Trading The Wyckoff Way

[Trader Nick 10]

Well after making my way through the recommended reading in the Wyckoff Lite section Db recommended, I can come to say most of the stuff out there other then a raw study of price is just pure not relevant to being successful.

 

No, I'll still probably just a lost as I started (ok, I did pick up a few things here and there), other then the fact I have a tremendous amount of studying and rereading ahead of me. Seeing how other really seemed to grasp this already. I'm sure glad this information along with the support system there (at least for now! ).

 

I see Db recommends starting with a tick chart to understand (1) assessing the continuing imbalances between supply and demand (or between buying and selling pressure, buying and selling power, buying and selling interest: whatever term you choose is immaterial), (2) judging the market by its own action (that is, its behavior, which is to say the behavior of those who are moving the price), (3) using the inherent wave structure to help you determine that strength and weakness.

 

From here we relax into it and asses the market accordingly.

 

So the main focus on the three stickies.

 

This might sound like a noob of a question (which undeniably I am :helloooo:), what would be a good market to watch to get a good idea of all this.. Also, anyone can recommend a decent (relatively free) charting software with real-time/delayed software?

 

Thanks a bunch!

Nick

[Gringo 10]

Demand propelled price up for a day and then fizzled quickly around the swing high of 66.25. It is a sign of weakness to fizzle this rapidly, however, we stay alert to the possibility of demand showing up again which could turn out to be 'test' of support.

 

If there is lack of demand or supply takes over then prices can tumble lower. In case the demand does show up and halts the downward price move and starts to push prices up we may take that sign to exit shorts and in fact make a play for the long side. So lets see how things evolve from here. The test if it occurs would be from here to around 64.5 area ideally. It's not the exact point that is important but rather the way price behaves and whether it is able to muster some strength to the upside. In the absence of that strength we stay with the downwards bias.

 

Notice the dotted SL which was broken to the upside showing a change in supply/demand dynamic at least for a bit in favour of the demand side. Now we have to see if demand was just a one time play or has some conviction to change the course of price upwards. The trend is so far down but we have our eyes glued to the price for any signs of change.

 

 

 

 

Gringo

[boru 10]

some levels to consider

[blocp 10]

here are my pre session charts for today:

[20814md 10]

Look at the "Trading by price/Trading in 90 minutes" thread (Post #210) where DB talks about ForexPros charting as a decent free alternative. (I have never used it personally, because I own software, and it appears to have quirks regarding gaps and connectivity, however several contributors post charts with it).

 

Most, but not all day trading discussion is around the NQ (Nasdaq 100 futures). DB has discussed the positive attributes of this trading vehicle but I'm not sure in which thread.

 

Good Luck

Edited November 5, 2012 by 20814md
typo and thread reference correction

[DbPhoenix 42]

[Gringo 10]

Trader Nick,

 

Well done in going through the Wyckoff Lite thread. I hope you are able to maintain your focus and eagerness to learn. It is normal to feel overwhelmed as it is a unique way of thinking about, observing and diagnosing the market.

 

In my opinion NQ Futures may be the easiest for learning purposes, simply because quite a few of us post about them our pre and post trading thoughts. This makes it easier to follow along and compare your thoughts with those of others.

 

I use Ninja Trader (NT) at home for free replays. You can replay data upto one year old with a minimum 1 minute bar interval. If you have the ability to access NT during trading hours there are free data feeds that can be used to view tick data or say 5 sec bar interval on a chart.

 

For hassle free web access that is only a few seconds delayed ForexPro is sufficient. I use it while I am at work to follow along the NQ price at 1 min interval. You won't get tick data with it though, but I've been able to follow along quite well.

 

Try to read the trading journal and the trading in 90 min threads if you can. I would credit these for bringing it all together for me.

 

PM DbPhoenix and ask for a link to live chat where we discuss NQ in real time. I believe this is a good way to accelerate learning even if not much makes sense at the start.

 

Welcome and I wish you all the best.

 

Gringo

 

P.s. I post in the Daily thread which is more stocks, indexes, and ETFs if you prefer that.

