The 3 Phases of VSA

Before you start learning VSA in depth, let us lay some important concepts and foundations of VSA principles. First of all, accept that the stock markets are rigged. They are controlled by the rich and the powerful who have access to millions of funds and sensitive information. I termed them as Big Boys (BB) or Smart Money (SM) in our course of learning VSA. Using VSA, we scrutinize volume and its price actions. We do not look at other indicator. We see volume, spread (High - low ) and the closing as the leading indicator.

The SM basically moves in 3 stages

1) Accumulation
2) Mark Up
3) Distribution

We will discuss more in depth on what to observe in the following phases above.

Phase 1 :Accumulation

• Accumulation is a process whereby SM accumulates large quantity of stocks at the lowest possible price. Accumulation is a subtle and quiet process. You will not see a stock being accumulated appearing in the top 20 volume.  
• During accumulation phases, we will usually notice thin spreads and low volume in their activites. Spread is low and contained because SM does not want the public to be aware of its activity. The only time they want the public to take notice is at the next phase, Mark Up. 
• Ideally, an accumulation process is spotted usually along past support levels/recent lows .Accumulation spans from weeks to months before the SM is ready to move into the next phase.
• Note : This is the simpliest form of accumulation that you will see her.

Phase 2 : Mark Up

• Low of stock should be getting higher.
• The SM is probably ready to make the stock "known" to the public with a "breakout" kind of signal. Will break out of the zone accumulation
• On the day of a sucessful mark up, you should be seeing higher relative volume as compared to the volume during accumulation. Price should close near to the high as well. Closing in the middle or low will indicate that supply is present and the stock could go back into accumulation mode as too much supply was present.
• During this phase, if one has spotted a sucessful mark up early, the strong momentum could still allow speculators to make a quick bucks out of it, depending on its next day closing and the amount of public being sucked into it.

Phase 3 : Distribution

• The final lap of the process.
• Last batches of herds went in as they feel that they do not want to be left out. We should be seeing explosive volumes.
• On buying climax, we usually see a long spread and ultra high volume up bar, preferably closing in the middle or low indicating supply/selling pressure/profit takings from SM.
• While the herds follow, SM are selling to the herds, thus we see the stock closing in the middle.
• This is the first sign of weakness. Can we go short from there? While a long spread upbar closing in the low indicates weakness, I will wait for further confirmation before shorting.

Where will we see the stock heading to from phase 3? If professionals are bullish, they will continue the momnetum definitely. However, we will need to see some signs of strength in the charts if they were to continue.

Below is the chart of Chinaminzhong. Highlighting some of the basic principles of the above.