Ideas for Struggling Traders

[benl 10]

Nice buys Steve

now can it hold?

 

Ben

[steve46 12]

Steve

 

Worth noting in the monthly chart which shows Rising trendline support from the past bear market lows

 

I got out of my bear-stance (above post) and cautiously put on the bulls horn once the globex-only low was traded on Friday,

But am keeping the stops as short as the bears-tail

 

I have posted some more in 'Charting the past Bears' thread below & also Suri's reply

http://www.traderslaboratory.com/forums/f2/charting-the-past-bears-4622.html

 

 

Enjoy Minoo

http://greatday.com/v.html?2139407MRpn8

 

Hello Minoo

 

Always good to hear from you...While I do look carefully at charts I think that in this instance, because of the unusual problems we face, it may be more effective to monitor the actions of both the current president and his administration (Mr. Paulson and Mr. Bernanke) and more importantly, the new incoming president elect (Mr. Obama and his new appointees Mr. Geither, Ms. Romer, and Mr. Goolsbee). I am suggesting that by watching, reading and thinking about what these people say in interviews past, present and future you could obtain an edge over folks who simply look at technical indicators. I have taken this approach myself and it is one of the primary reasons I decided to buy Citi (and other companies) recently. So far it has worked out well for me.

Edited November 25, 2008 by steve46

[steve46 12]

Nice buys Steve

now can it hold?

 

Ben

 

Hey Ben

 

That is the 64 billion dollar question. We are in big mess, a once in a lifetime situation that is going to need big intervention by our new administration. Can they pull it off? We better hope so...cause if not, boy are we are headed south in a big way....I believe that when Mr. Obama gets in office we will see a Public Works program like no other since Roosevelt. Clearly we are also going to see the Treasury intervening to save big industry and continue to add liquidity to the banking system. At the moment the credit markets are still locked up and for that reason alone we need to see our government get off its ass and tell those damn banker fat cats to start lending again. Check the Libor spread over the past couple of months and you will see what I am saying. At one point it was above 500 basis points (absolutely incredible). Now it is back down to about 200+ basis points, but it still needs to come back down to earth. Those of us who use to trade the old TED SPREAD know what I am talking about....I like our chances but I believe the next couple of years are going to be quite a ride....

 

Best Regards,

 

Steve

Edited November 25, 2008 by steve46

[steve46 12]

For you struggling intraday traders, I suggest a couple of things

 

1. Get familiar with your newspaper or your Internet sources of news. Look for articles of interest relating to the economy, to energy usage, get familiar with the names of the new government appointees and check for quotes from these folks. Remember that this is an event driven market, and a very emotional market.

 

2. If you are having trouble trade small or stand aside until you get some visibility to your approach. The old saying is "Don't throw good money after bad"....If you don't have an edge....if you're not recognizing opportunities, if you are late on your entries, or late to ring the register, if you see profits evaporate because you are unsure of your decisions, Stand Aside.

 

3. The most reliable principles in my experience are A.) confluence...when you see several "signals" happening at the same price point or very near to one another.....B.) Support & Resistance....what I mean is when you see price test a price and bounce, then test again....if that is part of your program...don't hesitate.....select a position size that allows you to take your signals fearlessly....and finally.....scale out....and manage the trade with discipline.....always make sure to get a pay day as soon as possible in the session.....the sooner you get favorable trade position, the longer you can hold and the more you will profit....(its that "early bird" thing)....

 

Keep it simple in this very volatile market....and you will get by....if on the other hand you get greedy or fearful and you don't control your emotions...it can be over in a few short minutes.

 

Wishing everyone the best of luck

Steve

[steve46 12]

Couple of items of business here

 

First, an update on my Citi stock purchase. Current price about $8.30+ and holding. I would expect a pullback on Monday. For those who took notice on the day I purchased, this purely a speculative trade made with money I can afford to lose. The way I was trained, when you have a spec trade on and you see a profit of 100%, it is termed a "windfall" and I was trained to "never let windfall profits evaporate" (exact quote from my mentor). So on Monday I will be taking some off the table.

 

The Importance of Visualization

 

Visualizing the market is important to newbies. Generally speaking newbies are poor visualizers, so what I suggest is to look at a variety of long term charts to establish a view of the market that works for you...So lets begin...

 

We are going to start with a chart showing 570 minute candles. This view shows us the obvious, clearly we have a bear market, AND looking at the spread (vertical distance) between the 200ema and the 80ema, I would say the trend is strong. By itself, this chart doesn't (in my opinion) give you enough data to make a high percentage trade. So lets add something to this chart to help us out.....

 

Now in the next view we put the monthly pivots in place. Boom what you see is "context" and for the newbies this context is how you find something to lean on in this market and it helps you make better decisions. Notice the way price "tested" the monthly pivot in the first week, closing above the pivot, then retracing. This is what I call a classic (swing) failure setup. Not only did price "fail" to take out the monthly pivot, it also failed to take out the 80 period EMA. When you see that "confluence" of pivot and EMA, in my experience you have a high percentage setup with a natural profit target at monthly S1.

 

The swing trade here if you saw it, was a short entry on the failure move back below the Monthly Pivot (at 988). With current volatility you would use a stop of 13-15 points and a profit target at 803.50. So the risk-reward equation for this trade would be risk $700-800/contract to make $9500/contract. In a bear market with multiple signals lining up this is (in my opinion) an example of a favorable risk-reward scenario.

 

Bump: Visualization Con't

 

An interesting thing about time frame, is that going from one time frame to another, can give you a completely different view of the market. Check this out....

 

In the previous chart (570 minute candles) we clearly saw the current bear market trend, and we noted the strength of the trend as shown by the vertical distance between the 80ema and 200ema.

