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VSA Principles

1) The document outlines 10 principles of signs of weakness (SOW) and 9 principles of signs of strength (SOS) according to Tom Williams' VSA (volume spread analysis) method. 2) SOWs include up bars with narrow spreads and low volume, difficulty pushing prices above old resistance levels, and sudden down moves that trap traders in poor positions. 3) SOSs include bottom reversals where a down bar is followed by an up bar closing at high prices, surges in volume that stop down moves as professional traders buy in, and climactic moves with ultra high volume that mark market turning points.

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4K views

VSA Principles

1) The document outlines 10 principles of signs of weakness (SOW) and 9 principles of signs of strength (SOS) according to Tom Williams' VSA (volume spread analysis) method. 2) SOWs include up bars with narrow spreads and low volume, difficulty pushing prices above old resistance levels, and sudden down moves that trap traders in poor positions. 3) SOSs include bottom reversals where a down bar is followed by an up bar closing at high prices, surges in volume that stop down moves as professional traders buy in, and climactic moves with ultra high volume that mark market turning points.

Uploaded by

CryptoFX
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PDF, TXT or read online on Scribd
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TomWilliamsVSAPrinciples

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.
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TomWilliamsVSAPrinciples
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.

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TomWilliamsVSAPrinciples
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

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TomWilliamsVSAPrinciples
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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