Trading The Wyckoff Way

[henryduncan12 10]

Thanks YertleTurtle for your descriptive reply. It is really useful information for me.

[gaelgss 10]

Wyckoff taught a way of understanding imbalances in supply and demand which cause price to move up or down. These principles work in all time frames. Most Wyckoff traders I know look at multiple time frames and the timeframes one chooses has a lot to do with how much time you have to trade and whether you want to day trade, swing trade or position trade. Generally the smaller the time frame you use the more trading opportunities you will have but the smaller the moves.

 

I look at daily, 4 hour, 1 hour 15 minute and 5 minute time frames mostly. I focus mostly on the 1 hour and 5 minute time frames for setups whereas the other time frames are to look at the bigger picture or for additional confirmation. There aren't firm rules here.

 

As for the pairs that these techniques work best in, I chart 5 USD pairs, the AUD, EUR, YEN, GBP and CAD. Most of my trades are in AUD or EUR recently. These techniques should work on any non-exotic pair.

 

There are stickies in this forum if you want to read more about the Wyckoff method.

 

 

Thanks for your reply and Im glad to hear theres someone trading following wyckoffs methods. I have read most of the threads in this forum and found the method extremely appealling, however, I am surprised at how quiet this forum is.

 

Do you identify support and resistance on the 1 hour chart and look for setups on the 5 min chart?

 

I understands that volume is paramount when trading the wyckoff way, as it symbolozes potential climatic buying or selling that could lead to a reserval (after a succesfull test).

 

How do you identify climatic volume when trading forex pairs? Isnt forex volume both inacurate and unreliable?

 

Thanks again for your reply

[Gary Fullett 10]

Hello everyone,

 

I have noticed that most of the work published in this blog (by DB et al) on wyckoff trading was published back in 2008-2009 and there has not been much activity over the last 2 years.

 

I am interested in the method but have a basic question; Is this methodlogy aplicable today, in 2012 and if so in which markets?

 

I have often read that the principles of supply/demand will always prevail but is this true, with all the automatic and algorythmic trading out there?

 

I am very interested in hearing from those of you who are currently trading using wyckoff methods.

 

 

I've been trading using Wyckoff methods since 1982. If Wyckoff trading is what you prefer your method to be, I would seek out the PURE Wyckoff course and teachings, versus any derivative of Wyckoff. Wyckoff is the "bible" for price, action and volume, so I would refer to that directly.

 

It is true that Wyckoff works in all time frames, and with all markets. Of course, I would stay away from very low priced stocks. With forex, from what I understand, it is somewhat difficult to get accurate volume.

 

Gary

[gaelgss 10]

Wyckoff taught a way of understanding imbalances in supply and demand which cause price to move up or down. These principles work in all time frames. Most Wyckoff traders I know look at multiple time frames and the timeframes one chooses has a lot to do with how much time you have to trade and whether you want to day trade, swing trade or position trade. Generally the smaller the time frame you use the more trading opportunities you will have but the smaller the moves.

 

I look at daily, 4 hour, 1 hour 15 minute and 5 minute time frames mostly. I focus mostly on the 1 hour and 5 minute time frames for setups whereas the other time frames are to look at the bigger picture or for additional confirmation. There aren't firm rules here.

 

As for the pairs that these techniques work best in, I chart 5 USD pairs, the AUD, EUR, YEN, GBP and CAD. Most of my trades are in AUD or EUR recently. These techniques should work on any non-exotic pair.

 

There are stickies in this forum if you want to read more about the Wyckoff method.

 

Do you find support/resistance on the 1 hour chart and setups on the 5 min chart?

 

I am developing a methodlogy based on finding support/restiance on 60 minutes and looking for a test of support/resistance on the 5 minutes chart, followed by a retracement for confirmation.

 

How do you factor volume into your system?

[YertleTurtle 10]

I do look for support/resistance on the 1 hour and setups on the 5 minute. My most common trade is the spring or upthrust where a previous area of support or resistance is breached but price then reverses with an increase in volume. This is a very common setup and is profitable for me around 70% of the time (with the filters I use). My second most common trade would be a test after climatic buying or selling.

 

Although forex only offers tick volume and not true volume - I haven't felt this hampers the ability to trade these methods. Tick volume strongly correlates to true volume and will show the increases in trading activity just as well. It is important that you pick a forex broker with good market depth but a little research is all that is required.