 

In this next chart we have a 81 minute candles (more on why we choose "81" later)....and voila we see an entirely different view of the market. Direct your attention to the multiple tests and retests of the 80 period EMA. This chart alerts you to countertrend setups BUT again by itself (in my opinion) it doesn't give enough info to compel me to consider a countertrend setup.

 

So in the next chart we add Weekly Pivots and again we see the confluence of two data points (the 80 period EMA and the Weekly Pivot). As price takes out and retests, you can see a nice long entry setup at 810 with a natural profit target of 869.50. With current volatility a close below 804.50 would serve as a stoploss. So the risk-reward equation for this countertrend trade is risk $300/contract to make $2950/contract. Again a favorable risk-reward ratio, even for a countertrend trade.

 

Bump: Here are a couple more examples of longer term charts.

 

The first is a 60 minute chart and in this one you can see that price is now testing the 200 period EMA. Again (in my opinion) there isn't sufficient data to interest me in a trade.

 

So we put in Daily Pivots (at 60 minutes or less we use daily pivots) and again we see a possible context for a long trade, with a test of two data points at the Daily S1 and 80 period EMA. This countertrend setup is Long entry at 833.25 with a stop loss of 2 points, multiple profit targets at 854 and 875. The risk-reward equation for this setup is risk $100 to make $1050 (if exiting at 854) and risk $100 to make $2100 (if exiting at 875). In both cases a favorable risk-reward.

 

Bump: In our previous post we looked at swing trades using charts with 570 minute candles, 81 minute candles and 60 minute candles. The 60 minute chart showed an example of a swing trade that one could put on in the pre-market.

 

In this post we carry things a step further, working with a 45 minute chart. This time we can see another nice pre-market setup. As you look at this one, note the following; First, notice the 80 period EMA moves from below the 200 to above it, then we see price test the 200 period EMA. For newbies, these are two important elements that signal a possible profitable trade. The test happens at 8:15am EST. With no other defining element, we would probably sete the stoploss just under the local low at 829.50.

 

In this next chart we add Daily Pivots, and immediately we see that S1 lines up with the 200 period EMA and so a trader looking for a setup would have three elements together at the setup point. Once again you have confluence of several (three) elements lining up. When you add the Daily Pivots, the added benefit if that you define possible profit targets on the daily time frame. If we assume a long entry at 834.50 the risk-reward equation is as follows....1.) Risk $250/contract to make $950/contract (assuming exit at 853.50), 2.) Risk $250/contract to make $1950/contract (If exiting at R1) and finally 3.) Risk $250/contract to make $3000 (assuming exit at 894.75). As you can see from the chart, a disciplined trader holding to EOD could have taken in a profit anyplace in that range.

Edited November 29, 2008 by steve46

[steve46 12]

Trend Days

 

Today price trended strongly from pre-market throughout the early part of the day. As sometimes happens the market did stagnate at midday, then it broke towards the end of day finishing down significantly (Dow at minus 600)

 

Although trend days like this one are rare, because of the profit potential, it makes sense to learn how to anticipate them and how to get on board. So today I will illustrate the first of several ways to do that as follows;

 

First Method

 

The first chart is a 570 minute long view. Note the obvious. We are in a downtrending bear market. We can see the countertrend move up from 11/20

 

Then take a look a closer look at that same chart (next chart) and observe that price moves up to test the 80 period EMA. It tests, briefly takes out the EMA and then we have a "classic failure move" as price fails, the Doji (classic sign of indecision) at 19:00 hours EST, then a "waterfall" move down starting in the overnight market (Midnight EST). The test, failure and "waterfall" move in the premarket are strong indicators of a possible trend day.

 

If this is a trend day, how do we get on board? Scan to the left and note the wide range bar (WRB) from 11/26. Typically an entry just at or slighly beneath the midpoint of that bar is a good fail safe entry for shorts. I have noted the entry point (midpoint of that bar) at 862.75.

 

For the next step, lets check out a 5 minute chart....(see next chart) and see where 862.75 falls.....Notice that price point is hit at 9:35 EST and coincidentally it is also a doji-like candle (not a true doji, but similar). That candle opens at 862.75 and short entry there would require the trader to take heat up to a high of 864.25 (1.5pts drawdown). The rest is history.

Edited December 2, 2008 by steve46

[diablo272 10]

Steve, I would like to give a HUGE thanks to you. I have been following your thread for a while, and originally found it on another forum. This thread has SO much useful knowledge in it. You are one of the ones I have to credit for helping me find my strategy. My strategy doesn't actually resemble yours at all anymore, but seeing your strategy was a vital step for me. Thanks again.

[steve46 12]

Thanks for the kind words, it's gratifying to hear that you found a method that works for you...I wish you the best of luck in the markets

 

Steve

 

Bump: Here's a nice trade I often look for after a big trend day.

 

Generally speaking, the day after a trend day, I will monitor the overnight market, waiting for the DAX to open. If there is to be a reversal move, I am looking for the DAX to initiate it.

 

First chart shows 30 minute candles and we can see price consolidating in the overnight Globex market. Notice how price doesn't want to go any further south. The obvious question is "Why not?"....Remember that I pointed out that price is always testing some data point. The overnight market is no different. During the overnight session, during this consolidation price has been "testing" the following price points.

 

1. Weekly S1 at 820

2. Previous Settlement at 815.75

3. Yesterday's Low at 814.25

 

Price tried to take out these areas and couldn't....AND for those who use Market Profile we have the Previous Day's Value Area Low at 837.50. From experience we know that participants will want to probe (test) that area at some point between this evening and the EOD tomorrow.

 

So, when we see that price cannot go lower, we look for a way to get long assuming that the bias will be to go up and test that area..

