Trading The Wyckoff Way

[PQL111 12]

I am a swing trader and its good technical, but loose on support or resistance factors.

It is a lagging indicator to A DEGREE, BRCAUSE THE MOVE HAS BEEN MADE WHILE THE BIG TREND MOVE PAST TO MARK THE O AND X.

[motorway 10]

Wykoff used both 1 box and three Box ( and 5 even 10 ) Box reversal

he used a point when the minimum bid increment was an 1/8

 

Today prices are decimal so we need ( and can easy with software ) go down to smaller Boxes sizes

 

A point was only 8 times the minimum bid ( this is what he used for swing/position trading )

( he used 1/8 pt chart for day trading )

 

So if your instrument is in .01 increments you need to adjust your box size to catch the swings of the CM... Accumulation / Distribution... across certain price levels

 

You also need to reference different Box size at the same time

Wyckoff did this where in the course he changes from 1 box reversal to 3 box reversal

 

consider this carefully

 

the figure chart may show many fluctuations on the

full figures, while the verticals are unchanged. For example, if the high full

figure of a stock on a certain day were 45 and the low 40, there might be sever

al fluctuations back and forth between 42 and 43 on the figure chart, but no indication

of this would appear on the vertical chart.

For these reasons it is vital to keep both forms of charts

 

what must change in the decimal age, what if your instrument is bid in .0025 pts ?

We can/must alter the box size * something Wyckoff later commented on )

 

We can also change this quote to

 

A smaller figure chart may show many fluctuations on the

figures, while a larger one ( box size ) is unchanged. For example,..

 

......For these reasons it is vital to keep Various resolutions of charts

 

When a larger Box sizes stops

the activity is unfolding on the smaller scale

But also the smaller scale is contained in the larger..

 

The figure chart does not lag

At the resolution that you are looking from

A Box always posts in real time

Not artificial Clock time

which distorts volatility

and curvature of the price series

 

A figure chart is a digital chart

It does not lag it just has a certain resolution

 

The same as your computer monitor or television

or anything else that is in the digital age ...like the Figure Chart.

 

Motorway

[strohem 10]

I am a swing trader and its good technical, but loose on support or resistance factors.

It is a lagging indicator to A DEGREE, BRCAUSE THE MOVE HAS BEEN MADE WHILE THE BIG TREND MOVE PAST TO MARK THE O AND X.

 

 

PQL111, This really doesn't fit in this thread (Wyckoff), but if you are swing trading, your task is much easier.

 

Consider FITB (mkt close $14.16, only because it’s a chart I had open at the time; it’s one I don’t own, but it’s been on my list since summer and I may get into a position-trade on it):

 

 

Follow Motorway’s cue - view it with default scales (currently ½ point boxes/3 box reversal method), then define them with smaller box values of .25, .125 and .0625.

 

Next, change the reversal to 1 box, using the same box values of ½, .25, .125 and .0625.

 

(These 8 views took me all of two minutes to accomplish.)

 

A very different picture emerges which does NOT lag. You’ll find that the smaller two box values display similar information with either 1 or 3 box reversals (useful), while the larger two box values begin to differ more obviously (also useful, in a different way). The .0625 box even illustrates similar information with a 5 box reversal. You can include or exclude as much noise/volatility as you wish.

 

Choose the scales and reversals that are best suited to the price of the name you are charting and the type of trading you are doing. (“Best suited” is subjective – it is something only you can determine.)

 

Use a strategy like this alongside whatever screens you use to filter potential candidates, and whatever other log chart tools you employ for trade entry and management. Also, remember that none of this takes into account your assessment of market risk, for which I’m sure you have tools you use to evaluate. (Why trade long or short when the market doesn't support it?)

 

With this simple methodology for swing trading, 2-3% monthly yields were normal for me with 5% being common. (Plenty have claimed/achieved monthly yields of 10% or more, but I have yet to see results like that maintained on a consistent basis except by a very, very few.)

[motorway 10]

Choose the scales and reversals that are best suited to the price of the name you are charting and the type of trading you are doing. (“Best suited” is subjective – it is something only you can determine.)

