tupapa

Thanks to both for your replies, I'd like to clarify that I do not focus on volume but on price. However I thought volume could be a valuable addition, and one that would increase the probability of success of a particular setup (in this case a reversal). In my case, having lower volume on the retest means traders a less interested in this price level, and the probability of price bouncing, in search for a zone where traders feel comfortable increases. One question for both of you; If you see a test of support on average volume, and volume increases on the retest, would you still buy the reversal? DB, I don't use coloured volume or any of the fat bars you mention, I just use plain voume bars showing market activity. I use them to find out the "relative interest of traders" in a particular price.

I find this quite disconcerting... My reversal pattern is climatic action at Support/Resistance, followed by a re-test or Higher/Lower Low on lower volume. However, from your post, I gather that as long as price is rejected at S/R the volume is irrelevant? When, if anytime, should the whyckoff daytrader pay attention to volume?

One last thing on this and I promise to move on from this trade. In the attached chart I have reduced the volume when price approaches the Resistance level. If the volume wasn't climatic but price still reacts in the same way, would the sellstop below the last narrow bar be appropriate? I am attaching the chart with the reduction in volume. Many thanks.

On the 23d of September, 1931 Wyckoff noticed an opportunity to go short after identifying climactic action on the 21st. Here is how he describes and justifies the short; “On the 22nd, the volume drops off to about 2,000,000 shares; the close is slightly lower and the range has narrowed. The net result of these three sessions is to leave the market practically unchanged at the third day's close. Downward progress seems to have been checked and the small volume on the dip back from the high of the 21st, on Sept. 22nd, implies a lifting of selling pressure. After such a great decline within three weeks, this is an indication of more rally. This comes on the 23rd, and gives us an opportunity to sell short again while the market is still strong or when we see the rally is failing. Such an indication is given by the way it rallies on the 23rd. On this day, the average recovers to nearly 107, closing at 105½, but the volume falls off to under 3,000,000 shares and we therefore suspect that it is merely due to shorts who all tried to cover at once. Such a rally is too effervescent. It is not likely to last because it removes buying power which formerly existed, and leaves the market without support between the high point of the rally and the previous low.” I am not the brightest of guys and it’s taking me some time to get my head around this, so here are my doubts; 1- He says that on the 23d volume falls but I, in fact see an increase in volume from the 22nd, and would consider this a bullish sign. The volume is lower than the climax, but then I wouldn’t expect it to be higher. 2- The range on the 23d is very wide, indicating little selling pressure and high buying pressure, such a rapid rally leaves the market with no support. Ok, I think I get this, so if the buying was of “good quality” buyers wouldn’t bid prices up right? They would rather take everything that’s on offer around the climax lows? What would the chart look like had the buying been of good quality? I have attached an image of the chart up to the 23rd, for those of you interested on how the story unfolds, please refer to the first post on this thread or to section 7 of the original course, I am trying to understand how Wyckoff knows by the 23d, that the climactic action on the 21st will probably lead to a continuation rather than to a reversal.

Very nice Db, thanks for the post, I hadn't considered what traders using different bar intervals would be looking at and how it would influence their decision making... I'd never heard about information risk, price risk, and time risk, could you let me know where I can read more about this? Thanks, Tupapa.

Looking back at my chart I don't think I made my entry strategy clear. The following chart shows 4 potential entries I identified, each of them marked with a red arrow. I am in an early stage of testing and trying to identify which entry I feel more comfortable with. I would only take 1 of the entries, going short with 3 contracts and scaling out as I explained in my previous post. (Following the method outlined in the trend thread, cheers for that db) So this is how I perceive each of these entries: 1- Selling the climactic action, this is the most profitable entry but I would likely wait for a retracement of some sort for further confirmation. I would place my stop 1 tick above the high of the climax (blue dot). 2- This entry would be executed after a low volume retracement and would require a wider stop at the top of the Lower High (second blue dot). I would probably take this entry. 3- This is the entry I was referring to as "Breakout Entry", meaning that we breakout of a descending triangle. I wouldn't take this; I would rather wait for a retracement for further confirmation, which takes us to point 4. 4- The final entry after another retracement of low volume, showing very little buying interest. As usual, I'd place my stop 1 tick above the previous lower high. Out of the 4, I would probably take number 2, and it is the entry I am focusing on in my testing. I like to see some confirmation rather than buying/selling the climactic action. I believe some call this a Ross Hook? So in your opinion, the stop should be placed above 70 regardless of where we enter?

I posted a hindsight analysis of the NQ trade on the CouldaWouldaShoulda thread.

The following is my interpretation of the short on the NQ futures last Thursday. I am aware that this is just hindsight horseshit, but I also believe that analysing this reversal (and others) should help me identify them in real time. Hopefully it will also help others, and we can all gain something. At pre-market, the market is fairly quiet with price slowly ascending up to the Resistance Level at 2570. Buyers push price up to this level, with some effort but they find big supply at 14:32, the next 3 bars confirm the power of sellers as they push price down to 2562, below the last swing low. Now buyers step in again and we can draw our support line at 2562, however, their effort is very poor (decreasing volume) and so is the result (Lower High). Now its turn for the sellers, who push price with big effort (increasing volume) and decent result (Lower Low). At this point I notice 2 things: 1- We can draw a Supply line from the top at 2570, crossing through the LH at 2567 that forms a descending triangle with the support line at 2562. 2- Volume is drying up inside the triangle, showing less buyers coming into the market. Unless new buying power comes in, the selling will drive prices down considerably, until we find a new value area where buyers are comfortable. At 14:48, the Support line is breached with a quick recovery and buyers try, once again to push price higher. Although they manage to break the supply line, their effort is very poor and price is quickly rejected forming yet another Lower High (and now the trend should be evident). At 15:00 we move to a dead center with very low volume, the market is very quiet and it is the last chance if buyers want to reverse things. At 15:02, volume comes in with a large range "near bozo" bar confirming the downtrend. We could enter at the breakout (first arrow) or wait for a low volume reversal (second arrow). We then draw a supply line and there is no need to exit the first contract until it is broken (15:24). After this, the market keeps making Lower Highs and Higher Lows until around 16:20. Nothing about the volume indicates climatic action, so there’s no reason to exit the rest of our position, until we make a Higher Low, or we break the last swing point.

