Trading The Wyckoff Way

[tupapa 10]

Why did you not go long at 66 or short at 92?

 

Db

 

Db, looking at the 10 min chart, would you say a short at rejection of 2477 (red line) is legitimate? Or would you pass it since the blue trendline prevails??

[DbPhoenix 42]

The trendline is irrelevant unless you bought a week ago. A rejection of 77 is a rejection of re-entering that last trading range.

 

Db

 

Edit: This is what I'm referring to:

 

Edited August 21, 2012 by DbPhoenix
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[40draws 10]

Hi DbPhoenix,

 

Thank you for your detailed response.

 

And, yes, it is a hinge, which is a type of springboard, which you ought to read up on as well, particularly considering the strategy you've adopted: gaps are especially prone to provide springboards.

 

That should prove to be an especially valuable piece of information, and I am adding it to my little "cheat sheet" tonight.

 

And, no, the volume is not a big deal unless you're at an inflection point of some sort: S, R, an exit from congestion, a climax of some sort. When you put the gas to a car, you don't keep it there without relief. Once you've achieved the velocity you want, you ease up and let kinetics take over.

 

That helps a lot, as I was a bit unsure how much to read into fluctuations in volume as price continues with the trend.

 

I suggest, for beginners at least, that you use a demand or supply line to trigger an exit.

 

That would have helped a great deal with today's second trade, which I will get to momentarily. I will do a search and read and study your examples of supply/demand lines.

 

At this point or shortly thereafter, you could consider a short, but that's not part of your plan, and shouldn't be until you're easy with what you've got going at this stage. For now, congratulations for getting out without a lot of unnecessary hand-wringing.

 

I have no problem with the concept of "selling short," and I understand what it means. But right now I am not comfortable with my ability to execute and manage a short trade. That is one reason I like the opposite way ETF's - when the general market is below its opening price, I do not take long equity positions. The short ETF's are a good vehicle for me to possibly participate in a down market on a down day without having to find common stock to short. Someday, I may add short selling to my plan, but for now any short type trade will be had by being long an ETF that rises if price of its index declines.

 

Definitely. This hinge doesn't last long, but it does what it's supposed to do. Gaps and hinges are supposed to release a force (effort and result). If they don't, then there's something wrong and you need to get out. You can worry about what it is that's wrong later.

 

There are also other threads which will be of interest to you, such as the springboard thread. I suggest that you also Ctrl+F the course for references to springboards. You'll be using these a lot.

 

I've added those materials to my to-do list. Thank you for pointing them out to me.

 

On to today's trades. I won't say much about the first trade other than the only thing I did right was to keep to my planned stop and get out quickly. It was a gap down, and I bought it. Buying gaps down is NOT my plan. I have seven trading days under my belt now, and today's first trade was my third real mistake. Thankfully, the first two real mistakes taught me the importance of sticking to my planned stop, so the loss was small, and a fortunate fill on the exit left me with a loss of 13 cents + commissions & fees. All of which would be more appropriate to a journal than a discussion of Hinges, so I'll move on the second trade and final trade of the day.

 

Here is the chart (I hope it is of a more viewable size than yesterday's attempt)

 

 

The hinge develops following a gap up opening. I did not manage an ideal entry at all. I was managing taking my loss on my first trade when this moved up out of the hinge. My entry was at the market and filled at 58.30 inside the green oval. I would likely have missed this trade completely but last night I read a post of yours where you called this your WTF entry - no pullback, so WTF you gonna do, miss the trade?

 

Anyhow, I bought and everything went nicely. At the high, I was up $1.31/share.

 

Here's where things got sporty, and this is why I say your suggestion to use supply/demand lines to time exits is going to get some study tonight and over the coming days. I missed the rising volume on the third bar after the top, and then the falling volume on the small bounce. At this point, I was expecting an orderly pullback and then a resumption, at some point, of the rising trend.

 

Well, long story short, I held it and held it, missing several clues along the way. The price action at the two blue vertical bars was what finally got my attention and I started to suspect that all was not well in Mudville. I finally exited, at the market, when volume evaporated on the bounce in the blue oval. My fill was 58.83. So a +$1.31/ share gain at the high was reduced to a +$0.53/share profit. For the day, I finished +40 cents/share less commissions and fees.

