Often considered an in-depth method, VSA challenges both new and experienced traders. So What is VSA? How does it work? Most investors today often approach the market through fundamental or technical analysis. Both aim to help them understand why and when volatility occurs. Let’s explore more with Crypto Trading through the article below.
Discover What is VSA and the history of VSA’s birth
What is VSA method? Although not popular, it is considered extremely effective. Its scarcity is not due to its performance but to its complexity. The VSA method is reserved for professionals. Newcomers to the market often rely on fundamental or technical analysis when investing in Crypto.
Definition What is VSA?
VSA method, short for Volume Spread Analysis. This is a method of analyzing price fluctuations based on the relationship between supply and demand. In this way, it helps predict future price trends. Price charts and trading volume play an important role in applying this method.
VSA is considered a popular market analysis technique. It is used by the biggest investors in the market. It provides information to traders about why and when. To be able to position themselves best in the market.
A brief history of the formation of the VSA method
The VSA analysis method, created by Mr. Tom Williams, has become an important tool in the arsenal of Crypto investors. Mr. Williams is not only the developer of Wyckoff Volume Spread Analysis but also an excellent investor.
After taking Mr. Wyckoff’s course, Mr. Williams realized that every movement in the market can be reflected in the price chart. Understanding the relationship between supply and demand is the key to successful trading.
Through years of research and experimentation, he developed and shared his knowledge through the book “Master Of Market”. The computer trading program is based on the Wyckoff VSA method. In his opinion, a deep understanding of the market and accurate reading of price charts are the decisive factors for investors to trade intelligently and successfully.
See more: Price action: surprisingly effective trading method
What are the main components of What is VSA?
The VSA analysis method includes three main elements as follows:
– Volume: Although investors often pay little attention to volume, this can miss important information. Some indicators predict that prices will increase when volume is high. However, in reality, this may not be the case. This shows that other factors still affect the market
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- Above Average Volume: This is a volume that is higher than average. However, it is still lower than the previous peak. Typically, the average of the last 20 sessions is used.
- Super High Volume: This is the highest volume level during the observed period, higher than the previous peak.
– Price range (Spread): Measures price fluctuations during a trading session. Calculated by the distance between the opening price and the closing price or the length of the candle body.
– Closing price: Mr. Tom Williams considers this the most important information in VSA analysis. The closing price can appear at any position on the candle body. It is an important signal for analysis.
How VSA Works in Technical Analysis
The VSA investment method, also known as Wyckoff methodology in depth, focuses on the close combination of trading volume and price range on candlestick charts.
VSA believes that in each trading session, volume and amplitude must operate in harmony. When unusual phenomena such as narrow candle bodies but high volume, or wide candle bodies but low volume appear. That is a sign of an imbalance between supply and demand in the market.
The Wyckoff Volume Spread Analysis also emphasizes that markets fall due to an imbalance in supply. Markets rise due to an imbalance in demand. A market can only rise if there are more buyers than sellers. However, this is only a necessary and not sufficient condition; there must be an absence of sellers.
The VSA method addresses two main scenarios:
- Sign Of Strength: Occurs when supply is exhausted after a downtrend. It leads to an imbalance between supply and demand. This can create the potential for future price increases.
- Sign Of Weakness: Occurs when demand gradually dries up after an uptrend. Leads to a fundamental imbalance between supply and demand. This may pose a risk of future price declines.
How to trade effectively with What is VSA?
So what is the effective trading method with What is VSA? Based on the analysis of price difference volume, investors can accurately recognize market signs. From there, they can come up with appropriate trading options.
Crypto Technical Analysis with SOW – Sign Of Weakness
A decline usually occurs when demand has reached a low and previous buying has decreased. At this point, demand weakens, pushing the stock price down. Patterns that indicate a decline include:
- UpThrust – A bearish reversal candle with a short body and high or above average volume. This signal indicates inconsistency when supply dominates. Predicts a future downtrend.
- Buying Climax – Buying Climax: Bullish candle with a long body and super high or above average volume. It usually occurs when the market is not in agreement with the bullish trend, and the price has peaked. This is a sign that supply is increasing, preparing for a downtrend.
- No Demand Bar – No Demand Bar: A bullish candle with a short body and lower volume than the previous two sessions. This is a signal that the downtrend is still going on, as demand has not returned. Investors have not created demand because they are waiting for prices to fall further to buy.
Crypto Technical Analysis with SOW – Sign Of Weakness
The crypto trading method with bullish sign SOS – Sign Of Strength
When supply dries up after a period of selling, signs of a stock price increase often appear. At this time, many investors realize the price is reasonable and start buying. This creates demand and leads to an increase in price.
Bullish gap patterns can include:
- Down Thrust – Downward thrust: This chart pattern usually appears when a candlestick pulls its leg and reverses to the upside. In this case, demand suddenly increases, causing the closing price to reverse upward with very high trading volume or possibly higher than average. This is a signal to predict an upward trend in product prices. To be sure, investors can wait for the stock to increase for a few sessions to confirm or buy at the appropriate downward adjustment.
- Selling Climax – Selling Climax: This is a common bullish signal. It usually consists of a bearish candlestick with a large difference in closing price compared to the opening price. At the same time, the closing price is lower than the previous down sessions. The long candle shadow shows strong buying pressure. It is accompanied by very high or higher-than-average trading volume.
- No Supply Bar – This pattern consists of a bearish candlestick with a low gap between the opening and closing prices creating a short candlestick body. The volume of this candlestick is lower than in the previous two sessions. This is a signal that the uptrend is continuing. This is just a temporary phase of supply exhaustion.
See more: OKX: open an OKX account – Reputable crypto exchange
Conclude
Hopefully, through the information shared by Crypto Trading, you will have a more detailed answer to the method What is VSA? From how it works to the basic principles and even how to make Crypto transactions after analyzing the price difference volume. Wish everyone always achieves success on the trading path!
Frequently Asked Questions
How does What is VSA work?
VSA assumes that the forces of demand and supply in the market are reflected in trading volume and price range. By analyzing the relationship between volume and price, VSA attempts to predict future market trends.
What are the important factors to pay attention to when trading by method What is VSA?
Trading volume, price range, closing price, and VSA patterns like UpThrust, Selling Climax, Buying Climax, and Demand Bar are important factors to consider.
What is VSA and is it suitable for all investors?
VSA can be suitable for all investors, from beginners to experienced ones. However, it requires understanding and practice to apply effectively.
