Using The VSA Text Indicator And Why It's Valuable
The VSA text indicator is based upon what is known as the “volume spread analysis” indicator. Volume spread analysis is basically a tool to discover the correlation of price in relation to volume, in order to determine the short-term outcome of price action, in other words, where the market might be moving next.
The vertical text shown next to candles on your MT4 chart, tells you where the money is, and very importantly, where it ISN'T. In trading, identifying money flow is vital when it comes to making the best trading decisions.
You are not an institution, so as an individual retail trader, you want to know where the big movers and shakers are placing their money, and conversely, where they are withdrawing. It is the large investors, and big money traders who actually cause price to move. So when THEY are buying and selling, these are called the accumulation, and distribution phases. The VSA, or volume spread analysis indicator becomes an indispensable tool for the serious trader who understands that select indicators, by themselves, are not enough to make an informed trading decision. This is why you should always initially determine where the supply and demand lies within the present market.
How The VSA Text Indicator Works
The VSA text indicator needs to be coupled with a volume indicator to help in establishing direction of price movement. The VSA indicator itself will give you the following information:
• No supply bar
• No demand bar
• Reverse Upthrust
• Effort To Move Up
• Effort To Move Down
• Stopping Volume
Below is a chart that illustrates what 'no supply' and 'no demand' candlesticks look like. Price will move but then pullback either a little or a lot, and close with a wick/tail at the top or bottom. You can see where the red arrows are pointing down, price pulls back on those candles before closing, leaving a wick. This is an indication of possible reversal. You can see on the chart, that's exactly what happened.
So when you observe a 'no demand' or 'no supply' candle on your chart, you will want to check your volume indicator also for any additional confirmation. On 'no demand' you might see a bullish bar that is growing shorter, which would correspond to a lack of demand. Another tool you can use to your advantage, is to add support and resistance lines which you can apply yourself using the tool for that, on MT4.
When you see 'no demand bar' on a candlestick, it is telling you there aren't sufficient buyers for price to continue moving up. Conversely, no supply indicates a lack of sellers. Upthrust, and reverse upthrust refer to a rapid trend change within one candle, during a given time frame, where price goes against 'trend' and then quickly reverses back to close near the opening price. So this tells you price tried to reverse, but failed. There will likely be a continuation of the trend at that point. Effort to move up or down, is indicating a struggle between bulls and bears, or vice versa, signaling a possible slowdown in momentum to the current trend.
Below you see a chart with an added volume indicator, along with added support & resistance lines, which is always good to use as well, since price often bounces in these zones, with a lot of profit taking going on. You can see numerous no supply and no demand candles at these levels. There are several different types of volume indicators that can be used, it is up to the trader to experiment and find their own personal preference. The volume indicator below tells you what is happening by hovering over the individual bar with your mouse.
Who Should Use The VSA Indicator?
The VSA text indicator can be useful to traders of all skill levels, simply because it offers information at a quick glance regarding market momentum, which should then be followed by checking volume, and various other indicators of your choice, for confirmation as to price direction. All traders can benefit from the use of the VSA indicator as it supplies the most basic information needed to consider taking a trade. In one word, volume!
So one of the ways to develop an intimate understanding of how the markets move, and what drives price movement, is to practice paper trading using the VSA, and as many other indicators as you can, until you narrow it down to a few that are the most precise.
VSA is helpful, initially, for getting a snapshot of where institutions are moving their money, via supply and demand. Use this, in conjunction with other indicators you've tested that produce a good percentage of results via back-testing, especially leading indicators, such as divergence. But always consult your volume indicators for determining current market momentum.
After you've back tested additional indicators for performance, then you can decide on your trading system. You can also tweak parameters in the settings of various indicators, to see if you can get better results. It's all trial and error, and this is how you find what works for you.
Adding The VSA Text Indicator To Your MT4 Platform
1. Download and save VSA indicator to desktop. Click on 'File', then click on 'open data’ folder
2. After opening data folder, close the MT4 platform
3. Inside data folder, double click on MQL5
4. Find 'Indicators' and then drag and drop downloaded VSA into file
5. Open your trading platform, go to Navigator, locate and apply VSA to chart
You'll want to enlarge your chart so you can easily read the description next to selected candles, showing the VSA text.
Working With A Fully Loaded Chart
As previously mentioned, the VSA text indicator is not a stand-alone tool, it must be used in conjunction with a volume indicator, support and resistance, or any other indicator that can help you to see where price is going next. Check out the chart below which is using a different volume indicator, easy to read, green bars showing bullish, and red bars indicating bearish. Divergence is being utilized, bearish divergence in this case, as well as a set of 3 moving averages, forming a crossover to the downside, right where the VSA text on the green candle reads 'no demand bar'.
A red volume bar corresponding to the next red candle also backs up a reversal, as well as a crossover of two fast moving averages, closing below one slower moving average. All very good confirmation for taking a short trade at this point! This is what you do, you look for MULTIPLE confirmations all pointing in one direction to go either long or short.