 

As for volume - I am constantly monitoring volume to see what it is telling me about the interest of buyers and sellers. These observations are all logical and based on the Wyckoff principles of Effort vrs Result, Cause vrs Effect and Supply vrs Demand. I use trading software that allows replaying of market data at increased speeds and I found that simulating real-time trading was the best way for me to practice and understand these principles. As with anything that is difficult, intelligent practice is essential to learning.

 

I also strongly agree with Gary that any serious Wyckoff trader will need to read his original course (perhaps several times). It is available in the stickies on this forum.

[gaelgss 10]

I do look for support/resistance on the 1 hour and setups.....

 

Thanks for your reply turtle, I am reading Wyckoffs course and many of the threads in this forum by Dbphoenix and finding the subject fascinating. It is the first approach to trading that I find logical and sensible.

 

Would you care to elaborate on what filters you use to achieve 70% winning trades?

 

At the moment I am trading Euro/dolar futures using Ninja Traders Simmulator and I am having 2 issues;

 

1- Sometimes I struggle to find Support/Resistance on the chart, I plan to study in depth the thread on support/Resistance on this forum but I have a question for the expers; Is support/Resistance subjective or objective (assuming traders are looking at the same timeframe)

 

2- I don't seem to find many setups on my charts, I trade the morning session 08:30 - 13:00 European Time. How many trades do you make a day using the wyckoff methodology and does this vary a lot from one instrumen to another?

 

Regards and thank you bot for your help.

[Trader_Eight 10]

Stockcharts.com doesn't give a true Wyckoff PnF chart. I'd be interested to here of those using software that does.

 

Bull's Eye Broker is excellent. It has Wyckoff style, and pattern scan function.

[YertleTurtle 10]

Would you care to elaborate on what filters you use to achieve 70% winning trades?

 

At the moment I am trading Euro/dolar futures using Ninja Traders Simmulator and I am having 2 issues;

 

1- Sometimes I struggle to find Support/Resistance on the chart, I plan to study in depth the thread on support/Resistance on this forum but I have a question for the expers; Is support/Resistance subjective or objective (assuming traders are looking at the same timeframe)

 

2- I don't seem to find many setups on my charts, I trade the morning session 08:30 - 13:00 European Time. How many trades do you make a day using the wyckoff methodology and does this vary a lot from one instrumen to another?

 

Regards and thank you bot for your help.

 

One of the basic filters I use is that I don't trade upthrusts in uptrends or springs in downtrends. The others would be harder to explain. As for S/R - it is a little subjective only in the sense that there are really S/R zones. So the way one trader draws S/R might be slightly different than another trader.

 

As for number of trades - I average about 1 a day but again this has to do with timeframes and number of instruments you can watch. I would recommend subscribing to David Weis' nightly report - it will help you see how an experienced Wyckoff trader charts and he emphasizes springs and upthrusts.

Edited March 8, 2013 by DbPhoenix

[Niko 10]

I have been trading Wyckoff methods for some months, with excellent results.

 

I still have some doubts, and I wonder if some of the senior Wyckoff traders have an answer:

 

I have not been able to accurately predict price movements from the P&F, I always overshoot. Is there any standard for defining the base of the formation, I think I am using a way to wide base.

 

In intraday trading, the volumes depend of the hour of the day you are trading, how do you manage the volume comparison, in an absolute base or in a relative base.

 

In range formations, I have not been able to confidently predict the exit direction; I check intrarange volumes, in order to determine if the strength is with the buyers or with the sellers, but when prices are in the springboard, I usually miss when choosing the direction.

 

Have you found a way to determine how to differentiate a climax from a shootout.

 

Thanks for your comments, I assume some of my questions are pretty silly.

[pocketwisetrader 10]

I cant reply long now but in nutshell wyckoff

MEthod is not easy to get used too.... U need hours of study and chart reading to master it

 

If u r looking for shortcut this is not for u

 

But i guarentee u once u become good at it u can almost trade in any market and in any timeframe. U wont need any indicator to take trade. U will be using most fundamental thing in the market, price and. VOlume to trade

Edited March 8, 2013 by DbPhoenix

[gaelgss 10]

I cant reply long now but in nutshell wyckoff

MEthod is not easy to get used too.... U need hours of study and chart reading to master it

 

If u r looking for shortcut this is not for u

 

But i guarentee u once u become good at it u can almost trade in any market and in any timeframe. U wont need any indicator to take trade. U will be using most fundamental thing in the market, price and. VOlume to trade

 

 

Thanks for your answer my friend, would you feel comfortable posting some of your trades on this forum? It would be very usefull for us, non experienced traders to learn from how a wyckoff trader currently operates.

