Trading The Wyckoff Way

[goodoboy 10]

Hello,

 

I think the answer to my question is "yes", but I just want to be sure. It may sound silly too.

 

For the past 5 months, I took a break from buying stocks. I normally (well try to) swing trade stocks that I believe have decent fundamentals.

 

Well, lately I been studying, learning, and practicing intra day trading the ES via price action Wycoff method.

 

Can I use this same method price action as I do with intraday trading ES with swing trading stocks that I like? I was thinking to use daily chart to for these stocks. I know Wycoff traded stocks, but I believe he day traded stocks. I was looking more long term, or atleast until the trend of this stocks stops.

 

Hope I am making sense.

 

Thank you

[DbPhoenix 42]

Part 1 of the course focuses on trading and investing. Part 2 focuses on daytrading. See "Getting Started".

 

Db

[DbPhoenix 42]

Today is straightforward. The conditions for the rally on the 6th and the decline on the 10th were still in place yesterday for the rally back to R, though there is now more activity in this particular zone. Thus there were multiple ops for entries for anyone who was in place at lunchtime, and no resistance along the way.

 

See previous post for the TRs.

 

Db

 

 

 

 

 

 

Add pre-open charts:

 

 

 

 

 

Edited September 14, 2012 by DbPhoenix

[DbPhoenix 42]

Another free ride, this time from 38 to 64 (see TIF post from this morning).

 

Db

[BlueHorseshoe 10]

I got into a few problems today. In the morning in RT I don't have access to futures so had to use QQQ as my surrogate for NQ.

 

If you have a search around on the forum I'm sure you'll find recommendations for free realtime futures charting. http://www.prorealtime.com is pretty good as it doesn't require any software installation, and you can sign up for a free trial with intraday data. If you're happy installing stuff, then you could get a trial SIM account with any broker that also offers charting - Infinity have Sierra Charts, which is pretty popular.

 

Hope that's helpful.

 

BlueHorseshoe

[PrymeTyme 10]

Prymetime, did u enter the trade as gold left the hinge or did you wait for price to retest the midpoint??

 

Whats your plan regarding exits, and scaling in or out??

 

Congratulations for the trade, looks like it could carry on going for some time

 

 

 

Hello tupapa

 

i dont trade gold ATM .. just paper trading and tracking like i would if i trade gold

(same for stocks )

 

i would have entered on the test of the hinge-midpoint .. and added on the tests,

 

as for exits ..

well for that you would need to know my trading plan.. wich in this case is different

as i have two seperate plans one for intraday and one for swing/position trading

 

i dont use TPs on position trading , i will diversify each position to keep the balance on a smooth and steady upwards stride.. and to cover losses..

 

attached are my trading plans... the first one i ever wrote(TradePlan) and the two actual and updated ones(Intraday/Swing).. they change regulary as for example i dont use PnFs anymore and some other stuff.. i rewrite them regulary ,add or delete stuff ,, they change as my progress changes ..

 

cheers

TradingPlans.rar

Edited September 15, 2012 by PrymeTyme

[goodoboy 10]

Trading in 90 Minutes:

 

 

Hello Db,

 

Thanks for sharing.

 

I notice on the last two trades the exit (blue dots) was before the stop loss (white circle) was touched.

 

Any reason for not placing stop loss below the support?

 

Was the exit taken because of failure to breakout above resistance?

 

Thank you,

[Gringo 10]

 

I notice on the last two trades the exit (blue dots) was before the stop loss (white circle) was touched.

 

Any reason for not placing stop loss below the support?

 

Was the exit taken because of failure to breakout above resistance?

 

Thank you,

 

Hello goodoboy,

 

This is only my opinion of why the exit was earlier.

 

1) If you notice the price wasn't even able to reach the previous high of 2611 and that showed either the weakness in demand or a strength of supply. In any case the failure of price to show strength prompted or justified an earlier exit instead of waiting for the stop to be hit.

 

2) Stop could have been below the bar low where the long was initiated. These are based on personal risk tolerances. Perhaps the significant earlier advance and the fact that price had made a LH probably induced some caution into this stage of trading.

We only have price to make our decisions but that violent up and down price move before the TR beings could have been a potential climax for buyers and a potential harbinger of the trend being over. This could have prompted some caution towards taking too aggressive a long, hence, leading to increased caution and closer stop.

