Volume Spread Analysis (VSA)

Volume spread analysis studies three things on a bar: the spread, meaning the high-to-low range, the position of the close inside that spread, and the volume relative to recent bars. Tom Williams, who had studied Wyckoff, built a set of named bars from those inputs. A wide spread up on high volume that closes off the high can be supply swamping demand. A narrow spread down on high volume after a decline can be absorption. A no-supply bar is a down bar on narrow spread and low volume, a test that selling has dried up. The names are specific. The principle underneath is effort versus result, the same principle Wyckoff used. Heavy effort and poor progress is the interesting event. Light effort and easy progress is the other one.

Read the bar relative to its background. A high-volume wide bar at a new high is not the same object as a high-volume wide bar at a selling climax. VSA without location becomes a hunt for a magic candle. Compare volume with the last twenty or so bars, not with a feeling. Compare the close with the spread: a close in the middle of a wide bar is a different result from a close at the high. Then ask what the next bar does. VSA is a two-bar idea even when the signal is one bar. A "no supply" test that is followed by a heavy down bar was not the end of supply. The confirmation is part of the method. Traders who buy the signal bar and skip the confirmation are trading a weaker system than the one they read about.

Use VSA to grade a level you already have. At support, a test on narrow spread and low volume, followed by an up close, is a reason the long is still valid. At a breakout, a wide bar closing at the high on increased volume is a reason the break is accepted. At a new high, a wide bar on the highest volume of the advance that closes in the middle or lower half is a reason to tighten, not automatically to short. Let VSA veto or support a setup. Do not let a named bar be the setup in the middle of a trend with no level.

Memorising twenty bar names and forgetting to ask where in the trend the bar printed. Also treating high volume as always bullish or always bearish. The close and the spread decide the interpretation, and even then the next bar can veto it. And applying VSA to forex tick volume as if it were the stock exchange volume Williams watched. Tick volume can still show activity. It is not the same measurement, and the confidence should drop.

VSA is discretionary. The background "strength" or "weakness" can be argued either way, which makes the bar fit the story. Modern volume is split across venues, so the effort you see may be a fragment. A single block print can create a VSA signal that is an execution, not a campaign. And the method does not give you a target or a size. It is a way to read the bar at the level. The risk rule has to come from somewhere else, or the elegant bar will be the one that gaps through you.