 

I am currently reading all the 4-star threads on this forum, which I am finding very useful and I am also going to read, several times, the original wyckoff course and the day traders bible.

 

Thanks again.

Edited March 8, 2013 by DbPhoenix

[pocketwisetrader 10]

Quark,

 

Good suggestion. I reviewed that material and it is very well organized and explained. Also his book is also worth reading...

[Niko 10]

Thanks for the reply, I have already read the book twice, and I am re-reading it again, and as I said I have improved my trading in a very BIG way, but there are still plenty of details I just dont understand how to identify in real time.

 

I appreciate the information and the link you will provide.

 

Greetings

 

Nicolas

[Gary Fullett 10]

First of all, let me say there really are NO silly questions. I appreciate you having the courage to ask.

 

I have not been able to accurately predict price movements from the P&F, I always overshoot. Is there any standard for defining the base of the formation, I think I am using a way to wide base.

 

P&F charting is only used for count, which indicated the potential for how far a move can go. It is not used like a bar chart vehicle. Also, keep in mind that it's only a guesstimate, which Wyckoff used.

 

In intraday trading, the volumes depend of the hour of the day you are trading, how do you manage the volume comparison, in an absolute base or in a relative base.

 

Volume is relative to the area that it's trading. So the volume today wouldn't be comparable to the volume 6 months ago, for example. Keep time frames separate from one another. A 5 minute chart may show excessive volume due to a report or news event, but it may not be comparable to a 60 minute chart.

 

 

In range formations, I have not been able to confidently predict the exit direction; I check intrarange volumes, in order to determine if the strength is with the buyers or with the sellers, but when prices are in the springboard, I usually miss when choosing the direction.

 

The key to understanding that is to understand the trend and the background of the market. In uptrends, we want to by springs and the springboard.

 

 

Have you found a way to determine how to differentiate a climax from a shootout.

 

A buying climax, unfortunately, is really only seen in hindsight. So it's difficult to determine when it's actually occurring.

 

Gary

 

 

 

There is a substantial risk of loss in trading commodity futures, options and off exchange foreign currency products. Past performance is not indicative of future results.

[quark 10]

Quark,

 

Good suggestion. I reviewed that material and it is very well organized and explained. Also his book is also worth reading...

 

I'll have to check it out.

Edited March 8, 2013 by DbPhoenix

[Niko 10]

Gary, Thank you very much for your reply. I appreciate your comments.

[gaelgss 10]

This is a great thread but I have one question about the nature of support/resistance.

 

Support/R can be found in those points at which price has reversed in the pased such as a swing high/low that has been rejected more than once. In the past traders failed to find a trade above/below this price level, hence these price levels could potentially act as support/resistance in the future.

 

In this thread, traders consider the midpoint of a trading range as potential support/resistance but I fail to understand this. A trading range is non-directional and represents consensus between buyers and sellers, it represents value during a certain period so here comes my question:

 

Why do we anticipate the midpoint of a trading range to act as support/resistance?

 

I hope someone can answer this as it has been bugging me for a few days now.

[DbPhoenix 42]

This is a great thread but I have one question about the nature of support/resistance.

 

Support/R can be found in those points at which price has reversed in the pased such as a swing high/low that has been rejected more than once. In the past traders failed to find a trade above/below this price level, hence these price levels could potentially act as support/resistance in the future.

 

In this thread, traders consider the midpoint of a trading range as potential support/resistance but I fail to understand this. A trading range is non-directional and represents consensus between buyers and sellers, it represents value during a certain period so here comes my question:

 

Why do we anticipate the midpoint of a trading range to act as support/resistance?

 

I hope someone can answer this as it has been bugging me for a few days now.

 

Assuming you've read Wyckoff's course, do a search of it using "half" and "halfway".

 

Db

[gaelgss 10]

Assuming you've read Wyckoff's course, do a search of it using "half" and "halfway".

 

Db

 

What I've found from seraching "half" and "halfway" is that wyckoff considers a 50% reaction to be normal, if the market trends from support at 10 to 20, a normal correction would be a retracement to 15.

