Trading The Wyckoff Way

[DbPhoenix 42]

...price behaviour works independently of the time preference or bar intervals used. Once the support/resistance, supply/demand, and trend are taken into consideration the rest is just not as difficult.

 

Once the logic of how price moves is understood the vehicle to take advantage of that movement is a personal choice. Most would be advised to base it on risk tolerance and money management criteria determined by their plan.

 

I also want to make it clear that the the short may not be profitable. The idea is that you cut your losses quickly and over time the correct decisions lead to increases in profits as sooner or later the price will go in the intended direction.

 

What he said......

 

Db

[DbPhoenix 42]

This space reserved.

 

Db

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I set aside this second spot because message board people so often won't read more than the first two or three posts; hence the same questions being asked over and over again.

 

Here I'll post links and copy stuff from the past that pertains to the subject of entries. It may or may not be helpful, but at least it will be in one place.

 

1. ...the best trades are found at the extremes. Therefore, you wait for the extremes. I read somewhere recently -- and can't remember where -- having to do with MP, I believe, that most experienced traders will avoid trying to catch the tops and bottoms and focus on "the middle", waiting for confirmations to enter and confirmations to exit. This is likely what they were taught to do. However, since "the middle" is by definition where most of the trading is going on and is largely non-directional, there is also a lot of whipsawing in the middle, and that generates a lot of losing trades. One can sometimes avoid this by widening the stops, but, since the market always teaches us to do what will lose the most money, this will turn out to be an unproductive tactic.

 

W used a combination of events to tell him when a wave was reaching its natural crest or trough: the selling/buying climaxes, the tests, higher lows/lower highs, and so on, all confirmed by what the volume was doing and by the effect the volume had on price (effort and result). What auction market theory provides is the WHERE these events are taking place, providing an important clue as to whether they are culminating or merely preliminary. Since W was big on extremes (climaxes), support and resistance, stride, momentum, midpoints, etc., I do not view any of this as being off-topic at all. If anything, it's just a natural extension.

 

Dunnigan had this same issue, and it may have been for him the missing piece. TLo also had problems with this since she was (and I suppose still is) a Dunnigan fan. One can try to hit what appear at the time to be the important swings again and again and be stopped out again and again, hoping all the while that once one hits the true turning point, all the effort will turn out to have been worthwhile, and the P&L will change from red to black. But by waiting for the extremes, one avoids most or all of those losing trades, and even more important avoids trading counter-trend. These boxes -- which are simply a graphic variation of the MP distribution curve, whether skewed or not, or of the VAP pattern -- are nothing more than a means of locating those extremes. What I've found more useful about them is that they are encapsulated by time, i.e., the price and volume ranges have a beginning and an end. This enables me to see at a glance where the important S&R are, or at least are likely to be. Without them, one ends up with line after line after line until the S/R plots become a parody of themselves.

 

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http://www.traderslaboratory.com/forums/wyckoff-forum/3739-riding-wyckoff-wave-20.html#post34758

 

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Teresa Lo said way back when that there were three types of strategies: breakouts, retracements, and reversals. Her credo was simplicity, and this was about as simple as it gets.

 

Wyckoff, on the other hand, didn't like breakouts. He liked to enter inside the crest or the trough after testing support or resistance. His preferred entry -- though the most aggressive -- was to enter inside the crest or trough of the climax. Second favorite was to wait for the test and enter the same way. The least favorite was to enter on the break beyond the swing point inbetween.

 

But there's nothing particularly intuitive about it. And it's a matter of preference only if the preference yields a profit. That is, one may "prefer" breakouts, but if he hasn't thought through the general strategy and the specific tactics, his preference is irrelevant.

 

So breakouts are more or less off the table. The retracement after the breakout is preferred, partly because one avoids getting trapped by a fade (in case the breakout was nothing more than a thrust) and partly because the retracement gives the trader the opportunity to gauge genuine interest (if there isn't any, the "retracement" becomes a failed breakout). The problem here is that one must often work his way down to a pretty small interval in order to find a good retracement. Otherwise, price may seem to take off without ever giving him an opportunity to jump on board (this is yet another reason why I like the 1-tick chart).

