DbPhoenix

Ehh, im the cheaptest/most risk averse/ bordering on a miser futures trader you will ever meet and the only true fact you can say here is that all this can not be calculated to any usefull degree of percision. The delusion that risk can be calculated precisely is exactly why all these "smart" guys on the street overleveraged to the point of putting the entire system at risk that we are all surfing through now. Just like market profile, vwap, whatever, any risk of ruin calculation needs to assume an underlieing probability distribution...the rubber will meet the road in your calculation depending on the distribution you pick..i'll ultimately have to really nail this down when I come to the point of using @risk but if I had to speculate right now I would say we should at least be assuming a Poisson distribution to the market knowing that the market is not a Poisson distribution. ..........

please continue...you need to post more! First question is what is your control group against the monte carlo simulation? Your real money trading hold time? I've still never ran a simulation but know @risk is the only real way to do this, evidence based technical analysis, acrary's system dev thread..I'm slowly getting there.. The only problem I see if your talking tape reading, is that tape reading is ultimately high frequency data analysis using a tool that will still be more powerfull than a 3rd generation quantum computer 30 years from now for pattern recognition...I don't believe monte carlo will have much use there for a long time. However, please make a post in another sub forum on your use of @risk...that would rule. ..........

No offense Db, but to me Wyckoff is pretty much "tape reading"...and while I can't wait for the day when I can blow 10k on ebay on a real old school ticker just because its "cool"...no one trades the way Wyckoff actually did now...limiting the discussion to the time and sales software window doesn't make any sense...its like saying that we shouldn't talk about tape reading if prints are not making a "ticker" sound. ..........

Unfortunately, we seem to have strayed off topic quite some time ago and are wandering farther afield. The general topic is Wyckoff. The specific topic is atto's approach to exits and scaling out. If anyone has any questions for atto regarding his posts (the bulk of these will be found in the first three pages), feel free to post them. Off-topic questions, comments, etc, will be moved. Thank you for your efforts in keeping the thread short and sweet.

I'm aware that these tools exist, and anyone who wants to use them is welcome to do so. But they aren't necessary. As for the market's having changed, it's still demand/supply, cause/effect, effort/result. But not everyone is interested in following this path.

That's pretty much what the Wyckoff approach is all about. But if people want to get into infinite player game theory models and Monte Carlo simulations, that's entirely up to them.

Not necessarily subtle. Before he edited it, his post #34 read "Kiwi, MYOFB. Soultrader, take care of Kiwi." Reminds me of Lena Lamont threatening to take over the studio in Singin' in the Rain...

Trading the Wyckoff Way 1 8 12 19 23 45 61 75 and 77 78 79 82 83 86 87 Riding the Wyckoff Wave: 82 89 102 155 209 210 222 284 314 324 354 357 Point and Figure Charting: 1 28 33 Trend: 2 and 3 4 24 Question About Volume Driving Price: 11 16 Retracement vs Reversal: 6 24 Db's Cajas Famosas: 1 11 18 30 32 46 and 47 85 90 91 95 thru 97 145 Hinges: 35 38 68 85 Exits and Scale-outs: 1* 5 9 24 Ask Any Wyckoff-Related Question: 48 52 53 97 146 236 Volume 11 40* 45 51* Using the TICK(Q) 5 6 7 9 10 11 Support and Resistance: Trading in Foresight 1 2 4 7 14 20 * - Nominated post

See my earlier post, above.

Theoretically. If you understand the accumulation and distribution processes, prices will rise out of a base more easily if they face less supply, or, if you like, less resistance to an upward move. One way of decreasing this supply is to persuade, prompt, trick, motivate holders to unload their shares prior to the upside breakout. The shakeout can accomplish this if the holders are "weak", i.e., they don't understand markets and/or have no guts. Reverse for an upward poke. On the other hand, if you don't understand the accumulation and distribution processes as well as you'd like to, just do a search of the "Wyckoff Forum" using my name and "accumulation".

For the most part, W uses the term "thrust" generically -- thrust, upthrust, downthrust -- having the same meaning as that found in any dictionary. A synonym for it might be "poke". This particular kind of movement is made out of a sideways congestion to determine if there is any buying interest (if up) or selling interest (if down). An upward thrust can also be used to trap traders into buying if the ultimate intent is to drive price down. This not only helps to reduce demand, but may also aid the downward movement if the buyer is frighened into throwing his shares back onto the market. A downward thrust is also called a shakeout, and its intent is the reverse, to determine if there is any selling interest and perhaps frighten holders into selling their shares in advance of a move upward. This reduces supply and enables those who are accumulating the shares to accumulate even more. Upward and downward thrusts may also be used to catch the stops of those who are short or long, respectively. W calls particular attention to "terminal" thrusts and "terminal" shakeouts, i.e., those which occur just before a breakout to the upside or downside as part of the preparation for the ultimate move. However, it's next to impossible to determine whether or not these are "terminal" except in hindsight, so the value of knowing what these are and what they mean is to be able to interpret the motives behind the movements in real time if the "breakout" quickly fails.

