Peculiarities of formation and use
Just like Price/Action, VSA is based on patterns which appear in charts from time to time. Knowing the way the price behaved earlier in the presence of the same combination of bars, a trader becomes more confident. It’s when extrapolation works: what happens once may never repeat again, but what happens twice will repeat for sure. One often confuses trading without indicators with VSA-based trading. Our goal is to understand in what they are different and make these differences work for ourselves.
One of the most popular VSA patterns is an upthrust (“upward thrust”). It is a bar with a wide spread and an increased medium volume (as compared to current volumes) which closed in the lower part of a trading range. The lower the better. Based on a closing price, “perfect” (a), “good” (b), and “bad” (c) upthrusts are singled out. At the same time, remember that trading is a probabilistic process where mediocre patterns turn out to be more efficient in practice than perfect theoretical patterns.
Varieties of upthrusts
Upthrusts are often confused with pin-bars whose formation and use principles have been already examined in our previous materials. Unlike the latter, the location of an opening price has no importance in the VSA pattern. In fact, the idea of opening price isn’t used here at all. Trading may start at the top of a range, in its middle or at its bottom: it isn’t important. It’s only important to know how a bar will close and in the presence of which volumes. If the volumes are high, it’s an upthrust, if the volumes are low, it’s a pseudo upthrust. A reverse pattern is called “reverse upthrust”.
The VSA pattern we’re examining may be formed during the test of one of the consolidation range limits, during a retest, or at the extremums. Today, we are going to talk about how it can help identify trend reversals.
Upthrusts in GBP/USD chart
In the first, second, and third examples, upthrusts appeared after high-volume bars in the daily GBP/USD chart. They allowed supposing the presence of big sellers because a serious player has a perfect chance to form a short position when everyone else is buying. The second and the third cases are more illustrative as the spreads of the previous bars were narrow. In VSA terms, it means that market-makers didn’t want to allow the price to go higher.
The fourth and the fifth cases are reverse upthrusts. At the beginning of 2019, the VSA pattern corresponded to a pin bar. As for December’s example, pay attention to the previous bars that allowed to detect the traces of a big buyer. A pseudo upthrust was formed towards the second ten-day period of January. The volumes were extremely low. Finally, the seventh case is a perfect pattern after 80-20 in the presence of growing volumes and an inside bar.
How to earn from upthrusts? The simplest way that comes to mind : the way you do when using pin bars! Place pending orders at the minimums and enter at the next bar. The conservative approach requires confirmation. The strategy of opening a short position at the retest of the previous short-term consolidation range looks quite promising. To be convinced of its presence, switch to a shorter period.
Strategies of work with upthrusts
Not only do these patterns form at the tops or bottom, or signal a trend reversal. They can work quite efficiently under consolidation conditions too, and we’ll talk about it soon.
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Price chart of GBPUSD in real time mode
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