 

The process is simple....you monitor the 30 minute chart...and you see price consolidating and you wait for it to test lower before heading north. At 4:00am (we annotate that bar on the next chart) you see price move up and you refer to the constant volume chart )729v candles. What you see should be familiar.....price tests and "takes out" the 200 ema, then comes back to retest the 200 ema. You anticipate that the 80 ema is going to advance above the 200 and you get long on the next candle or perhaps at the open of the next candle at 4:02:49. So from the time you started looking for the entry, you had approximately 2-3 minutes to make a decision and pull the trigger.

 

As you can see, price continued up to test the daily pivot at 833+ for a nice move in excess of 10 points.

[steve46 12]

Here is the follow up on that premarket trade....

 

As you may remember we suggested in our previous post, that price was likely to head north to test the Previous Day's Value Area Low at 837.50.

 

Check the attached chart and you can see that price did indeed move north to test that area. We annotate the first move to 836.75. Price retraced back down to test the weekly S1 at 820.

 

Price moved back up to test the 80 period EMA at 842 (which also happens to be the previous day's POC), then retraces back down to re-test the weekly S1. In both cases the intraday lows were hit at 817.75

 

As you may know from previous posts, my preferred entry is on a retest of a price point where confluence exists (two or more important data points in close proximity). The retest of 817.75 (close proximity to Weekly S1) would have been a high percentage long entry.

 

Study the chart. The lessons to be learned are as follows

 

1.) In order to have a chance of success, a trader has to start with a strong concept (an accurate concept that allows one to anticipate where price is likely to go on a specific time frame).

2.) Then you have to have a high percentage entry (high percentage initial success with reasonable stoploss).

3.) Finally you need to have a position management protocol that allows you to get paid quickly, and to hold long enough to catch trades that run.

 

If you understand what we have been talking about here you should be able to identify the two other high percentage long entries. Today was quite an easy day if you approached it in a thoughtful, patient way.

 

Bump: To preserve some continuity, here is my take on what will happen tomorrow

 

Look at the attached chart. Notice that right after the close of RTH, price tested the 200 period ema (several times), hitting a high (so far) of 852.

 

The framework I use is Market Profile. From that framework I can see that price closed ABOVE the previous day's Value Area High. The first priority is to watch for a retest of that price point (844.25). We have several possible scenarios from there.

 

1.) Price can test the Previous Day's VAH and then continue north (continuation trade) or

 

2.) Price can retest the Previous Day's VAH and then retrace inside the value area, chopping around (open auction inside the value area).

 

3.) Price can retest the VAH, fail, and retrace back down to a previous multi-day low.

 

At this point (9:38pm PST) price has retraced back below the Previous Day's Value Area High, to a low of 841.50....just below the VAH...It seems to be consolidating (chopping around) here, unable to go further south.

 

So far, no trade...just testing and waiting to see what happens. Remembering that we are still in a bear market, and so we give higher priority to short setups. On the longer term charts we have price making a higher high.

[steve46 12]

We will continue on a bit further to show how the simple principles of Support and Resistance work on the big scale. The attached chart uses constant volume candles (16807) so it takes time out of the equation and allows the trader to display a lot of data on a relatively small screen area. I have marked yesterdays open, and the horizontal lines show Support at 817.75 and Resistance at about 848.

 

What I want to emphasize here is on the right side of the chart. You can see that at the end of the day, price closed on the high, attempting to take out resistance, but ultimately it failed. At this point I like to use Market Profile concepts to put a context to the data. I notice that price closed above the Value Area High. In the overnight market, first Asia, then Europe tested back down to that area (844.25)...This in my experience is very common (a trader familiar with Market Profile might have anticipated it). As can be seen price traded through that area and then came back up to test it again, and failed.

 

Ultimately price traded down to the Value Area Low (825.25 was the actual VAL) and the overnight low was 826.

 

In the next chart we see the market open, move up and then come back to "retest" that VAL....We see a little spike down that I have mentioned many times before called a "peekaboo". This is what the locals do to try to find sellers, or stops above or in this case below the market. They don't find any so up we go....

 

In another thread, Blowfish was kind enough to point out (and other good traders have also suggested) that one has to find basic principles that work, that have proven themselves over and over.....In these charts I think we can see some of those including

 

1.) Support and Resistance at work

2.) The concept of test and retest (The S&P market likes to test and retest price points)

3.) Market Profile Concepts of "Value"

4.) The concept that before a market trends in one direction, it will often probe in the opposite direction.

 

These are concepts that I have seen many times, and that can be the basis for a traders systematic approach.

 

Good luck

 

Steve

Edited December 4, 2008 by steve46

[steve46 12]

Characterizing Markets

 

Characterizing a market is simply "profiling"....It is identifying the characteristic patterns of a market and by extension, its participants.

 

For example, in the past, Currency markets (exchange traded currency markets) have been characterized by their tendency to trend, while indexes like the S&P for instance have been characterized by the tendency to alternate between trend and oscillation about a mean

 

To characterize markets, you start by choosing a time frame. I like to work with 5 minute charts. You begin with basic observation of the movement of price, working one day at a time, until you can develop a characteristic profile of how your market moves

 

Example #1

 

Currently the S&P Market exhibits the tendency to open and oscillate up and down in a range of 3 points until 10:00am EST. At that time, due to reports, events, speakers, or news, the market will often exhibit significant trend (significant meaning at least 7 points). This trend often takes 1-2 hours to complete. Local volatility then contracts and the market consolidates during the lunch hour. At the end of lunch hour (NY time), The market often resumes the original trend.