 

3) "Failure to break out above resistance": This actually isn't visible in RT and only a product of hindsight trading. When the long is initiated at that time the resistance line probably couldn't have been drawn at 2610 as the test of 2610 happens in the future i.e., after the long has already been exited.

 

Gringo

Edited September 16, 2012 by Gringo

[edswifa 10]

Hello,

Sorry I appear to have been loitering in this forum for a long time with no input from me, while trying to study the original course (PDF) from the stickies.

 

I found my way here from trying to learn VSA and soon discovered that the Wyckoff course appears to put context on VSA and does make understanding the way the market works relatively simple.

 

I have been making a few spreadbet trades on UK stocks (EOD) because I have a full time job and the daily timeframe allows me to spend time in the evenings. After reading section 7M a couple more times I realised I have not been coordinating my trades with the intermediate swings of the FTSE100 index (a light bulb moment). :crap:

 

Any way onto my reason for posting:

I have some questions about two charts wyckoff talks about, the wave chart and the position sheet.

 

Is the wave chart used for intra day trading only or can it be scaled out onto a daily vertical bar chart of a stock/index?

 

The position sheet, I havent seen anyone in this question thread mention it. Is this chart still relevant today and can someone please explain the instructions on how to create it?

I have really struggled with the position sheet, can it be created from vertical chart or P&F only?

 

Hope my questions are not too stupid.

 

edswifa.

[DbPhoenix 42]

Back in the day, particularly at a time when more and more stocks were being listed on the exchange, some means of dialing back the noise and bringing up the signal was a more than worthwhile pursuit, particularly when so much was done by hand. Under those circumstances, determining the five leading stocks and following them was infinitely preferable to following all the listed stocks.

 

Today, however, and while I don't want to discourage you, I haven't found much use to the wave charts, primarily because there are so many market averages, so many sector and group charts, so many specialty indices, all of which have instantly obtainable charts. I don't know if you have as many sector and group charts available as we do, but a quick looksee shows that you have quite a few under at least the FTSE 350. If the FTSE looks good, and the sector/group chart for your stock also looks good, you may find that you can just skip the whole wave chart thing.

 

As to the position chart, I suggest you skip that as well. Given that you can scroll through as many charts as you like to determine which stocks are basing, which have broken out, which are forming springboards or are retracing, etc., there's no reason why you can't settle for a nightly review of all that, and if you've limited your universe of stocks to, say, twenty, or even ten, then the need for position charts becomes even less.

 

If you've been lurking "for a long time", you may not have noticed that I've suggested an abbreviated form of the course. This may be more to your liking and may better suit your needs. Certainly if you monitor the major UK indices and sectors, you won't be able to go too far wrong. And the whole review process needn't take more than ten minutes.

 

Db

[edswifa 10]

Thankyou db,

Your answer has confirmed an assumption of mine that those charts were more use when computers/charting software didnt exist.

 

I will certainly read over the short version you have provided.

I have read the 400 page original course a couple of times now together with printed charts and I cant believe how anyone would want to do anything different, its amazingly obvious really.

Definitely need to keep reading it though, I will always find something I missed last time.

[philmg 10]

Hello,

 

I have read in the "trading journal" thread the process description of system development and a lot of emphasis is given on testing ones system/rules.

Now I am wondering how to actually do it in practice?

The Wyckoff way does not seem to be an exact science, so at least I cannot figure out how to code the Wyckoff principles into an algorithm and test it on large amounts of data.

So, when your recommend backtesting, do you actually mean applying your system manually on historic charts or do you use some coding to test your ideas?

The manual way will be tough, since one needs to create a large sample, right? Also, when doing it manually, how do you distinguish backtesting and walk forward testing, when both is on historic charts?

 

 

Thanks for advice and this great forum!

Phil

[DbPhoenix 42]

So, when your recommend backtesting, do you actually mean applying your system manually on historic charts or do you use some coding to test your ideas?

 

No coding, no algorithms, no computerized backtesting at all. It's all done manually.

 

The manual way will be tough, since one needs to create a large sample, right?

 

Depends on how long it takes for you to get it. If you have a lot of experience with coding and indicators, it will likely take you far longer to get it than it would someone who's starting fresh for you are more likely to view price as something independent of the efforts made by buyers and sellers to arrive at that price.

 

Take support, for example. A lot of traders view support as a mathematically determined level or point that one reaches by calculating Fib or Pivots or plotting MAs or whatever. But support is none of that. Support is that level or zone where buyers decide for whatever reason that they are going to stop the decline of price and turn it around. This entails a different way of looking at price and price movement. Price is the product of an activity. To trade by price, at least according to Wyckoff, one must understand the nature of that activity and not define price solely as prints on a page or tape.