[Trader Nick 10]

@ 20814md, thanks for the information

 

@ Gringo, as well thank you for the information and the posts of the next steps. A question about Futures I know Db mentioned in the previous posts as futures not being a good instrument to follow written here:

 

 

But I do want to caution you about the accumulation and absorption business and applying it to futures (or Forex or commodities). Accumulation and absorption, as defined by Wyckoff, have to do with instruments that have floats, e.g., stocks. In fact, the accumulation process can't work unless there is some limit to what is available to accumulate. One can, of course, "collect" contracts, but this will have no effect on the power or extent of whatever upward movement may eventually occur. One who views this as accumulation may anticipate the typically explosive breakout to the upside, but what he is more likely to find is a moderate upward movement on unremarkable volume. Not that there's anything wrong with this, but if the movement is not what's anticipated, the trader may not take it, and that would be an error.

 

Same with absorption. Yes, there may be absorption going on in the sense of buyers absorbing what sellers are throwing at them, but where in stocks there is a limit to how much buyers have to absorb, in futures et al there is no such limit. This changes the dynamic. Again, there may be and will very likely be the same movement upward out of the absorption reststop, but it may not be as dramatic as it might be with stocks.

 

Db

 

I was tempted to drown myself with the whole Wyckoff Course as long as with Db's book, but felt going through these recommended threads are a better alternative to start off with.

 

I will ask him about that Live Chat.

 

Thanks again!

 

Nick

[Gringo 10]

Nick,

 

From what I understand from the quote, Db is pointing out a minor discrepancy between behavior of futures and stocks due to one having float and the other not. There doesn't seem to be any mention of futures not being good instruments to follow.

 

It is you who must decide what you want to and are able to trade. The principles remain the same irrespective of the instrument used.

 

Gringo

[Niko 10]

Well, just back from a local holiday.

 

Here are my thoughts for the day:

 

All the levels from last post still valid, price is in a TR with S at 643 and R at 690.

 

 

Yesterday buyers merely managed to move the price above the MP of Friday fall on decreasing volume, which does not imply strength. But the fact that buyers are managing to stay above the Jun-Sep rally MP is a signal they are not giving up either. Only time will tell.

 

If 690 is broken, then 737 and 762 are the next levels of interest to the upside. If 643 is broken 578 and 514 are the next levels of interest to the downside.

[Niko 10]

Here are my thoughts for the day:

 

All of the levels from last week still relevant. I have marked a Small TR that I think can be relevant this week. (Yellow)

 

 

Price is making HHs and HLs, signaling and uptrend within the larger TR.

 

If prices keep rising above 73 they will probably pause around:

 

• 77
  
• 81
  
• 94 Last week high
  

 

If prices reverse again below 73 they will find buyers at:

 

• 67-69
  
• 57
  
• 49
  

[Gringo 10]

We're in a TR and price so far is stuck between the 65-66 range so far. There was a lower high on the 2 hr chart indicating some momentum shifting to the demand side and a successful test. Those who have tolerance for information risk could have taken this opportunity to enter with tight stops on the long side. This would have reduced the price risk.

 

Interestingly the election in the US is upon us and this is where information risk is high but price risk low. The price risk is low because a stop can be safely placed below the test area around 65 thereby reducing the chance of price going unexpectedly against the long position. This is where one can take a chance while the world awaits the news and more information before making a decision. In case the direction doesn't hold exit is close at hand.

 

Keep in mind the price can meander and stay within a TR as there is no obligation for price to cater to our desires. We cater to its desires.

 

As Wyckoff stated:

 

The Tape Reader is not the captain - he's the engineer who controls the machinery. The Tape is the pilot and the engineer must obey orders with promptness and precision.

 

 

 

 

Gringo

[boru 10]

based on a 10 min chart we are in an uptrend that is hitting R at 76.50. There seems to be layers of R above from 76-87 to work through, based on the 60 min we are still in a large TR. price need s take out 76.50 next R looks like 81.25. to the downside support at 66 then 63.75

[pjohnm 10]

I was watching this trend channel yesterday but might be clutching at straws.

[Gringo 10]

I was beginning to get distracted from all the comments on the charts. An attempt has been made to clear up the mess and to ensure the focus remains on price.

 

The trend is still down and hopefully is a bit clearer to see now. Observe both charts and see if your perception of how price is behaving alters with a cleaner look. Price is above support and the trend channel is downward. The support level is becoming more defined as price spends more time unable to go below it. It's the inability of supply to push prices below support that give us the clue that it in fact is behaving as one. Before this behaviour it was only a potential support. There still could be another push by the supply to check the conviction of demand. As things stand we are in a mini trading range from 65-66.25 that is within the downward sloping trend channel.