 

If you for example halve a box size.. Do you see at least twice as many reversals ?

In a given phase or period ?

 

Do you see more ? If so you have a higher information density..

IF not you just have increased Noise ( length ) of columns in relation to information

( the reversals )

 

Consider the historic chart like a river way below you ( you are in a helicopter )

 

you take pictures as you draw closer and closer

The picture frame is always the same size

But the amount of information is not

It scales in some way with the change in distance from the river

With a figure chart if you halve the distance ( BOX size )

you always will get columns twice as long

With a chart drawn from the flips of a coin ( random )

You will also get twice the reversals..

 

But in a non random chart

where there are trading ranges

leading and lagging

Trends etc ( a composite man )

 

The chart will be patterned with information

at different resolutions ..

 

In such a way the right BOX size can be quantified

at a particular time and over a particular time horizon

as being the most optimally information dense view of the primary trend

 

FITB

 

We can also use log boxes... Very useful for the swing trader wanting to hold for long periods

 

FITB - Graphical P&F - Charting Tools - StockCharts.com[PA][D20101215][F1!1!9.05!!2!20]&pref=G

 

The formation starting in Feb 2010

Is 9 columns wide 5 Boxes High

 

OK halve the BOX size ( these are log boxes )

( you have to think in terms of compound interest that is why it is 9.05 (hint it was half of 18.92 )

what happens ?

 

width & height ?

and the empty spaces ( this is an important aspect of figure charts ) !

 

With pts you could start at $2 and work down 1 to .5 to .25 to .125 etc

 

FITB - Graphical P&F - Charting Tools - StockCharts.com[PA][D20101217][F1!1!2!!2!20]&pref=G

 

and then there is the changing the reversal to 3 and 5

in order to remove the empty spaces

 

 

 

 

 

motorway

[novicetrader 10]

Well at the first place should I ask or shouldn't I?

anyway its a very trivial question....

Dbphoenix and other market wizards, how much have you gained from the markets(consistently trading for a living ) by trading the method by Wyckoff?

just curious, no debates from my side, just plain curious.

[nttrading 10]

looking to get a copy of dbphoenix ebook. Can anybody help?

[Head2k 10]

looking to get a copy of dbphoenix ebook. Can anybody help?

I own the book and I know of several other forum members who have it, too. However, I do not feel free to spread it without Db's permission and, unfortunatelly, I do not know how to reach Db either.

 

Db's blog here at TL contains a great part of the book, some chapters are exactly the same. I suggest you to study the Db's blog and the Wyckoff's Course and you should be fine.

[nttrading 10]

I am willing to pay for it if that is what it takes. My email is Tmniem@aol.com

[R/R 10]

looking to get a copy of dbphoenix ebook. Can anybody help?

this is where I got it some time ago:

 

My eBook: Trading By Price - Traders Laboratory - Professional Traders Community

[strohem 10]

If you for example halve a box size.. Do you see at least twice as many reversals ?

In a given phase or period ?

 

Do you see more ? If so you have a higher information density..

IF not you just have increased Noise ( length ) of columns in relation to information

( the reversals )...

 

motorway

 

 

Motorway (and others) - Happy New Year.

 

I wonder if we are in agreement or disagreement and that I'm simply misunderstanding. I believe we are, but correct me if I'm wrong.

 

Sometimes, there are more than twice as many reversals - sometimes not. It depends.

 

Halving a chart of FITB from the April 2010 peak to present (from the "default" 1/2 pt. box values down to .25 pt) shows 12 and 26 reversals, respectively. Using the 1-box reversals amplifies that, just as we could expect. Also, reducing box sizes further - too far - is where we get the noise, sometimes unnecessarily. Unless it is a chart of CEF 7 or 8 years ago at $4.50ish, there's no need for that tight of a scale. (I used 1/16 and 1/8 pt. boxes while building a position in that name.) We agree, correct?

