Eiger

I would say that yesterday's action kills the absorption idea in the S&Ps. Price reacted too far. It dropped below the 1360 support area (to the half-way point of the last swing low). Volume also picked up.

I think your trendlines could be adjusted. E looks like it is going into the supply line. Plus, there is a larger downtrend than just today (see 30-min chart).

I just got a copy of Richard Ney's Wall Street Jungle. Here's the opening line: "Most of us enter the investment business for the same sanity-destroying reasons a woman becomes a prostitute: it avoids the menace of hard work, is a group activity that requires little in the way of intellect, and is a practical means of making money for those with no special talent for anything else." This really should be a cracking good read

Hi Tawe, I thought you had a nicely constructed trade - good reading of the market, using the higher time frame for background & S/R, and pulling the trigger at the right time. Nice job, too, on connecting the US market activity with your trade. Well done! Exits do seem to be more difficult than entries, don't they? I wonder if it is because we put a lot of effort and care into analyzing the market for the entry, and not so much for the exit. I know when I don't plan out my exit for at least partial profits, my mind will take over when in the trade and start talking at me saying, "Get out!" or "Stay in!", depending on whether fear or greed is the "emotion of the moment." There is no doubt trading can produce stress. When we are under stress, our cognitive abilities plummet (its a natural part of the stress response). In a way, the more stressed or anxious we become, the more stupid we become. That's a good psychological reason to have a plan about trade objectives (as well as firm stops). It helps keep us more objective, rather than responding to our thoughts driven by the emotion of the moment. Pivots become more potent when connected with S/R. There was a small support zone where I think your pivot was located that the FTSE reached before turning up. I like to highlight the nearby supports and try to incorporate them into the exit plan. Great post, Tawe! Eiger

Yup, all excellent points and the main weaknesses of this rally and the view for absorption and higher prices. As you have gotten me to think more about this, I do wonder why Wyckoff chose the 1931 bear market rally as the market period to show rally behavior, as it would have gone against the main trend. I guess we'll never know. Someone made a post above encouraging you to participate more in this thread. I'd second that. I, too, like your clear thinking. I hope you do join in. Eiger

Today was a down bar, narrow spread with a close in the middle on volume less than the previous two days. Still no supply has come in, and demand re-emerged in the afternoon. Still maybe premature to say this is absorption, but this day certainly does not disconfirm it.

The NYSE Ticks can also be helpful in analyzing the ES market. I keep a 3-min chart (lowest time fram I use) with the NYSE Ticks under price & volume on my screen. You can see that as the market was making lows after the news release, the Ticks were rising. The rising Ticks indicated a significantly lessening selling pressure, which in this instance can be seen as a form of bag holding or buying into the herd's selling. Ticks can be useful in a variety of contexts, including diveregences like this. If you look back a few weeks into March, you will see a post I made about the Ticks and also a link to a basic instructional article on how to use them in your trading. They are useful to learn for day trading. Eiger Eiger

More buying came in on the news than selling -- at least initally -- and set up a Spring at support. The 10-min chart shows good demand off the support area. On the 5-min chart, there was supply at S. Price went lower down to A, and then pushed up and closed above the previous bar. At B, the market gave us a down bar with volume less than the previous two bars - No Supply, and an immediate test of A. More significantly, I think, is that B and the first part of the next bar tested the high volume area at S and was unable to draw out any more supply. B was a good entry. Also, look at the closes on the bars in this area. All the bars from S through the bar after B are closing off their lows (except S). This looks like demand/big money has stepped in and bought. You can also see the good closes on the 10-min chart. As Tom Williams might say, If all that cracking good volume was supply, why weren't the closes on the lows? Eiger

You guys really do have it down to a cracking good art (was that OK?) But, then again, it is your language. We yanks just borrowed it

It's been a light volume, thin trading day thus far. My guess is that everyone is waiting for the FOMC minutes to be released at 2:00. Sometimes this can move the market. I just stand aside in conditions like this and wait for more activity to come back into the market. Eiger

One of my favorite books, and a great study in pool/syndicate manipulation. A "cracking" good read? I had to chuckle at that. What a great descriptor, and one I hadn't heard before. Is it British? Eiger

I think Ney's books are OOP, and may be somewhat hard to find. Check on e-Bay, though. I just bought Wall Street Jungle for $0.75. Probably my best trade this week Isn't it in one of Ney's books that the mobster Lucciano said he got into the wrong mob after seeing market makers at work? Nice post, Rick Eiger

