DbPhoenix

Reply can be found here.

Drawing demand/supply lines in hindsight is difficult unless one reads the chart from left to right. But difficult or not, there isn't a great deal of point to going back any farther than one needs to. One draws demand lines in order to see where demand is entering the market and propelling a continuation. Therefore, they tend to be tight. But if one is using them to make trade decisions, he will likely find it necessary to include other information, such as how price respects the trendline, or whether or not price holds above the last swing low, or how price reacts to the last support level. Breaking a demand line means little in and of itself other than that momentum has hit a pothole of some sort. They are perhaps most useful when price departs from the trendline, serving to provide an early warning of a change in momentum that might break that trendline, but also serving to remind the trader that the world hasn't come to an end just because momentum has taken what might be no more than a temporary pause.

Only two of the replys to your question might be considered rude (at least those that were posted by the time you initiated this thread). The rest just didn't tell you what you wanted to hear. So you have a choice: do you want to be told only what you want to hear and go broke, or do you want to become a trader?

As a follow-up to your PM, keep in mind that Wyckoff (a) focused on those markets and stocks that were “on the springboard” for significant moves, (b) initiated entries at those points which offered the highest probability of success, and © exited the positions at the most advantageous time, all with the least possible degree of risk. Therefore, begin with one of his broader measures of strength/weakness, i.e., how the instrument behaves on rallies and declines. Note on the monthly that price was unable to rally more than 50%. This is not a sign of strength. The weekly, on the other hand, appears to have found support at the 50% level of its recent rally. On the third hand, there has been no climactic volume at or near the bottom of the decline. The climactic volume has been at the peak of the rally. Looking at the daily, there again is no climactic volume at the bottom of the decline. And price can't recover more than 50%. However, it appears to find support at the halfway point of the most recent rally attempt. The overall picture, however, is one of weakness, not strength, particularly since there's been no selling climax, and the significance of any one or two bars is minimal at best. And since traders have used every rally as an opportunity to sell, I wouldn't be eager to jump in quite yet.

No one posted a chart for today, but then nothing has changed. Resistance was pegged at 30, and price found support there this morning within a tick. The next level of resistance was found at 40, the midpoint of the channel I drew in my previous post, above. How easy does it get?

You appear to be confusing Wyckoff with subsequent adaptations of it. There are no "creeks" in Wyckoff. Nor are there "no demand" bars. If you're interested in starting fresh from a Wyckoff viewpoint, I'll be happy to help. Just let me know.