 

In other cases, it's inescapable - you must scale way down:

 

And finally, some useful, necessary information on the same name (at 2 cent box values!):

 

[d][f1!3!.02!!4!20]&pnf=y"]http://stockcharts.com/def/servlet/SharpChartv05.ServletDriver?chart=ptrax,pluadanrbo[p][d][f1!3!.02!!4!20]&pnf=y

 

 

 

In the example of FITB - or others in certain price ranges - I usually find little need for more than a couple box sizes, but I've always incorporated more than just one. I'm typically trying to find as much congruent information as I can with as short of a column/chart as possible. 2 or 3 different box values with both 1 and 3 box-reversals seems to offer that nicely. I have no problem with using percentage values for the box size - as long as the information is also "Goldilocks" for my bent/trading style. (Hence the "subjectivity" I mentioned early on).

 

 

By the way, I took your lead and got more familiar with constructal law last spring. Fascinatingly beyond me. (Wish I had more time to learn. My life is more than half over - I must admit to being interested in having other things to learn now... such as how to be a human being instead of a human doing.)

 

I enjoy your posts.

 

 

Best.

 

 

S

[motorway 10]

Had a quick look at PTRAX

 

decided on 1 rev charts of .1 .05 .025

 

There is more information in the .025

 

If we find the smallest Box Size

 

( By moving down in size )

 

We can then use two degrees larger

 

Largest for the Primary Trend

The Middle as an Oscillator within the Tend

Smallest to optimize entry

 

The three sizes will not all move the same

At some point the trend will change ( At the moment DOWN )

and The larger size will be where the MAX information is

and the smaller sizes will be Contained...

 

Some tools I use are the 45 degree lines ( This is same as counting )

 

and I think relates to The Constructal Law/Principle:

 

"For a finite-size (flow) system to persist in time (to live), its configuration must evolve such that it provides easier access to the imposed currents that flow through it."

 

For a trend to be persist in time , Its rallies and retracements must behave in away that encourages participation ..

 

Nothing does this better than the action conforming to a 45 degree diagonal..

No one shaken , No one profit taking..

 

Some tools used on the three scales are measuring the ground gained , ground lost

in relation to the half way points of both columns and phases..

and watching activity the speeding up and down..

 

On what scale is the action conforming to the 45 degree angle

Does the action on the smaller scale mobile the larger

or does the smaller scale just bounce around mean reverting

etc

 

So You have Trend and Oscillator .. But at anytime the trend can change its time horizons

as The Population of interest changes in both size and sentiment.

 

( watch for Volume entering )

 

Then if there are large Empty spaces

The 3 rev charts for another view

 

see .05 * .3 rev

 

This has had a very good run

You would ignore any topping action

at your risk ( Know nothing about it just the chart )

 

At the very least Profit Taking ?

constructal law ?

 

Draw a down diagonal from the top on the .025 chart

And Watch

 

Motorway

[motorway 10]

I define the immediate Trend on any scale

as Two Boxes in the same direction

 

here is the .025 chart

 

Trend is down ( as it is on the .1 and .05 chart )

It broke through the HALF WAY point for the first first at the Blue Line

 

After making significantly less ground higher after the last change of direction..

 

Happy New to you strohem

 

Motorway

[motorway 10]

For some reason the chart defaulted to a earlier date in Dec..

So it needs to be updated

 

 

Motorway

[strohem 10]

 

see .05 * .3 rev

 

This has had a very good run

You would ignore any topping action

at your risk ( Know nothing about it just the chart )

 

At the very least Profit Taking ?

constructal law ?

 

Draw a down diagonal from the top on the .025 chart

And Watch

 

Motorway

 

 

Thanks for the quick replies. Interestingly, I see that we are on the same page with respect to trends and scaling.

 

The example with PTRAX is a very real one for me - it has been as much as a mid six-figure position in a retirement plan until recently. Unfortunately, the retirement plan has no SDBA (brokerage window). I began reducing it in early November and have every willingness to reduce it significantly more on rallies back toward the trendline.

