How price action traders can benefit from the VSA Indicator - forex trading demo login

How price action traders can benefit from the VSA Indicator ~ forex trading demo login

It is easier to spot the beginning or end of a trend after the fact when the late power of hindsight is at play. But to be able to spot a trade at the distribution or accumulation phase and open a position is the most difficult part of trading.

Whereas price action teaches us to watch the support and resistance points in conjunction with set ups such as the doji, shooting star, pin bar, bullish engulfing, bearish engulfing, bear flag or
bullish flag, and whereas we are also told to be mindful of patterns such as the double top and double bottoms, ascending and descending triangles- all these are often false.

That is why it is necessary to tamper price action with the VSA volume histogram and spread histogram. A support or resistance can be broken or respected- but to help us understand the key events at such regions we must bring into play a third party- volume. Similarly, volume helps us to distinguish between the false and true double bottoms and double tops. It also helps us to distinguish between the genuine and false flags.

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To insert the VSA Indicator into your mt4 simply follow the following instructions. Go toFILE- OPEN DATA FOLDER- MQL4-INDICATORS. You should copy and paste the indicator there and then close your mt4. Once you open the terminal again the indicators will all be there. For the purpose of this discussion we are only interested in the volume indicator. The spread divergence indicator can be a matter of self study. The saduckey is not of much significance either.

The red volume bar

The red volume bar is most effective when spotted after a down trend it must be spotted after a bullish close. It signals that the bulls have finally decided to change the course of the trend. The higher the timeframe on which the red volume indicator is spotted the greater the efficacy of the set up. The next candle after the bullish candle that has been confirmed by the red volume bar is often bearish. This is often as a result of pullback or retracement as the market retests a moving average.

It is important to note here that the retracement or pullback should ideally be accompanied by a no supply bar.

Below is AUDUSD 4 hour chart showing 2 trade entry points on a bullish close confirmed by a red volume bar after a pullback or a downtrend.

A bearish candle close with a red volume bar signals the possibility of a further downtrend on wide spread. Again the higher the timeframe on which the volume bar is spotted the higher the probability that the market will fall much further.

Below is USDCAD 1 hour chart showing a sell a further sell opportunity for a bearish close with the red volume bar

When the red volume bar is spotted after an uptrend, low spread bullish bars must follow coupled with a bearish reversal pattern.

Below is XAUUSD 4 hour chart showing a red volume bar accompanied by narrow spread candlestick or bar. It signaled the turn of events and a perfect sell

It is advisable to incorporate the upper and lower bollinger bands or the envelopes to help you know the point at which this small spread bars coupled with a reversal are forming.  Low spread bars at the top Bollinger band or upper envelope will signal an imminent reversal. Again, the whole analysis must be dependent on the timeframe you are looking at.

The white volume bar

This is most effective when spotted after an uptrend coupled with a bearish close of the candle. It signals selling pressure and that the bears have ultimately entered the fray. The resultant effect should be a bearish engulfing bar or an upthrust (pin bar).

Below is XAUUSD Daily chart. You can see that a bearish close with a white volume bar (on the white eclipse) culminated in a down move for a number of days

The retracement or pullback should be accompanied by no demand bars

On a down trend, the white volume bar could signal end of the bearish move. But this is rarely very effective and must be accompanied by small spread bearish bars. The close of the bar must also be near the middle or top of the bar or candlestick

The yellow volume bar

This is prominent during the close of day trading on the lower timeframes. It is a sign of no volume during the particular session. It is most effective when spotted after a near period of high volatility such as release of important data. It signals lack of moment on a particular direction. If it forms on a bullish close it will signal lack of smart money activity on the upside. If it forms ona bearish close it will signal lack of market participants on the downside. It is of greater effect when accompanied with the saduckey.

Below is AUDUSD 4 Hour chart. The bullish bar was a signal for a downside after the yellow bar appeared on the close

The blue volume bar

These are relevant during the Asian session but are mostly effective when constituting the no supply bar or the no demand bar.

A no supply bar is a bar with volume lower than the two previous volume bars. Its effect is felt on an uptrend. It must be a bearish bar and is confirmed by the next close which if bullish signals that the upside is still effective. It is also relevant during the retest of a previous low or the retest of a support area which could lead to the creation of a double bottom.

A no demand bar is an up bar with volume lower than the two previous volume bars. Its effect is felt on a downtrend. It must be a bullish bar and is confirmed by the next close which if bearish signals that the downside is still effective. It is also relevant on retest of a previous high which could lead to the creation of a double top.

The high churn bar

This is light green in colour. It implies high volume on a small spread bar. Ideally the next candle should be on the direction of the previous high churn bar. A bullish high churn bar should be confirmed by a bullish candle and is effective after a downtrend. A bearish high churn bar should be confirmed by a bearish candle and is effective after an uptrend.

It is important to point out that these volume bar indicators cannot be traded in isolation. They constitute part of price action and reversal set ups are therefore important. Some traders try to reason that price action is a different concept altogether from VSA. I think they are wrong. Price action can be full of false set ups and if you are not good at money management you will have probably blown out your account by the time that a perfect set up forms. VSA helps you to point out the genuine set up through the smart money activity.

Remember that the higher the timeframe the more effective the bars are in analyzing the market. Be that as it may, the signals can still be false. Hence spotting smart money activity is not a pips guarantee. Traders must develop market instinct which can only come about through constant chart interaction. Ask yourself whether there has been a trend or whether the volume indicator is showing at a good retracement point on the charts.

The change of trend will always be spontaneous. But do not chase the trade. Instead, wait for a pullback or retracement before you open a position. You will not only have limited risk but will also obtain a good risk reward.

The best way to spot a retracement or pullback is by use of the moving averages. Once you notice smart money activity, peruse through the lower timeframes for a place where price has broken through the moving average. Wait for a pullback to that retracement and then take the trade. Be careful that price is not retesting that moving average by way of another smart money activity. Hence always watch the volume histogram.

The white or red volume bar will always form at the beginning or end of a trend.
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I hope that this article goes a long way in helping those of you trying to trade using VSA. You can also read- how I trade usingVSA, heiken ashi and EMA.
Why you should also be trading binary options

Five great reasons why every forex trader should open a trading account with eToro 
For any enquiries you can reach me through 0728 963 087 or forexinvestigator@gmail.com.

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