Trading The Wyckoff Way

[DbPhoenix 42]

I was going to post this before the open, but I lost my internet connection. The ES is much the same, though it is currently 3pts above its midpoint.

 

This could have been posted in several places, but here is as good a place as any.

 

Db

 

 

[DbPhoenix 42]

A lunchtime update:

 

Price moves up past minor R thru the midpoint of the trading range and fails just a few minutes later. Those of you who have been studying the Forum know that this is weakness. Price rallies again, but makes a lower high. Additional weakness. And there's your short at 88. Just demand/supply and support/resistance.

 

Simple.

 

Db

 

 

[tupapa 10]

About that formation... Do you consider this a hinge, although ther is not a clear reduction in volume? Do you just ignore that volume spike towards the end of the triangle?

[DbPhoenix 42]

About that formation... Do you consider this a hinge, although ther is not a clear reduction in volume? Do you just ignore that volume spike towards the end of the triangle?

 

When the short is taken, whatever hinge there might be has not yet formed. And I didn't plot volume, so it wasn't a consideration.

 

Db

[DbPhoenix 42]

And gold exits the hinge.

 

Whether or not it holds its position remains to be seen.

 

Db

 

[tupapa 10]

Could you indicate where exactly you place your sell stop order (asuming you are using a 1m chart) like you did in the trading in 90 min thread? Could you also indicate the stop loss

 

I see more than 1 point to enter in this chart and they wouldnt all succed so it would be good to see your exact entry point.

 

Feel free to use my 1min chart for greater clarity.

 

Many thanks.

[DbPhoenix 42]

Could you indicate where exactly you place your sell stop order (asuming you are using a 1m chart) like you did in the trading in 90 min thread? Could you also indicate the stop loss

 

I see more than 1 point to enter in this chart and they wouldnt all succed so it would be good to see your exact entry point.

 

Feel free to use my 1min chart for greater clarity.

 

Many thanks.

 

I have a better idea. Given the seven or eight charts I did for the 90M thread, why not show me what you'd do? Remember to read the chart from left to right.

 

Db

[tupapa 10]

I thought you might suggest this and I am glad you have. In the following chart I have indicated each entry and trade management of yesterdays rejection of that midpoint, at 2588.

 

I use a sell stop order 1 tick below the previous 1m bar and a stop 1 tick above support or the last Lower high (I am not sure if my stop placement strategy is correct).

 

I assume I am trading 1 contract which is exited as we break the supply line, so lets see the entries:

 

1- Price moves through support but there is no follow through and each bar starts making lower highs, I place my sell top 1 tick below the support line (2588). There is a retracement, I draw the supply line and exit the short as we break this line, with a small proffit.

 

2- Price tests support and fails making a Lower High, there is a retracement and once again I exit with a small proffit.

 

3- Price moves through resistance and once again I enter as that wide range bar breaks the 2588 S/R line. I had to replay this in real time to see how the bar formed

and it first breaks the support line and then moves higher taking my stop loss.

 

4- I re enter as we break support once again, draw a supply line and exit shortly at BE.

 

5- The final Entry, once again below the support level at 2588, price has made a series of lower highs since it reached 2594 showing clear weakness. Price finally falls and I wait for a retracement to draw the supply line, here I have my doubts, what do you consider a retracement?

 

Does it have to be compromised by a minimum of 2 or 3 bars or can one bar be a retracement?

 

In this case, which is the correct supply line, the first thin line or the thicker one?

 

I look forward to your comments.

[DbPhoenix 42]

This is very good. You're picking up on the concepts well. It is not exactly as I would have done it, but not only does it work, you've provided the support for each step you took, which beats the hell out of "feelings".

 

First, I would have placed a buystop above that first RET to the S/R line (when trading around a midpoint, avoid calling it a "support" or "resistance" line; that can bias you toward a direction; what matters is not the line but the behavior of price). This buystop would not have been triggered. But even if it had, I'd have been prepared for the SAR (this is a particular problem when trading "inside bars"; on a tick chart, the indecision at these points becomes much clearer).

 

Second, I'd rotate my first SL (supply line) to the left, tracking the high points of the bars (on a tick chart, these would be swing points). This would get me out faster, though the profit would be the same. After all there could have been a violent reaction rally to the S/R line, which would result in BE. Ditto on the next SL.