 

Since it's a blasted mutual fund (albeit a superior one), I had been queuing more off of the IEF - below - which is representative of the bond maturities within this fund:

 

 

I'm a pretty convicted proponent of PnF relative strength, as well. Bonds have been strong, and I'd normally ride that horse until it went lame, but this name needs to have its profits protected and I'm doing so. The trend changes are obvious, but the magnitude is not - yet. I don't think the outcome will be good for those who have been aimlessly plowing money into fixed-income.

 

 

 

 

Your thoughts are, well... thought provoking.

 

 

Thanks.

[strohem 10]

For some reason the chart defaulted to a earlier date in Dec..

So it needs to be updated

 

 

Motorway

 

 

I noticed that - no worries.

 

 

s

[crabbydog 10]

peterjerome, is your approach automated in any way or are you manually scanning a limited universe of stocks. I know esignal has a powerful screening language and could possibly a search could be built in this.

 

Also what is your exit criteria? IN your last chart you mention a pivot line, what kind of pivot line are you using?

 

Thanks for sharing your ideas, they do look interesting.

[peterjerome 10]

crabbydog,

no automation used. i manually screen basket of 250 stocks at EOD. takes 15 mins.

i use 'voice' alerts that identify charts having Double Top pattern.this feature is programable within eSignal.However, you do not need any 'alert' capability. simply look at the chart in PnF and the Double Top is obvious.

once the double top is formed i monitor stock daily watching for breakout. at this point i know the 'exact' trigger price.

 

entry i look for CCI TLB (trendline break), a Swing Low point, volume.

the pivot line you refer to is a swing low pivot usefull in exiting. i also use the PnF reversal in exit management. See an earlier post showing the ' three strikes & out' for exit management.

good luck,

Peter,

[peterjerome 10]

Crabby,

here are several stocks showing a PnF Double Top Pattern.

trigger entry possibility when price moves $1 above current high.

 

NOTE: THIS IS NOT A RECOMMENDATION TO BUY!

INTENDED FOR INFORMATIONAL PURPOSES ONLY!

STOCK TRADING IS RISKY AND YOU CAN LOSE REAL $$$

 

Stock - Trigger Price

ALK -54

PM - 61

ANDE - 39

UNH - 39

TBL - 27

CXW - 27

SEIC - 25

TAM - 26

NNI - 25

ATRO - 24

[peterjerome 10]

correction to above post - double tops w/ trigger price

ALK - alaska air.the double top is 59 NOT 54.

the entry would be 60.

sorry for the typo

peter.

 

NOTE: THIS IS NOT A RECOMMENDATION TO BUY!

INTENDED FOR INFORMATIONAL PURPOSES ONLY!

STOCK TRADING IS RISKY AND YOU CAN LOSE REAL $$$

[crabbydog 10]

Peter, thanks for this, I will have a look through them. The list will help me understand better the PnF pattern. Then I can look at the CCI bit and see how the trigger works.

[ondrej237 10]

I went through almost all Dbs threads in this forum at least twice and found one recurring topic regarding entries. According to Db, the fact that price touches your predefined S/R level is not a sufficient signal to enter the trade. You also have to watch how price behaves at these S/R levels. Which, for me, is quite problematic. I understand the basic Wyckoff principles, I have developed a strategy based on retracements after break-out of a range and reversals from S or R inside wider trading ranges, but I have problem with concrete setups. As for retracement, I understand that the break-out should happen on comparatively higher volume and that the volume should decrease on following decline (retracement). However, I have problems with reversals - I dont know how to recognize whether the price will likely reverse or sit at that predefined level. I trade FESX so I dont have acces to market internals such as TICKQ to help me to make decision. Could anyone help me with this and tell me what to watch? Thanks!

[PrymeTyme 10]

However, I have problems with reversals - I dont know how to recognize whether the price will likely reverse or sit at that predefined level. I trade FESX so I dont have acces to market internals such as TICKQ to help me to make decision. Could anyone help me with this and tell me what to watch? Thanks!

 

 

 

HI . well if it would be an easy task to recognize reversals , we all would be filthy rich in no time ..