 

 

 

Same attempt has been made with the 2hr chart. Here those who went long haven't been forced to exit as price is holding above the support. Elections are over and those who are long can continue to hold their positions and if price is unable to move up or shows weakness choose to exit.

 

Notice the SL/DL within the trend channel.

 

 

 

 

Those still holding on to their shorts can wait the until the violation of 66.25 or the supply line that forms the trend channel. Follow your plan regarding the conditions under which an exit, entry, and stops are executed. If you don't have a plan then attempt to make one with some basic rules and continue to add to it as you learn more.

 

Some of you might have noticed that for the same price behaviour one can have a long, short or neutral position. It all depends on risk tolerance and comfort level with the decision making process. Those with more time and eagerness are able to enter and exit more often as compared to those who have less time and prefer to avoid jumping in and out.

 

There is no holy grail, but only the control of the self. The price isn't in our control, only the option to enter or exit is.

 

Gringo

Edited November 7, 2012 by Gringo

[Niko 10]

All of the levels from yesterday still relevant. I have drawn a new box between 30 and 45 to take into account the congestion from Oct 31st.

 

After breaking 81 sellers provided R at 91 below last week high of 94. From there an erratic fall has followed.

 

At the time of this post prices have bounced from the S at 49, but the immediate trend still down within the longer TR.

 

 

If prices keep on falling below 49 they will possibly find buyers at:

 

45

37

30

 

If prices make a HL and start rising above 57, the next levels of interest are:

 

67-69

77

81

91 This week high

[Niko 10]

My thoughts for the day.

 

Yesterday prices did not move decisively (elections), after finally breaking the morning TR did not manage to break the top of the 43-90 TR.

 

 

If 643 is broken, with all the times prices have been at that level in recent weeks and found buyers, one would expect a strong BO. If that happens 578 is our first pause level, and if that does not hold 514 is our next S.

 

If prices manage to stay above 643, then 690 will provide R again, if it is finally broken 723 and 762 are the next expected areas of R.

[blocp 10]

here are my charts for today, i missed yesterday due to having other things to tack care of but have taken into account what happened when reviewing the charts, what I have noticed is that by just missing 1 day it can throw you of track somewhat.

[pjohnm 10]

Levels for today:

 

Trading Range extremes 2628 / 2693 MP 2660

Interim S/R 2638/2674

[Gringo 10]

 

Same attempt has been made with the 2hr chart. Here those who went long haven't been forced to exit as price is holding above the support. Elections are over and those who are long can continue to hold their positions and if price is unable to move up or shows weakness choose to exit.

 

 

Db, pointed out a bit of a flaw in my analysis. The trend channel is pointing downwards and this makes it a bit unwise to initiate longs within the channel. Doing so would be akin to swimming against the tide. Seems like an obvious thing but somehow it had slipped my mind.

 

Gringo

[tupapa 10]

A follow up on the dow, it seems that I pegged the top of the bull market

 

A couple of days ago I mentioned that after such a violent move from 13,600, Wyckoff (and after studying his material, myself) would anticipate a normal crrection of about 50%.

 

I suggested this could be the ideal place to add to our short possition, if one wasn't satisfied with his current size, I also provided this image, to illustrate the potential scenario:

 

#

 

And what happened today?

 

 

And I finally understand why asking "where to enter" is the wrong question, if one understands the dynamics of supply and demand, S/R and everything that is described in so much detail in this forum, the exact entry point or trigger is simply a question of personal choice, and depends on the ammount of price vs information risk that one is willing to take...

 

This is something that Db writes over and over again but for some reason, I hadn't internalized up till now, thanks for everything maestro!

[pjohnm 10]

14:30 – 14:38 Sellers take control at the open and break pre mkt S at 2646, testing the first major S level at 2638 and poking through to 2636.

14:38 – 14:45 Buying interest increases, breaking the opening sl, sellers unable to make LL’s, although buyers also fail to hold above the LSH as 2641. A test of 38 at 14:42 and we have a db / hl, depending on how you view the poke below S. A pullback at 14:45 creates a hl and is followed by a hh, and those looking for a long have a demand line to rely on. Note that buyers are swimming against the overnight downtrend in play, where price has fallen from 2685.

 

Other point to note: Price has fallen from the top of the trading range at 2685 through the MP at 2660.