 

Third, you were smart to open up the bar and see where price went and when . Same problem here with the "inside bar". That it happens is not as important as not freaking when it happens. If you can stay calm, you can focus on the next entry, three bars later, which, in this case, is above the S/R line, one bar earlier than yours. What you've done is fine; it's just a bit later than it needs to be. Note also that the money you lost by being stopped out at 3 has been paid for by the profits you took at 1 and 2.

 

Fourth, this sort of in-and-out can drive you crazy if it goes on for too long, but there is an eventual payoff at 5. However, make sure that the decision to allow price to come back to your cover stop is not the result of being tired of screwing around with the in-and-out. This trader fatigue can be costly.

 

As to defining a RET, I've read quite a few and none of them are adequate. The RET is the result of conscious intent, or effort that's more than just casual. If the bars involved are, for the most part, sideways, then it's more a breather than a RET. The RET you've chosen for your first exit shows more effort (note where it comes; look to the left).

 

As for the SL, it's purpose is to track those points where supply dominates demand. If there's no RET, then you have to use the highs of the bars (again, if you were to use a smaller interval, these would be swing points). Therefore, your thin line is correct. And once price renews its decline and makes a lower low, the next SL can be drawn as well.

 

And though you don't show it, I assume you re-entered the short at that RET. It's a pain in the neck, but it minimizes the risk to the point of inconsequentiality, which makes managing the trade far more pleasurable. At no point are you hoping for the best.

 

If it's available to you, I suggest you plot exactly the same timeframe using a 15sec bar interval. It may help you to go beyond the "bar" thing and see what's in the bar even when using a longer interval. After all, even when using a 1m interval, you can still blend the bars in your head to see what the 5m people, or even the 15m people, are looking at.

 

Db

[DbPhoenix 42]

As a side note, both the NQ and the ES hit their midpoints dead on this morning after the open, providing simple, easy, indicatorless, long entries.

 

Db

[tupapa 10]

Thanks for taking the time and interest to read the chart, I just had a look at the 15 sec and I can straight away see the benefits of using this bar interval for trade management.

 

I am attaching the 15 sec chart with the supply lines corrected as you suggested for whoever might be interested. So presumably, by drawing the SL on the 15 sec chart, we track price closer and exit the trade sooner....

 

Yesterday this strategy worked fine, but isn't there a danger that we might exit the trade to soon and miss most of the move? Do you always draw the SL after a retracement on the 15 sec. chart or does this depend or do we need to be less mechanical about this?

 

Thanks again.

[DbPhoenix 42]

Yesterday this strategy worked fine, but isn't there a danger that we might exit the trade to soon and miss most of the move? Do you always draw the SL after a retracement on the 15 sec. chart or does this depend or do we need to be less mechanical about this?

 

If the trader gets all egotistical and emotional about stopping himself out or being stopped out and wastes his time moaning about how wrong he was and what a useless sack he is and so forth then yes, he will miss most of the move. Unless, of course, there is an immediate reversal after he's out and he congratulates himself on being so prompt and astute and disciplined and so forth and never takes the SAR and misses out on that as well.

 

Too many beginners think that once they're stopped out, that's it. They're too emotional and unfocused to stay in the zone and consider re-entry, much less do it. You yourself have seen how effortless it is to exit when the move appears to be over, then re-enter when it turns out not to have been over after all. In fact, it's not unusual to pick up a point or two in the process. It's just a matter of focusing on the demand/supply balance. In this way, risk is virtually non-existent (FWIW, I used to tell people to use these RETs as opportunities to add another contract, but there's far less risk in exiting the trade and re-entering the trade than in hoping that it is nothing more than a RET and ending up getting screwed; better to trade all the contracts at the outset).

 

As to drawing the SLs and DLs, I don't actually draw them while I'm trading, other than in my head. There's just no time. But if one has spent sufficient time studying old charts and replay trading, he ought to be able to "see" these lines without actually plotting them. When posting the charts, of course, they become necessary. Otherwise, nobody knows what's going on.

 

As for being less mechanical, one needs to avoid being mechanical at all. Learning the guidelines and following them is not mechanical. But it's very different from being all feely. It's trading what you see, not what you think.