 

to answer your question shortly .. we cant recognize it .. but what we can do is participate .

and let the market decide if we where correct or not ..

 

 

so lets say price moves in a channel/congestion for several days now . and we are moving towards the upper line (resistance) .. and as we move closley to he line/area we see that the volume starts to decline also we see a shortening of the thrusts and the spraeds get smaller .. so thats our first sign of weakness .. where we could say that it may bounce off the reistance .. then as we reach the resistance we see a smal spread bar on low volume Ie(no demand) .. we could short it at the break of the bars low .. .. its that simple just participate .. and try to add the odds in your favour... by reading and understanding the market ...

 

as if the price actually reverses or stays at the resistance level .. well this can only the bars and the corresponding volume tell u ... but u really dont know if it bounces off (reverses) .. or stays at the level for sometime.. u just cant predict that , that easy..

 

if for example u see an upthrust on high volume penetrating the resistance.. then its more likely that it will bounce off.. but then again if the next bar .. is an upbar .. ie.. we see no folllow thru .. then price may stay on that level for some time to come... (absorbtion)

 

 

or the spreads get smaler the volume starts to dry out .. closes start to cluster.. then there is no participation at least from the big players.. wich could lead to a rollover... and so on..

 

 

as u can see it is a mather of reading the charts , and they c vary heavily .. as nothing is black and white ... .. but we have to participate ... or else we are just standing on the sidelines...

 

 

cheerz

[cunparis 10]

However, I have problems with reversals - I dont know how to recognize whether the price will likely reverse or sit at that predefined level. I trade FESX so I dont have acces to market internals such as TICKQ to help me to make decision. Could anyone help me with this and tell me what to watch? Thanks!

 

Others may disagree but I think that we can't know if price will reverse. However if we have a good R:R we can profit from it when it does and have a small loss when it doesn't. The trick is to enter your trade at a good level where price is likely to move away.. an area where price isn't likely to chop around and hit your stop and then go on to hit the original target. There are only a few of these per day. I use volume profiling to find them. This is probably different than the Wyckoff approach so I guess I'll not elaborate, I'm just saying that we can't really know. Even if price starts to reverse at any second a big trader can step up and hammer it and set off a chain reaction.

[uexkuell 10]

I trade FESX so I dont have acces to market internals such as TICKQ to help me to make decision. Could anyone help me with this and tell me what to watch? Thanks!

 

This sounds very simple but there is much behind it:

 

Watch FDAX.

To any detail.

[Head2k 10]

I went through almost all Dbs threads in this forum at least twice and found one recurring topic regarding entries. According to Db, the fact that price touches your predefined S/R level is not a sufficient signal to enter the trade. You also have to watch how price behaves at these S/R levels. Which, for me, is quite problematic. I understand the basic Wyckoff principles, I have developed a strategy based on retracements after break-out of a range and reversals from S or R inside wider trading ranges, but I have problem with concrete setups. As for retracement, I understand that the break-out should happen on comparatively higher volume and that the volume should decrease on following decline (retracement). However, I have problems with reversals - I dont know how to recognize whether the price will likely reverse or sit at that predefined level. I trade FESX so I dont have acces to market internals such as TICKQ to help me to make decision. Could anyone help me with this and tell me what to watch? Thanks!

Nazdar Ondreji,

 

You can use double bottom / top as a setup. When defining this setup, there are several things you should focus on (IMHO):

- the trend which brought price to the S/R and the DB/DT scale in relation to this trend

- defining what is a DB/DT and what not, i.e. defining the test extent in relation to the original extreme

- judging rejection (or a lack thereof) from the S/R, both on the first contact and on the test, and even on the bounce in between

- choosing an entry point; stop loss placement; if, when and how to reduce your stop...

 

And if you want to judge acceptance vs. rejection or if you want to learn how to spot a climactic activity in real time, then I would recommend you to open a fast chart instead of watching 5 or 1 minute bars together with volume bars. Don't be afraid of 1 tick chart (you must zoom out so the chart displays several thousand ticks).