 

You may, therefore, be able to distinguish between trend and trading range by looking at only a handful of charts. Or it may take dozens. Or more. Or you may never be able to do it (and don't feel bad; there are plenty of vendor/pundits who can't tell up from down and consequently make one losing countertrend trade after another).

 

Also, when doing it manually, how do you distinguish backtesting and walk forward testing, when both is on historic charts?

 

When you backtest, you're surveying or scanning from some point backward, right to left. You see the result and you want to figure out how that result was obtained. For example, if you find a trend day, where and how did the trend start? How was the activity different before and at the turning point from what it was during the preceding downturn/upturn or trading range? Once you've found what you think are the key elements that determined or at least affected the turnaround, you choose charts at random, and you either replay them in simulated real time or you cover them up and disclose the price points only one at a time, reading from left to right. Look for those elements which are part of your hypothesis. When you find them, see if they offer the desired result. If they do, keep going until you find another of your patterns. If they don't, determine where you went wrong in your hypothesis and try again. Once you have this, you'll be able to determine support and resistance and trend and trading ranges in real time. You will then be at a point where you can look at how to take advantage of this knowledge with minimum risk and make some money.

 

The most common error traders make when learning this approach is to try to determine where they should enter and where they should exit in order to make the most money with the least risk rather than determine what's going on with the traders involved in the trading activity that's occurring in front of them. Since they don't understand what's happening in front of them, i.e., they don't know what they're looking at, they don't know what to look for. So they guess.But whether the guess works out or not is irrelevant to their ultimate success -- or failure -- because there is no structure to their trading, no thoroughly-tested underpinning (e.g., they think price is in an uptrend, so they go long). However, they figure that as long as they keep making these guesses in more or less the same way, they are being "disciplined" and will eventually meet their objectives. Of course, it's always possible. Monkeys at typewriters. But it will take years, and they will more likely go broke before the light ever dawns. How much more efficient , and profitable, to do the testing in the first place.

 

If you can anticipate where price is most likely to break trend and move sideways or reverse and what it will do thereafter, you will be far more likely to profit from that anticipation than if you have no idea why traders are doing what they're doing and view all of this as a random sequence of events. For instance, one of the more important things you'll learn as a result of testing is that entering trades inside a trading range is riskier and less profitable than entering trades at the limits of that trading range. But this is something that you have to prove to yourself through testing, which is both risk-free and at-your-own-pace. If you decide instead to skip the testing and treat it as some sort of principle, you won't internalize it, and you'll violate it repeatedly, involving yourself in losing trades again and again.

 

Explaining all of this to someone who's in a hurry is much like talking to a post. If you yourself are in a hurry, the best I can do is to urge you to hurry as slowly as possible. Read the course (or at least the abbreviated form I've suggested), read the stickies, read the threads, study the charts and efforts and experiences of those who've come before you. Then open up some old charts and see how much sense they make to you without guidance. If you're used to using bars and candles as indicators, convert the display to a line chart. Once you're able to understand the continuous flow of and interaction between trading activity and price movement, your chances of success will be much greater.

 

Db

[Gringo 10]

The Plan:

 

Things I have discovered:

 

1) 10:45 - 11am onwards is a dangerous time for a day-trader. The moves are slower and profits start to evaporate. Once in a while price picks a direction and rewards the tenacious and the alert, but overall it's a net losing proposition in my opinion to trade beyond 11am.

 

2) TR is a death trap, especially if it is prolonged and narrow.

 

3) Sitting pat on a TR day.

a) A new discovery. I had assumed day-traders always jumped in. Db, doesn't jump in, why should I?

 

Things to figure out:

 

3) What rules can I identify to help me not go against the trend. I have pre-empted the change a few times in my replays even though the trend was still intact. Although the SL/DL got me out reasonably, I was too quick to reverse my position resulting in a forced exit.

 

I am going to need more rules to keep me out until trend reversal has been confirmed. Now this going to involve a classic trade-off between price risk and information risk.

 

If a short position is exited after break of SL and a successful test ensues.

 

a ) Do I go long even though the TL is still down? or

b) Wait till the TL or LSH is exceeded? or

c) Both TL and LSH are exceeded?

