Price Discovery
Volume Spread Analysis glossary · Effort vs Result & Spread/Close Analysis
Definition
The mechanism by which a market-maker creates each day's price bar in response to incoming buy and sell orders. When the market-maker is bearish, he gives buyers a good price (compressing the upper end of the range and producing a narrow-spread up-day); when bullish, he marks prices up against incoming buying (producing a wide-spread up-day). The resulting bar is therefore not a neutral record of trading, but a direct readout of the market-maker's sentiment on that session's activity.
Price Discovery in plain English
Price discovery is just the process of figuring out what something is "worth" right now, based on who wants to buy and who wants to sell, and in VSA the market-maker is the one setting that price. Here's the sneaky part: the price bar you see isn't a neutral scoreboard, it's shaped by the market-maker's own mood. If he's secretly bearish (expecting prices to fall), he gives buyers generous fills and keeps the day's rise small and tight; if he's bullish, he makes buyers chase and pay up, creating a big, wide up-day. So the shape of the bar is really a readout of his intentions, like a shopkeeper who prices things high or low depending on whether he wants to unload inventory or hoard it.
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