 

As for reversals, the best are most likely to take place at S or R, but we've been through that ad nauseum. One isn't always dead on when it comes to plotting S/R, but that's just a matter of practice and experience. Entry, on the other hand, is very flexible depending on how much risk the trader is willing to assume, and he needs to think about the three types of risk (information, price, and opportunity) very early on. If he doesn't, his stops are going to be in the wrong place and he's going to end up either with big losses or a lot of little stopouts that precede continuations that he'll miss because he got stopped out.

 

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http://www.traderslaboratory.com/forums/wyckoff-forum/3879-ask-any-wyckoff-related-question-31.html#post77644

 

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http://www.traderslaboratory.com/forums/wyckoff-forum/6459-then-there-were-three-breakouts-retracements-7.html#post76325

 

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Edited October 22, 2012 by DbPhoenix

[Gringo 10]

Price has so far made a lower high (LH) and lower low (LL). 69.8 is the LH and 66.53 is the LL as marked on the chart. This has given me an indication that there is some weakness in the price behaviour.

 

Now I am looking for price to turn downwards after the current rise that's in progress. This drop if it comes should result in the break of demand line (DL) in the 2 hour chart first but even the EOD should alert us to the downward move. The entry may be a bit later as compared to a smaller bar interval but we're not playing for pennies here.

 

Gringo

Edited October 17, 2012 by Gringo

[Bern 10]

 

This was my morning today (all of this is simulator, not real money).

 

Pink circle 1 was a short I was tempted to do as a DT reject resumption of downtrend but I didn´t since it was into 2756 pot support (overnight low)

 

Blue circle 1 was a long I took after the mini DB (only seen in 15 sec chart) and RET at- of 2756. I exited at red line after the sharp /\ and the DL was broken.

 

Pink circle 2 was a long I hesitated and missed as a RET. I was confused by the sharp comeback of the previous /\. I don´t know...smarter guys than me were long there during the chatroom

 

Blue circle 2 was a long I took, maybe a very silly thing to do. I can only justify it by saying that somehow I was waiting for a RET there after the strong directional market before but maybe I should have taken into account that the wave down from the HOD was showing that there was clear selling pressure ....Again, the smart guys were short since reading that there has been already a LH after the HOD. I exited my loss at red line.

 

I cheated and trade past the 90 min period: Blue circle 3 is a long that I took reading it as a HL after the retest of 2767,50-2768,75 (coming from the overnight session). I don´t know, maybe it should have been more prudent to wait till pink circle 3 RET. I exited, maybe too shy, at red line.

[DbPhoenix 42]

To Bern and eminiman414:

 

Do the two of you have trading plans? If so, what are they?

 

Thx

 

Db

[Gringo 10]

Hey Guys,

 

My first chart is just showing some of my choices for the general levels of interest. Blue lines are S/R, purple is midpoints of larger ranges, and the green on the first chart is the previous days high. I pegged basically yesterdays range almost spot on and although it was just a 3pt range I am proud that I am getting the hang of finding levels.

 

The second chart is today's 90 minutes or so of trading. I have drawn in what I think are supply lines and the circles are where I "called out" entries as I just watched price move. I did not actually trade these areas.

 

Point A. After breaking from an area of resistance yesterday price fell back below that area but made a higher low. Price came back to the 833 area showing some support. I thought this to be a buying opportunity.

 

Point B. Price traveled above yesterdays high but stayed in about a 5 tick range at and above the high. I though this showed strong support. Would this be considered a springboard right at that level? I though this to be a buying opportunity but maybe riskier since we would be buying in an up wave?

 

Point C 1. Saw this in hindsight. If that area at the previous days high was a springboard then price broke from that area but pulled back to the top of that range but when no further. I saw this as a buying opportunity. This would have made a few more ticks then C 2 on the chart, but was a hindsight observation. Is this a plausible entry?

 

Point C 2. Was waiting for price to pulled back to S for an entry. It did not retrace all the way to S which I saw as strength. Entry was on the break of the line having price come to me.

 

Point D. Playing a break of an area that was a midrange that appeared to show support on the pullback.

 

Point E. Price tested the midpoint showing support.

 

I seem to like trading when price breaks R and pulls back showing S within the context of price showing strength or weakness. Point E I probably would not have traded, maybe not D either, but A, B, and C I said ok buy at...Again calling it outloud just as I watch.