One could study hundreds of charts that, for example, address scaling in and scaling out in excruciating detail yet still be unable to manage a trade in this way in real time. In order to accomplish such a task, one must understand at least price movement, the relationship between price and volume, the nature of support and resistance, and trend. This is accomplished by spending many hours in front of a screen watching price move. If one doesn't want to do that, then something involving indicators might be right up his alley.

No need to be careful about annotating in hindsight if you have good reasons for making the annotations. Otherwise, there's no point in posting hindsight charts at all. Regardless of the context, you noted the climactic action and the character of the subsequent swing low. This provided potential support. This level was tested twice. When price rose after the last test and traded sideways, it did so above what had been established for the time being as support and below the resistance that had been established between 1510 and 1520 (more or less). The only selling interest of note was the first test of 1255, at about 1535. The fact that it continues to bounce between 1256 and 1260, with very little trading activity, should alert you to the possibility/probability that you're looking at a springboard, whether you're doing it in real time or not. Acknowledging that you might be incorrect and that you should place your stop below this potential springboard is just the sort of thing you should be doing in real time. Therefore, again, there's no need to beat yourself up over the annotations as long as you have defensible reasons for having made them.

A credit crater too big to fill? By Jon Markman Despite a weeklong surge in stocks, it's becoming increasingly clear that credit has suffered a catastrophic setback. It's as if a set of asteroids hit Manhattan, London and Tokyo, carving a massive hole in the architecture of finance. The initial buildings in the impact crater, Lehman Bros. (LEHMQ, news, msgs), Bear Stearns and Northern Rock, were quickly incinerated. But now the toxic rain and tsunamis that were kicked up are rolling onto the survivors in waves and cutting off their air supply. New data from world money centers suggest the movement of money around the globe has simply ground to a halt, as institutions in the United States, Europe and Asia that are receiving taxpayer dollars from governments are socking it away to shore up their balance sheets, reserve against liabilities expected in the near future and sustain their unprofitable operations. "Governments are not really trying to save the system anymore," said Satyajit Das, a banking expert in Sydney, Australia. "They now realize that's impossible. They are just trying to manage the decline." How low will it go? As a result, once the current rally interlude is over, it's not hard to see the Dow Jones Industrial Average ($INDU) sinking to around 4,000 -- a level it last hit in 1995, before debt started to play such a large role in corporate and personal finance. That would entail a decline of 70% from its 2007 peak, or about the same amount the Japanese stock market has fallen since 1990 in the wake of its own debt unwinding. Or the amount the Nasdaq Composite Index ($COMPX) dropped from 2000 to 2002. Or the amount the Russian market has plunged since June. If that seems too harsh, well, the math is pretty easy to explain. Figure you have a well-regarded multinational company that earns $10 a share and sports a price-earnings multiple of 25 when the U.S. economy is rolling along at its long-term trend rate of 4%, or about twice its normal growth rate. Multiply 25 times 10 and the stock is worth $250. But now take away half the financing of customers, the stock buybacks done with borrowed money, the high-yield cash-management systems of the corporate treasury, the leveraging that allows raw materials to be bought with borrowed money and the leveraging that allows its customers to buy with credit cards and layaway plans. Then ratchet back U.S. economic growth to 0%, which is about the best forecast now for 2009. Figure the company now earns 25% less than at peak (an optimistic estimate), or around $7.50 per share. Because of the slowing growth environment, the market is likely to take the price-earnings multiple down to around 10, which is still more than twice the company's forecast growth rate. Now multiply $7.50 by 10, and the stock is projected to trade at $75, or around 70% lower than the peak. The problem is that this scenario might be too sunny. The economy is losing around 200,000 jobs a month. Just last week Yahoo (YHOO, news, msgs), Merck (MRK, news, msgs), Chrysler, Xerox (XRX, news, msgs), Goldman Sachs Group (GS, news, msgs) and National City (NCC, news, msgs) announced layoffs. Unemployment, now skimming along at a relatively tame 6.5%, is expected to mushroom at least to 8.5% if not 9% or higher by the end of next year. With stock and home prices in a tailspin, consumer net worth is already on track to decline 14.7% year over year this quarter, a record plunge. Credit card revenues have sunk to their lowest level in five years, and a JPMorgan Chase (JPM, news, msgs) official was quoted this week as stating that "loan volume will keep going down as we continue to tighten credit." Holiday sales are expected to be weak, with same-store sales in November and December projected to sink 2.2% from last year. The lone good news: A decline in the price of gasoline of nearly 50% since June, to around $2.15 per gallon nationwide, will roughly equal a $210 billion tax cut. ISI Group analysts said that when these factors are totaled and sifted, corporate profits are on track to decline 10% in 2008, and that if U.S. gross domestic product stays flat next year, corporate profits are likely to fall 13% more in 2009. That would be the first back-to-back