 

Technical Issues

 

Because a group of financial institutions are working with federal money, periodically we observe distortions of the characteristic profile. Specifically the effect of federal (loan) money being put to work is seen on Tuesdays, and Fridays. Currently (in our opinion) the urban myth of PPT (plunge protection) is supported by the activity of institutions acting to mark markets up at intervals.

 

Example #2

 

Another equally valid way to characterize markets is to export data to a spreadsheet, normalize (detrend) and break it into "jumps" (1 point, 2 points, 1.5 points, 3 points etc). As you work with the data in this manner (see the text of "Mathematics of Technical Analysis" by Clifford Sherry) you start to see patterns of movement. Specifically you will note that price tends to move in non random ways at specific times during the day. If you apply basic descriptive statistics to the data, you also see that sometimes the distribution of jumps is random, and sometimes non-random...If you continue on that path a while you start to see windows in time (what Clifford Sherry calls "temporal windows") where certain patterns (series of jumps) repeat. As you can imagine these are places where a trader could find an edge (a setup that you would be willing to bet on)....

 

I hope this helps

 

Steve

Edited December 4, 2008 by steve46

[steve46 12]

Here we are in the premarket early Monday Dec 8, 2008

 

on Sunday, price resumed its move upward. Orienting to the market is the trader's first job. To do that we look first at the long term chart. For our long term view, we use a chart showing 570 minute candles. On that chart (attached below) you can see that we have been in a consolidating or ranging market. Suppport is found at or around 820, and scanning left, we see a previous high of 897.50.

 

We know from experience that price will test a previous high, and we see that it has done just that. Will it take that previous high out? We note that price was marked up at the close Friday...Was that move motivated by outside influence buying value, or by institutions bidding on behalf of the Treasury? Finally we know that price is above the previous VAH (852.25) and that the monthly pivot offers support at 880.91. Seasonal influence is traditionally up at this time of year. So far everything points to an up market.

 

The next chart shows the overnight market as it tests and failed (retraced) at 897. We will wait and watch to see how the market proceeds from here.

 

The last chart uses 2401v candles and the influence of Resistance at 895.66

 

So far no trade is indicated, although we fully expect the DAX market to mark it up from here taking out 900

Edited December 8, 2008 by steve46

[DbPhoenix 42]

From the Wyckoff Forum:

 

I prefer to look past the issue of "jargon". What matters to me is whether the "jargon" communicates principles that work accurately and consistently.

 

As to whether professional money dominates the markets, clearly it does. With the economy in recession, unemployment high and people seeing their portfolios cut in half, I can guarantee that daytraders, "Mom & Pop", and retirement account money are not the reason that the S&P moved as it did last Friday....please lets preserve some reality here.

 

Finally, while I appreciate pioneers like Wyckoff, what works for me is to watch human behavior plain & simple. The folks who taught me to characterize markets started with the following principles; "Humans need to sleep, to eat...etc and they do so at specific times of the day and night...Humans are motivated by survival, by basic emotions including fear & greed, and for those reasons an astute observer can often predict what is going to happen (and when)." For those interested, more information can be found under the heading "behavioral finance".

 

Now if the point of this thread is to pay homage to Wyckoff, then I suggest you delete my comments. The gentleman certaily deserves respect for his accomplishments. If however, one wants to develop a balanced view of the markets, Wyckoff is simply a point of departure on a longer trip.

 

Hello Db

 

I don't see contradiction per se. As mentioned in my comment the observations that Wyckoff made are an important starting point for understanding markets. What I suggest is that once one has "internalized" those basic principles, they would do well to continue their education and the the framework most compatible with Wyckoff seems to me to be "behavioral finance".

 

As to your comment about professional money, you state that following Wyckoff's approach "it doesn't matter"....My response is simple. If one doesn't understand the motivation of professional money, one operates at a disadvantage. For one thing, not all professionals are motivated by profit (we can talk more about that if you or anyone is interested). Coincidentally, current market conditions present some of the best examples of this. Absent the artificial stimulus of federal money and the intervention of brokers operating in the government's interest, events like Friday's run-up would (in my opinion) not happen. Knowing how these elements "work" is but one of the reasons why professionals (and adherents of behavioral finance) have an edge.

 

Another simple example; when the oil markets took off a while back, the action and promise of easy money attracted retail traders in droves. As with all things, eventually the party ended and retail traders were caught in margin calls. Professionals saw this and waited, knowing that compliance offices had to act at specific times (specific times during the month and intraday). Those of us who understood the basics of compliance regulation simply waited for our oppportunities to short. Those opportunities happened "like clockwork" every day until conditions corrected. I assure you that no understanding of Wyckoff's principles would have permitted you to anticipate the move.

 

In these and other examples, supply & demand is not the primary motivator of change. Instead it is simple human behavior at work. Similar examples happen all the time, from earnings reports, to bond auctions, to FOMC reports, to news events of all kinds. Changes in the way that media report these events, and in the way that they are assimilated into the public domain were never a part of Wyckoff's observations. I would suggest further that the opportunities they present require one to act in a timely basis. I am not suggesting that one could not wait and analyze using Wyckoff's principles. I do suggest however that a person looking at through the lens of behavioral finance will "get there" earlier in the process thus finding it easier to establish a favorable trade position.

 

Au contraire, I must respectfully disagree. The oil peak was a parabolic move, which was a Buying Climax. Commodity buying climaxes are usually met with sharp corrections (oil has never done this so significantly, but many others have). Regardless, Wyckoff didn't teach to actively ignore professional money, but to not worry oneself with who is doing what. Their net actions, with others, are reflected accurately and completely in price. However, to me, this seems like squabbling needlessly; your methods and market understanding most certainly can be quite profitable as well. There's many roads to success in trading.

