Volume Spread Analysis (VSA) is a powerful trading methodology that examines the relationship between volume, price spread (range), and closing price to identify market reversals, continuations, and potential manipulation by "smart money."
VSA Example:
Key Features of the VSA Indicator:
Identifies Supply & Demand Imbalances: Highlights when large players are accumulating or distributing positions.
Detects Market Exhaustion: Signals potential reversals through volume climaxes (extremely high volume).
Reveals Weakness in Trends: Shows when trends lack participation (low volume) and may reverse.
Works Across Timeframes: Effective in scalping, day trading, and swing trading.
Practical Uses in Trading:
- Reversal Signals (e.g., "No Demand" red arrows = weak buying interest)
- Breakout Confirmation (e.g., high volume + wide spread = valid breakout)
- Trend Continuation (e.g., stopping volume = institutional support)
- Divergence Detection (e.g., price makes new highs, but volume declines = warning sign)
This indicator helps traders anticipate moves before they happen by analyzing the hidden forces of supply and demand. Ideal for forex, stocks, and crypto markets.
Meaning of Colors in the VSA Indicator Each color in your VSA indicator represents a specific Volume Spread Analysis (VSA) pattern, revealing important information about the dynamics between buyers and sellers:
1. Red (SIG_NODEMAND - No Demand) Meaning: Lack of buyer interest
Condition:
Volume below 50% of the average
Range smaller than the previous candle
Interpretation:
Weakness in an uptrend
Possible reversal to the downside
The candle shows effort without results (high volume but little movement)
2. Blue (SIG_NOSUPPLY - No Supply) Meaning: Lack of seller interest
Condition:
Volume below 50% of the average
Price closes in the lower third of the range
Interpretation:
Weakness in a downtrend
Possible reversal to the upside
Lack of selling pressure even at low prices
3. Green (SIG_CLIMAXUP - Upthrust Climax) Meaning: Excessive buying with possible exhaustion
Condition:
Volume 50% above the average
Price closes in the upper third of the range
Interpretation:
Possible end of an uptrend
Large players distributing positions
High volume without follow-through
4. Orange (SIG_CLIMAXDN - Downthrust Climax) Meaning: Excessive selling with possible exhaustion
Condition:
Volume 50% above the average
Price closes in the lower third of the range
Interpretation:
Possible end of a downtrend
Seller capitulation
Reversal opportunity
5. Purple (SIG_STOPVOL - Stopping Volume) Meaning: Intervention by large players
Condition:
Volume 20% above the average
Range smaller than half of the previous candle
Interpretation:
Absorption of supply/demand
Possible accumulation/distribution
Often precedes strong market moves
Summary Table:
How to Use in Practice: Confirmation: Always wait for confirmation in the next candle
Context: Analyze in conjunction with:
Support/resistance levels
General trend
Additional candlestick patterns
Risk Management:
Red/Blue: Potential reversal signals
Green/Orange: Possible exhaustion points
Purple: Signs of accumulation/distribution
These signals are particularly powerful when they appear at:
Key support/resistance levels
After prolonged trends
In conjunction with classic candlestick patterns
Final Note: In VSA, volume is the primary indicator—price simply follows volume. These colors help quickly visualize who is controlling the market (buyers or sellers) and when this control might be shifting.
NOTE - These signs have yet to be implemented.
Test Patterns Upthrust (False Breakout): ◦ Moderate/high volume + resistance breakout that fails ◦ Closing below the tested resistance
Support/Resistance Test: ◦ Low/moderate volume when testing key levels ◦ Indicates a lack of interest in the breakout
Effort vs. Result Patterns Effort Without Result (Up): High volume without significant price advance (distribution)
Effort Without Result (Down): High volume without significant decline (accumulation)
Special Patterns Pseudo-Upthrust: Similar to upthrust but with specific volume characteristics
Weakness into Strength / Strength into Weakness: Counter-trend moves with revealing volume
Continuation Patterns Increasing Volume in Trend: Confirms the current trend
Decreasing Volume in Pullback: Indicates temporary weakness in the correction.