decline in profits in the post-World War II period. Meanwhile, Europe, which is responsible for a third of world GDP, is in no better shape, with manufacturing falling off a cliff. Volvo (VOLVY, news, msgs) reported last week that truck orders are off 55%. Greece is staggering as rental rates for its key shipping industry are down 90% since June. Emerging East European countries such as Ukraine and Serbia are seeing their currencies blow up along with their economies. Ditto India, Argentina, Brazil and even China, where growth is slowing from the low double digits to around 7%. Trying to fill an expanding hole To counter all these effects of credit extinction, the United States, Japan and the European Central Bank are cutting short-term interest rates, injecting taxpayer money directly into the capital structure of banks, providing hundreds of billions in low-interest loans, guaranteeing deposits and more, on an unprecedented scale.So why isn't it working? A couple of reasons. First, early in this debacle, the Federal Reserve and Treasury Department apparently decided that they would declare war on the so-called shadow banking system. These were the hedge funds, structured investment vehicles (SIVs) and other nonbank entities that had grown up since around 1995 to create, leverage, re-leverage and distribute roughly $10 trillion in debt. Pimco co-chief Mohamed El-Erian has called this the "global liquidity factory," but no matter the name, these unregulated entities created oceans of money that flowed luxuriantly to everyone from credit card users in North Dakota to bankers in Iceland and builders in Thailand. The shadow banking system worked so long as everyone at the base of the system paid their loans on time, but economic stresses of the past year have tested that concept, and it has flunked. Governments have closed the liquidity factory by ordering the SIVs and conduits onto banks' books, smothering the hedge funds by extinguishing their key prime brokers, Bear Stearns and Lehman Bros., and through the September short-selling ban that led to mind-blowing losses. This may have seemed like a good idea at the time, but the government has now been forced to spend taxpayer money to fill in the gaps where private money used to rule. And as it does so, banks are so concerned that they will not have enough money to meet the demands of angry customers of leveraged products wielding return receipts that they're hoarding it. Example: Imagine that a Mr. Watanabe in Tokyo was sold a high-yield collateralized debt obligation in 2007 at $10 million by Merrill Lynch (MER, news, msgs). Since other similar CDOs have traded lower, he's now carrying it on his books at $8 million. But if he were to sell it on the open market he could probably get only $2 million or less. Pressured by his own regulators to button up, he tells Merrill to buy it back or never expect to get any business from him again. Merrill then agrees to buy it at $4 million. Now new Merrill owner Bank of America (BAC, news, msgs) has to both pay the cost and reserve bank capital against it. There are hundreds of Watanabes and as much as $3 trillion to $5 trillion in similar deals coming back onto bank balance sheets from CDOs, SIVs, currency swaps and the like, according to banking expert Das, so you can see that governments' effort to recapitalize banks experiencing a run of deleveraging is not trivial. They will back up banks to the minimum required for solvency, but not anywhere close to their previous free-lending glory. This is why capital is at a standstill and why any business plan dependent on credit is now suspect. 'Forcing them to pay through the nose' Credit analyst Brian Reynolds offered a few shocking examples from recent bond deals. Coca-Cola Bottling (COKE, news, msgs) issued debt in July at a spread of 1.69 percentage points over Treasurys. By this week, the spread had widened out to around 3.40 points, a move of historic proportions, Reynolds said. When the company wanted to make another deal this week, bond investors made the bottler pay a stunning 4.68 percentage points over Treasurys. Reynolds notes that the same has happened with telephone giant Verizon Communications (VZ, news, msgs). In April 2007, it issued 10-year debt at 0.95 percentage point over Treasurys. In April of this year, it issued 10-year debt at a spread of 2.60 points, a historic move considering the worst spread for a big phone company had been 3.00 points in 2002. That record was shattered last week, when bond investors made Verizon pay 4.88 points over Treasurys. And the kicker: Reynolds said the bond community was speculating that troubled MGM Mirage (MGM, news, msgs) would have to pay as much as 12% for a bond deal this week, but when it was priced, demand was so weak that the company was forced to pay 15%. And the deal was secured by the company's New York-New York hotel and casino in Las Vegas. Moreover, Reynolds said, the company isn't using the proceeds for growth but instead to pay down another credit facility. "In other words, loan shark bond investors are forcing them to pay through the nose and put up collateral just to keep the balls in the air," he told clients in a note Friday. It's like a consumer who uses a credit card costing 15% a year to pay off a debt owed at 9%. This is the new world companies face -- and you wouldn't know it by just looking at stocks. Das said the bottom line is that deleveraging is like an epic flood. Governments can't hold it back; they can only channel it. The public expects them to actually save the day just as they did after the 1987 equity crash, the 1991 real-estate crash and the 1994 junk-bond crash, yet none of those blowups involved an equity, credit, commodity and currency crash all rolled up in one. It will literally take a miracle to solve this mess. Cross your fingers, and hope that a rollback to 1995 is as bad as it gets.

