuallyonsocalledbadnews.Thiscanbe
gappeddownontheopeningcausingthepanic.However,tocloseinthemiddleorhighsindicates
demandhasovercomethesupply.
SOSPrinciple8
Thehiddentest.Thisisavariationofthebottomreversal.Ifthemarketlowhasfallenbelowthe
previous4barsonawidespreaddownclosingonthelowsandthenextbarisuponawidespread
closingonthehighsthenthishasthehallmarkofalowbottomreversalandasignofstrength.
However,ifthelowofthesecondbarislowerthanthepreviousbarthisaddstothestrengthonthe
assumptionthatthemarkethadbeenmarkeddownontheopeningonlytofindthattherewas
absolutelynosupply,sothemarketquicklyreversedonawidespreadclosingonthehigh.Ifthereis
nosellingatthelowerlevelsthenexpecthigherprices.
SOSPrinciple9
Sellingclimax.Widespreaddownclosinginthemiddleorhighafterasubstantialdownmovehas
alreadytakenplace.Thevolumeisultrahigh.Asamarketfallsdayafterdayapointwillbereached
whentraderswillstarttopanicandencouragedbybadnewswillstarttodumpstockontothemarket.
Ifthemarketclosesinthemiddleorhighthenprofessionalmoneymusthavedecidedthatthelower
pricesnowlookedattractiveandwillstarttobuyintothepanicselling.Theactivitywillcausethe
volumetobeultrahigh.Thismarksthelowpointofthemarket.

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