Learn VOLUME SPREAD ANALYSIS in less than 20 Minutes!

Main ideas and lessons (Volume Spread Analysis / VSA)

Purpose of VSA

Volume Spread Analysis (VSA) is a tool for interpreting the strength behind a candlestick by examining the relationship between:

• Candlestick range (how wide/high-low the candle is)
• Volume behavior (how high/low the traded volume is for that candle)

VSA is used to confirm whether support/resistance is strong enough to hold or likely to break. It can also be combined with other measures of market strength, such as velocity and other volume tools.

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Core rule about volume (from “Old Volume Theory”)

• Volume confirms price action
  • Wide price movements normally require high volume
  • Narrow price movements normally require low volume

If the relationship is violated (for example, a wide move with low volume), then something unusual is likely happening—and the candle should be treated as an important clue.

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Market microstructure concepts behind VSA

At each price level, there are differing amounts of:

• Buy orders (demand)
• Sell orders (supply)

Order book logic

• The order book includes:
  • Bid (buyers/demand)
  • Price
  • Ask (sellers/supply)
• To move price up, buyers must consume/attack the ask-side supply at the current level.
• To move price down, sellers must attack/consume demand at the current level.

Liquidity depth and typical VSA outcomes

• Shallow liquidity (few orders per level) → easier to attack → tends to produce:
  • Wide moves with low volume
• Deep liquidity (many orders per level) → harder to attack → tends to produce:
  • Narrow moves with high volume

These depth/supply-demand dynamics create the four fundamental VSA scenarios.

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The four VSA scenarios (range × volume) and what they imply

VSA categorizes each candle by:

• Range: Wide vs Narrow
• Volume: High vs Low

This yields four scenarios:

1. Wide range + High volume

   • Called a High volume continuation candle
   • Meaning: one side is willing to move strongly, and the move is likely to continue in the candle’s direction.
   • Directional implication:
     • If bullish (up candle): demand > supply → continuation upward
     • If bearish (down candle): supply > demand → continuation downward
   • Application: if this candle hits resistance/support, VSA suggests it is likely to break rather than hold (with the caveat that other factors may also matter).

2. Wide range + Low volume

   • Called a Low volume reversal candle
   • Meaning: the move was easy for one side to push, indicating lack of interest from the other side across that wide range—often implying the move will likely stop and reverse near a deeper liquidity pool/barrier.
   • Interpretation:
     • Wide bullish candle with low volume: lack of interest from sellers
     • Wide bearish candle with low volume: lack of interest from buyers
   • Application: when such a candle reaches resistance/support, it may indicate the opposite side will take control next, causing reversal.

3. Narrow range + Low volume

   • Called a Low volume “rest” candle
   • Meaning: the market has paused; low movement suggests limited pressure.
   • It can indicate continuation or reversal depending on context (the video highlights that against resistance it can contribute to reversal).

4. Narrow range + High volume

   • Called a High volume reversal candle
   • Key meaning: high volume occurring in a narrow price range implies aggressive opposing activity where one side is successfully absorbing the other’s attack.
   • Directional implication (as taught in the video):
     • Sell signal: buyers try to push price up, but sellers absorb the demand → narrow range with high volume in an uptrend
     • Buy signal: sellers try to push price down, but buyers absorb the supply → narrow range with high volume in a downtrend
   • Barrier implication: this candle type often signals a support/resistance barrier created by supply/demand strong enough to nudge price in the opposite direction.

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Practical interpretation guidance emphasized in the video

• Context matters (the “relative nature” problem)

  • Wide vs narrow and high vs low are relative, not absolute.
  • Compare the candle to other candles in the recent market context to decide:
    • whether the candle is truly “wide” or “narrow”
    • whether its volume is truly “high” or “low” compared to nearby candles

• Avoid misclassifying volume

  • A candle that “looks high volume” in absolute terms might be low relative volume compared to other candles with different ranges/volume patterns.
  • The video stresses using comparison within the same price action area (a “price vector” / surrounding candle set).

• What VSA is trying to anticipate

  • “Subtle clues” in the combination of range and volume can help anticipate important price moves, especially around support/resistance.

• Volume ambiguity (important distinction within narrow-range candles)

  • The same “narrow range” can imply reversal for different reasons:
    • Narrow range + Low volume
      • Reversal risk via lack of interest from the current-side participants (pause/withdrawal)
    • Narrow range + High volume
      • Reversal risk via successful absorption by the opposing side (barrier forming)

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Speaker / sources featured

• Speaker: The video’s instructor/host (name not provided in the subtitles)
• Referenced source/framework: “Old Volume Theory” (no specific author named)