 

I have been trading volume bars because watching a minute chart with volume gets confusing for me at times so my thought process is that price and volume are important, but price being more important so i've been using charts that have volume built in. Is this logical? Today on the one minute time frame the price volume relationship was easy to see especially at point C which was a "flag pattern" with an increase in price and volume then a pullback of price on diminishing volume. I know I know the pattern does not matter nor does the chart type of for incorporating price and volume does my thinking make sense if I am having trouble with the volume portion?

 

I thank you in advance for the help. Sorry my posts are novels.

 

Hello eminiman414,

 

It seems you're focused on entering at multiple points as price is travelling upwards. Even if your only concern is to get used to the ebbs and flow of price, you won't do badly by paying attention to which way the immediate trend is. Notice the green demand lines in the chart. They are breached two times during the up move. In case you realized at A price was more likely to go up all you have to do is just keep track of the upward move. Notice how the price behaves around the demand line (green line) when the momentum slows down. Notice also the higher highs and higher lows during the up trend.

 

Try not to see flags and other patterns in the price movement. Your focus would be better served in realizing what actually is happening to price itself. What you're calling a flag may not look like a flag in a different bar interval. Price is slowing moving downwards in a tight range where you mention the "flag pattern". This means there isn't a violent drop but rather a slow and deliberate breather of sorts indicating a possibility of profit taking.

 

When price reaches the high of the last mini-consolidation area (last swing high) it ricochets upwards giving you the signal of strength. You got the same signal from recognizing the "flag pattern" but next time it may be a variation of the flag pattern or some other pattern. By turning your focus on how the price actually is behaving instead of some formation in the sand, you'll get a better understanding of what the meaning possibly is and will be able to act even if the pattern is incomplete or unclear. You could also have noticed, that although there was downward pressure from the supply, demand didn't cave in, leading to a slow downward drift. Once that supply ran out of steam the demand propelled upwards on account of supply getting exhausted or demand overpowering it. The reasons are not as important as the movement of price itself. The strong up move tells you demand means business.

 

If you are just gauging the price behaviour and getting used to the its flow then don't yet worry about entries or exits and just observe. You are observing where price seems to be weakening and where it seems to be strengthening. You also attempt to notice where price gets stuck in a trading range and how it is behaving to wiggle its way out of that range and testing the strength of the demand or supply.

 

I hope, what I have written isn't too overwhelming for you. I am not certain of your background or how much you've read so far in the Wyckoff forum. Focus on S/R, supply lines and demand lines, and trend in combination with where price is and there is a chance you might see the light.

 

Wish you all the best.

 

Gringo

[eminiman414 10]

Thanks for the reply. I was mainly just showing possible entry points based on my s/r lines and how price was moving in real time. My level of experience is I have been trading since August. Went live basically off of the advice of a friend of mine but since I have lost some and I felt I was just not studying the right info. I began reading around the end of April and began paper trading in july trying to learn. I am back to the drawing board not even paper trading just observing and reading everything in this forum. I watch from 930 to 1130am everyday and then replay past days when I get home from work. I have read almost everything in this forum including all of the wyckoff files. I have just started my second go around of re-reading everything.

[timokrates 10]

B. If there's any inconsistency between volume and the TICKQ, there's just no time to puzzle it out. By the time you've reconciled the two, the entry's gone. Besides, letting volume interfere defeats the purpose of using the TICKQ in the first place. You want the minimum amount of information required to make a decision.

 

Db

 

DBPhoenix, do you still use the TICKQ in your trading? As by the "Trading in 90 minutes" thread it seems that you solely rely on price - and the previously defined levels. No TICK, no volume. Is that correct?

 

Thanks..!

[Gringo 10]

DBPhoenix, do you still use the TICKQ in your trading? As by the "Trading in 90 minutes" thread it seems that you solely rely on price - and the previously defined levels. No TICK, no volume. Is that correct?

 

Thanks..!

 

Hello Timokrates,

 

I believe, Db, uses the TICKQ for live trading. The "Trading in 90 minutes" thread is for the purpose of understanding the movement of the price itself. In real time trading having the tick allows earlier entry and exit opportunities than say a 1 min bar chart. As far as I understand Db, looks at the TICKQ exclusively and keeps an eye on the 1 min for perspective.

 

In real time trading while chatting with other Wyckoff traders it has become quite obvious to me that the traders using the tick see things a bit faster and recognize price behaviour not so visible on the 1-min chart alone. This doesn't mean to imply you can't trade off of the 1 min chart. What it means is that there are some opportunities that might not be fully availed in the absence of the tick information.

