Eiger

The shortening distance from one low to the next is known as Shortening of the Thrust (SOT). It is a Wyckoff prinicpal. In today's case, as the market tried to go lower, buying came in. The buying kept the thrust (or the waves, swings, legs, etc) from going lower. It is a sign that the market is nearing a turning point. You can see it occur in both up moves and down moves. You can also see it occur in tighter clusters of waves and clusters of price bars like this morning at around 10:00 (see the 3-min chart I posted earlier today). SOT is a great tool. Eiger

I hope everyone had a good day today. I wanted to ask a question about something that perplexes me alsmost every time I see it. It happened today, and I put a chart up to help the discussion. There was clearly buying early this afternoon. You could see the heavy volume come in on down bars at L, N, and P. There was even buying earlier H & I). So the market had turned from bearish to bullish by the time Q & R tested for supply, and there was a pretty good cause built. Then we run up into the old top/resistance at K. The market does this on heavy volume (bars marked S) and stops. When I saw that volume come in, I thought the market might react from here and turn down. I was thinking that on all the volume here, the market would have pushed through and gone higher; not stop at this level. Clearly, T was a nice test and the market went higher. Was there anything else that VSA or Wyckoff talks about that would let you see the market as more bullish than I was seeing it at the time, or was the test at T the only key? I appreciate your help Eiger

Also, 1320 was yesterday's low, and it was trading there off the open. These markets like the S&Ps seem to like to trade around the daily highs and lows a lot. They are often good S & R levels and price targets. A difficult book to read, but an excellent one, nonetheless, is Geo Talyor's book - Taylor Trading Technique. He talks about how markets trade in these areas and how you can think about markets as buy days & sell days. OK, back to trading! Eiger

There was more buying than selling off the open. There was also nothing much except a price bar or two. One thing to think about is to try to put more things together before making a trade -- easier said than done. A little higher up on the 5-min ES chart (it's the same for SPY), price came up to a level where supply had entered three times earlier in the overnight session. The bars marked A were selling. We know this because they are up bars on high volume closing back in the middle. B was a no demand bar, but we have a light volume bar at C, so the market is saying that it isn't ready to move south. At D, another No Demand, and E is the Up thrust and signal to go short. Also, look at E on the 3-min chart. First, there is shortening of the thrust - meaning that the tops are not making much progress, despite decent volume. This is a sign of supply. Then look carefully at E. A narrow range down bar on an increase in volume. Two things to note about this bar that say supply: 1) the narrow range at the top of the rally on high volume says they were capping the market. 2) this is a down bar with more volume than any other bar since the start of the rally. This indicates a change in behavior and strongly suggests lower prices. This was the trigger for an entery. So, you had several things occuring here that made a short a good probability trade: resistance area, selling occuring on the up bars, no demand bars, shortening of the thrust, capping the market, change in behavior, up thrust. Try to put combinations like these together, rather than just a bar or two. These combos come up nearly every day, often several times during the day. The psychological keys to this are patience and concentration. Eiger

I know what you are saying, Db. My main chart is the 5-minute. My smallest time frame is the 3-min. I also keep a 10-min and a 60-min chart on the screen. I used to use a 1-min chart, but found that just too deceptive and misleading. Too many times I would be convinced I would see something, only to have it evaporate (with me in a trade, of course). A good trader once told me that if you are having trouble, go up a time frame. For me, that was very good advise. Eiger

Thanks, Ed, for those charts. They don't quite look like Wyckoff, though. He has a specific way of making P&F charts. Isn't it getting a tad late for you down under? Eiger

That's a useful way to think about a bar like that -- we certainly see enough of them. I have heard Tom Williams say that these bars represent absorption, but I have always had a difficult time applying that to trading while it was happening. I like your notion that the dog didn't bark and that when it is supposed to do something and doesn't, it is significant. I can get my mind around that. Thanks for the insight. Eiger

I'd love to see a 1/2 by 1/2 point FC of the ES on, say, a 2 or 3-min time frame. Does it draw them via the Wyckoff convention? I only know of one software that uses Wyckoff - that's Bulls Eye Broker. Stockcharts.com also does it via Wyckoff. Eiger

I agree. I didn't mean to sound like I was complaining. I was just pointing out that even when you take trades off too early, miss opportunities, etc, you can still do pretty well. Home runs shouldn't be chased and trying to being perfect creates problems. But, I always try to find ways to improve -- just my nature, I guess. Eiger