 

14:51 Buyers test the opening high and pre mkt S from below, but the pullback is followed by a LH at 14:53.

 

14:55 The last swing low is broken as well as most dl’s one could draw on the upwave. Again, the LH gives you a chance to draw a supply line, and we now have a chance to join in with the prevailing trend.

 

15:11 The sl holds as sellers break through S. Note the bars contract as price pauses before expanding on the way down.

 

15:30 The next level of S at 28 is broken but we note a change of behaviour as price starts failing to make LL’s, volatility reduces / pace of the down move slows.

 

15:39 The sl in place from 14:53 is broken, but the bars contract again and buyers fail to make HH’s, nor can they hold price above S, now R at 2628.

 

15:45 LH following the failure of buyers at R gives indication that more weakness may follow.

[Niko 10]

My analysis for the day:

 

1. The day start at the 45 S level where buyers lose control right at the open, after a small Retracement prices begin to plunge fast without much interference from the sellers, until reaching 40 where the selling paused for a couple of minutes. I did not have that level on my premarket analysis.

2. Prices reached the 37 S level where buyers entered with strength taking prices back to the 40 R area, there prices congested until 9:46 when they finally broke up to the upside and manage to get to the 45 R. Notice how the rise was very zigzaggy as opposed to the fall that was much smother.

3. After breaching 45 sellers started coming in making it harder for buyers to reach higher prices, then a drop to 45 finally killed the rally. After a congestion around 45, prices finally made a LH and started descending. Notice again how the downswings are smoother than the upswings in the previous rise (2.)

4. Prices reached R at 37 again, but this time sellers stopped the buyers advance at the LSL, and rapidly managed to set a LH.

5. After some demand showed up unsuccessfully around 33 and 31 prices finally made it to S at 30, there sellers crossed without much interference. I guess it was taken out in the previous 2 attempts.

6. Prices reached S at 24 where buyers started coming into the market and managed to stop sellers advance for 30 minutes, forming a TR between 24 and 30.

7. As buyers managed to reach 30 with difficulty, they were repelled by sellers without much of a fight, signaling again weakness.

8. After breaking 24 again sellers managed to make a LL and then prices stop at the LSH before plunging again.

9. The fall to 10 was more zigzaggy than previous falls, and after 11 buyers managed to take prices to the MP of the last downswing (26 – 10) where sellers once again entered to provide R.

 

Edited November 8, 2012 by Niko

[Gringo 10]

Support was bypassed quite easily with the gap down in market. Trend is clearly down so we stick with the line of least resistance. No more swimming against the tide and we await the break of break of downward trend channel before thinking of initiating a long.

 

LSL, R, and LSH are our guideposts to determine changes is demand and supply dynamic.

The supports ahead could show up at any place as price has entered the tricky area with many potential S/R levels and it's by observing price behaviour can we hope to determine where and when price starts to halt or reverse. Potential support that's move obvious is at 63.5. 64.5 didn't offer much in making the price halt as it sliced through it nullifying that potential support as turning into a real support level. There is no telling it might start acting like a resistance level on the way up but we shall know only when price gets there how things stand. Wherever price starts to stall we'll attempt to look to the left to determine if a previous congestion area lies there.

 

On the weekly chart the demand line has been convincingly violated as compared to the earlier behaviour where price went below it but didn't really crash out but was in the resting phase. Now this gives added credence to the possibility of 70 being an actual top for this bull phase of the market. We shall have to wait for price to trend up to determine with more clarity whether this hypothesis has validity. To declare we are in a bear market or 70 being an ultimate top is a bit premature. There is no rule that states just because DL was decisively broken that price can't make it back above 70. The bottom of the TR is around 62.

 

As tape readers we follow the price and make decisions based on what is in front of us and not succumb to our biases. My recent approval for those with quick fingers to attempt long was a case of perhaps my bias taking over instead of sticking with the trend, or a desire to be the first to pick the bottom of this trend. Another lesson from that episode is the value of stop losses. Even with a wrong long call exit after violation of support at 65 was automatic because of the stop, restricting the losses to minimal. Re-shorting was a valid choice at the onset of the signs for continued weakness. Those who stayed short through this ordeal need to be commended for their patience and persistence. Allowing price time to move in the direction requires a zen like patience but is an essential ingredient of those who do make it in this business.

 

Live and learn.

 

 

 

 

Gringo

[blocp 10]

here is my journal entry for yesterdays session.