Volume Spread Analysis (VSA) Basics: Spread, Close and Volume on Gold
Lesson 5 of 8 · Intermediate
Where did VSA come from?
Volume Spread Analysis (VSA) was developed by Tom Williams, a British trader who had spent years working with large trading groups, building on the ideas of Richard Wyckoff. The main difference is scale: Wyckoff looks mostly at the structure of ranges and swings, while VSA focuses on individual candles and how they relate to the candles before them. Both ask the same question: is professional activity right now leaning towards buying or selling?
VSA divides the market into two simple groups: professionals, who act with large capital and patience, and the general public, who react mostly to excitement and headlines. Within this framework every bar is either a sign of strength, a sign of weakness, or neutral. A sign of strength is evidence of absorbed supply or an absence of sellers; a sign of weakness is evidence of professional selling or an absence of buyers. This is a simplification, but a very practical one for organising how you read candles.
The three core variables
- Spread: the distance from the high to the low of the bar. We call it wide, average or narrow relative to roughly the last twenty bars.
- Close: whether the bar closed in the upper, middle or lower third of its range. A close near the high means buyers held the upper hand until the end of the bar.
- Volume: always relative: higher or lower than the previous two bars, or very high compared with the average.
These three variables mean nothing without the background. The same bar at the end of a long uptrend, at the bottom of a range, or right after a heavy-volume bar carries three different messages. The golden rule of VSA is never to read a bar in isolation from the bars before it.
Signs of weakness: No Demand and Upthrust
No Demand: an up bar with a narrow spread and volume lower than the previous two bars, usually after a rally or near resistance. The message is that professionals show no interest in buying at higher prices. Confirmation comes when the next bar fails to go higher or closes lower.
Upthrust: a bar that reaches a new high but closes near its low, often on a wide spread. If volume is high, heavy supply was active at the top. This is a one-bar event and differs from a UTAD, which is part of a distribution structure.
Hypothetical example: gold is in a rally and reaches 4,098 dollars. A 15-minute bar pushes up to 4,104 and closes at 4,097 on volume twice the average for that hour: an Upthrust. The next up bar is narrow and quiet (No Demand). The numbers are for illustration only.
Signs of strength: No Supply, Stopping Volume and Test
| Sign | Definition | Typical background |
| No Supply | A down bar with a narrow spread and volume lower than the previous two bars | A pullback in an uptrend or near support |
| Stopping Volume | A high-volume down bar with a wide spread that closes in the middle or upper part of its range | After a sharp fall; the bar-level version of the SC |
| Test | A dip into a previous selling area or below a recent low on low volume, closing in the upper or middle part of the bar | After signs of strength, to probe for supply |
Stopping Volume shows large buyers absorbing emotional selling, but it does not usually reverse the trend immediately; it often takes a few bars of churning and a Test. A successful Test comes on low volume and is followed by upward movement. If the Test comes on high volume, supply is still present and you should wait.
When does VSA work, and when does it not?
- It works when real volume is available, the background is clear and the sign agrees with Wyckoff structure.
- It is weak when bars are read mechanically, one at a time. Bars at the moment of a news release, at market opens and in quiet hours pull volume away from its usual meaning.
- Gold note: XAUUSD volume is tick volume and differs between brokers; a No Demand bar on one broker's chart may not appear on another's. For more precise VSA use GC futures volume (converted to spot with the basis), and be careful around contract roll days, when volume shifts between contract months.
A useful habit is to think in sequences rather than single bars. For example, Stopping Volume, then several narrow bars, then a low-volume Test, and finally a wide-range up bar on higher volume tell a coherent story of absorbed supply. Any link that is missing, or that behaves contrary to expectation, lowers your confidence. A mirror-image sequence exists for weakness: an Upthrust, then No Demand, then a wide-range down bar.
Common mistakes
- Reading a VSA bar without its background and the bars before it
- Acting on No Demand or No Supply without confirmation from the next bar
- Expecting an immediate trend reversal after Stopping Volume
- Comparing a bar's volume with previous bars when a market open falls in between
- Using one broker's tick volume and generalising the result to the whole market
What does volume say here?
VSA sees the total volume of a bar; order flow opens it up. Stopping Volume in a footprint chart typically appears as heavy negative delta at the bottom of the bar with large resting buy volume at the same prices. In No Demand, weak or negative delta on an up bar, and an absence of aggressive buying at the high, is secondary evidence. A high-volume Upthrust often shows positive delta at the bar's high with negligible progress.
The two methods overlap but are not identical. A bar that looks neutral to VSA may show important absorption in a footprint, and vice versa. The best evidence is when both agree and occur in the right area of the structure.
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Frequently asked questions
What is the difference between VSA and the Wyckoff method?
VSA grew out of Wyckoff but concentrates on individual bars, whereas Wyckoff analyses range and swing structure. It usually works best to apply VSA inside the Wyckoff map.
Is 'volume lower than the previous two bars' valid on every timeframe?
It is a common rule for quick recognition, not a hard law. On intraday charts it is better to also compare volume with the average for the same hour on previous days.
Can I do VSA with XAUUSD tick volume?
For a general picture it can work, because tick volume usually moves in the same direction as real activity. For subtle signs such as No Demand, it is better to check them against real GC volume.
Education only, not a recommendation to buy or sell; we never give signals. Price examples are illustrative. Test any method on a demo account first, with strict risk management.