 

As a final aside, today I realized that a limitation to a web-based trading platform is that I cannot easily manage multiple orders for different stocks simultaneously. My broker has an Active Trader platform that I will be trying tomorrow or Thursday, so my trades will probably be put on hold until I learn the new platform. I'm not sure I can even access the active trader platform from my phone, so that may be on hold until I get a laptop with mobile broadband that I from which to trade. Again, a better subject for a journal, but I am thinking out loud and it is sometimes better for me to just complete the thought.

 

Thank you for your helpful attention.

[DbPhoenix 42]

What you see as a hinge isn't, but that's to be expected since this is something new. After you've seen a few dozen, this won't be a problem. A hinge is created by a series of successive lower highs and higher lows that work their way toward an apex coincident with a decline in volume. It should be "filled with price" and price should exit by the time it has reached two-thirds of the distance from the base toward the apex. But this is all in this thread.

 

What you have instead is simply a rally followed by a series of RETs. And I suggest that you change the aspect ratio of your charts somehow to something closer to 2:1. As it is, your chart is nearly too squashed for you to easily see the RETs, and that represents potential missed opportunities. If you're going to trade price action, you need to be able to see it clearly.

 

In any case, after 3 RETs, price takes off again to the upside. At this point, you can begin fooling with a demand line. When price breaks this, exit, then observe traders to determine whether the likelihood of continuation is lesser than or greater than the likelihood of reversal. Here you have a another series of 3 RETs, the third of which is higher than the second, so you could -- if you are confident enough and willing to exit the trade rapidly if it doesn't work out -- enter a new long where I've placed the green dot. When price breaks the next demand line again, exit the trade again and resume observing traders. This time buyers lose their resolve and create a series of lower highs, conditions for a short, but all that can wait till later. By following this procedure as is, without any unnecessary complications, you stand to extract the maximum -- or close to it -- profit from the initial move.

 

Your chief mistake was in allowing your expectations to shove aside your observational skills and better judgement, allowing hope to enter the equation. This is to be avoided at all costs, for obvious reasons. There can be no expectations or bias. Judge the market by its own action and respond accordingly.

 

Incidentally, you needn't continue posting in this thread just because you started here. You may prefer the Trading By Price thread or the Trading Journal thread. Whatever suits your needs.

 

Db

 

[DbPhoenix 42]

I posted this elsewhere several years ago, but I'm reposting it here because it may help to serve an explanation of the difference between trendlines and supply/demand lines in graphic form:

 

The job of the trendline is to show trend. The jobs of demand and supply lines are to show where demand and supply are entering the market. D&S lines can coincide with trendlines, depending on how micro one wants to get with his trendlines, but they are better used to detect changes in momentum which may lead to changes in trend.

 

You can see here that a number of supply and demand lines can be drawn within a trend, whether it forms a channel or not.

 

 

 

And, again, these lines can show the trader changes in momentum and provide an early warning that there might be trouble:

 

 

 

 

What was notable at the time was the failure to reach what was shaping up to be a new trendline but what was at the time just a supply line.

 

And for those who are curious, price tested the last swing low the following Monday and tried to rally, but it didn't resume its uptrend until four months later.

 

 

Edited August 22, 2012 by DbPhoenix
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[goodoboy 10]

hello,

 

There is a very nice supply line on the 5 min chart connected from 9:30 @1411 to 11:30am @ 1408.

 

Dismorning, was easy for me to determine to go short from overhead trendline (or supply line, i get them a bit confused, still learning).

 

In the pre-market price action was making lower highs since last night. taking the short, after bell open after failed break out at 1410, was a good trade and then use the supply line I mentioned above to stay in the trade.

 

How does that sound? Or should i post chart?

[DbPhoenix 42]

hello,

 

There is a very nice supply line on the 5 min chart connected from 9:30 @1411 to 11:30am @ 1408.

 

Dismorning, was easy for me to determine to go short from overhead trendline (or supply line, i get them a bit confused, still learning).

 

In the pre-market price action was making lower highs since last night. taking the short, after bell open after failed break out at 1410, was a good trade and then use the supply line I mentioned above to stay in the trade.

 

How does that sound? Or should i post chart?

 

I'll repost here what I posted earlier in the emini thread:

 

This is a good example of what I was trying to say earlier. For the intraday trader, the interday trend is not necessarily pertinent. Here, the trend is clearly down, until we reach support. At that level, what matters is not the trend but what traders do at that level: does it hold or not? But entering a trade until the direction is resolved is a high-risk choice.

