Trading The Wyckoff Way

[Niko 10]

After yesterday afternoon´s rally the market closed above the 643 S/R level, and is back inside the Mar Apr TR.

 

 

As Db pointed out in the chat, we are overbought, so a pullback is expected at any time, nevertheless if the market keeps on going up, it would not be the first time this kind of rally happens, so we must be flexible to whatever hand the market gives us.

 

If the market keeps going up the levels of interest are:

 

 

• 682 (50% Retracement from last downswing)
  
• 690
  
• 737
  
• 762
  

 

If sellers take control and take prices bellow 643 again then S should be expected at:

 

• 593
  
• 578
  
• 514
  

[pjohnm 10]

Price opened above the main pre-mkt TR but having failed to make a new high at the open, dropped back into the range and found demand at the MP (2627). The rejection of the MP was swift and these 2 factors (test + pace) combine to indicate that demand was the dominant force. The breakout into the new high was followed by a pullback of just less than a pt and the trader needs to decide if this risk is worth taking. In this instance, demand was able to follow through.

 

The importance of the longer term context should be in focus here as 2630 – 2692 was the TR that began at the end of October. Buyers are likely to have difficulty above 30 until we have a test of the MP (61), after which the direction of the market may become clearer.

 

39 presented the first obstacle for the buyers. A lh followed the break of the dl but given this was not an obvious S/R level , it should be viewed as a pause after a 12 pt upmove. The subsequent action then is more significant as the test of the high is quickly rejected.

 

A brief attempt at a LL is followed by a consolidation and it is after this that the buyers give up. 2 LH’s follow, allowing 2 opps for entry.

 

The sl holds until S at 31 (also the opening level) where a HL is followed by a brk of the sl, giving the market a directionless appearance. Given we are at S, a long is justified. The move up post 34 forms a springboard, but this leads to another at 36 and should pose the question whether the short is worth re-entering once the dl is broken. Sellers now congest at 31 (rather than bounce away and create a hl as previous) and the break below gives another short opp which takes price down to 27 (the pre mkt TR MP / and opening low), a springboard forms and another short opp that reverses at 24 (the pre-mkt TR low).

 

To make the session profitable, tactics would be required for break-outs of trading ranges, congestion areas /springboards and what to do at S/R.

[Gringo 10]

Q's have broken above the downward sloping trend line. The price didn't just break it and fizzle but kept moving up. It's giving some hint about the underlying strength of the market. Is this really an increase in demand or a reduction that caused the price to move up?

 

To get another perspective we look at the volume. The volume has been on the lower side and continually dropping. Some of it is because of half a day of trading session and the holiday, but not all. Monday also had a lower volume and only slightly above the volume of Friday which was half a trading day. This low volume rise is giving us clues as to the behaviour of supply and demand. Price has been rising, although it's not because the demand overwhelmed supply but because the supply went into hiding.

 

The price rise is price rise irrespective of whether it's the demand doing the work or supply withdrawing. The gains and losses as a result of this price rise are also real. The question here is whether this rise is temporary or the beginning of an move upwards that has some lasting power.

 

Break above the trend line has alerted those with a short bias to the possibility of a directional change. Low volume rise is giving hints that perhaps there is a chance supply just might choose to show up at advantageous levels and drag the price down. Theoretically it is all fine and dandy. But what does a tape reader do under these circumstances? Go long? go short? stay neutral? pray?

 

Price has already risen over 6% in the past few days. Those with the nerves of steel could look at re-shorting when the market turns down again. Why a re-short you say? didn't price just break above the trend line showing a possible change in stride? And I answer, because we yet don't know if the down move really is over. It's only in hindsight we'll know for certain whether the break of the trend line meant anything or was an aberration. But...but, why then did we bother to focus so much on the trend line? Because it will help us manage our risk!

 

We know the down move has had quite a bit of a run. We also know there might have been some kind of or a mini-potential climax when prices turned from 61.3 as evident from the larger than normal price moves and the subsequent reaction. So, we might be closer to the bottom, but this is not a certainty. In the absence of this certainty we initiate our positions keeping in mind the new reality, the reality of price being possibly closer to the bottom than before and having a greater probability of rise.

 

Armed with this knowledge and being the daredevils that we are, we initiate our positions but minimize our risk. We become more vigilant with our position and stay ready to run for cover at the first sign of danger. We tighten our stops by bringing them closer. By doing all this we lower our risk but still give us a chance in case the price does resume its downward course.

 

Now, those with not so daring a disposition could wait for price to drop. Wait and see whether it turns out to be a retracement preceding the eventual rise. These cautious souls, can choose to enter if and when the downward price move stalls and reverses to the upside. They only engage when the probabilities are significantly in their favour. Cautious little buggers they are, aren't they? Oh, but there has to be a catch for being so cautious. What is it? You are right, the catch is that these zen masters will get the up move if it comes because of their patience, but they'll miss a chunk of the down move in case the down trend resumes!