 

As strange as it sounds, I have grappled with these questions before especially when the live chat room was in place but because of the plan I can't hide any more behind fake and forgotten understanding. There isn't much time to think while the price is moving and the moment I get confused and indecisive I know more precise rules are required for the conditions.

 

Having a plan does allow me to see what is working and where tweaks are necessary. Even with pure trial and error the bad parts getting replaced should eventually lead to an improved performance. Didn't Darwin say something like this as well?

 

Gringo

[40draws 10]

The Plan:

 

Things I have discovered:

 

1) 10:45 - 11am onwards is a dangerous time for a day-trader. The moves are slower and profits start to evaporate. Once in a while price picks a direction and rewards the tenacious and the alert, but overall it's a net losing proposition in my opinion to trade beyond 11am.

 

I have observed that the best entry is usually between 9:35 & 10:00 AM. This first move usually stalls between 10:30 AM and 12 noon. Then the stock often drifts lower until sometime between 12:30 PM and 2PM. If price then moves up on high volume compared to the volume during the pullback, then a new entry often works.

[philmg 10]

Thanks DB,

 

I feel relieved, that I actually did understand your advice correctly in the first place, which is to go through testing manually. Coding is a very different approach obviously and is more a kind of software development than trading.

 

i have read your "short" course and have been lurking around for a while, but never came accross a copy of the full course. Where can I find it?

 

Cheers!

 

P.S. the Wyckoff forum is the first tarding forum I found, which really drives my learning process. Before I was trashed with all the indicator/bling bling nonsense all over the internet.Thank you for your great moderation!

[DbPhoenix 42]

If a short position is exited after break of SL and a successful test ensues.

 

a ) Do I go long even though the TL is still down? or

b) Wait till the TL or LSH is exceeded? or

c) Both TL and LSH are exceeded?

 

Remember that a break of a TL and especially of an SL or DL suggests only a change in the stride, not a reversal. Unless you are at or near S or R, there's no reason to assume a reversal. The break may be nothing more than a pause. Go over past trend days to see how often this is true, and at what level price truly does reverse.

 

As to getting out, yes, you should, but not necessarily with the intention of reversing. You get out to minimize your risk and avoid fear triggers but also to reassess the situation. If you're at neither S nor R, there's no reason not to anticipate a continuation, and if the trend has been, for example, up, you can place your buystop above the pause so that you won't be stopped in if price instead falls.

 

As to your questions:

 

a) No. If you're using a TL to make these decisions, you probably won't be happy with the results. Given the way the TL is drawn, and given the angles of climactic price moves, it is likely that price will be some distance from the TL when it bottoms and prepares to reverse. This is what SLs are for. But there are other considerations. Are you at or near S? Was the downmove substantial enough to warrant a test? Or is a V reversal more likely? Are traders worn out when price hits these levels or are buyers ready to rally? Does price hit S hard and fast or does it just drift down as though it were settling in for a nap?

 

b) As to the LSH, this is the old risk quandary. Remember that W considers the first bounce as the highest information risk/lowest price risk entry. The test carries less of the first and more of the second. Getting past the LSH carries the least information risk but the most price risk. So it's your choice. If you're going to trade at all, you have to carry one kind of risk or the other. If you're not prepared to do that, then leave it alone. Otherwise, be prepared to exit at the first sign of possible trouble and accept the fact that you may need to re-enter very quickly, perhaps immediately. Keep in mind, though, that if there's any sort of move in the offing, it's unlikely you'll have to try more than twice. If you do, the odds increase that you're looking at a potential TR being set up.

 

If after all this these potential reversals still tie your stomach in knots, then you probably haven't studied enough of them in replay. These flutters of activity at S or R ought to elicit a Hmm, not an Oh shit. If the latter, then you haven't sufficiently planned what you're going to do in these instances. Once you have planned sufficiently, and truly accepted the risks involved, the turmoil disappears.

 

Db

[DbPhoenix 42]

i have read your "short" course and have been lurking around for a while, but never came accross a copy of the full course. Where can I find it?

 

See the links in the Getting Started stickie.

 

Db

[SIUYA 11]

The most common error traders make when learning this approach is to try to determine where they should enter and where they should exit in order to make the most money with the least risk rather than determine what's going on with the traders involved in the trading activity that's occurring in front of them. Since they don't understand what's happening in front of them, i.e., they don't know what they're looking at, they don't know what to look for.

 

Db - I pulled this out of my own trading plan that I wrote many years ago (starting to review it again)...I hope it helps rather than hinders and does not interrupt the flow of this thread........