 

I am assuming you're talking about intra-day trading. For long bar intervals or say inter-day trading tick might not be useful at all.

 

I am sure Db, will correct me if something is not right about my response in his stead.

 

Gringo

[DbPhoenix 42]

DBPhoenix, do you still use the TICKQ in your trading? As by the "Trading in 90 minutes" thread it seems that you solely rely on price - and the previously defined levels. No TICK, no volume. Is that correct?

 

Thanks..!

 

I wanted to make it as simple as I could. 1m OHLC bars on a plain, white background, freely available online to anyone who's interested. If a beginner requires an assortment of crutches to determine whether price is going up or down, then this isn't for him.

 

As I said at the beginning of the TBP thread, TBP demands a conceptual and perceptual adjustment that many/most traders can't make, and of those who can make it, many/most choose not to, for whatever reason, which is none of my business. By presenting the material this way, a type of "training-wheels" trading, I can better help the beginner to determine (a) whether or not this is for him and (b) if he can do it. Compared to this, what I was providing four years ago, while pertinent and useful and so on, was considerably more scattered.

 

By presenting the material more simply and in a more straightforward manner, beginners appear to be better able to determine for themselves if this is the way they want to go. The danger is that this can and often does play into the desire of nearly all beginners to rush headlong into trading without adequate preparation, planning, and testing. This is an almost certain route to failure. But since so many beginners are kids, waddaya gonna do?

 

As to the tools one uses, those are trader's choice. The TQ is not something to be tracked moment to moment, but at extremes, such as the first climax high in the NQ yesterday, it can be very informative. What is key is the trader's ability to understand that price is continuous and that it is determined by transactions. If one truly understands that, it doesn't make any difference what the trader uses to display the price movement, or even if he doesn't display it at all. If he doesn't understand it, and hasn't done the testing, and hasn't put together a plan (or, worse, is attempting to put together a plan in real time, which will take a minimum of two years), then he will waste his time looking for double bottoms and double tops and climaxes and higher/lower highs/low and hinges and reversals and support and resistance blah blah blah and never be able to make it work, at least not to the extent of being able to make a living at this. The big difference now as opposed to four years ago, is that I needn't feel obligated to work with anybody who has no plan, nor do I feel the need to nag anybody about it. Their own failures will either convince them that the work has to be done or they won't. If they don't (if, instead, the beginners blame their failures on something outside themselves), there's not a whole lot that I can do about that. Hard cheese, but there it is.

 

Didn't know what you were getting into when you asked the question, did you?

 

Db

[blocp 10]

here are some charts that I have gone over from yesterdays session, I have included 2 tick charts showing how I read the price once the long trade was taken, the notes in black that coincide with the arrows are all noted in RT as I am watching the price.

[Gringo 10]

Bloc,

 

This is truly remarkable.

 

Thank you.

 

Gringo

[blocp 10]

here are my levels for today, pretty much the same a yesterday there seems to be quite a lot of R up above, but this doesn't mean we can't get through it, I try not to have a directional bias as it does me no favors while watching price.

[Gringo 10]

Levels are the same. There are a lot of S/R levels above.

 

Early in the day levels of importance:

56, 62, 64, 68, 74

 

Later in the day levels:

90

79

74

68

64

62

56

50

48

40

29

20

10

07

 

Gringo

[timokrates 10]

Didn't know what you were getting into when you asked the question, did you?

 

Db

 

You mean the shortcut discussion, personal preference etc.?

 

What you said was pretty much on the point I believe and includes simply what it takes. So thanks for that and all the info you shared over the years.

 

And..your conclusion might be right, I'm that type of guy - but not too young anymore...

[blocp 10]

I have just noticed that I didn't add the points from the notes onto the chart position, I can't see an edit function on the post, so am re posting it.

[Niko 10]

Bloc,

 

Nice analysis. I was just wondering, Where was your entry. I cant find it.

 

Greetings

 

Niko

[pjohnm 10]

This chart shows what I was looking at this morning. There are 4 boxes highlighted which represent areas where there is contraction in price volatility followed by expanson in price movement. You can see that the first 3 boxes that it is the sellers who have command but but after the 4th box, it is the buyers who show strength.