 

From this, as to your disagreement about s&d driving markets, how about you detail your views in your thread (or create another?). I'm sure many would find them interesting and insightful. Those who wish to follow Wyckoff's ideas come here, so it's probably best to keep conversation centered around his arguments and perspectives.

 

Actually if one were to respectfully disagree, they would (generally speaking) want to show that they understood the previous comment.

 

The idea that Wyckoff offered a way to frame the move you call "parabolic" is well known. In the example I offered you would then be waiting for an opportunity to act based on those principles. In contrast, a professional who understood how compliance regulations affect human behavior would simply wait until just after the lunch hour and put on a low risk trade. In contrast, YOUR trade would have significantly higher risk. As I pointed out, this is the difference between a person acting solely on Wyckoff's principles and those acting with benefit of a more contemporary context.

 

Now it may be that you aren't able to tolerate any real debate on this subject. If that is the case, and what you really want is to talk about what a perceptive guy Wyckoff was, then by all means delete my comments.

 

Thank you

Steve

 

I did indeed misread the point you were getting at (I was thinking the more macro movement). You are correct: an understanding of the context concerning margin calls would have most certainly helped you. In fact, I know very little about W's thoughts concerning trading fundamentally (which I'd argue the oil example is a part of). If one is looking for a methodology that would help capture every move (or in the least, explain every move), I don't think this is the place to look.

 

Concerning your other points, and even this one, I do not mind a friendly debate at all, but don't feel this is the place to do it. If you'd like, I can start a thread in the Technical Analysis forum to discuss and debate this topic. I also wouldn't consider myself an expert on Wyckoff either (merely a student of him and the markets), so will bow to someone more knowledgeable than I if I've misrepresented his ideas in the least.

 

Thank you Atto for your thoughtful comment.

 

What I wanted to point out is that a formalized body of knowledge exists that (in my opinion) fits nicely and in fact offers traders a way to "extend" Wyckoff's principles. If our comments motivate traders to think about and consider additional resources (like "Behavioral Finance") then I think we have done them a service.

 

Bearbull, I trade off of the additional information (outside of the charts) I obtain on a daily basis. I base my decisions in great part on the well proven concept that at specific points, professionals (meaning institutions) are likely to enter and move markets. In addition, those of us with professional standing see it, in the premarket "indications of interest" (that retail traders never see), in the imbalance stats that are shown on the display boards around the pits near the close (that you can't see), in the pits where everyday locals mark it up & down, and two dollar brokers (representing institutions) walk into the ring with one hand in their pockets (holding the additional orders)....I understand that you have an investment in the belief that its "already in the market"...I simply suggest that your orientation may be incomplete. If it works well for you, by all means, let us both continue as we were.

 

Thanks to everyone for entertaining a divergent opinion as regards this subject.

 

Best of luck to all

 

Steve

 

Appreciate that, contarary to common belief, I have no axe to grind against VSA or any other methodology, am merely making an attempt to point out the Truth and hope that any newcomers would benefit. Many of the VSA concepts , if one ignores the jargon are derived from Wyckoff and Tom Williams has done a great job in bringing this to the attention of many traders who might have considered Wyckoff'w work obsolete, however with the example on this post, I have revealed that it is not.

 

Think Dbphoenix comments from his post on a another thread is absolutely relevant here, urge you to read it:

 

"Trading by price -- and "volume" -- requires a perceptual and conceptual readjustment that many people just can't make, and many of those who can make it don't want to. But making that adjustment is somewhat like parting a veil in that doing so enables one to look at the market in a very different way, one might say on a different level.

 

One must first accept the continuous nature of the market, the continuity of price, of transactions, of the trading activity that results in those transactions. The market exists independently of you and of whatever you're using to impose a conceptual structure. It exists independently of your charts and your indicators and your bars. It couldn't care less if you use candles or bars or plot this or that line or select a 5m bar interval or 8 or 23 or weekly or monthly or even use charts at all.

 

Therefore, trading by price and volume, or at least doing it well, requires getting past all that and perceiving price movement and the balance between buying pressure and selling pressure independently of the medium used to manifest or illlustrate or reveal the activity.

 

For example, the volume bar is a record of transactions, nothing more. The volume bar does not "mean" anything. It does not predict. It is not an indicator. Arriving at this particular destination seems to require travelling a tortuous route since so few are able to do it. But it's a large part of the perceptual and conceptual readjustment that I referred to earlier, i.e., one must see differently and one must create a different sense of what he sees, he must perceive differently and create a different structure based on those perceptions. As long as one believes, for example, that "big" volume must or at least should accompany "breakouts" and clings to this belief as ardently as he clings to his rosary beads or rabbit's foot or whatever, he will be unable to make this perceptual and conceptual shift.

 

If you can work your imagination and use it to travel in time, you will have a far easier time of this than most. Imagine, for example, a brokerage office at the turn of the 20th century. All you have to go by is transaction results -- prices paid -- on a tape. No charts. No price bars. No volume bars. You are then in a position wherein you must decide whether to buy or sell based on price action and your judgment of whether buying or selling pressures are dominant. You have to judge this balance by what's happening with price, e.g., how long it stays at a particular level, how often price pokes higher, how long it stays there, the frequency of these pokes, at what point they take hold and signal a climb, the extent of the pokes, whether or not they fail and when and where, etc., all of which is the result of the balance between buying and selling pressures and the continuous changes in dominance and degree of dominance.

 

One way of doing this using modern toys and tricks is to watch a Time and Sales window and nothing else after having turned off the bid and ask and volume. But this wouldn't do you any good unless you spent several hours at it and no one is going to do that. Another would be to plot a single bar for the day and watch it go up and down, but nobody's going to do that, either. Perhaps the least onerous exercise would be to follow a tick chart, set at one tick. Then follow it in real time. Not later, but real time. Granted this means a lot of screen time and only a handful of people are going to do it. But those few people are going to part that veil and understand the machinery at a very different level than most traders.

