VSA Complete Strategy: A Comprehensive Guide to Smart Money Trading

Table of Contents

1. Introduction to Volume Spread Analysis (VSA)

2. Core Concepts of VSA

3. VSA Setup Components

4. Smart Money & Market Phases

5. Advanced VSA Patterns & Related Concepts

6. Additional Trade Signals and Patterns

7. Examples and Visuals

8. Conclusion

1. Introduction to Volume Spread Analysis (VSA)

Volume Spread Analysis (VSA) is a trading methodology developed by Tom Williams, focusing on
the interplay between volume, price spread, and closing price. This method is used to identify the
presence and intentions of smart money (institutional traders) in the market.

Key Components:

• Volume: The total number of shares, contracts, or lots traded in a given period. It represents
the "effort" behind a price movement.

• Spread: The difference between the high and low prices in a given time period. It shows the
price range of the bar or candlestick.

• Close: The final price at which a bar closes. The position of the close relative to the spread
give’s insight into the balance of power between buyers and sellers.

Purpose of VSA:

• Identify Smart Money Activities: Recognize accumulation (buying) or distribution (selling)

• Spot Market Turning Points: Analyse volume and price behaviour to anticipate potential
reversals.

• Understand Market Sentiment: Determine if the market is in a phase of strength (buying)

Supply and Demand Dynamics:

• Supply: Selling pressure. When supply exceeds demand, prices tend to fall.

• Demand: Buying pressure. When demand exceeds supply, prices tend to rise.

• Interpretation:

o A low volume down bar in a downtrend may indicate sellers are losing momentum,
suggesting hidden demand.

o Conversely, a high-volume up bar in an uptrend may signal strong demand.

Effort vs. Result:

• Effort: The volume traded during a price movement.

• Result: The price spread and where the close occurs.

• Analysis:

o High effort (volume) with little price movement suggests absorption by smart
money.

o Low effort with significant price movement can signal a lack of opposition,
indicating a strong trend.

Effort with No Result:

• Definition: High volume with minimal price change.

• Example: A wide-ranging bar with high volume that closes near its midpoint indicates that
despite heavy trading, there was no significant progress in price.

• Interpretation: Smart money may be absorbing buying or selling pressure, preparing for a
future move.

Strength and Weakness:

• Strength: Identified by rising prices on increasing volume, suggesting buyers are in control.

• Weakness: Falling prices on high volume may indicate distribution, signalling smart money
is offloading positions.

3. VSA Setup Components

No Demand / No Supply Bars:

• No Demand Bars:

o Definition: Bars with narrow spreads and low volume in a downtrend.

• No Supply Bars:

o Definition: Narrow-range bars with low volume in an uptrend.

o Interpretation: Lack of selling pressure, indicating a potential continuation or

Stopping Volume:

• Definition: A sudden spike in volume signalling the potential end of a trend.

• Example: After a prolonged uptrend, a surge in volume with a widespread that closes near
the midpoint could indicate a buying climax.

• Significance: Indicates the exhaustion of a trend, often followed by consolidation or

Climactic Action:

• Buying Climax:

o Rapid upward price movement on very high volume, often leading to a sharp
reversal.

• Selling Climax:

o Rapid downward movement on high volume, signalling potential market bottom.

Testing for Supply/Demand:

• Definition: Retesting previous climactic levels to confirm supply or demand.

• Interpretation: A successful test (low volume and failure to break the level) confirms the
trend reversal.

Absorption Volume:

• Definition: High volume without significant price movement.

• Example: A high-volume down bar closing near its high suggests smart money is absorbing
selling pressure.

• Interpretation: Indicates accumulation or distribution phases.

4. Smart Money & Market Phases

Smart Money Concepts:

• Smart Money: Large institutional traders whose activities influence market trends.
 • Market Manipulation: Smart money may create false breakouts, liquidity sweeps, or stop-
loss hunting to trap retail traders.

Market Phases:

1. Accumulation Phase:

o Definition: Smart money quietly buys at low prices.

o Signs: Narrow-range bars with low volume near support levels.

2. Manipulation Phase:

o Definition: Market is manipulated to trigger stop-losses and trap traders.

o Techniques: False breakouts, liquidity sweeps, shakeouts.

