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Most traders are aware of the two widely known approaches used to analyze a market, fundamental analysis and technical analysis. Many different methods can be used in each approach, but generally speaking fundamental analysis is concerned with the question of why something in the market will happen, and technical analysis attempts to answer the question of when something will happen. There is, however, a third approach to analyzing a market. It combines the best of both fundamental and technical analysis into a singular approach that answers both questions of “why” and “when” simultaneously; this methodology is called Volume Spread Analysis.
| Volume Spread Analysis (VSA) is a powerful methodology that was researched and developed by veteran trader, Tom Williams, who was a highly successful member of a professional trading syndicate in the 1960s.
VSA builds on the pioneering work of Richard D. Wyckoff, a famous 1920's trader, who based his trading decisions on supply and demand in the markets and how they are inextricably linked to professional activity - "Smart Money" trading. Wyckoff's principles are still taught at the Golden Gate University in San Francisco. |
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VSA looks at the interrelationship between three variables on the chart in order to determine the balance of supply and demand as well as the probable near term direction of the market. These variables are the amount of volume on a price bar, the price spread or range of that bar (do not confuse this with the bid/ask spread), and the closing price on the spread of that bar.
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