 

"Due to this ever changing ebb and flow of S/R the best trade entries are not necessarily found by blindly trading breaks of price levels. The context of what has occurred previously in terms of price movement as well as the market context/bias is also important. (In other words, one price move is not equal to another price move of the same type)"

 

Its not Wyckoff, but it seems that I have inadvertently followed a similar path......and I would imagine that many traders to become successful might do a similar thing. It is hard to auto trade - because one price move is not equal to another price move of the same type. (my recent coding experience reminds me of this)

 

By understanding how its happening, what is happening and how the bars are printed so to speak, it becomes easier do do as you say..........

 

"If you can anticipate where price is most likely to break trend and move sideways or reverse and what it will do thereafter, you will be far more likely to profit from that anticipation than if you have no idea why traders are doing what they're doing and view all of this as a random sequence of events. "

 

It becomes a bit of the "if...then....should occur" process.

[DbPhoenix 42]

Its not Wyckoff, but it seems that I have inadvertently followed a similar path......

 

Actually, it is. W stresses that it's not the breaking or violation of a line or level or point that matters but the manner in which the break occurs. If, for example, price drops below support, this does not necessarily mean that the trader pegged support incorrectly. What is more important is what price does then. Does it shoot back up above support (or the TL or whatever) like it touched a hot stove? If so, then this not only reinforces the support level (or whatever) that the trader was using in the first place but also makes it that much stronger.

 

So, yet again, it isn't levels or zones or points or lines or bars or candles or whatever else one is incorporating; it's how traders behave at these junctures.

 

Db

[DbPhoenix 42]

Things to figure out:

 

3) What rules can I identify to help me not go against the trend.

 

Were you watching the NQ this morning?

 

Db

[Gringo 10]

Hi Db,

 

I am not as available at all times in the morning as in the evening. The same TR from a two days ago meant less chance of action and real action happened after 10am. I couldn't really find an entry before 10am and then gave up the idea that that it was going to trend. Now I see things evolved rather nicely after the first half hour of trading.

 

I did see the reject from range top but was of the mind that the chop will continue instead of thinking of it as an opportunity to trade within the range. Same with TR bottom and the V rise. Had I entered the trade management was ideal, even the DL didn't break for some time.

 

Your earlier post has given me enough to incorporate in my plans and I'll be back to testing soon.

 

I'll be looking at:

 

1) Using TR extremes for using as entry points with the idea of playing within the range.

a) Danger of chop within the range.

b) Is it even worth the hassle?

 

2) PDH/PDL in addition to the S/R are also becoming a bigger part of the plan. Being within their vicinity adds quite a bit context to the moves.

 

3) Volume is out (for now).

 

Gringo

 

p.s. I am testing different days of the different months one by one to have a better reaction to price move itself than having knowledge of whether it was a trending or range bound that day. Because of the rules though, it doesn't matter much whether I knew in advance the price movement as it is the rules that get me in and out even when I know the ultimate outcome.

[DbPhoenix 42]

I ask because I'm wondering what you do to prepare. Don't forget the basics. Before you think about where you want to go, you have to figure out where you are. Therefore, always start with the market. What has it done? Where has it left you?

 

In this case, with the NQ, price had risen above the TR of the last two days but choked at the high made several days ago, returning to what might act as S, the high of the TR at 52 +/-. Rather than react to what appeared to be S, however, traders futzed around there for fifteen minutes prior to the open. At the open, price then plummeted to the midpoint of what had been the TR, at which point there was a nice and tradeable bounce.

 

Re the TR, it doesn't matter if you use lines or boxes, it's all the same thing.

 

 

 

 

[Gringo 10]

Hello,

My demo play. It wasn't quite difficult especially after getting homework done the previous day.

 

Note the play of S/R and midpoint. Around 11am I called it quits. I wasn't trading with real money but testing my plan and notice the lack of volume indicator!

 

The first long was taken reluctantly. After such a large drop I wasn't certain but price was close enough to S/R and was showing the ability to rise so I took it based on these two factors. Now distance from S/R is relative and I'll replay tonight to see what else I could have done.

 

I was eyeing the price and posted DL/SL after wards to make it easier for those watching this thread to follow what was going on.

 

 

 

 

 

 

Gringo

Edited September 20, 2012 by Gringo

[DbPhoenix 42]

If you did this in RT, congratulations. This is exactly the way it ought to go. But is it QQQ that you want to trade? Or something else?

 

Db