Volume Spread Analysis (VSA) is a method for reading price charts that combines three pieces of information—volume, the spread or range of a bar (high minus low), and the bar’s close—to infer who is driving the market and why. In forex, where there is no single central exchange, VSA is applied to tick volume (the number of price updates) rather than traded contracts. The core idea is simple: large, professional participants leave footprints in how price moves relative to the amount of activity. Reading those footprints helps you judge whether a move is genuine, exhausted, or trapped by “smart money.”
This article explains VSA’s basics, how it’s adapted to forex, common VSA signals, practical ways to use it in a trading plan, and the main caveats to keep in mind.
Where VSA comes from and why it matters
VSA grew from the Wyckoff tradition, which emphasised supply and demand, accumulation and distribution, and the footprints left by big operators. Tom Williams later formalised the relationship between volume, spread and close and popularised VSA as a practical chart-reading method. The approach doesn’t promise mechanical buy or sell orders; instead it is a way of interpreting the cause behind price moves so you can trade with better context.
Applied carefully, VSA helps you avoid obvious traps such as false breakouts and the late-stage rallies where retail traders pile in just as institutions are exiting. In forex, the signals are interpreted slightly differently because you work with tick volume and because liquidity varies by session and pair.
The three elements of VSA: effort, result and context
VSA reads three chart elements together. Think of them as effort, result and context.
Effort (volume): In futures or stocks this is traded volume; in forex you most often use tick volume. A spike in ticks suggests a lot of activity in that period. But tick counts can vary between brokers and across sessions, so treat them as a proxy rather than an exact measure.
Result (spread/range): This is the distance between high and low of the bar or candle. A large range shows a substantial price move during that period; a narrow range shows indecision or low participation.
Context (close relative to the bar and the wider market): The close of the bar—near the high, low, or middle—tells you which side (buyers or sellers) was dominant at the end of the period. Context also includes the recent background: trend direction, nearby support and resistance, and the position inside a trading range.
VSA asks: Is the effort supporting the result? If not, that mismatch can reveal hidden buying or selling.
How VSA is adapted to forex: tick volume and sessions
Forex is decentralised so you can’t see total market contracts; instead most platforms display tick volume. Tick volume counts the number of price updates in a candle. Empirically, tick volume correlates with real traded volume in many conditions, so it is useful—especially on major pairs and during active sessions (London/New York overlap).
Two practical adjustments for forex:
- Be cautious in thin times (late Asian session, holidays): tick volume can be low and noisy, making VSA signals less reliable.
- Compare tick volume to its recent average on the same data source rather than relying on absolute numbers. Relative spikes or drops are more informative.
Common VSA signals and what they mean
VSA defines a set of repeating patterns. The same label can mean different things depending on where it appears, so interpretation must consider trend and structure.
Buying Climax / Selling Climax
A climax is a wide-range bar with very high volume. In an uptrend, a buying climax often shows institutions selling into retail buying; the bar may close in the middle or near the low despite heavy buying activity. In a downtrend, a selling climax can mark the point where smart money absorbs panic selling and starts to accumulate. After a climax, expect a period of congestion or a reversal rather than a continuation.
Stopping Volume
Stopping volume is a high-volume bar that halts a move. For example, after a sharp fall, a long down bar with very high volume that closes well off the low suggests buyers absorbed the selling. It doesn’t guarantee a reverse, but it signals supply absorption and a higher probability of consolidation or a bounce.
Upthrust and Shakeout
An upthrust is an attempted breakout to the upside designed to trigger stops and attract buyers, often followed by a quick rejection on high volume; that is typically bearish. A shakeout is the mirror: a break below support to trigger stops and shake weak hands, then a rejection that can be bullish if smart money buys the dip.
No Demand / No Supply Bars
A narrow up-bar on low volume is a “no demand” bar; it indicates a lack of professional buying and warns that a rally lacks conviction. A narrow down-bar on low volume is “no supply” and suggests sellers are scarce; that can mean a pullback will be bought.
Tests (Supply Test / Demand Test)
A test is a small-range bar on low volume that probes whether there is remaining supply (in an accumulation) or demand (in a distribution). A successful test shows low volume and a favorable close (e.g., a test of supply that closes strong), confirming the presence of smart-money buying or selling.
Example woven into the description:
Imagine EUR/USD on a daily chart after a long uptrend. You see a very wide bullish candle with an ultra-high tick volume that closes near the middle of the candle. That is a potential buying climax: heavy activity but no decisive close above the bar—smart money may be distributing at these levels. If the next rally attempts fail on diminishing volume, VSA would suggest distribution and rising odds of a top.
Putting VSA into a trading routine
VSA is mostly discretionary; here is a practical way to structure it into a routine that beginners can follow and test.
