Yesterday, I was invited to do some live trading in a webinar for Infinity clients. As always, it was a lot of fun to talk with and teach traders. In addition to me, Tom Williams, creator of Volume Spread Analysis, Phillip Friston, a UK fund manager and VSA expert, and Gavin Holmes, TradeGuider CEO and VSA expert were all there. It was a real pleasure for me to be in such esteemed company.
Shortly after the Open, there was a classic VSA trade setup I took as a live trade to the short side. I learned the basics of this long ago from Tom Williams’s book, The Undeclared Secrets that Drive the Sock Market. It has served me well over the years. I have adapted it to day trading the S&P futures and it is one of several setups that I also teach in Chart Reading Mastery.
The Trade Setup
The S&Ps had a small gap open and started to rally higher. I was looking for it to test yesterday’s high, anticipating a short sale at that level. But by bar 2, I had a strong sense that the market would not rally higher. There was an effort to rally on bar 1, but the result was poor with bar 2 closing on its lows and well into the range or spread of bar 1. Market internals were indicating early selling, and the lack of good volume suggested buyers had withdrawn.
Entry
A small apex had formed at bar 3 indicating were were likely to see some movement out of that small, three-bar range. More importantly, bar 3 painted what Tom Williams calls a “No Demand bar.” This is a bar that we often see soon after weakness has appeared in the market. Its range, close, and volume indicate buyers have pulled back and are not interested in higher prices. I took a short position here. I was looking for a play to yesterday’s low, some seven points lower.
The market started down immediately, confirming the position. The main hurdle would be the 1327.50 area. This was an area that the market had found significant resistance in early March and just recently on March 30 (see daily chart, not shown). I knew this level could now be supportive.
Exit
Although we eventually did retest Friday’s lows later in the afternoon, you can see that selling evaporated here. The spreads narrowed, downthrusts shortened, volume retreated, and even the NYSE ticks showed a lessening of selling. I covered the short for a few points of profit.
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