If we witness climatic action, followed by a swift rally on lower volume, don't we assume it is due to shorts covering at once and an opportunity to sell short? This is from Wyckoffs "Analysis of 1930-31 charts" After such agreat decline within three weeks, this is an indication of more rally. This comes on the 23rd, and gives us an opportunity to sell short again while the market is still strong or when we see the rally is failing. Such an indication is given by the way it rallies on the 23rd. On this day, the average recovers to nearly 107, closing at 105½, but the volume falls off to under 3,000,000 shares and we therefore suspect that it is merely due to shorts who all tried to cover at once http://www.traderslaboratory.com/forums/attachments/131/8727d1228584126-trading-wyckoff-way-1931-analysis.png Looking at the attached chart and reading it from left to right, we witness climatic action on the 21st of september. In this situation, as a novice tape reader I woul ask myself: 1- Is good quality buying entering the market? In which case I would expect a reversal. 2- Is the buying due to shorts covering and/or poor quality buying? In which case I would expect a brief rally, with no following of buyers that would lead to an "effervescent rally" and a continuation of the downward trend. You say that Volume shouldn't be used as an indicator, but I was under the impression that we need volume in order to differentiate between Good quality buying (Reversal) and Poor quality buying (Retracement) Thanks DB for your patience and help, I really appreciate your feedback on this as at the moment (and after a lot of reading) everything is still very confusing.

I am interested in following oil with you guys so hopefuly we can all learn to read the market following wyckoffs teachings. A few days ago, DB posted a chart showing a potential Support level at 82.5, the midpoint of the August-October range. On Friday the 1st, we had a down bar with high volume, that closed away from the low indicating potentially climatic action. On Monday the 4th, traders tested the 82.5 level and longs entered with conviction, confirming the importance of this level. On tuesday volume decreased and price reached a point of equilibrium forming a doji bar. Buyers steped in on wednesday with higher effort but we closed below the highs of the day. So where are we now and what are our thoughts? Who is taking part in this rally? Is it due to shorts covering or is "good quality buying" entering the market? If this rally is due to shorts covering we may expect a further decline, and how do we tell this? We look at volume and the rapidity of price change, if after this rally the market reacts with less volume and narrow spreads, we can assume there is little stock for sale at this level and the market has completed a secondary reaction. We would then sit tight and wait for volume to come in and confirm our expectations for an advance. It is worh noticing the downward Trendling is still intact and we may see a resumption of the trend, with an increase in volume breaking the 82.5 support level. This is my modest analysis on what I have read in this forum and from B.Neills book and I look forward to reading other traders opinions.

Hello Niko, I was reading Neills Tape Reading & Market Tactics, Chapter V Turning Points on Heavy Volume and thought this could answer your question; The man who covers his short position is in greater hurry than the long buyer. The short seller will rush to cover if he believes that the rally will endure some time. If you are contemplating a purchase, you are interested in both these opinion..... if the rally is due mainly to short-covering it is likely to be brief, and may be followed by further declines. How can you tell which it is? Watch the volume and, in this situation, the rapidity of price changes. ... Let us assume that you sensed the turn at the bottom and purchased two or three stocks. Your interest now would be to decide whether to hold for a sizable advance, or throw out your stocks if you misjudged the turn in trend. Your problem then resolves itself into determining wether good buying comes into the market along with short covering. You notice large blocks of stock taken at steadily rising prices. At intervals, the market becomes quieter, with less volume and fewer transactions.... ...What would you do if you were still short? Or what would be your inclination if you were considering purchases? If you were short, I believe that the fact that prices did not sag, that the market was firm, would make you think yourself: "Here, I had better buy in my stocks while I still have profits".. Likewise, if you wanted to purchase.. you might hesitate somewhat longer; but at the first signs of higher prices you would be likely to jump in with your orders. In this imaginary market, let us assume that we have witnessed a swift rally which lasted for two hours. The dullness which followed, with prices only a dollar or two under their "highs", has lasted another two hours or so. Opinions are evenly divided (SPRINGBOARD ?). Soon you notice a transaction much larger than normal, change hands at the same price as that of the previous sale. Your mind becomes alert at once; you have been watching for this signal... Your attention now is riveted upon the tape in order to see at once wether these large transactions following the dullness are going to confirm your expectations that the advance will be resumed. Before long you will know definitely. I am aware that this has little to do with the nature of support and resistance, moderators might want to move it to a more relevant thread.

Hence; The outcome of a particular trade is irelevant, if we followed our trading plan flawlessly but our stop gets hit, there is no reason to rationalize much less analyze the loss.