 

 

I should also point out that we've been in a TR between 7 and 11 since last nite. Taking a trade until price exits from one side or the other may not be the wisest choice.

As for posting a chart, of course. Otherwise, no one knows what you're referring to, esp the inst. you're trading. As for demand/supply lines, see this.

 

Db

[quark 10]

DB. Given what you just posted, what are your thoughts on the S&P daily chart. We just hit the supply line & resistance line. Do you simply watch for signs of distribution here & then decide after you see signs of it or no signs?

 

[DbPhoenix 42]

DB. Given what you just posted, what are your thoughts on the S&P daily chart. We just hit the supply line & resistance line. Do you simply watch for signs of distribution here & then decide after you see signs of it or no signs?

 

 

If you're going to trade trend channels, then you have to trade the channel, i.e., sell the top and buy the bottom. The problem is deciding how to draw the channel. You've chosen to use the climax low as your starting point. One can also use the first swing low as the starting point. This can more closely hug price and give a different perspective on where we are now:

 

 

 

The referee is the regression channel:

 

 

 

 

Unfortunately, the regression channel doesn't always tell you what to do, and even if it does, its advice is not always the best.

 

Here, of course, the stick in the spokes is the R from last April, and that trumps the "trend". Therefore, given the manner in which price is reaching for that old high, I'd focus on that rather than on the prior trend.

 

Here also is a place where volume can be informative. I don't have it plotted, but it's relatively subdued, suggesting that sellers are allowing price to rise without too much resistance. We'll see what happens if and when they decide to start dumping their shares.

 

Db

[quark 10]

Ok thanks for your comments. You answered my real question. Support & Resistance trump the previous trend. As far as the study of Wyckoff goes, is that always the case, or just in this case since volume is low while price is rising?

[DbPhoenix 42]

Ok thanks for your comments. You answered my real question. Support & Resistance trump the previous trend. As far as the study of Wyckoff goes, is that always the case, or just in this case since volume is low while price is rising?

 

Price trends until it doesn't. When a trend hits a wall, i.e., S or R, what matters is what price then does about it. Does it bore its way thru and continue the trend, does it veer off sideways, or does it reverse? Volume can be informative, but it's the price movement that matters.

 

Stay tuned.

 

Db

[quark 10]

Price trends until it doesn't. When a trend hits a wall, i.e., S or R, what matters is what price then does about it. Does it bore its way thru and continue the trend, does it veer off sideways, or does it reverse? Volume can be informative, but it's the price movement that matters.

 

Stay tuned.

 

Db

 

DB. I will stand down & watch this one. However, a question. What is the standard rule of thumb for each case?

 

Blast through - do you buy the pull back after?

 

Sideways - Stand aside?

 

Reverse - Sell the rally?

 

I'm just curious if the trend is trumped by S/R, then how would a Wyckoffian respond.

 

Thanks

[goodoboy 10]

 

But entering a trade until the direction is resolved is a high-risk choice.

 

Db

 

I understood everything up to this statement. Are you saying entering the trade once at support is high risk? May I am not understanding how it is worded. Can you please re-word a different way. Thank you.

[DbPhoenix 42]

I understood everything up to this statement. Are you saying entering the trade once at support is high risk? May I am not understanding how it is worded. Can you please re-word a different way. Thank you.

 

Since I don't know what you were looking at or what you did, I can't answer except in a form so general it wouldn't do any good.

 

Db

[DbPhoenix 42]

DB. I will stand down & watch this one. However, a question. What is the standard rule of thumb for each case?

 

Blast through - do you buy the pull back after?

 

Sideways - Stand aside?

 

Reverse - Sell the rally?

 

I'm just curious if the trend is trumped by S/R, then how would a Wyckoffian respond.

 

Thanks

 

There are lots of examples of this in the Trading By Price thread and the Support/Resistance thread.

 

Db

[goodoboy 10]

Since I don't know what you were looking at or what you did, I can't answer except in a form so general it wouldn't do any good.

 

Db

 

I am referring to your post #91 when you stated:

 

"This is a good example of what I was trying to say earlier. For the intraday trader, the interday trend is not necessarily pertinent. Here, the trend is clearly down, until we reach support. At that level, what matters is not the trend but what traders do at that level: does it hold or not? But entering a trade until the direction is resolved is a high-risk choice."

 

Not sure I understand the last sentence. Maybe I am reading it wrong.