 

It seems to me that Wyckoff talks about "half way reactions" but not necessarily "reactions down/up to the midpoint of a previous trading range"

 

If a trading range represents value and a great number of trades, wouldnt it be sensible to assume that once price goes back to the range, it will stay there, rather than bounce?

 

This is what im talking about in case Im not making myself clear, from a chart you posted some time ago:

 

http://www.traderslaboratory.com/forums/attachments/131/11788d1246317208-support-resistance-trading-foresight-image1a.gif

 

I am new to wyckoff so maybe I need to re-read the course and the day traders bible...

 

 

Thanks for your answer and Im glad to see you're still around

[Gary Fullett 10]

This is a great thread but I have one question about the nature of support/resistance.

 

Support/R can be found in those points at which price has reversed in the pased such as a swing high/low that has been rejected more than once. In the past traders failed to find a trade above/below this price level, hence these price levels could potentially act as support/resistance in the future.

 

In this thread, traders consider the midpoint of a trading range as potential support/resistance but I fail to understand this. A trading range is non-directional and represents consensus between buyers and sellers, it represents value during a certain period so here comes my question:

 

Why do we anticipate the midpoint of a trading range to act as support/resistance?

 

I hope someone can answer this as it has been bugging me for a few days now.

 

 

 

The midway retracement of a market is something that Wyckoff observed in his work. It is not an edge of a market, that should generally allow for a trade. If a market is trending, there is greater probability that the trading range will make a move in the direction of the trend, unless there is action that negates it. For example, if you have a sequence where you can identify the selling climax, the subsequent trading range is more likely accumulation for higher prices versus distribution for lower prices.

 

Gary

 

 

 

There is a substantial risk of loss in trading commodity futures, options and off exchange foreign currency products. Past performance is not indicative of future results.

[DbPhoenix 42]

What I've found from seraching "half" and "halfway" is that wyckoff considers a 50% reaction to be normal, if the market trends from support at 10 to 20, a normal correction would be a retracement to 15.

 

It seems to me that Wyckoff talks about "half way reactions" but not necessarily "reactions down/up to the midpoint of a previous trading range"

 

Depends on what one means by “midpoint” and of what and from where and in what time frame using what time interval and so on. Note here (I've posted the image you linked below) that sellers are unable to find buying interest at the last swing low and the swing low before that and have to go all the way to 1415 (more or less) to find enough buying interest to turn the tide. When buyers step up to the plate in enough force to reverse the movement, they send price back to 1455, a more than 50% retracement, indicating strength. But where does price stop? The midpoint of the trading range. Why?

 

 

It's not magic. Most of the trades in that range took place between 1450 and 1460. You don't even need volume to see that. And it's only reasonable to expect a little business to take place if and when price returns there. Understanding this prevents you from sitting there stumped, wondering what traders and doing and why, and not knowing what you should do about it. You can't forecast that swing down to 1415 and you can't predict that it's going to run out of steam at 1455. But you can note that trading range and its midpoint, and when price stalls there on its upward trajectory, you can think Aha! and apply whatever strategy you had planned before the beginning of the trading day, because you know why it's stalled.

 

 

Sellers try again to turn price back, but they are only able to accomplish a 50% retracement to 1435, again indicating strength on the part of buyers (an indication bolstered by the fact that price subsequently just hangs there at the top of the range rather than retreat.

 

If a trading range represents value and a great number of trades, wouldnt it be sensible to assume that once price goes back to the range, it will stay there, rather than bounce?

 

Why? How much money can you make by treading water? Sellers want price to fall. Buyers want price to rise. And each will do whatever he can to achieve that result. Granted you can make something trading the range, but a bigger payoff comes when traders sail off looking for a different value. That is, after all, what trends are all about.

 

This is what im talking about in case Im not making myself clear, from a chart you posted some time ago:

 

http://www.traderslaboratory.com/forums/attachments/131/11788d1246317208-support-resistance-trading-foresight-image1a.gif

 

I am new to wyckoff so maybe I need to re-read the course and the day traders bible...

 

 

Thanks for your answer and Im glad to see you're still around

Edited April 23, 2012 by DbPhoenix

[gaelgss 10]

Thanks DB, I think it makes sense to me now but Id like to recapitulate to ensure I have understood this. I am posting this chart as an example of where one should plot S/R (following the method described in the Wyckoff Forum and why we can anticipate price might bounce at these levels)

 

So, Support and resistance can be found:

 

1- At a level that has been rejected more than once in the past. In the chart attached, buying pressure exceeded selling presure at aprox. 1.307 and the opposite happened at 1.3220.