 

Once this is understood, the idea of wondering -- much less worrying -- about what a particular volume bar "means" is clearly ludicrous, as is the "meaning" of a particular price bar or "candle". If it is not understood, then the trader spends and wastes a great deal of time over "okay so this volume bar is higher than that volume bar but lower than this other volume bar, and price is going up (or down or nowhere), so...".

 

__________________

 

I am a beginner in trading so I don't want to argue with you experienced guys... but

 

IMHO what BB says in the last post is largely valid for most retail traders. Trying to figure who and why mostly adds confusion more than clears it, as one can see in VSA threads.

But what Steve says is several levels beyond that. Steve, as a former professional pit trader (if I remember correctly) has a real understanding of proffessional money and their motivation. I am not surprised he uses it in his advantage. But he is on a level where only a very few retail traders get, or even have a chance to get (in terms of experience of certain sort).

 

As one can see on TL, many people have problems understanding Wyckoff's concepts. It might be quite surprising, because these concepts are actually very simple. The main reason this problems with understanding occur is IMO exactly the fact that people are unable to get rid of thoughts such as "who and why" (together with trying to interpret Wyckoff mechanically).

 

I think that a learning process should progress from simplicity to complexity. The problem is that many people fail to understand the simple principles and want to study complex behavior. Therefore I think for almost all new traders it is completely valid what BB said. Once one has a complete understanding of these basic principles (which is obviously everything one needs, as Db, BB or atto demonstrate), he can implement professional money stuff to further increase his edge, if he feels like it and has professional experience to do it.

 

EDIT: Others are faster than me. With "last BB's post" I meant #11.

 

Head2k

 

I hope I that traders will make the effort to learn a solid approach like Wyckoff's before doing anything else. If one wants to obtain professional status in this business, I think it is wise to assume that "education never ends".

 

Also Head2k, I agree with your comment about people wanting to study the complex concepts before the simple. In my experience, new traders like to move from one thing to another looking for a magic idea or method that will give them a shortcut to success. I have never found success that way. Clearly if one wants to learn Wyckoff's approach, they should go from beginning to end until they have covered as much of the topic as possible before moving on.

 

Also it seems to me that TradersLaboratory is one of the few public forums offering comments from experienced members like DB (and others). In my opinion, this is a great way to begin (and to continue) that education. I have taken enough of your time. I will step aside now and hope you will all continue on your own.

 

Good luck to you

 

Steve

 

Steve, I think people would be interested in hearing/seeing what type of "outside information" you employ to enhance your trading strategy. I believe that most of the traders in the Wyckoff Forum study price without much "external" influences (news, opinions, etc, etc) and just analyse what they see on a chart (whatever the type of visual representation)...

 

So why not start a separate thread and show some concrete examples where your extra "layer" improves trading by the Wyckoff method (because if I understand correctly, that's what you're saying...).

 

Gl, fw

 

Sound like a great idea

 

Well folks in my previous posts I presented a specific example of the additional information I used (from the oil trade). I suggested that there are other sources and I offered quick reference to several items of interest for professionals. If you missed them, I encourage you to re-read and send me a PM if you are still confused. As you pointed out that would be off topic for this thread.

 

Steve46,

Would you say that most of us do not have access to the kind of info you are talking about or had in the pits, so the next best has to be the action on the charts.

 

Also find in difficult to understand, if any syndicate, market manipulator, professionals , when they take action and participate in the market, surely this has to show up in the volume activity and there would be some effect on the price. yes, when there were no electronic exchange, the info. in the pit would give an edge, but now it has to be to feed into the charts.

 

I use VSA to some extent and concede there are shortcomings in there and have also read lots of wyckoff material now and have to admit, makes a lot of sense, have not found any fundamental flaws.

 

As suggested it would be really helpful to everybody if yu could take the trouble and t illustrate with a couple of charts, and highlight any price moves which could not have been recognized in realtime without understanding fundamentals or due reports or intention of professionals.

Edited December 10, 2008 by DbPhoenix

[brownsfan019 17]

^^^ WTF is all that DB? Any reason why shown twice?

[DbPhoenix 42]

^^^ WTF is all that DB? Any reason why shown twice?

 

No idea. The bumping thing has been a problem throughout the forums and it has not yet been fixed. Perhaps a moderator with forum-wide tools can move it someplace else.

[Soultrader 12]

Fixed it. The bump and merging of posts should no longer happen. Thanks

[firewalker 10]

Fixed it. The bump and merging of posts should no longer happen. Thanks

 

Sorry to bother but except for the first post, I still see everything twice Soultrader...

[firewalker 10]

Steve, couple of questions if you don't mind. You seem pretty convinced that 'outside information' (not in the chart) can help a trader improve his performance and although I'm not saying that combining FA+TA isn't useful, I am still not clear on what kind of 'information' it is you are referring to. I've gone over several of your latest posts (not the whole thread sorry...), and I could not come up with anything other than:

 

I am suggesting that by watching, reading and thinking about what these people [president & administration] say in interviews past, present and future you could obtain an edge over folks who simply look at technical indicators.

 

I respectfully disagree, and I think that anyone who tries to link economic news & business results with the reactions of the market is going to have a hard time putting a & b together. Especially since he (the trader) will automatically try to interpret whatever he hears/reads in a certain way that it confirms his bias.

 

Those of us who understood the basics of compliance regulation simply waited for our oppportunities to short. Those opportunities happened "like clockwork" every day until conditions corrected. I assure you that no understanding of Wyckoff's principles would have permitted you to anticipate the move.

