Practical VSA Strategy (Volume Spread Analysis) — Read the Tape with VSA

TL;DR: VSA (Volume Spread Analysis) reads volume + candle spread + close to infer professional activity: look for climactic volume, no-demand / no-supply bars, and wide-spread with high volume confirmations to time entries around institutional footprints. Trade with higher-timeframe structure, use volume as confirmation (not a sole signal), keep SL tight relative to the spread event, and size risk to 0.5%–1%.

1. Introduction

Volume Spread Analysis (VSA) is a Wyckoff-derived approach that interprets the relationship between volume, price spread (bar range) and close position to deduce professional buying/selling. In FX and CFDs (where “volume” is broker/tick-based), community practitioners adapt VSA concepts to read likely institutional moves and traps (stop runs, climactic buying/selling). This article distills community-tested VSA patterns into an operational intraday/swing approach.

2. Strategy overview

• Instrument: major FX pairs, index futures (ES/NQ), high-volume CFDs.
• TFs: H4 / H1 to define structure and bias; M15–H1 for entries and VSA interpretation.
• Core idea: identify volume-backed price moves (climax, absorption, no-demand/no-supply), then enter on the most-probable continuation or reversal after confirmation. Use volume to confirm cause (not to predict price alone).

3. Setup

• Charting: price bars (candles) plus volume or tick-volume from your broker; set session separation so volume resets are clear.
• Mark higher-TF structure (swing highs/lows, SR zones, order blocks).
• Add a simple rolling average of volume (e.g., 20-bar vol average) to classify low/normal/high/ultra-high volume.

4. Trading rules

4.1 Filter / Bias

• Trade in the direction of higher-TF structure where possible (H1/H4). Use VSA signals as timing tools rather than global direction switches. If higher TF is trending, prefer continuation signals; if ranging, prefer exhaustion/climax signals.

4.2 Key VSA signals & interpretation

• Climactic volume (up or down): very large volume with wide spread — often marks professional activity and potential exhaustion (sell-climax / buy-climax). After a climax, wait for a validating follow-through (e.g., reversal bar with lower volume).
• No Demand (up bar with low volume, poor close): suggests lack of professional buying — weak long continuation signal.
• No Supply (down bar with low volume, poor close): suggests lack of professional selling — weak short continuation signal.
• Wide-spread bar with high volume and close in direction of move: confirms professional participation and increases follow-through probability.

4.3 Entry

• Reversal entry after climax: wait for a confirming bar or a test (retest of the extreme with lower volume and rejection) before entering in opposite direction.
• Continuation entry after confirmation: if a wide-spread high-volume bar confirmed a breakout and follow-through occurs (next bars confirm direction with normal/high volume), enter on pullback or on breakout extension.
• Use limit entries for tests into the extreme (for tighter SL) or market entries on clean confirmation candles.

4.4 Stop-loss

• SL logic: place SL beyond the structural extreme or beyond the climactic wick depending on entry style. For “no demand/no supply” reads, SL should be tight because the signal is subtle; for climaxes, allow more room but scale position size accordingly.

4.5 Take-profit & Trade Management

• Early TP: partial at the first logical level (recent pivot or mean). Let the remainder run with a trailing stop keyed to structure or ATR.
• If price returns through key structure with rising volume against your position, exit quickly — VSA emphasizes cutting exposure when professional behavior contradicts your trade.

4.6 Invalidation

• Invalidate setups if volume patterns contradict the signal (e.g., expected test shows higher volume than the climactic bar), or if spreads/execution worsen. In FX, remember broker volume is synthetic — validate with tick counts or comparative broker feeds where possible.

5. Position sizing & Risk Management

• Risk per trade: 0.5%–1% of equity. Adjust position size for SL width — climactic events often require larger SL so reduce size accordingly.
• Limit concurrent VSA trades (e.g., max 1–2 active). Employ daily loss caps and consecutive-loss pause rules.

6. Backtest & Validation

• Backtest VSA setups by tagging occurrences of climaxes, no-demand/no-supply, and wide-spread confirmations and measuring subsequent price behavior (win rate, expectancy, avg R:R). VSA is interpretive and broker-volume dependent, so expect manual review and forward-testing to be important.

7. When NOT to trade

• During low-liquidity sessions for your instrument or when your broker’s tick-volume is noisy/inconsistent.
• Around high-impact news where volume patterns distort and cause false climaxes.
• If you cannot validate volume consistency across feeds — VSA is only as reliable as your volume data.

8. Variations & Optimizations

• Multi-broker tick confirmation: compare tick/volume from two feeds (if available) to reduce false signals.
• VSA + Supply/Demand / Order blocks: require VSA confirmation when price tests supply/demand zones for higher probability.
• Automated climactic detector: use indicators to flag “ultra-high” volume bars, then manually confirm price action before trading.

9. Pre-trade checklist

• Higher-TF bias checked and levels marked (H4/H1).
• Volume classification (low/normal/high/ultra) confirmed relative to recent average.
• VSA signal identified (climax / no-demand / no-supply / wide-spread confirm).
• SL and position size computed (risk ≤ 1%).
• No imminent high impact news; volume feed reliable.

10. Conclusion

VSA is a flexible, experience-driven way to “read the tape” by combining volume, spread, and close. In FX, adapt VSA carefully to broker/tick-volume quirks: use volume as a confirmation tool, align with higher-TF structure, and always validate signals with follow-through price action. Rigorous manual review and forward-testing are essential before relying on VSA in live trading.

11. FAQ

Q: Is VSA reliable in FX given decentralized volume?
A: VSA in FX uses tick/volume proxies from brokers — it can work but requires validation across instruments/feeds and conservative rules.

Q: Which VSA signal is highest probability?
A: Wide-spread high-volume confirmations (with aligned structure) and fresh climaxes tested and rejected are often higher probability, but no single signal is perfect — combine filters and context.