I do like the idea of getting out by lunch-time. It is interesting in how we view the charts differently. I saw the action just before 10:00 set up as a spring. Had it happened at any other time during the session, I would have taken it. It is a choice trade. But given that it set up just before news, I passed. I don't really like to trade on news releases, though sometimes like this morning, they can catapult the market. This spring on the ES was actually a pretty nice set up, though psychologically difficult to trade because of the surge of volume after the open. The market had been bid up to put in a higher high and higher low in the overnight. After the open, the market sank. Bar "a" was widespread down with a good amount of volume closing on the lows. VSA teaches that there would be lots of buying on that bar, but it also looked as if it might break the support line. The next bar, "b", showed strong buying coming in. Price dipped just below support and closed above the previous close on nearly the same volume. Now we have a potentially nice spring set up. All we need is confirmation. At bar "c", the market tests the spring on volume less than the previous two bars and holding a higher low with a strong close. That is a near perfect set up. I can see on the NQ where you would short at A. On NQ, price was stopped at resistance. On ES, price made a new high, making it harder to short. The only clue available on the ES in that area was a no demand bar (second bar after the top at A). For me, that wasn't enough of a story to make a trade. Eiger

You are right about that. Stragedy is rarely discussed. I used to think (and trade) that all I needed was a climax for entry and a climax for exit. Many, many losses later ... I certainly don't have a great answer to exits. Point & Figure charts work well, but are difficult to keep up when trading intraday. They are great on the intermediate trades, though. I miss a lot of trade opportunities, and once in a trade, tend to leave money on the table with every trade. These are two things I constantly work on. This was what I meant by my quip above that "The Holy Grail is you." It really is, and so you work on areas that are what I call current limitations -- those things that if you could improve on (like exits), would make you a better trader. That is really what trading psychology is all about. This morning, for example, I totally missed the first run up in the ES on the 5-minute chart, even though a long trade was readable from the chart. After it fell back to Friday's low (1325.25) there was buying evident on the chart (1, 2, &3). You can also see that all the closes in this area were holding at that level (a clustering of closes), and there was shortening of the thrust. That was enough of a story to think about a long trade, and so I waited for confirmation. This came at 4 with no supply and I entered. The next bar was a bottom reversal, so I was good in this trade. The very next bar, however, closed below the middle. I exited the trade right after that bar (blue arrow). Of course, it went higher. I am always drawing support & resistance lines, and when the ES came back to support at 5 with no supply and had a key reversal at 6, I went long again (also, the 3-min chart showed an orderly reaction on narrow spread/light volume). The market popped up and I took the trade off (blue arrow). I thought that the market gave me a nice gift, but of course it went higher. I did buy the second reaction (7), but scratchted it because it didn't rally quick enough. I was thinking it was after 12:00, and it might go nowhere. Again, it went higher. At 8, the market came into the old top at A. There was a lot of activity in this area Friday afternoon, so its worth paying attention to. On the run up from 7, volume increased with wide spread and good close, but look at 8. The close is lower than both the old top at A and the previous bar. It has this result on an increase in volume from the previous bar. That is supply. The next bar, 9, is another upthrust and volume remains realitively high. There was also a shortening of the thrusts and five waves to the swing (an Elliott concept). This was enough of a story to take a short. I almost closed the trade on the next bar becasue of the mid-range close. Instead, I brought my stop to break even and held on, thinking I'll probably get stopped out. I closed it at the blue arrow where support came in earlier. But, again, I left money on the table. When looking at a strategy, I try to put principles together. The principles never change, but the "look" of the chart always varies. Principles include support/resistance, climactic action, tests, shortening of the thrust, etc. In classic Wyckoff, there is a sequence of events that often happen, and it is good to be aware of those. Then I try to read the market as I manage the trade. But, as you said and as you can see, entries are easier than trade management. Eiger

Yup, the Holy Grail is you.

The boot camp CD does this in a general way, and the original Williams book certainly gives enough for you to do this with some thought. Manby's ES charts (which really are excellent) shows some of this, but there are no recipes given for trades (as there really can't be, I suppose). I was lucky enough to be mentored by a Wyckoff expert. He always stressed what he called "The Wyckoff story." In other words, you want to line up a few of the Wyckoff principles before taking a trade. So, for example, you see climactic action occur at a previous support area, it gets tested, and then comes back down one more time and gives a spring, you have a nice Wyckoff story. You do the same thing in VSA -- weakness in the background via wide spread up bars closing off the highs on heavy volume, no demand, then an upthrust, etc. It is really a question of identifying the alignment of principles. Williams uses terms like weakness in the background, no demand, upthrust, etc.; Wyckoff talked about buying & selling climaxes, secondary tests, shortening of thrust, etc. The prinicples come in a certain order which sets up a high probability trade. If this seems new to you, you can get a few of Bob Evans's classic old tapes from SMI. Evans was probably the best teacher of Wyckoff, and expanded the course quite a bit. Starting in the late 1940s, he made weekly tapes of the then current market action and how Wyckoff applied. Evans always stressed principles and created stories around these principles to help traders learn them. Things like the boy scout jumping across the creek, the fall through the ice, the shell diver's tragedty, and the spring story are all classic Evans. They are just as useful today as they were "back then," and are just as useful in thinking through trades when using VSA (IMHO). Tom Williams also stresses the use of principles, and says they will arrive "in varying intensities." The market doesn't give you the same exact "look" each time, but because VSA and Wyckoff are really based on mass human psychology as readable in the chart, the principles never change. Eiger

I sure know people like that! You are right, Db, the words are besides the point. Sorry if I added to those dozens of posts.

