Introduction to the VSA Text Indicator
Many new traders try to identify trend direction solely based on price action and its corresponding patterns. However, this often does not tell the whole story. Volume is one of the key elements that many seasoned traders look at when trying to decipher how price is behaving and where it may potentially move. The VSA Text Indicator simply combines both price action and volume to arrive at an educated assumption of how price might behave.
What is the VSA Text Indicator?
VSA stands for Volume Spread Analysis. The VSA Text Indicator is a technical indicator which interprets price movements and price action in relation to the volume of each candle. It can identify whether a certain price action pattern is moving with strong momentum or not. It then indicates the characteristics of the candle whether it has enough supply or demand, or whether a momentum candle took effort to form or if a reversal candle had a strong thrust. It does this by labeling the identified candles with its price action and volume characteristics.
How the VSA Text Indicator Works?
The VSA Text Indicator uses a combination of price action and volume to identify potential price movements. It uses an algorithm which identifies the range of the bar as well as the closing price of the bar to identify the price action pattern. Its algorithm also compares the current volume with the average volume in order to qualify and identify the direction of price movements.
How to use the VSA Text Indicator for MT4
The VSA Text Indicator has a couple of variables which traders can use to adjust its sensitivity to price movements.
“Spread Period” allows users to modify the number of periods used by the indicator to calculate for the average spread.
“Volume Period” allows users to adjust the number of periods used for calculating the average volume, which in turn would be the basis for identifying whether a candle has a high volume or not.
The VSA Text Indicator labels candles as Stopping Volume, No Demand Bar, No Supply Bar, Effort to Move Up, Effort to Move Down, or Reverse Upthrust. Stopping Volume often indicates a potential reversal. No Demand Bar and No Supply Bar does indicate price action direction but with low volume and is often indecisive. Effort to Move Up or Down indicates that price action ended up showing strong momentum but the market did move back and forth before forming that candle.
Buy Trade Setup
When to Enter?
Open a buy order on the confluence of a bullish price action pattern and a candle labeled either as Stopping Volume, Effort to Move Up, or Reverse Upthrust. Set the stop loss below the entry price level.
When to Exit?
Close the trade as soon as price action shows signs of a possible reversal.
Sell Trade Setup
When to Enter?
Open a sell order on the confluence of a bearish price action pattern and a candle labeled either as Effort to Move Down, or Upthrust. Set the stop loss above the entry price level.
When to Exit?
Close the trade as soon as price action shows signs of a possible reversal.
Conclusion
The VSA Text Indicator may seem confusing for traders who do not understand how volume can indicate the direction of price. However, when used correctly and in confluence with price action and other technical analysis setups, this indicator can be a useful additional confluence to confirm a trade setup.
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