 

Db

Edited July 27, 2012 by DbPhoenix

[20814md 10]

This is very good. You're picking up on the concepts well. It is not exactly as I would have done it, but not only does it work, you've provided the support for each step you took, which beats the hell out of "feelings".

 

First, I would have placed a buystop above that first RET to the S/R line (when trading around a midpoint, avoid calling it a "support" or "resistance" line; that can bias you toward a direction; what matters is not the line but the behavior of price). This buystop would not have been triggered. But even if it had, I'd have been prepared for the SAR (this is a particular problem when trading "inside bars"; on a tick chart, the indecision at these points becomes much clearer).....

Db

 

Db: regarding this partial quote from post #267, I am having a hard time visualizing exactly where this buystop would be placed based on your description. Particularly if it would not have been hit.

 

Are you are referring to above the 14:37 bar on tupapa's chart?

 

Also thanks to you both for the examples and the discussion.

[DbPhoenix 42]

Db: regarding this partial quote from post #267, I am having a hard time visualizing exactly where this buystop would be placed based on your description. Particularly if it would not have been hit.

 

Are you are referring to above the 14:37 bar on tupapa's chart?

 

Assuming you mean the 1m chart, no. I was thinking of the bar at 14:44 since it had tested the S/R line several times and looked as if it might hold. However, the bar you mention, and the bar two bars over, are also justifiable entries. Ordinarily, I'd avoid this kind of entry since it's so late in what is a parabolic move. However, buyers are enthusiastic, and you never really know. So I wouldn't beat somebody up for taking either one. HOWEVER, the trader MUST be willing and ready to get the hell out if the trade doesn't go his way or fails rapidly. This is no time for dithering around. And there's no time for multiple confirmations. He must understand what he's looking at and act accordingly.

 

Which brings me back in a roundabout way to tupapa's question about "is this a RET?" And being mechanical. The trader, even the discretionary trader, or particularly the discretionary trader, must know what he's looking at and what he's looking for. Otherwise, he's very likely to get his hope and/or fear triggers tripped, and that's no place to be. On the one hand, the trader must realistically allow price to come back at least a little, even with cascades. But he must define what he means by "a little". Using bars, is it okay for price to come back one bar? How about two? How about three? (Some advocate letting price come back 50% of the move, and if that suits your risk profile, fine.) If price hasn't rolled over by then, perhaps it's time to exit and breathe a little (and enter, but don't transmit, the order to re-enter). If price rolls over, great. Draw a new SL and go on from there. If it doesn't roll over, then you're out and you can re-evaluate the situation.

 

And throughout, pay special attention to hope and fear triggers. When are they ignited? Where? Why? Whatever you're doing to ignite them, don't do that anymore. Back away. You can't think properly when your heart is pounding and you're hyperventilating.

 

Also thanks to you both for the examples and the discussion.

 

You're welcome. But you and the other lurkers (and, yes, I know who you are) are expected to jump in eventually, preferably sooner rather than later.

 

Db

 

Edit: My perspective on RETs.

 

Edited July 27, 2012 by DbPhoenix

[goodoboy 10]

Thank you so much for this trading plan. I been reading it for about 4 hours and taking notes as begin to form my strategy. This is a good read so far and helps me start from the basics of developing a strategy/method for me to trade efficiently in my sim account. Atleast I can save my capital by starting off right. I reply with some question or comments soon.

 

Thank you.

[goodoboy 10]

Make every effort to avoid imposing your biases onto what you observe.

 

Can you explain a bit what you mean by "imposing your biases" on what I see while observing price movements?

[DbPhoenix 42]

Can you explain a bit what you mean by "imposing your biases" on what I see while observing price movements?

 

It's too high/low. It can't go any higher/lower.

 

It's ready to roll over/rally.

 

Volume is too high/low.

 

Anything having to do with candles or candle patterns.

 

It's lunchtime. It will be dull.

 

It's Friday. It will be dull.

 

News is good/bad. Price will rise/fall.

 

Etc

 

Db

[tupapa 10]

My 90 Minute NQ trading for today, thanks DB for all the advice, everyday things make a bit more sense...

 

If I am in a possition, and price retraces maing a lower high I lower my stop loss 1 tick above the LH (Points 3.1 and 4.1)

 

The biggest factor in todays session was strong resistance at 2656, the top of the trading range we have been in for the last month and a half.