 

This is an interesting point, and if there were elements that could help pinpoint 'when' something is going to happen, I'm sure a lot of traders would benefit. If I knew in advance when price was going to approach my levels (where I trade from) then I would not have to sit around and wait for trades each day but just go to my screen at the time the trade will be there. So please, enlighten me

 

Well folks in my previous posts I presented a specific example of the additional information I used (from the oil trade). I suggested that there are other sources and I offered quick reference to several items of interest for professionals. If you missed them, I encourage you to re-read and send me a PM if you are still confused. As you pointed out that would be off topic for this thread.

As we are now in your thread, it's no longer off-topic and I'm sure it would benefit everybody if you answered that question publicly, rather than in a dozen PMs...

 

In contrast, a professional who understood how compliance regulations affect human behavior would simply wait until just after the lunch hour and put on a low risk trade.

 

If you only act when you see a sign of professional money, does it matter when it's after lunch hour or not? It might be me, but I'm not sure how compliance regulations help me to determine when exactly to put on a trade. Yesterday we opened strongly and then retraced the move. I waited about two hours to enter a new long trade (from the same level) around 895 on the ES. But I didn't know when exactly I would get the signal. I acted when I saw volume coming in. Are you saying professionals around the globe all act at predetermined times in a predetermined fashion?

[HAKUNA 10]

Steve,

Having gone through many of the posts here it seems you are combining a lot of indicators/methods:

Market Profile

Moving Averages

Pivots

News on activity of Professional money.

 

What would be interesting to see is an example where the Price action would have been difficult to read from the chart without the prior knowledge of this professional intent.

 

I thought in this day and age of electronic trading, that any action taken by anybody would have to go through the exchange and hence onto the tape and hence it should appear on the chart.

 

Would appreciate if you would take the trouble to clarify this.

Thanks in advance

[steve46 12]

Steve,

Having gone through many of the posts here it seems you are combining a lot of indicators/methods:

Market Profile

Moving Averages

Pivots

News on activity of Professional money.

 

What would be interesting to see is an example where the Price action would have been difficult to read from the chart without the prior knowledge of this professional intent.

 

I thought in this day and age of electronic trading, that any action taken by anybody would have to go through the exchange and hence onto the tape and hence it should appear on the chart.

 

Would appreciate if you would take the trouble to clarify this.

Thanks in advance

 

Hello Hakuna

 

With regard to the various approaches I outlined, the geneeral principle is that a trader who takes trades based on the confluence of two or more different signals (say for example, price tests a pivot and a moving average and they happen to "line up" together or are in close proximity) has a statistically better chance of winning, because in theory there are more individual traders looking at that setup and (perhaps) taking it themselves.

 

For this "theory" to be proved true, one has to (in my experience) choose carefully which signals to use. From my experience, the signals that offer the most value are 1.) Moving averages, 2.)Market Profile, 3.) Pivots, 3.) Human behavior (news, events, and other examples that are not IMMEDIATELY reflected in the charts. When I say these signals offer the most value what I am suggesting is the more participants monitor these signals than any other and I am stating that institutional traders monitor these signals more than any others.

 

Finally the issue of behavioral elements (under the heading "Behavioral Finance"). I suggest that all information is not in the charts. If you think about it, it becomes obvious. Information that might impact markets has to "originate" somewhere and it takes some (unknown) amount of time for it to enter the public domain where it affects price. Now chances are good that YOU are not the first person to know what that information is, this is true, but you can develop an edge by being able to process that information and to decide accurately what its IMPACT will be on the markets (on price). That ability (in my opinion) is the edge that a retail trader (or any trader for that matter) can obtain. So for example, when I was doing this professionally in my office, I knew which analysts followed my stock and had the best feel for that company. I would follow their (publicly made) comments and look to position myself ahead of the crowd. Alternatively if I didn't have confidence in my ability to get an edge, I might take either an options position or an outright position (long or short stock) based on the idea that volatility would drive prices up or down prior to the announcement. That position would depend on my knowledge of the history of how that stock acted prior to an earnings announcement.

 

As another example, I would follow announcements that a stock was going to be put into the S&P500 (as AOL was long ago). knowing that money managers would have to buy it to balance portfolios, I would take a position prior to the move. Now the question becomes "are others learning about this and acting on it as well?" and my answer is "yes, I certainly hope so"...

 

There are many other examples that fall under the heading of behavioral finance. As you might guess, these opportunities have a limited lifetime and so as a professional you are always looking for them, and evaluating the risk reward. In my office, we did this as a team, each person having an areas of expertise (earnings, events, bonds, futures, etc). This is one way that you might network with others to develop both your professional relationships and your skills.

 

I hope I have answered your primary question and offered you something to think about.

 

Steve

[steve46 12]

Hi Folks

 

I see that there are comments and questions that are backed up behind me...Please be aware that the process I use is time consuming and I have to complete my analysis before each trading day...I will try to answer each question as soon as possible.

 

I appreciate your patience.

 

Best of luck to all

 

Steve

[HAKUNA 10]

Steve, thanks for response

I can understand this inside info. on stocks providing an edge but for index futures traders, can it considered as an edge. If any in your company have seen this perhaps you could paste it here, I mean a chart indicating a price move which would not have been recognised without that knowledge.

[steve46 12]

Perhaps I am not making myself understood. Human behavior is happening all the time. The charts reflect that behavior and the refractory time (the time between when the behavior happens and when it is seen on the charts) is different for each "event". So it doesn't matter whether you are trading equities or futures.

 

Go to http://www.briefing.com and look at the economic calender. Those events are the human behaviors that get reflected in futures charts every week. Whether it is unemployment reports, housing, FOMC, beige book or any public figure (Bernanke, President Bush, every Fed Governor....)