 

Before I bring to a conclusion this post, let me talk one more time about the daredevils who are shorting. After some drop in price they must be ready to reverse their position so as not to miss the advance if it comes. The costs and risks of not missing any major move are extra commissions, losses due to stops, and the extra effort and agility required for this more engaging activity. The reward is in catching the moves earlier.

 

Now the question you must ask is which risk are you willing to assume? The risk of missing the down move or the risk of getting your stops hit a few times in case there isn't much of a down move? What are you comfortable with? What plans do you have in place to take advantage of the situations you are comfortable with? Do you even know how to recognize the situations you feel comfortable with?

 

Too many questions I know.

 

Happy trading!

 

 

 

 

Gringo

Edited November 27, 2012 by Gringo

[Niko 10]

After 11:00 the market found S around 25 and prices rose all the way to 56 around the 57 R area.

 

 

Now prices are around the 49 S/R area and we are still inside the channel that started in the 16th.

 

If prices hold and manage to keep advancing my levels of interest are:

 

• 57
  
• 67-69
  
• 81
  
• 95
  

 

If sellers hold the high at 56, and prices start to go down S could be found at:

 

• 45
  
• 37
  
• 30-25
  
• 16
  

[PrymeTyme 10]

an Addition to The XLF discussion

 

 

compared to SP500 and Qs

 

 

waht looks stronger ?

 

 

 

the Qs have a nice decline and the recent Low is at a fromer support level of a range

 

The SP500 fromed a tripple top and the recent low found support at the MP of a range

 

The XLF made a higher low and somewhat attempts a rallie.. and the recent low found support

above a former resistance of a range..actually at the old support of April

 

 

so what Instrument looks stronger ? or at least acted stronger.. ?

 

 

cheers

[pjohnm 10]

A couple of trading ranges to focus on pre-mkt, the extreme of which is at 55. Further R at 60/61 from longer term TR.

 

S at 2642,39, 31

[Niko 10]

Is everyone on strike :haha: or was the chatroom changed?

[pjohnm 10]

The opening 15 mins was represented by choppy movements in both directions, so focusing on the breakout from the established range brought an opportunity at 09:45.

09:45 Buyers take price back into the overnight range and the rapid expansion is followed by a contraction in volatility. Although this pullback is greater than a point, pace quickens and it is buyers taking price higher, creating the HL. (A buying op).

 

09:50-09:53 55 is the first level of R, the demand line is broken and we get failure to test the high at 09:53.

09:54 The next bar opens lower and we have a LH, confirming the weakness.

09:52 Waiting for the first retrace allows one to stay short had they taken it, even though buyers reach 52 from 49.

 

10:02= 10:04 Further weakness as the retrace becomes a LSH, and then a break below the opening low.

10:10 The first warning to the shorts comes when a succession of higher lows breaks the immediate supply line, but buyers fail to break the opening low.

 

The question to ask here is what tactics the trader adopts. An option is that since the opening low is broken , is to lighten the position at the break of the SL, rather than exiting entirely at the first sign of trouble.

Holding onto a short may only have yielded only another couple of points in this instance, but would lead to greater profit should the weakness have continued.

 

Further potential for reversal is evidenced by the weakening downward momentum and a db at 10:52

The HL at 10:34 (a buying op) is followed by failure at 2642, but then we have 2 notable congestions at which stop dead at 37 (current day S). A rise above either of these congestions would represent another buying opp.

[Niko 10]

My analysis for today:

 

 

1. Before the open price price had fallen from the 50 R area towards the 45 S area. At 45 buyers managed to stop the decline and made a HL just before volume came in at the open. Buyers had enough strength to keep prices from falling but where unable to reach R at 50 at their 1st attempt.

 

2. Around 9:37, buyers managed to take prices out of an small TR and reached 50, but were rapidly repelled by sellers who took prices towards the opening TR. There sellers lost their ability to move prices and a DB at 9:45 was a sign of sellers weakness.

 

3. After a rapid increase in prices without much interference from Sellers, buyers broke the 50 R level and turned into a S at the first pullback. From then prices rose with strength until 9:50 when a LH gave an early signal of sellers exhaustion. After 2 LHs price fell rapidly without bothering on pausing until the 50 S level was reached.

 

4. When prices reached S at 50, one last attempt of buyers to repel sellers took prices above the LSH, but this impulse was short lived and sellers made a LH around 10.

 

5. After breaking bellow S at 50 prices went down smoothly, made a small pause at the bottom of the opening TR and finally cut through S at 45 with ease. From 45 it was an easy way down until 42 was reached at which point the first signals of S showed up slowing the descent.

 

6. On the rise from 42 buyers found R at 45 again and here sellers came in again moving prices down. The road down the hill was bumpy and buyers where trying all the way to take prices up again, but most of the times they fell to make a HH

 

7. At 10:24 sellers finally reached S, but where exhausted by then after fighting buyers from 45 to 37, this sellers weakness was confirmed at the first and second test of S where buyers kept sellers from reaching 37. At 10:46 buyers started buying with conviction and managed to take prices higher. R at 45 was finally reached after 11.