[DbPhoenix 42]

My 90 Minute NQ trading for today, thanks DB for all the advice, everyday things make a bit more sense...

 

If I am in a possition, and price retraces maing a lower high I lower my stop loss 1 tick above the LH (Points 3.1 and 4.1)

 

The biggest factor in todays session was strong resistance at 2656, the top of the trading range we have been in for the last month and a half.

 

Congratulations. Why so late on the short at 2?

 

Db

[tupapa 10]

Congratulations. Why so late on the short at 2?

 

Db

 

That trade really made me doubt and once I got in it was clearly to late..

 

Main reason why I didn't take is how wide and next to eachother all those bars are... I thought it showed big indecision but its difficult to explain how I perceived it in real time, I guess I just didn't have the confidence to take the trade.

[DbPhoenix 42]

That trade really made me doubt and once I got in it was clearly to late..

 

Main reason why I didn't take is how wide and next to eachother all those bars are... I thought it showed big indecision but its difficult to explain how I perceived it in real time, I guess I just didn't have the confidence to take the trade.

 

It happens. What's more important is that you didn't sit there and mope but kept it together to re-enter at 3.

 

Db

[DbPhoenix 42]

One other thing. If the "length" of the bars throws you off, keep a 30sec or 15sec alongside so you can see what's going on "inside" the bar, regardless of whether you use it for entry or not.

 

Db

[goodoboy 10]

It's too high/low. It can't go any higher/lower.

 

It's ready to roll over/rally.

 

Volume is too high/low.

 

Anything having to do with candles or candle patterns.

 

It's lunchtime. It will be dull.

 

It's Friday. It will be dull.

 

News is good/bad. Price will rise/fall.

 

Etc

 

Db

 

Thanks for the comments.

 

In the strategy, should I include when to adjust stop once the trade is my favor? I think in my strategy, the trade management part, I need to identify in what cases I want to break even and adjust stop in order for the entire method to be well defined.

 

If I understand your writing correctly, the strategy must be well planned and executed as such so that I am not second guessing myself in order to see true results. Do you mean trade the strategy exactly how its written?

 

Thank you

[DbPhoenix 42]

Thanks for the comments.

 

In the strategy, should I include when to adjust stop once the trade is my favor? I think in my strategy, the management part, I need to identify in what cases I want to break even and adjust stop in order for the entire method to be well defined.

 

The two chief reasons for wanting to break even are (a) you don't know what you're looking at and don't know what to do about it so whatever course price takes is pure chance so you'd rather just get out before the chaos loses money for you and/or (b) fear.

 

The underlying purpose of all this is to understand what price is doing and why. Only then can you work on how to profit from these movements. Attempting to short-circuit this process by jumping ahead to the profit stage will actually take longer because you'll never develop the understanding you require. Thus you will be starting over again and again and again.

 

Therefore, leave the stop alone and just sit and watch. If price reaches a point where you think you ought to get out, then write down what that point was and why you thought that. Define that exit point if you want to include that criterion in your plan. But don't exit simply because you don't understand what's going on or you're uncomfortable.

 

If I understand your writing correctly, the strategy must be well planned and executed as such so that I am not second guessing myself in order to see true results. Do you mean trade the strategy exactly how its written?

 

Yes. Exactly. Make the modifications later, not during.

 

Db

[goodoboy 10]

The two chief reasons for wanting to break even are (a) you don't know what you're looking at and don't know what to do about it so whatever course price takes is pure chance so you'd rather just get out before the chaos loses money for you and/or (b) fear.

 

The underlying purpose of all this is to understand what price is doing and why. Only then can you work on how to profit from these movements. Attempting to short-circuit this process by jumping ahead to the profit stage will actually take longer because you'll never develop the understanding you require. Thus you will be starting over again and again and again.

 

Therefore, leave the stop alone and just sit and watch. If price reaches a point where you think you ought to get out, then write down what that point was and why you thought that. Define that exit point if you want to include that criterion in your plan. But don't exit simply because you don't understand what's going on or you're uncomfortable.

 

 

 

Yes. Exactly. Make the modifications later, not during.

 

Db

 

Thank you. The comments makes sense. Everything must be analyzed (and included in the journal) and calculated such as the entry, exit, why the entry, why the exit, why this stoploss, why I break-even, why I moved the stop up/down! And all this analysis has to do with price action and reaction.