One can't know if the climax is going to be a "real climax" or not in real time. That's the difference between genuine real-time trading and hindsight trading, particular the Find The Bar-type hindsight trading. If you want to take what you think is a climax, then take it. If the test fails, you're out at breakeven or with a small loss. If the test succeeds, you're still in. If you prefer to wait for the test, then wait for a successful test and take that. If there is no successful test and price continues to fall, then you haven't taken a trade. That's all there is to it. In order to determine whether or not a setup is high probability, one has to test it. But few people want to do that. Too much time and trouble and effort. They'd rather jump into the planning stage. But developing a plan without doing any testing on any of the setups contained in the plan is largely a waste of time. Wyckoff is not mechanical. It isn't contained in a software program. It isn't about bars and indicators and ice and creeks. It's about price movement and the ebb and flow of buying pressure and selling pressure. One develops an understanding of it by watching price move, not by reading about price moving or by studying static charts. If one is unable to understand the nature of support and resistance or trend or the auction market, then this is not for him. But that doesn't mean that it doesn't "work". It means only that he needs to look elsewhere.

You're doing just fine. If charts are needed, there are dozens posted throughout the forum and in my blog.

A Wyckoff trader will find it helpful to distinguish between "climaxes" and "climactic action". Climactic action may, of course, result in a climax, but one can't know whether or not there is in fact a climax until it's been tested, and by then the trade may be gone, depending on where the trader prefers to enter. Second, watching the bars form in real time, or via playback using 1x real time, is very different from reviewing a static chart. Developing a sensitivity for climactic action is much easier when watching price move. Without that, one can easily form judgements based on insufficient experience. Third, if there is a "lack" of sellers, price will rise, not fall. If there is a "lack" of buyers, price will fall, not rise. If one waits for "confirming signals", the trade is most likely gone. One of the chief advantages of trading using Wyckoff's approach is that one needn't bother with a lot of confirmation.

A Wyckoff trader will find it helpful to distinguish between "climaxes" and "climactic action". Climactic action may, of course, result in a climax, but one can't know whether or not there is in fact a climax until it's been tested, and by then the trade may be gone, depending on where the trader prefers to enter. Second, watching the bars form in real time, or via playback using 1x real time, is very different from reviewing a static chart. Developing a sensitivity for climactic action is much easier when watching price move. Without that, one can easily form judgements based on insufficient experience. Third, if there is a "lack" of sellers, price will rise, not fall. If there is a "lack" of buyers, price will fall, not rise. If one waits for "confirming signals", the trade is most likely gone. One of the chief advantages of trading using Wyckoff's approach is that one needn't bother with a lot of confirmation.

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Recently, CSPAN rebroadcast a roast from 2005 where Barack Obama takes on his future White House Chief of Staff Rahm Emanuel. Discussed are Rahm's past with ballet and the accident in which Rahm lost his middle finger, a loss that Obama said essentially rendered Rahm mute. http://www.huffingtonpost.com/2008/11/07/obama-roasts-rahm-emanuel_n_142259.html

"Lack of experience" is not that much of an issue for me. Greenspan, after all, had loads of experience and nearly bankrupted the country (though there were plenty of other "experienced" people who were more than willing to help him do it). McCain alledgedly had loads of experience, but had no idea how to deal with the economic situation. Obama appears to have the ability to find the right people, ask the right questions, and listen, the latter of which is in short supply, and not only in Washington. He also appears to have the ability to brush aside the extraneous and focus on the core of a problem, understanding that if one can't determine the cause of a problem, whatever "solutions" one comes up with are more or less trial and error, which is pretty much how we've been operating ever since we became a debtor nation.

Unfortunately, the "economic crisis" has only begun.

I should point out, however, that the Wyckoff approach is not mechanical but rather is practiced by those who are able to -- and want to -- judge the relative strength and weakness of buying and selling waves and when and where they are strengthening or exhausting themselves. Atto is doing an excellent job of demonstrating how to apply this discretionary approach to a scaling-out strategy.

On the other hand, giving the trade "room" can prompt the injection of hope into the equation, which is rarely to the benefit of the balance sheet. Much of this can be avoided if the trader carefully defines just what it is he means by "right". If he then doesn't see it, he'll know better what to do and when to do it.

I suspect that players are at least somewhat concerned about earnings and retail sales, or lack thereof, as well.