You're going in the right direction, but your map needs a bit of re-drawing. Regarding your first comment, the advance shows a lack of interest only -- apparently -- on the part of sellers. If there were a complete lack of interest, price wouldn't go anywhere. And as for the "apparently", sellers are interested, but they want a better price. So they're willing to give buyers rope until price gets to a point where sellers are more willing to take action. This will occur when price reaches resistance. If buyers can't absorb the extra supply and push price forward, price will reverse. Less volume on the retest? Yes. But what does that mean? As to the accumulation, buyers are willing to step up to the plate here and impede or halt the decline. This can be seen by the increase in volume and the result of that increase, i.e., price stops falling. But whether it can be called "accumulation" or not is debatable. There isn't time for much. More likely, sellers just don't want to sell at a level this low. Look at how low volume is on the next trip to R at 1225. As to your next pair of arrows, take care not to assign to much meaning to volume unless you're at a level where it matters, usually support or resistance. Again, "accumulation" may not be the best way to characterize what's going on here. Suffice it to say that buyers have stepped up and are trying to impede or halt the decline in price. They succeed in doing so easily (if they were having difficulty, volume would be higher during this swing low). This would appear in real time to be a higher low, but one wouldn't know until price exits from the trough that a higher low was in place. There's no other compelling reason to enter here. The "retest" is only a couple of ticks, though there may be more drama on a tick chart, or even a 1m chart (a 5m chart provides you with a summary). As to your "springboard", technically yes, since a springboard is a preparation for an advance. This particular springboard, however, comes after the real springboard. Consider an alternative way of looking at all this. First, locate the trading ranges as well as the important swing points, any or all of which may provide support and resistance in real time. The last important trading range which might affect the activity on this chart was formed the third week of September, from 52 to 76, more or less. The midpoint of this range would be 64 (note how price spends quite a lot of time hovering around this level). The last important swing high that is within the range covered by your chart was at the end of September, at 66 (specifically, 65.75). And if you have any doubts in real time as to whether or not this is really resistance, just watch how price behaves as it moves thru it. Now back off and divert your attention from specific bars. Look instead at how price is moving. Price makes a higher low after the day's high, then a lower high thereafter. This action should prompt you to think "hinge" in real time and look at what's happening with the volume. If this confirms what you suspect, and it does, then watch what happens as price reaches equilibrium (which, you'll note, is the same midpoint as that of the trading range referred to above). Here there is a test of selling interest accompanied by higher volume. This is usual. But the selling interest isn't there (price doesn't fall). This bodes well for the upside, but not yet. Traders piddle around for half an hour. But eventually price breaks out to the upside (the blue arrow), though few would recognize this as a breakout since it occurs before the more obvious resistance at 66 and since the volume is so low (volume in fact remains low until the more obvious resistance at 66 is penetrated, though even then the volume doesn't come in until after resistance is penetrated). The hinge, therefore, is your springboard. The retracement to 66 after the breakout is what might be called a Last Chance Springboard. Now about the "breakout volume". As I said above, the big volume comes in after the breakout (you can see this on a small interval, such as 30s). But even if one saw it in hindsight as coming in during the breakout, the big volume is not necessarily good news. The big volume means sellers are finally interested, and they're throwing much more of what they've got at the buyers. Buyers, however, are feeling their oats and pushing price higher until they become exhausted, and price plummets to 65.5. Here now is where the balance of power is determined. Can sellers push price lower? Do they want to? Do buyers have enough bullets left if sellers get serious? Selling is suddenly withdrawn, and price drifts sideways for a few bars. When volume returns, price moves to the upside, and your Last Chance Springboard is activated. Sellers are offering more supply, but not so much that the advance is squashed. Buyers are able to absorb what sellers are offering and push price higher in the bargain. But the real volume doesn't come in until after price gets past 67.5. Sellers are being much more aggressive, but one can't drawn any conclusions about buyers' resolve in what's left of the chart. They may be spent, in which case price will fall. Or sellers may be done, in which case price will rise. It is not, then, about bars and colors and what this or that volume level "means". It's an ongoing, continuous drama of buyers and sellers and demand and supply and the different perceptions everyone has about "value" (which rarely has anything to do with price). This entails a different way of looking at a chart, even in hindsight. In real time, it entails a different way of trading.

I'm updating the channel chart I posted a couple of days ago in order to add a little air to the upside. By doing so, one can more easily see where diagonal and lateral support and resistance converge and where possible targets might lie. I've also added a tentative supply line which has a more acute angle to it than the parallel line. This may mean nothing. Or it may mean that we're losing momentum. First we have to get past the midpoint, which is now around 35. Then we have to reach the opposite side of the channel. If we were to do it quickly, we'd reach 1800, which was a pronounced swing low in July '08. But we may not get past the lower supply line. Even if it crosses 1800 by that time, the upwave will be shorter, and that's not so good either. No profound conclusions here. Just context.

It may be. But I got this years ago and didn't particularly care who the student was. Or wasn't. I just thought it was very clever.

One can't generalize about this stuff anymore. These days can provide great trades and they can also be like watching concrete set. Since my day is only 90m or so, it's no big deal.

One of the advantages of using demand and supply lines rather than "trend" lines is that one can avoid debates over whether or not one is in a trend. One could argue here, for example, that the upmove in the morning to 30 was not a trend per se but rather a return to established R. Either way, the demand line was inarguably unbroken. If one wanted to wait for that line to be broken, he could have shorted the pullback at 1245 (though I don't want to get into CouldaWouldaShoulda). If he wanted to short 30 whether the line was broken or not, he'd have had to do it at least twice. Aside from that, there are other considerations with regard trades of this sort at this time of day. For one, the return trip down may take far longer, perhaps two or three times longer, if it arrives at its destination at all. For another, the move may not be nearly as "clean" as it was in the morning, and one may be stopped out fairly quickly, depending on one's management criteria. None of which is to suggest that shorts at R such as this should not be taken. But one should do so only after having considered the consequences, particularly if patience has been an issue.