 

2- At the midpoint of a trading range, more accurately, the price level where most trades took place which can be shown using market profile or VAP. When price reaches the midpoint of the trading range, we can expect a reaction from the buyers/sellers that entered a trade at that level, they are traped and will either push prices up or give up/close their possition. These midpoints are represented by a dotted line on the chart, at the present time, we are at a midpoint that may act as support.

 

When studying Support/TResistance Is this all there is? Swing High/Lows and midpoints (point of highest volume) of a trading range?

 

I would appreciate some reassurance as I inted to build a trading methodology based on trading of support/resistance.

[DbPhoenix 42]

 

When studying Support/TResistance Is this all there is? Swing High/Lows and midpoints (point of highest volume) of a trading range?

 

I would appreciate some reassurance as I inted to build a trading methodology based on trading of support/resistance.

 

Well, no. Were that it were so simple. Yes, finding the support that is represented by the bottom of the trading range is important, as is finding the resistance that is represented by the top of the trading range. Finding that zone where the bulk of the trades have been/are taking place is also important. In this case, those numbers are 1.3060, 1.3220, and 1.3140 (all +/-). But price also finds support at every swing low and resistance at every swing high within each range. And the number of trades that are occurring during any particular timeframe (month, week, day, hour, etc) will change as you expand or contract that timeframe. The interval you choose (hour, minute, tick) will also influence how those trade numbers are displayed. So, unless you are going to focus on a timeframe of one month with a bar (or whatever) interval of 30m, then no.

 

 

But even if you are going to do that, we advance only to maybe. What do you want out of the trade? Points? Ticks? How long do you plan on holding this position? Seconds? Minutes? Overnight? What are you going to do about stops? Are you going to scale in and out or will it be all in and out? And so on.

 

 

Yes, it is important to know where S&R are since that is generally where the action is (not only tests and reversals but breakouts and retracements), and midpoints can also be fertile ground for planting trades. But there's a lot more to developing a strategy than this. If you're interested in doing this responsibly, I suggest you click my signature, which should take you to The Trading Journal. You may already be at step three. If all of that is old news, then I suggest you spend some time on the Trading in Foresight thread.

 

 

Finding where support, resistance, and midpoints lie only alerts you to where the most profitable opportunities are likely to be. Determining what to do when those opportunities arise is a whole 'nother set of tasks.

 

 

Db

[gaelgss 10]

Cheers db, I am well aware that developing an edge isnt easy and at the moment I am simply learning abou the nature of s/r as I intend to use these levels as the foundation of my edge.

 

In your trading journal u mention "finding a pattern that works, that Is yours and only you are expecting and focus on that specific setup" (this is not a direct quote)

 

Its funny that you should say this since I was under the complete oppisite impression. Wouldnt it be logical to trade patterns that most traders are aware of to increase the probabilies of success?

 

Thanks again for ur time.

[DbPhoenix 42]

Cheers db, I am well aware that developing an edge isnt easy and at the moment I am simply learning abou the nature of s/r as I intend to use these levels as the foundation of my edge.

 

In your trading journal u mention "finding a pattern that works, that Is yours and only you are expecting and focus on that specific setup" (this is not a direct quote)

 

Its funny that you should say this since I was under the complete oppisite impression. Wouldnt it be logical to trade patterns that most traders are aware of to increase the probabilies of success?

 

Thanks again for ur time.

 

Judging by the behavior of other traders (through their trades), it may look as though they're trading S/R, and they may well be, but that doesn't mean that you should be playing the exact same setups in the exact same way. The traders who are moving price are smart, more experienced, better financed, and better equipped. Trying to compete with them on an equal footing is likely not the road to success.

 

 

But by studying price movement, you are studying their behavior, since that is what moves price. You may also be able to find a way to hitchhike on the movements that result from that behavior without exposing yourself to unreasonable risk. That's where the study and practice come in. Where and how do you get on and where and how do you get off? Those elements will be unique to you because you yourself are unique, including your risk tolerance, your patience, your perceptiveness, your intuitiveness, your confidence (or lack thereof), your objectives, and so on.

 

Db