 

There is a lot going on here so it is easier to summarise:

Post 14:02 Possible change in dynamic as upwave exceeds the downwave

14:09 DB

14:15 Rise in price following contraction of volatility (change of dymanic to the previous hours action)

14:16 HL created

14:17 Break of supply line, break of LSH

 

Note this is all happening at minor S/R (and 3pts above PDL)

[pjohnm 10]

DB remarked in chat that the place to enter had occcurred pre opening. For me, the green circle is a possible entry based on it being above price following retracement on 1 min (and in context of what has happened prior).

[pjohnm 10]

The upwave from 14:09 to 14:37 is followed by a deep bounce off R at 14:38. I would find this difficult to enter as a short as this would not represent enough evidence for me that this level was R.

14:38 Note the length of the downbar (far exceeds any upbars on the upwave from 14:09)

14:41 LSL broken

Given there is no test of R on a 1 min, I would not have an entry set-up for this action.

 

1 other point to note. There are no contractions in volatility after the high as we pass through the LSH and LSL, i.e, minimal retracement.

Edited October 18, 2012 by pjohnm

[pjohnm 10]

We return to S, which has been tested and held pre mkt, and we get a bounce at 14:43. There should be enough here to prepare the trader to get ready for a long, but given the pace of the preceeding decline, I would not want to enter a long unless the supply line is broken.

 

The next issue is the pace of the break of the SL, which is more than fast enough to catch you by surprise.

Edited October 18, 2012 by pjohnm

[pjohnm 10]

Now the upwave from 14:43.

Note the contractions in volatility followed by price expanding upwards.

14:59 Price tests R and then gaps to a new high.

 

My reaction to this would be go long or add more to my position. This would at least offer a tight stop.

 

15:01 As per 14:38, we get a large drop in price, which threatens the DL.

 

We now have a break of the DL, a large drop in price in a short space of time, and buyers have failed to hold above R.

Then volatility contracts at 15:04, and at 15:05 we get a lower low (change in dynamic). For me this represents an exit of any long position.

 

Additionally, the red circle represents a short opp in context of what has happened prior, below price following a retracement.

Edited October 18, 2012 by pjohnm

[Gringo 10]

During the day it was evident that price was dropping. In these cases, it is advisable especially for those who don't have time to watch the price all the time to put a stop in so that they automatically enter. This of course should also be followed by a stop loss in case price goes against the position.

 

So today we're assuming we don't know all that buy or sell stop mumbo jumbo and this automatic entry mechanism yet. We see at night that the poor index has started to fall as we had anticipated. So being lazy and not as quick as those who at least entered before the close we'll attempt to enter when the market opens tomorrow. Hopefully they'll be a small price rise for us to get a better entry. If price drops significantly before the open then we might have to let this go as the distance from a reasonable stop point would be a bit larger and risk/reward dynamic may not be favourable.

 

We're not getting entering in the hopes of a getting an few percentage points. Here the bet is that the market may materially move lower. The stop would above the last swing high around 68.30 area or so and will be placed right after we initiate our short.

 

For those who have time could have used the break of demand line on the 2 hour chart to get alerted to possible change in the direction price was moving and entered the position earlier as price continued lower.

 

Gringo

Edited October 19, 2012 by Gringo

[blocp 10]

hi niko, sorry I should have made my post clearer, I was more interested in looking at and showing how I might manage the trade if long, as oppose to where I got into the trade.

 

I am only sim trading at the moment and still trying to create setups to go into my plan, so I don't really know how important it is to show entry's as they might not carry enough emotion, it is perhaps more interesting to show how I would attempt to get the most out of the trade if long.

 

thanks

 

bloc

[Niko 10]

I will first like to discuss trend entries. I will use uptrends as an example, but it applies for downtrends as well

 

One can define a trend, at least a premilminary one as soon as one has a new HL, and a new HH. In this case one could enter in diferent places, the first place I want to bring into the discussion is the last high, which I think can be used for entries in the following ways:

 

 

1. At the BO of the last high, this can be done with a stop or an stop limit order, placed before the price had reached the last high,

 

2. After the BO, at the RET to the LH, this can be done waiting for price to go back to the last high and entering with a limit order at that level or waiting for price to go through the last high and placing a stop or a stop limit order above market price.

 

At both places I am assuming one sets the stop loss at the same place, so the money risk is the same, now the real risk I think will depend on context, and the probabilities will depend on what the testing results tell you.

 

Now, I know I have not tocuhed the subject of S/R, but I will leave that for another post or perhaps someone else wants to touch this subject.