Hi Nic, Yes, I was referring to the Wyckoff text. I have never read absorption as needing a certain number of days, or even necessarily a long string of days. In the 1931 market Wyckoff described, there were 13 or 14 days of absorption trying to negotiate supply in a major downtrend. I don't know if this current market is comparable to 1931, as we are not in quite the same magnitude of downtrend (yet, anyway, and let's hope it doesn't take on those proportions ). That being said, there is certainly a lot of resistance to negotiate in the current market. In addition to the more recent areas I outlined on the SPX chart, we should add the resistance formed by the early to mid-March 2007 lows and the mid-August 2007 low. So, although it currently appears (to me) like absorption is trying to take place, you are probably right, it is premature to say this. I’ll step back further and simply consider it a possibility, and maybe not even a very strong one unless and until we see further evidence more in line with the text. If you are interpreting the market more bearishly, yesterday's small upthrust of the recent trading range might lead to something bigger. I am thinking that how we react from here will be important. A reaction in line with (1) of the portion of the text you posted would add weight to absorption; a wider spread and pick-up in volume on the reaction, especially if it breaks into the March 24 high, would not be very constructive for the market. Thanks for the post. What are your thoughts? Eiger

Hey Habi, E-Signal can be really frustrating when it comes to futures volume. I hadn't thought of that trick you mention. That's clever. Thanks, I'll give that a try I always like to use the SPX with the NYSE volume. Sometimes it tells a slightly different story than ES or SPY. I learned this from SMI. They use it in their Wyckoff Wave and the other indicies. Here's a chart that gives a larger perspective. You can see that there is a confluence of resistances that price is attempting to negotiate here. You would think that the market would be repelled with so much resistance. Instead, it is hanging just at the resistance area and not reacting much. So to me, the odds favor aborption. You are right, though, there is more resistance to contend with overhead. Thanks again for the tip. Eiger

At the time, I didn't know if the top had been put in at Friday's high (G). Frankly, I thought that we might pause at this level, and then go higher and try for the top at 1391.75. So, I completely missed the UpThrust at H. I usually like those, especially when the volume increases like this after the weakness at G. Another opportunity came at I, which I did manage to take. This was probably a safer trade because of the resistances formed by the Supply line and the horizontal resistance off E. Again, volume increased to the downside and indicated the support below E wouldn't hold

Yeah, i think he is one of the good guys

Hey Sledge, You would start with a minimum "unit size" of two contracts, but you can do it with any multiple of 2 (e.g., 4 contracts, 6, 8, etc). You would normally put everything on at once, but you can also scale in. So, assuming you put on 2 contracts, you could take 1 contract off to book profits at some predetermined level. You can take 1/2 off in different ways. For example, a fixed number of points (say 1.0 or 2.0 points in the ES), or, what I typically do is at a level just under a small resistance area that I anticipate the market running to and stopping or pausing at. I usually put a limit order in to take the first 1/2 off just after I set my stop. If i am filled on the first half, I typically bring my stop up tighter, if I can. But I am also trying to keep my stop protected under/over some type of support/resistance, so there may or may not be an opportunity to move the stop right away. If the trade works, i am either taking the second 1/2 off at a more important resitance area (usually), or letting it run and trailing a stop (not too often, unless I can recognize a trend day). Originally, I got this idea from Joe Ross. He wrote a book called Trading is a Business where he described this. It was written back in the day when commissions were higher than today, so he actually recommended a unit size of three contracts. He would take one contract off as soon as he saw profit in order to pay for commissions and other overhead costs. If I remember correctly, he brought his stop up to break even immediately after taking the first contract off. So, now he was in a free trade. Then, he had a fixed level where he took the second contract off, to always insure some modest level of profit. He then let the third contract run with a trailing stop. I have been using his idea for a while and it has served me pretty well. I like being able to book profits when I can and then playing for a higher level with a good entry when I am able to get one.

You are right, no supply at C. I am working on extending my trades a bit. I only do it when there is a cause built. i also find that taking 1/2 off at an early resistance helps give me the "psychological edge" to stay a little longer.

