Volume is one of the most powerful indicators in trading, yet many traders overlook its significance. Volume Spread Analysis (VSA) is a unique approach that combines price movement, volume, and spread (bar range) to determine the strength of a market move and identify whether smart money is buying or selling.
By understanding how volume interacts with price, traders can avoid false breakouts, spot trend reversals early, and trade with institutional activity rather than against it.
In this article, we will explore what VSA is, the core principles behind it, how to analyze volume correctly, and the best trading strategies using VSA.
1. What is Volume Spread Analysis (VSA)?
Volume Spread Analysis (VSA) is a methodology developed by Richard Wyckoff and later refined by Tom Williams, which helps traders determine market strength or weakness based on price action and volume dynamics.
VSA focuses on three key elements:
- Volume – Measures the number of shares, contracts, or lots traded.
- Spread (Bar Range) – The difference between a candlestick’s high and low price.
- Price Close – Where price closes relative to its range (high, low, or mid).
Why VSA Works
- Volume confirms price movement – Large moves without volume may be fake.
- Identifies smart money activity – Institutions leave clues through volume.
- Filters out false breakouts – Price spikes with low volume are often traps.
By analyzing volume relative to price spread, traders can understand whether a trend is strong or weakening, allowing them to enter and exit trades at optimal points.
2. Core Concepts of Volume Spread Analysis
To apply VSA effectively, traders need to understand how volume interacts with price movements.
1. High Volume with Wide Spread (Strong Market Move)
- If price rises on high volume with a wide spread, it suggests strong buying (accumulation).
- If price falls on high volume with a wide spread, it signals strong selling (distribution).
Example:
If the S&P 500 surges 2% on high volume, it indicates genuine institutional buying.
2. Low Volume with Wide Spread (Fake Move)
- If price moves significantly on low volume, it is likely a fake breakout or a trap.
- This occurs when retail traders buy into a move, but institutions are not supporting it.
Example:
If Bitcoin jumps 5% on low volume, it may be a false rally that reverses soon.
3. High Volume with Narrow Spread (Absorption)
- When volume is high, but price does not move much, it suggests smart money absorbing orders.
- This happens before a major breakout or reversal.
Example:
If gold prices remain steady despite high volume, it means big players are accumulating before a breakout.
4. Price Close Relative to Spread
- Strong uptrends – Close near the high with high volume.
- Weak rallies – Close near the middle or low with low volume.
- Strong downtrends – Close near the low with high volume.
- Weak declines – Close near the middle or high with low volume.
This helps traders confirm whether a trend move is genuine or fading.
3. How to Analyze Volume Spread in Real Trading
To use VSA effectively, traders must look at price action, volume, and market context together.
1. No Demand Bars (Weak Buying)
- Occur when price rises on low volume with a narrow spread.
- Indicates a weak rally that may reverse soon.
How to Trade It:
- Avoid buying when price rises without strong volume confirmation.
- Look for bearish confirmation signals before shorting.
2. No Supply Bars (Weak Selling)
- Occur when price falls on low volume, signaling a lack of strong sellers.
- Indicates a potential reversal higher.
How to Trade It:
- Avoid shorting when price declines without strong selling volume.
- Look for bullish confirmation before entering long positions.
3. Stopping Volume (Reversals)
- Occurs when price declines sharply, but volume suddenly spikes and spread narrows.
- Suggests institutions are absorbing selling pressure before a trend reversal.
How to Trade It:
- Enter long after confirmation of a bullish reversal pattern.
- Place stop-loss below recent lows to manage risk.
4. Climactic Volume (Trend Exhaustion)
- Happens when price surges with extreme volume, but the next bar closes weakly.
- Often signals the end of a trend before reversal.
How to Trade It:
- Avoid buying into parabolic moves with extreme volume.
- Look for bearish confirmation (like a shooting star candle) before shorting.
4. Best Trading Strategies Using VSA
1. VSA Breakout Strategy
- Identify a consolidation zone with increasing volume.
- Enter long if price breaks out with high volume.
- Exit if volume drops, indicating a failed breakout.
Example:
If Tesla (TSLA) is trading between $200-$210 and breaks out on high volume, buy with a stop below $210.
2. VSA Reversal Strategy
- Look for stopping volume at key support/resistance zones.
- Enter long if price shows bullish confirmation after high sell volume.
- Enter short if price rejects highs after high buy volume.
Example:
If EUR/USD drops to 1.0800 on extreme volume, but the next candle closes bullish, buy with a stop below 1.0800.
3. VSA Trend Continuation Strategy
- In an uptrend, buy pullbacks on low volume (no supply bars).
- In a downtrend, short rallies on low volume (no demand bars).
Example:
If Apple (AAPL) is in an uptrend, but price pulls back on decreasing volume, buy expecting the trend to continue.
5. Common Mistakes in Volume Spread Analysis
1. Ignoring Context
- High volume alone does not confirm a trade. Always check where price is relative to key levels.
2. Trading Low-Volume Assets
- VSA works best in liquid markets (stocks, forex, commodities, indices).
- Avoid using VSA in illiquid assets with random volume spikes.
3. Not Waiting for Confirmation
- Never assume high volume means reversal. Wait for candlestick confirmation and trend signals.
4. Using VSA Alone
- Combine VSA with trend analysis, support/resistance, and technical indicators for better accuracy.
6. How to Start Using Volume Spread Analysis Today
- Use a Trading Platform with Volume Data – Choose platforms like TradingView, ThinkorSwim, or NinjaTrader that provide volume indicators.
- Look for Strong Volume Signals – Focus on stopping volume, no demand, and no supply bars.
- Combine VSA with Price Action – Always confirm volume signals with candlestick patterns and key levels.
- Backtest and Practice on a Demo Account – Test VSA strategies before using real capital.
By refining your VSA skills, you can trade more confidently by following institutional volume activity instead of guessing price movements.
Conclusion
Volume Spread Analysis (VSA) is a powerful method to decode smart money activity and confirm price trends. By understanding how volume interacts with price, traders can avoid false breakouts, anticipate reversals, and trade with institutional investors.
With the right volume signals and trading strategies, VSA can give you an edge in forex, stocks, and cryptocurrency markets.