[DbPhoenix 42]

Entering a trade without knowing the direction of price is high risk. Since you haven't provided a chart, I don't know what you did or what you were looking at when you entered.

 

Db

[goodoboy 10]

hello all.

 

Below is my charts below on ES.

 

goodoboy larger view:

A larger view of the price action. There is long term trendline there

 

goodoboy regular view:

A regular size view.

 

goodoboy view 1:

Price action for the today

 

Question:

Do bottom two trend was broken today, but recovered back above. Can I still leave these two trendlines on the chart for future price action study? They both broke and held as price action rise back above.

 

goodoboy view 2:

 

1. Went short at 1409 after price action created lower highs and failed to break supply line in red at 1409. See first red circle. Was this good entry? Results: breakeven

 

2. Missed the short after failed break out after market open. I would have re-entered short at 1410 and use the second supply line to manage the trade and exit at first sign of break.

 

 

Thank you.

[40draws 10]

In order to succeed at trading, you must have an edge. Your edge begins with the knowledge you gain through your research and testing that a particular price pattern or market behavior offers a level of predictability and a risk to reward ratio that provides a consistently profitable outcome over time. Without it, one is just "playing" the market in order to have something to talk about on message boards... Therefore, focus on the setup. One setup. Determine its characteristics. . .

 

I had a long post ready to go, and it was wiped out when my anti-virus did an auto update and restart. Normally not a problem, because I am not normally on the computer typing anything this time of night (that's why I have the update scheduled for this time of day). But I do not have it in me to re-type it as I not a typist to begin with.

 

Thank you for your essay on the trading journal/trading log. I keep a journal and log which are written out long hand.

 

To re-cap today's trades: First trade was a loss. All my fault: I tried to game the trade by entering early, i.e. entering without price having tripped my trigger. Price never did trade at my trigger level and instead made a beeline for my stop loss. Result -18 cents/share. This is not the first time I have done this. I would like for it to be my last, but I doubt it will. Something that I need to work on.

 

Second trade: A late entry (again, like yesterday, I needed to use your WTF light volume pause to get in on the move): I have been using 1 and 5 minute charts, but today I was able to trade from my office, so I was able to chart off the computer instead of my phone, and I got to use a tick chart for the first time. It was pretty zippy and it will take a lot of getting used to. It did have the benefit of allowing me to eye a demand line break which got me out with 51 cents of a 54 cent move, which proved to be the high for the day. I would not have made so nimble an exit if I had been using either then 1 or 5 minute chart alone. Result +51 cents/share, for a 33 cent/share profit for the day less commissions and fees.

 

I would like to post a chart that I did not trade today. This is the 5 minute chart of REGN, a stock on my watch list of day trading candidates. First, I did change the aspect ratio of my charts per your suggestion from yesterday. It certainly makes the retracements much easier to see and to put into the context of the day's trend. Thank you for that suggestion.

 

Yesterday I mis-identified a Hinge. Today, I think I nailed one on REGN. I "paper traded" it as this hinge did not develop after a gap outside the previous day's range, which is what my set-up is - kind of a combination opening range breakout when the breakout is preceded by a hinge. My paper trade would have had me in at about 136 and out on a demand line break (not shown) that should have seen a fill in the 138.80 - 139 range.

 

Anyway, a simple question, and I'll say goodnight: Is this or is this not a hinge?

 

Thank you for you help.

 

[DbPhoenix 42]

Unfortunately, I have little to add to what I've already posted today, here and elsewhere. The interday trend is not particularly pertinent to intraday trading. Therefore, none of your trendlines are particularly pertinent. All that matters is that price was in a downtrend from last night to this morning until it found S at 1407, probably because of the R it found there last week. It then rallied to 11.5 and traded in a range thereafter. And that's all there is to it. If you're going to trade a range, you have to sell R and buy S. In a narrow range, there's no time for RETs; you have to just do it. But given the trivial reward, I don't see the point, unless you want to begin scalping, which is too often the refuge of traders who don't know what they're looking at.

 

To enter below R and above S is no good either, particularly if you're doing it in the hope that price will exit the trading range. That's not how it works. The risk is too high. If the range isn't wide enough to trade for a reasonably reward and you can't wait for price to exit the range and begin trending again, then don't trade at all. Just wait for the right circumstances. There are no trades here, with the possible exception of longs at 1130 and 1400 (EST): the first would have yielded a point and the second three points, on a 1m chart, if you played it well. Is that worth sitting in front of your computer for seven hours?

