What is an analysis of volume differences?

VSA looks for differences between supply and demand that are primarily created by the major forex players: professional traders, institutions, banks and market makers. The transactions of these professional traders are plainly visible on a chart, assuming that you’re a forex trader who knows how to read them.

To determine the balance between supply and demand, VSA examines the interaction between three variables on a forex chart in order to determine the balance between supply and demand, and the probable short-term market direction:

• The quantity of volume on a price bar
• Price variations, or the range (high and low)
• The closing price.

Using these three pieces of information, a qualified trader will clearly identify whether the market is in one of the four following phases:

• Accumulation (professionals buying at wholesale prices)
• Mark-up (bullish movement)
• Distribution (professionals selling at retail prices)
• Mark-down (bearish movement)
• Financial market cycle

The meaning and the importance of volume seems to be poorly understood by most novice traders, yet it is a very important component when conducting technical analysis of a chart. A price chart without volume is like a car without a fuel tank. The volume gives half of the information, while the other half is found by studying the difference in prices (the range).

The volume always indicates the transaction amounts and the price range shows the movement in relation to this volume. Nevertheless, a bull market can exist with either high or low volumes, prices can move in a horizontal range or even fall with an identical volume! This suggests that there are other factors to be considered when looking at a chart.