Perhaps someone should have contacted the OP before last June, when he blew up his account and stopped posting.

My PayPal account is....

You used the left justification. If you didn't do that on purpose, go to the next, which is center justification. You can do this with Edit. You needn't start over.

http://www.traderslaboratory.com/forums/f131/volume-observation-5266.html

Interesting how AMT is an anagram for ATM

First, if you don't see a complete set of tools, click "Go Advanced". Then, right-click your upload and click "Copy Link Location". Then, center your cursor (the center justification; it's to the right of the B I U). Then click the icon with the mountains in it (it used to be a TV screen). You'll get a popup. Then paste the link location into the popup (don't erase the prefix in the popup). That's it.

Sir Ernest Rutherford, President of the Royal Academy, and recipient of the Nobel Prize in Physics, related the following story: Some time ago I received a call from a colleague. He was about to give a student a zero for his answer to a physics question, while the student claimed a perfect score. The instructor and the student agreed to an impartial arbiter, and I was selected. I read the examination question: "Show how it is possible to determine the height of a tall building with the aid of a barometer." The student had answered: "Take the barometer to the top of the building, attach a long rope to it, lower it to the street, and then bring it up, measuring the length of the rope. The length of the rope is the height of the building." The student really had a strong case for full credit since he had really answered the question completely and correctly! On the other hand, if full credit were given, it could well contribute to a high grade in his physics course and certify competence in physics, but the answer did not confirm this. I suggested that the student have another try. I gave the student six minutes to answer the question with the warning that the answer should show some knowledge of physics. At the end of five minutes, he hadn't written anything. I asked if he wished to give up, but he said he had many answers to this problem; he was just thinking of the best one. I excused myself for interrupting him and asked him to please go on. In the next minute, he dashed off his answer, which read: "Take the barometer to the top of the building and lean over the edge of the roof. Drop the barometer, timing its fall with a stopwatch. Then, using the formula x=0.5*a*t^2, calculate the height of the building." At this point, I asked my colleague if he would give up. He conceded, and gave the student almost full credit. While leaving my colleague's office, I recalled that the student had said that he had other answers to the problem, so I asked him what they were. "Well," said the student, "there are many ways of getting the height of a tall building with the aid of a barometer. For example, you could take the barometer out on a sunny day and measure the height of the barometer, the length of its shadow, and the length of the shadow of the building, and by the use of simple proportion, determine the height of the building." "Fine," I said, "and others?" "Yes," said the student, "there is a very basic measurement method you will like. In this method, you take the barometer and begin to walk up the stairs. As you climb the stairs, you mark off the length of the barometer along the wall. You then count the number of marks, and this will give you the height of the building in barometer units. A very direct method. "Of course." "If you want a more sophisticated method, you can tie the barometer to the end of a string, swing it as a pendulum, and determine the value of g [gravity] at the street level and at the top of the building. From the difference between the two values of g, the height of the building, in principle, can be calculated." "On this same tack, you could take the barometer to the top of the building, attach a long rope to it, lower it to just above the street, and then swing it as a pendulum. You could then calculate the height of the building by the period of the precession". "Finally," he concluded, "there are many other ways of solving the problem. Probably the best," he said, "is to take the barometer to the basement and knock on the superintendent's door. When the superintendent answers, you speak to him as follows: 'Mr. Superintendent, here is a fine barometer. If you will tell me the height of the building, I will give you this barometer.'" At this point, I asked the student if he really did not know the conventional answer to this question. He admitted that he did, but said that he was fed up with high school and college instructors trying to teach him how to think. The name of the student was Niels Bohr (1885-1962); Danish Physicist; Nobel Prize 1922; best known for proposing the first "model" of the atom with protons and neutrons, and various energy states of the surrounding electrons -- the familiar icon of the small nucleus circled by three elliptical orbits... but more significantly, an innovator in Quantum Theory.