Here's the chart showing support along the 1377 area, which actually goes back to Wednesday

Hey! I have missed you, JJ! That was a nice trade. It took me a little longer ... I was seeing buying at the A bars on the 5-min chart, and was watching for an opportunity as the market dipped a little lower around 10:30. There was less volume there, and price didn't plumet, so I started thinking long. It was also a support area that the market traded around on Thursday and early this AM. B dipped down into the high volume area (red lines) and didn't draw support, and I went long just before the close of that bar. I thought there had been some cause built along the 1377.50 line and so took 1/2 the trade off at first resistance (1380.25), but held the rest. I added a partial postion on the No Demand at C, and took all off at this AM's high. Great to see you post again

Earlier, it seemed like every post I made was followed by posts referencing the 1-minute chart. But suddenly I see 5-minute charts. Yay! That’s very good for talking about VSA. Keep up the good work! Now, however, it seems that most of my posts are followed with comments about hindsight analysis Well, OK … On March 8, I said “real time” that the Naz was in a Spring position (post 357). This was immediately dismissed, however, with a chart indicating a bearish outlook. A few days later, the S&Ps also made a Spring, and the Naz confirmed, which I noted in “real time” (post 517). The next morning, I posted a chart of the Spring in the ES (first chart, attached). As you can see in this chart from mid-March, the next few weeks of potential market movement were outlined and Wyckoff principles were labeled. The current chart of the S&Ps is attached. Compare the two and judge for yourself how this evolved and whether or not this was “real time” enough. So where are we now? The Naz made its Spring first, and has clearly responded better than either the S&Ps or the Dow (QQQQs pushed above resistance, the others have not). It is the relative strength leader among the three averages at this point, so it is good to keep our eyes on this market. For the S&Ps, I posted a chart of the cash SPX with NYSE volume. This highlights the heavy volume Sebastian pointed out on the Dow (at “A”) better than the ES. Sebastian was looking for No Demand after this volume, but that never materialized. Instead, the market drifted down all last week, but on receding volume, testing that volume and the Spring and also holding support from February 7. VSA teaches that when the market is successfully tested after apparent weakness, the market is in a position of strength. Tuesday confirmed this strength and the test with a nice rally. But that rally stalled after one day, and we sat at resistance the rest of the week. I think the odds are good that we are seeing absorption take place here. There are several resistance points in this area (Creek), all indicating potential supply to be over come if the market is to go higher. The market has rallied near to the top of the trading range, and VSA teaches that there are many trapped traders at these levels looking to get out of poor trades (supply). The market did not rocket through this supply area, so it can either react or absorb at resistance. Wyckoff first described absorption in the 1931 market. He did this in hindsight, but I think it is a worthwhile analysis nonetheless, and I hope you do, too In my own work, I have taken his brilliant 1931 case study and reformatted it so that each section of his analysis can be read and studied without the influence of subsequent action. And, for my personal use, I have added some of my own observations. I’d like to share with you the page of that analysis that discusses absorption, which you might find helpful at this moment in the market. The 1931 market rallied after this point in the analysis. I really have no idea if this is actually going to pan out as absorption and go higher, or react from here. No one does. However, what we do know is that we have had a Spring and a Test. The market made a higher low at A, then a higher high (March 24), another higher low on the test, another high last week, and last week’s gains have held. Rallies have been stronger than reactions, and on the weekly chart the market has closed last week’s bar on its high. This gives us strength in the background, and the odds seem good for higher prices. The last two days had a bit of No Demand, but the background is now strength, not weakness. Any reaction should, therefore, not go too far. If the market does react, how it reacts will be important and can give us clues to the immediate future. In the bigger picture, there are a few things that raise caution flags that I think are worthwhile to also keep in mind. The first is the high volume noted by Sebastian. That may very well continue to be a drag on the market. The second is the response to the Spring. It has definitely been constructive, but also somewhat lackluster for a Spring (compare to springs on Mach 14, 2007 – S&P/Dow, and July 18, 2006 – Dow). So, there still seems to be some amount of supply in the market. Also, we remain in a trading range that goes back to January, and we are still in a downtrend (consult the weekly chart). There are enough yellow flags here that a conservative trader would likely not be overly long, and maybe not long at all. If we do run higher from here and Jump across the major creek, we would next anticipate a reaction on lower volume and narrowed spreads as a test of the JAC. This is highlighted on the current SPX chart. Those actions would be very constructive for the bullish side. Like virtually every up move whether on the daily or the 5-minute charts, there is no one entry point. There are likely to be several opportunities if this turns out to be a bona fide intermediate up move. So, there you have it: evidence of “real time” analysis going back into early March as well as several current points of “real time” analysis for both the immediate and near future. ******* Now, a quick note on “real time” calls and hindsight analysis. Clamoring for as well as making predictions is a fool’s game, in my judgment. What is much more constructive is to follow the market and try to apply logical analysis to it, but always remembering that this is still a game of probabilities. As Mark Douglas has said, “Anything can happen,” and it often does. Thinking in terms of probabilities and what is likely to happen next, what we need to see to confirm that likelihood, and what might disconfirm it is a much more useful practice than trying to make predictions, however appealing that may seem. Approaching the market in this way doesn’t mean we shy away from pulling the trigger. Rather, this approach helps us to better analyze the markets so we know when to initiate high odds trades. And, maybe more importantly, this approach also trains us to better manage trades while in the heat of the moment. By trade management, I mean that we look for confirmations and also disconfirmations to our position while our trade is live, and take appropriate action. We learn to do this proactively, in part, by studying the market in this way as we go along. We can also learn much from so-called hindsight analysis. After all, if we didn’t have hindsight analysis, we wouldn’t have our beloved Wyckoff texts, or the VSA material – all of which was written and is studied in hindsight. So, please give hindsight analysis the respect and attention it deserves. Over time, it can definitely serve you well BTW, I have spoken at Wyckoff conferences with Weis and Fullett, so dropping their names doesn’t impress, though both are fine traders and excellent people. That being said, please be assured I am definitely no expert in Wyckoff and VSA – far, far, from it. I am only a student of the craft. How do I know this? Oh, let me count the ways: I miss many moves. I frequently get in late, and sometimes too early. I take profits too early on too many trades, and I miss-read the market. Some days end up as losers. I still make bonehead trades and get myself into tight situations, even though I vowed never, ever to do that again. I work on these things just as hard as I do on my technical skills, which means all the time. You may see these as weaknesses, but I would say that that is your problem. I am sure I always will be working on something (otherwise, how do I improve?). Fortunately, there are a few good trades that help even the score So, being a student first and foremost – and definitely quite flawed in my trading, I wish to continue to learn in a supportive environment. There are many aspects and situations in the market I don’t understand. I seriously doubt any one person “knows it all,” despite how well they may regard themselves. Moving forward, I suggest that we simply watch what happens in the market and keep our focus on the bars, volumes and backgrounds and what they are telling us. Set diversions aside and let’s all keep learning VSA. Wyckoff on Absorption Section.doc