3. Distribution Phase:

o Definition: Smart money sells positions at higher prices.

o Signs: High-volume up bars with weak follow-through, buying climaxes.

5. Advanced VSA Patterns & Related Concepts

Shakeout & Upthrust Patterns:

• Shakeout:

o Sharp drop below supports triggering stop-losses, followed by a rapid recovery.

o Interpretation: Indicates accumulation and potential upward move.

• Upthrust:

o False breakout above resistance that quickly reverses.

o Interpretation: Signals distribution and potential downward move.

Trend Lines and Their Reverse Use:

• Traditional Use: Identifying trend direction.

• Reverse Use: A break of a trend line could indicate a reversal rather than a continuation.

Shortening of Thrust:

• Definition: Successive price thrusts become shorter, signalling weakening momentum.

• Interpretation: Indicates a potential trend reversal.

Accuracy in Price Action:

• Definition: The alignment of price movements with volume.

Wyckoff Wave:

• Definition: Describes market phases: Accumulation, Markup, Distribution, Markdown.

Order Blocks:

• Definition: Areas where institutions have placed significant buy/sell orders.

• Example: Consolidation areas before a breakout often mark order blocks.

FTR (Failure to Return) Trading:

• Definition: Price fails to retest a key level, indicating strong momentum.

• Interpretation: Suggests continuation in the direction of the initial move.

QML (Quasimodo Level) Trading:

• Definition: A reversal pattern indicating a shift in market structure.

• Example: A lower low followed by a higher low suggests a potential reversal.

Flag Limit:

• Definition: A continuation pattern where price consolidates after a strong move.

• Interpretation: Breakout in the direction of the original move indicates trend continuation.

SNR Flip (Support and Resistance Flip):

• Definition: A previous support becomes resistance or vice versa.

King Master Level:

• Definition: A critical level on the chart that influences institutional trading decisions.

SBR & RBS:

• SBR (Support Becomes Resistance): After breaking below support, the level acts as
resistance.

• RBS (Resistance Becomes Support): After breaking above resistance, the level acts as
support.

RBR, DBR, RBD, DBD Patterns:

• RBR (Rally-Base-Rally): Indicates bullish continuation.

• DBR (Drop-Base-Rally): Suggests reversal after a drop.

• RBD (Rally-Base-Drop): Signals potential bearish reversal.

• DBD (Drop-Base-Drop): Indicates continuation of bearish trend.

Reversal Sell:

• Definition: Signals the end of an uptrend and start of a downtrend.

Pullback Sell:

• Definition: Temporary retracement in a downtrend providing a selling opportunity.

Widespread Bar:

• Definition: High volatility bars that indicate significant market activity.

Trend Reversal:

• Definition: Clear signs of a trend losing momentum and reversing.

Trend Continuation:

• Definition: Confirmation of the existing trend's persistence.

End of a Rising Market:

• Definition: Specific signals indicating that a bullish trend is nearing its peak.

7. Examples and Visuals

Annotated Chart Examples:

1. Buying Climax:

o Visual: Steep upward move with widespread and spike in volume, followed by
reversal.

2. Selling Climax:

o Visual: Sharp downward move with high volume, followed by consolidation or

3. Shakeout:

o Visual: Brief dip below support, high volume, strong recovery.

4. Upthrust:

o Visual: False breakout above resistance with reversal.

5. Trend Line & SNR Flip:

o Visual: Break of trend line followed by role reversal.

o Visual: Consolidation patterns signalling continuation or reversal.

8. Conclusion

Recap:

• VSA integrates volume, spread, and close analysis to uncover smart money activities.

• Recognizing climactic actions, absorption, and effort with no result are key to identifying
market phases.

Trading Tips:

• Confirmation: Always seek multiple signals before entering a trade.

• Risk Management: Use stop-loss orders and proper position sizing.

• Practice & Patience: Mastery comes through consistent practice and review.

Final Thoughts:

• VSA is a powerful tool when combined with other technical analysis methods.

• Continually educate yourself by studying charts and refining your strategy.

How to Use This Guide:

1. Review Concepts: Understand each section thoroughly.

2. Visualize Examples: Apply concepts using real chart examples.

3. Apply in Trading: Use these insights for informed decision-making.

4. Keep a Trading Journal: Track progress and refine strategies accordingly.

Happy Trading! May the Smart Money always be with you!