 

Some professionals call this "event trading"....In fact there is a book by the same name "Event Trading" by Ben Warwick, that outlines how it is done.

 

Here is a chart of today's S&P market. At 10am EST, pending home sales were released and coincidentally (not) the market reacted favorably moving up from a consolidation low of 895 to a high of 916.25. Looking at the chart you can see that consolidation as traders waited for the report, then reacted to the report....

 

I think this is about as clear as I am make it.

 

Now as to how to trade it, there are several approaches.

 

1. You try to guess and position yourself prior to the report

2. You research the report looking at previous charts and develop a strategy based on how it traded previously in good and bad times.

3. You develop connections in the business who will advise you as to what to expect

4. You find a way to get the data before others

5. You wait, since the market generally over reacts, and trade the reversal.

 

Depending on your skill set, you might find one or more of these approaches viable. I made a living trading events for years, using a variety of strategies including outright positions prior to the event, taking positions in the overnight market in anticipation of the event (professionals call this "stealing the trade"), options positions looking to profit from the volatility crush after an event, and some few others that may or may not be workable for you.

 

I hope this answers your question.

[steve46 12]

A comment from Firewalker

 

"Steve, couple of questions if you don't mind. You seem pretty convinced that 'outside information' (not in the chart) can help a trader improve his performance and although I'm not saying that combining FA+TA isn't useful, I am still not clear on what kind of 'information' it is you are referring to. I've gone over several of your latest posts (not the whole thread sorry...), and I could not come up with anything other than:"

 

Yes, thanks for your comment. I refer you to my previous post to Hakuna. As mentioned, markets "react" to outside information every day. The behavior of traders is also a part of the system. Those of us who do this for a living know how other traders are likely to respond to economic events like today's housing report. As mentioned in my reply to Hakuna, there are several ways to approach event trading. I am not saying it is easy...sometimes you win (for example, every time president Bush appeared on TV over the last several months, he became my personal ATM machine as I shorted the market during his comments) and sometimes you lose (over the years, I have taken a beating every so often trading the FOMC announcements).

 

The operative idea is that human behavior is in often predictable. An astute observer of this behavior can learn to see what poker players call "tells"...(small things that tip you off to what is going to happen). Now this may or may not appeal to everyone, but it is a valid form of trading that has been practiced by skilled folks for years.

 

Another comment from Firewalker

 

"This is an interesting point, and if there were elements that could help pinpoint 'when' something is going to happen, I'm sure a lot of traders would benefit. If I knew in advance when price was going to approach my levels (where I trade from) then I would not have to sit around and wait for trades each day but just go to my screen at the time the trade will be there. So please, enlighten me "

 

Well, I don't know if it is possible to "enlighten you" other than to suggest that another world exists to traders who have these skills. What I can say is that it requires thoughtful analysis of current conditions and the ability to synthesize a plan based on what you see. As I mentioned in a previous comment, it may help to network with other like minded traders (who want to develop this kind of approach). In my own office, I worked with 5 other traders each of whom had responsibility for market sector. Each of us would be required to develop one or more strategies a week that could be traded. I hope this helps.

 

and one more comment

 

"As we are now in your thread, it's no longer off-topic and I'm sure it would benefit everybody if you answered that question publicly, rather than in a dozen PMs..."

 

This relates to the comment that there are additional strategies (other than the example of the oil industry) that could serve as basis for event trading. Again I refer you to the many specific examples detailed above from reports to economic events....I also made reference to a book on the subject of Event Trading by Ben Warwick....I wish you the best of luck in your pursuit of more knowledge on this subject.

 

Firewalker as to your last comment, I don't worry about who is on the other side of my trade. I simply evaluate the signal. If it fits my risk reward protocol I take it. As to your comment about compliance, I don't expect YOU to be knowledgable about that. I took the time to learn it so I was prepared when the opportunity came along. For me it was just a part of my professional training.

 

Thanks for your questions.

Steve

Edited December 9, 2008 by steve46

[steve46 12]

Okay then folks, I think what we will do now is take a look at the work of Richard Wyckoff.

 

So lets begin with a bit of autobiography.

 

http://en.wikipedia.org/wiki/Richard_Wyckoff

 

I have to admit that I learned quite a bit from the Wiki article on Wyckoff. In some respects the guy was quite a player, for example he was married several (three) times and published a series of expose's including "Bucket Shops & How To Avoid Them".....

 

What particularly interested me was this snip from the Wiki article

 

"The Wyckoff technique may provide some insight as to how and why professional interests buy and sell securities, while evolving and scaling their market campaigns with concepts such as the "Composite Operator"."

 

Clearly Wyckoff had an interest in and studied the way that professionals operated in markets.

 

and for those who find this interesting, here is a link to the Wyckoff Stock Market Institute. What I have learned is that the gentleman who runs this institute is named Craig Schroeder. According to the Institute website, Mr. Schroeder is a "40 year student of Richard Wyckoff technical trading method and a veteran stock trader".

 

http://www.wyckoffstockmarketinstitute.com/

 

I learned quite a bit scanning the site, and there are multiple free resources available to those who want to know more about the way Wyckoff traded.

 

Finally here is a link to an article by Craig Schroeder

 

http://www.articlealley.com/article_612354_19.html

 

One thing I have noticed is that there are a lot of rigid personalities involved with Wyckoff and his methods. Clearly these folks have an interest in perpetuating their own version of Wyckoff's methods. I think Mr. Schroeder qualifies as an authority on Wyckoff and perhaps we can all learn something from his writings and the historic resources he has preserved at the institute.

 

Good luck to all in tomorrow's markets

 

Steve

Edited December 10, 2008 by steve46