You are right, it is a Test, not No Demand - my mis-speak. I thought it was a good buy location, too, as there was a small spring and we were trading at the Demand Line. I was just wondering if anyone saw anything that would have indicated that there was supply in the market that I didn't see.

Yes, I did mean a Test. My mistake. I guess it might have turned into a failed test. I still don't have a good grasp on failed tests and how to use them. Back to the book, I guess. I see a Supply Line on the daily that needed to be negotiated, so that area is resistance.

Once again, you want to derail the thread. When someone posts about VSA, you want to take it to your version of the world. Just like you chided CW for his post, now you chastize me for my trading. This isn't the first time I have posted a question and you have jumped in with critical comments. I don't know what your problem is. You don't think much of VSA, yet you want to put your nose into everyone else's business and show them your way of trading. There is a pattern here. What makes it so difficult for you to understand that this thread is about VSA? This is not about "pure Wyckoff." I've read your posts on Wyckoff, and, frankly, they are a pretty poor rendition of it. You have made numerous misstatements concerning Wyckoff. You would do yourself a favor by reviewing those with the Wyckoff text in hand. And, if you need a place to start, go to your post about the "bearish triangle" you saw on the day the market had a Spring. Wyckoff specifically cautioned traders about following patterns like triangles, head & shoulder, flags, and other chart patterns. When I posted the chart of the Spring, you posted your triangle. I was being kind to you then, and didn't say anything. But, you clearly have a poor understanding of Wyckoff. This is the last post I am going to make regarding you and your nonesense. Jump out of your pants to make posts to try to show others how much you think you know, if you want to. I will simply ignore you. Actually, maybe the better thing to do is just to sit back and sing "Lalalalala" at your mindlessness.

Your comments are always appreciated. You could be right, maybe I got in just a little early. But I would not have especially wanted to sit through all the sideways action. It is failing to hold that little pop, and may now be putting in a lower high. We'll see.