You are right, Db, the outcome of any particular trade is not knowable (M. Douglas). Unfortunately, many traders do try to predict. I am sure you did in your early days. I certainly did. In the 1970s, Dave Mathys, former head of training at Wyckoff Associates/Stock Market Institute (as it was then called), thought so much of this matter that he devoted an entire series of weekly tapes (13 in all, I think) to the idea of anticipation vs prediction. It is, as you say, very much in line with Wyckoff. Wyckoff, Evans, Andrews, King, and Mathys all were concerned that the trader not use, for example, the P&F chart objectives as firm targets, only as points to "stop, look, and listen" to what the market is saying. Prediction vs anticipation is an important part of the discussion. It always has been. Let's take an example. Let's say you are trading the S&P E-mini on an intraday basis. Yesterday afternoon, the market was down. It made a new low after 3:00. Today, the first bar (on your time frame) is widespread up on heavy volume. It is a gap up from yesterday's close, but the bar's close is well off the highs. Probably weakness. Next bar is an upthrust -- it has run up above the previous bar's high, but closes near it's open and within the previous bar's spread. The volume is very heavy. This seems to be a confirmation of weakness and a short is taken (I certainly would). At this point, one can PREDICT a retest of of the lower end of the gap, if not yesterday afternoon's lows, maybe lower. The next bar is a down bar on narrow spread and light volume. It closes near the open. What do you do? So many times in the past I would ignore this bar and volume, despite knowing better because I was PREDICTING it would go lower. A bar like this suggests distribution may not be complete, and the large interests are likely to take it higher to potentially sell more. If I were ANTICIPATING lower prices but AWARE that other possibilities exist, or I knew that this trade had a certain PROBABILITY of working, but also a probability of not working, I could take appropriate action on that bar. If I were simply PREDICTING lower prices, I have no chance. The big money will own my trade shortly. That is all I was saying. Eiger

I am sitting here at this moment working through a few of your charts from November, along with Tom's Undeclared Secrets book. Your material is incredibly valuable, Sebastian, for those who spend the effort. I only wish I was around back then to have had a chance to interact with you on those. One of the useful things I picked up from your charts -- aside from the application of VSA to the ES market -- is to annotate the chart at the end of the day as you were doing. The excercise really helps in reading the charts. Anyway, thanks for all your posts -- they still have legs. Eiger

That's excellent, Kiwi. In my book, there is nothing wrong about predicting an outcome based on odds. In fact, if traders thought more in terms of probabilities, they would have better results. And you're right, it's really about not getting attached to an outcome. Well said. Besides being a trader, I am also a psychologist, so I apply a lot of psychological science to my trading (and I work with a few other traders, as well). There is an awful lot about the markets that you cannot control. VSA and Wyckoff help us to read the markets pretty darn well, but even with these skills, outcomes are never guaranteed. There is only one thing a trader can control, and that's himself or herself. Having a probablistic mindset, remaining unattached to outcomes (which I do via anticipation), and keeping one's mind-in-the-moment to be able to effectively use VSA are some of the psychological keys needed for good trading. These are the things a trader can control, or bring under control with a little effort. Eiger

Boy, do I ever agree with this. I have to remind myself when trading not to try to predict the market. It really limits me. I consciously try to use "anticipate." When I see, for example, a sign of weakness, I then anticipate no demand. If that occurs, I then anticipate an upthrust. If that occurs, I can take the trade. Thinking this way helps me be more patient -- something I am always working on. I remember reading from Mike Douglas that in the markets, "anything can happen." Sometimes, it seems, that anything does happen. When I am predicting, I start to narrow my mind and filter out contradictory information. I am not open to what the market is telling me. The "anything can happen" seems to occur more frequently when I am predicting, because I'm not in tune with the market. I can't tell you how many times I have taken a short, the market goes down a bit, and then paints a low volume, narrow range bar with a decent close. Because I was predicting, I ignored this signal that the market was likely going to attempt a rally. When I am trading well and anticipating, I can "see" the market better and I am out of the short on the next open. This was such a problem for me for so long, I started keeping a journal just on this. I called it, "The Predictor Speaks," and recorded every time I did this. Slowly, I began to realize that predicting the market was feeding my ego. Every time I predicted and the market did as I predicted (mind you, I was never in those trades!) I felt self-satisfied. In reality, was fooling myself that I really "knew" the market and "understood" it. I came to learn that for me, prediction = ego, and getting my ego involved is a stupid way to trade. I found that predicting limits my trading. I don't see alternatives, I have more losses, and I miss opportunities. Thanks for that post: Anticipating is such a better mindset. Eiger

Hi Folks, I'm new here and am a market student keenly interested in VSA and the Wyckoff method. I trade the ES, and just wanted to say hi (I hope that's OK). I am reading through VSA Part I - a great thread. I notice that some of Seb Manby's audio links no longer seem to work. Do you all have them stored somewhere here, by chance?