MM and VSA

Here is a chart which was put up by a great visitor of my thread in FF to explain a different concept. I am posting this here as it is a great example of how MM and VSA work together. In case anyone is wondering what VSA is, it is Volume Spread Analysis. It is a study which tries to predict SR points and PA based on the volume and the spread of price bars/candles.

Rather than going into details of VSA, which is rather complicated, let me try and explain the chart in very simple terms.

On the EU chart, in the first circle, price has broken thru the 2/8 support level and you can see that the candle that broke thru the support has a very wide spread. This shows that there have been lot of sellers right through the candle. This selling started at the top of the swing at around 1.3380 but the big sellers came in only in this bar and it is this huge selling that pushed the price through the support and make the support break possible....So any candle with a wide spread breaking through a support is a sure confirmation that the support has been broken. So you can surely expect some more follow through selling after the bar as well.

As you can see the follow through selling continued and in the second circle, there is another wide spread candle/bar which broke thru the support at 1/8 MM level. This also points to big sellers at those prices who managed to break support. Again, this confirms the break of support and leads to some more follow through selling.

The body of these wide spread bars/candles has a lot of sellers residing in them. So next time, if and when price manages to come back to the level (into the body of the bar/candle), you can expect the same sellers to be waiting there once again. This is what is happening in the third circle where the price has come back to the body of the wide spread candle and is faced with a lot of sellers who had initially pushed the price down in the wide spread bar/candle (second circle). The same sellers again start selling in the third circle and u can see how price struggles to go through the body of the bar/candle in the second circle. It needs a lot of buying to absorb all the selling made by the sellers at the body of the bar/candle in the second circle. Finally, after 3-4 hrs, all the selling has been absorbed and the price breaks thru support turned resistance and goes through.

Now the same situation happens in the fourth circle. This time the fight is between the sellers who were residing in the body of another wide spread bar/candle (first circle). You can see that price is struggling to break through and buyers are trying to absorb all the selling. But this time, all the buyers are simply not able to absorb all the selling and they lose the fight. The sellers residing there win the battle and price goes down again.

After this, you can see some more wide spread bars/candles to break through support. It is because of the above explanation that we can expect to find resistance (or a lot of sellers) at the last 2 circles in 1.3184 and 1.3245).

In all this, you can see how MM managed to pick all the SR points correctly. So, it is not that there is SR cos the MM levels are there. It is just that the SR levels have been picked out superbly by MM. You can see similar things in the other chart on USDCHF as well.

See how beautifully MM and VSA work together.