This week I thought we might look at the VSA style Upthrust (which is the individual bar shape, and should not be confused with a Wyckoff style upthrust, which is the price action making a false breakout above a trading range)
A VSA style upthrust is usually seen towards the end of a steady rise in price, although it can be seen elsewhere on a chart .
It is most often a confirming indicator of previous weakness - so for instance there may be a serious supply event in the recent background of the chart, and then the upthrust is seen subsequent to the weakness, and can be used to confirm the supply event.
In one particular case, it can itself be the supply event, and that is when an upthrust has very very high volume.
Upthrusts such as these can be big or small, but usually have at least average volume, and become more serious as the volume gets bigger.
VSA Upthrusts always initially attempt to rise, but fail to maintain the rally, and eventually close poorly, near the low of the period.
To confirm the Upthrust, there should be a 'clean and clear' downbar in response, and further downside follow through over time.
In the example below, the widespread upbar (which failed to carry price any higher) is the potential weakness in the background, and the Upthrust (marked) is confirming the weakness.
OK consider this potential Upthrust (which is pretty common, and causes some difficulties for analysis).
It has come after a decent rise in price, and volume is pretty high & well above average, but not massive.
However, there is no supply event or weakness preceding it, so it is not confirming any previous weakness.
Now there is little doubt that 'some' supply (selling) has come in to close the bar so poorly, although you can only know how serious the supply has been, by following the response to this bar.
This is what I call 'an Upthrust that maybe in the wrong place' because it looks threatening like an upthrust, but is not a climactic bar itself. It will need to see a downbar following it, then further downside follow through to confirm it. And if that doesn't occur, it is not an upthrust (even if it might look like one). Price may instead be knocked sideways for a while in an attempt to consolidate this new supply (how long this would take, depends on how much more supply is drawn out during the consolidation process), or it might just continue higher (when this happens I call it an absorption bar).
The normal response to an upthrust would see a downbar and subsequent downside follow through.
Note the decent downside spreads with strong volumes, and the only little upbar has a narrow spread, and low volume (no demand).
If this happens the weakness is confirmed.
But what would you think if you saw this following the 'Potential' Upthrust ??
In this case there are two downbars in response, but the second (bar #2) closes back near its high, followed by a slight upbar (bar #3) that dipped down a little and then recovered on low volume (suggesting supply, or selling pressure, was now low).
..
In this case, the response may look more like this........
The potential weakness (#1) has been consolidated or the supply has been absorbed, and found not to be ongoing, and in response price continues higher.