 

Below are the relevant supply and demand lines during this timeframe. They'd be easier to see on a 1m chart, but such a chart would be far too big for this timeframe, and it's all hindsight anyway.

 

I'll try again to drive home the point that MAs and trendlines do not provide support or resistance. That's not their job. So don't rely on them for such. If you can't help doing so, leave them off entirely.

 

 

[goodoboy 10]

Entering a trade without knowing the direction of price is high risk. Since you haven't provided a chart, I don't know what you did or what you were looking at when you entered.

 

Db

 

hello,

 

The chart is from 8/20. A sell off occurred and price action broke supply line until some support is reached and price stops. Since I don't know what direction price will go next. I have three options 1. wait for price to break below the consolidation range where it stopped, short on retrace or 2. wait for price to break upwards from the consolidation range where price stopped, buy on retrace. 3. buy from the support of the consolidation range where price stopped.

 

Since I am no expert, I will choose option 2 and buy on the second green circle. choosing option 3 is high risk and will get me in trouble.

 

Thanks,

[DbPhoenix 42]

hello,

 

The chart is from 8/20. A sell off occurred and price action broke supply line until some support is reached and price stops. Since I don't know what direction price will go next. I have three options 1. wait for price to break below the consolidation range where it stopped, short on retrace or 2. wait for price to break upwards from the consolidation range where price stopped, buy on retrace. 3. buy from the support of the consolidation range where price stopped.

 

Since I am no expert, I will choose option 2 and buy on the second green circle. choosing option 3 is high risk and will get me in trouble.

 

Thanks,

 

You're taking my comments out of context, in isolation, and drawing unintended conclusions. If you'll review the posts I made yesterday here and elsewhere -- there aren't many -- you'll note that I made them with regard to trading ranges. Entering a trade within a trading range is high risk because price has no direction other than up and down within the range. You're buying and shorting within the range in hopes that price will exit the range and reach targets outside the range. If you're going to enter within a range, you can't expect anything better than to reach the opposite side of the range.

 

With regard to your chart, there are no TRs at the time you want to take your trades: there is a move down, a rally to the last swing high, a resumption of the move down, a rally to the last swing low (which is an op to short), a further move up to the opening high, a drift down to 1412, then up to the opening high again, then the close. Since the trend is down by the time you've drawn your first circle, the focus is short, not long, until you get a higher low, since you don't know where support is, except in hindsight. Therefore, your second circle designates a short op. When you then make a higher low, you exit and go long five or six bars later. Whatever TR there may be doesn't form until after lunch, when price can make neither a new high nor a new low.

 

I'm going to assume that you haven't read the trend thread, the S&R thread, or the course, at least the "Wyckoff Lite" version (when you reach Section 7, you'll find that there's not a single trendline anywhere). Until you do so, you're just wasting your time with one trade after another, trying to create a strategy out of what are essentially random trades, without any study. Yes, that can be done, but why? It takes far longer and there's no reason for it.

 

Stop trading. If you're going to use price action, then focus on analyzing price action (see post #60 and forward). You have to understand what you're looking at before you can know what to do with it. Otherwise, the best you can hope for is lunch money.

 

 

[DbPhoenix 42]

Is this or is this not a hinge?

 

It qualifies, though the volume is pretty feeble. A better op which you ought to consider is the RET following the opening rally. This would get you in much earlier, and it's an excellent trading entry as you're able to trade off others' emotions -- and games -- whereas with the hinge you're trading off a battle, which is more calculated. A minor distinction perhaps, but one worth keeping in mind.

 

Db

 

Edited August 23, 2012 by DbPhoenix
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[DbPhoenix 42]

This is today's ES, so far.

 

What's going on?

 

 

 

[goodoboy 10]

 

I'm going to assume that you haven't read the trend thread, the S&R thread, or the course, at least the "Wyckoff Lite" version (when you reach Section 7, you'll find that there's not a single trendline anywhere). Until you do so, you're just wasting your time with one trade after another, trying to create a strategy out of what are essentially random trades, without any study. Yes, that can be done, but why? It takes far longer and there's no reason for it.

 

 

 

Thanks for your post Db.

You are correct, I have not read as much as I should have, but I do study AND practice, this why I look for trades daily. This is the only way I can learn is by doing it and keep a journal on what I am doing.