Start with the higher timeframes to define context. Use the daily or 4‑hour chart to identify trend and significant support/resistance or range boundaries. VSA reads are far more reliable when you know whether the market is in accumulation, markup, distribution, or markdown.
Watch for climatic volume bars and tests at those key levels. A stopping-volume bar at a known support in a downtrend is worth attention. Wait for a confirming test: a small-range, low-volume bar that closes favorably before considering a trade.
Use entries that align with structure and VSA signals. For example, after a selling climax at support, you might wait for a demand test (low-volume down or narrow down-bar) that closes strong and then enter a long near the test low with a stop under the recent low.
Size and stops should follow your risk rules, not the signal’s drama. A VSA entry is a reason to consider a trade, not permission to overleverage. Many traders place stops beyond the swing low/high used by their VSA read and size to risk a small, fixed percentage of account equity.
Combine VSA with price levels and trend tools. VSA is clearer when paired with support/resistance, trendlines, or a moving-average-defined bias. For example, a no-demand bar inside an uptrend near resistance carries more weight than the same bar in a thin range.
Practice on a demo account and backtest signals across pairs and sessions. Tick-volume behaviour can differ by broker and pair, so run the method with your data feed. Keep a trade journal noting the VSA read, context, entry, stop, and outcome—VSA is an interpretive skill that improves with feedback.
Examples (short scenarios)
Scenario 1 — Accumulation on EUR/USD daily
EUR/USD declines into a horizontal range. You see a long down bar with unusually high tick volume that closes off the low—this looks like a selling climax. A few days later a small down bar with low volume closes higher (a demand test). The VSA reading: smart money likely bought the panic; the next logical trade is to look for longs on pullbacks with stops under the test.
Scenario 2 — False breakout on GBP/USD 1‑hour
GBP/USD breaks above a resistance trendline with a large-range up candle, but tick volume is no greater than the recent average and the close is weak (near the middle). That divergence (big price spread, no supporting effort) suggests a weak breakout. If a quick reversal bar follows on rising volume, VSA would classify the original break as an upthrust and traders might look for short setups back to the range.
Tools and indicators: helpers, not replacements
There are indicators that colour volume bars, mark “no demand” or “stopping volume,” or compute volume-spread relationships automatically. Those tools can speed recognition but they do not remove the need to read context. Treat indicators as assistants that flag potential setups for manual verification.
A common mistake is to trust an automated VSA indicator blindly. Many indicators are tuned to specific data feeds and timeframes. If you rely on one, validate its outputs visually and across multiple sessions.
Risks and caveats
VSA is interpretive and not infallible. In forex specifically, tick volume is a proxy and can differ between brokers; what looks like a volume spike on one feed may be muted on another. Thin liquidity sessions, major news events and cross‑venue mismatches can create misleading volume-price relationships. VSA signals require context—an identical bar can mean accumulation in one setting and distribution in another.
False signals are common; climaxes and spikes do not always produce clean reversals. Slippage, spread widening, and gaps around economic news can change outcomes quickly. Because VSA is discretionary, it depends on the trader’s judgement and experience—practice and journaling are essential.
Finally, trading carries capital risk. No part of this article is personalised advice. Use demo testing, strict risk management, and only risk money you can afford to lose.
How to learn VSA effectively
Start with a single pair and a single timeframe, using your broker’s historical tick volume. Study past climaxes, stopping volumes, and tests and compare with subsequent price behaviour. Keep an annotated chart library of patterns and outcomes. Gradually expand to other pairs and timeframes once you develop consistent interpretations. Read the original Wyckoff ideas and Tom Williams’ explanations to understand the underlying supply-and-demand logic—VSA builds on those foundations rather than inventing new laws.
Key Takeaways
- VSA reads volume (in forex, tick volume), price spread and the bar close together to expose hidden buying or selling by large players.
- In forex use tick-volume relative to recent averages and prioritise active sessions; interpret signals within trend and support/resistance context.
- Common signals include buying/selling climaxes, stopping volume, upthrusts/shakeouts, no demand/no supply, and tests—each needs confirmation and context.
- Trading with VSA requires practice, demo testing and disciplined risk management; signals can be useful but they are not guarantees and carry risk.
References
- https://www.thinkcapital.com/volume-spread-analysis-vsa-trading-strategy/
- https://www.instaforex.com/knowledge_base/466-volume-spread-analysis
- https://www.forexfactory.com/thread/157629-trade-using-vsa-volume-spread-analysis
- https://realtrading.com/trading-blog/volume-spread-analysis-5-key-concepts/
- https://www.youtube.com/watch?v=TMtpjUdV7C0
- https://www.writofinance.com/volume-spread-analysis-vsa/
- https://fundyourfx.com/using-volume-spread-analysis-to-identify-market-strength-and-weakness/