Since we spent most of the afternoon above 1700, traders were clearly comfortable there, and I suspected we'd move higher today. I just hadn't expected it to happen already. Therefore, 8 to 30 does seem to be the range for today's trading. Yesterday was a fish or cut bait day regarding the channel. Buyers had either to get on with it or let price fall out. If they can keep this momentum going, then reaching that supply line becomes a good test of their resolve (I should also point out that 30 is also more or less the midpoint of that channel for today and tomorrow).

How's that? .

Tuck this away in your scrapbook: .

Nice analysis. And I see you noticed the hinge. Somebody asked me about this a couple of years ago, though I don't remember where, and I pointed out the hinge that formed in November/December ('07). I don't remember if he wanted to go long or short, but these hinges -- if one interprets them correctly -- can be powerful movers.

In terms of what should be done, it's best to go to the source, i.e., Wyckoff, i.e., the first post in this thread. What I would do isn't pertinent. And there really aren't any set rules as to what everybody should do. What you should do depends on (a) your understanding of what the market is trying to tell you through price action and (b) your risk tolerance. If your risk tolerance is such that you can't place a stop where you're supposed to, then either scale back your initial position or don't take the trade. If you instead place a tighter stop than you should, or trail the stop, then you will likely be stopped out, and what have you gained? If R on the NQ is 1500 and you're particularly good at determining what the market is telling you through its actions and the entry is in fact 1500, then you can put your stop a tick above 1500. But if you're not particularly good, and the setup isn't particularly clear, then set a wider stop or pass on the trade. What matters more than exactly where to place the stop is understanding what's happening in front of you. Once you are comfortable with the latter, the former just won't be an issue. Edit: Since a picture is worth yada yada, here's an example from this morning. R was anticipated to be around 1712. However, the overnite high was 1708.5. This was tested at 1018. So when price reached this level again at 1105, it seemed reasonable to look for the typical "Wyckoff setup", i.e., a test which is accompanied by lower volume. If you were to take this trade, the stop could be placed at 1708.5. Where you enter, on the other hand, is entirely up to you. If you're confident with this "setup", there's no particular reason to wait for loads of confirmation and your entry can be very close to your stop. If you're not confident and you want more confirmation, then your entry will be farther away from your stop and your price risk will be higher. The stop, then, is where it should be, above the "danger point". Your price risk is determined by where you choose to enter, and that's entirely up to you. To put it yet another way, the question is not so much of a tight stop since the location of the stop is determined by the market, but of a tight or loose entry, which is determined by the trader.

I'm glad the forum has helped. But you seem to missing my point. This isn't about patterns; it's about trader behavior. And while Wyckoff acknowledged the breakout as an option, he considered it to be the riskiest and least attractive option for entering a trade. And perhaps the most fundamental principle of this particular approach is to minimize risk.

Those gurus. *sigh* Take care not to get too focused on the trees. To do so can mean more and more levels, many of which are drawn from points rather than ranges, and the focus of course is trending and ranging. And introducing extraneous material, like patterns, obscures more often than it clarifies, at least so far as understanding what traders are doing and will likely do. Consider backing up to a six-month chart to reacquaint yourself with the longer-term demand and supply lines and the remarkably well-defined channel in which we find ourselves. Once you have the current lateral (1650 to 1750) and diagonal (which extends to 1800, if traders behave predictably) ranges, you can then put the intraday into better perspective. Once you've done that, you'll note that we're dead-center in both the lateral and diagonal ranges, and what appears to be a "downtrend" from the supply line may in fact be nothing more than the usual trip from one side of the channel to the other which, unless there is a change in trend, implies a move higher. In sum, the levels and ranges and volumes are a great help, but the focus is on what is in traders' heads, what they want, how they are most likely to go about getting it. That is in large part what separates the Wyckoff approach from the various mechanical approaches one finds in other threads and what enables the Wyckoff trader to jump into trades that to other traders seem insane. Edit: I may as well post this since I have it. Don't be distracted by the "geometry". The purpose here is to locate the demand and supply lines in part as context for the current trading range (the shaded portion). The midpoint of the channel is eyeballed, but close enough for its use.