[Niko 10]

Yesterday we finally got the first down close, and it was bellow the 43 S level, today sellers are still on control of the market, my levels below price are:

 

• 593
  
• 578
  
• 514
  

 

If this is just a profit taking decline and buyers start to come in again then my levels above price:

 

• 643
  
• 690
  
• 672
  

 

 

P.S. G have you found the answer to your inquiry? I have the same doubt.

 

Does the rising of price above a downward sloping trend channel take it into an 'overbought' territory? or is the term 'overbought' reserved for the price going above the upward sloping trend channel?

 

I am reading about this in W course but have not finished the whole trend section. I am sure the answer is somewhere.

 

Gringo

[Niko 10]

Yesterday afternoon buyers tried to take prices higher after reaching S at 37, although they managed to break above the morning high at 56 R at 57 was too strong and sellers finally retook control of the market.

 

By the end of the trading day sellers had managed to take price outside the ascending channel giving an official end to the uptrend that started on the 16th. The break of the TL was confirmed by a LH at 15:30 and a LL after the close.

 

 

Right now we are on what can be the start of a downtrend (or just a correction, we will have to wait and see)

 

Levels bellow price:

 

30-25

16

07

97

 

Levels above price:

 

37

45-49

57

67

[pjohnm 10]

Levels of pot'l S/R as per the chart, but also paying attention to 2625, the MP of the upmove from the 23/11, failure to hold above represents weakness.

[PrymeTyme 10]

 

P.S. G have you found the answer to your inquiry? I have the same doubt.

 

 

 

quote from the book

 

An Overbought Position Line is that line which is drawn parallel to a
support line and passes through the first point of resistance (rally top) intervening
between two successive points of support in on up trend

 

and thats how i see it aswell.. overbought levels only in uptrends... KISS

[DbPhoenix 42]

quote from the book

 

An Overbought Position Line is that line which is drawn parallel to a
support line and passes through the first point of resistance (rally top) 
intervening between two successive points of support in an up trend

and thats how i see it aswell.. overbought levels only in uptrends... KISS

 

Technically, yes. However, the whole business of "overbought" and "oversold" has to do specifically with the distance from the mean and generally with the whole idea of mean regression. "Overbought" and "oversold" are just shorthand for overextension.

 

Wyckoff dances around this with trends and trendlines and 50% retracements and equilibrium and so on but never really gets right down to it, either because he hadn't really thought about it or else thought it was too complicated and perhaps unnecessary.

 

Therefore, the more important questions are (1) just how far has price extended beyond the norm (which is pretty much the idea behind Bollinger Bands) and (2) will it snap back or will it reverse the trend? If price makes a higher low here and fails to reach the support line, then you have the basis for a trend reversal. Otherwise, we're back where we started.

 

Db

[DbPhoenix 42]

 

 

 

Edited November 28, 2012 by DbPhoenix

[Niko 10]

My post market analysis:

 

 

1. Before the open, prices had broken the 30 S level and by the open that level had became R, sellers were coming so strong that the pullbacks did not manage to reach R but were stopped by sellers around 28.
    
   
2. Sellers strength was confirmed as the S at 25 was taken out with ease.
    
   
3. After buyers came into the market at 9:48 and managed to take prices to R, looks like sellers were just taking a breather, and a DT gave again a signal of sellers power.
    
   
4. After reaching the 16 S area prices started decelerating on the way down until S was finally found around 13, there Price made a HL around 10:10 and that was the beginning of the new UT.
    
   
5. After a small pause around the 20 TR from 9:46 buyers retook control and went merrily through R at 25 finally stopping around R at 30.
    
   
6. Prices started consolidation around 30, providing LHs that could have persuaded some players to go short, but then around 10:31 buyers managed to set a HL signaling a possible continuation.
    
   
7. After being able to retake control of the market buyers reached R at 37 where sellers started to get stronger, finally after reaching 40, sellers stopped buyers.
    
   
8. But buyers were not giving up and tried to keep prices above 37 until they were exhausted at 10:49 and a LH was set by sellers.
    
   
9. Sellers then took prices through S and managed to make a new low just to find buyers at 33.
    
   
10. With difficulty, buyers managed to take price to R at 37 but were rejected.
    

[pjohnm 10]

A good day to look at different tactics and what questions these lead to.

The first chart reflects the opening and break out to the downside. The pullback was more obvious in RT and provided an entry op.

 

The downmove soon runs into trouble, one could exit at the rejection of the LL at 20, given that the sl was broken. Note the HL's, followed by a LL, although subtle, this is the first retrace.

 

A succession of HH's then follow, then LL's, and to me, one should be prepared to short the breakout of the congestion, or go long should the swing high at 25 be broken, given that this takes place at S/R. Seeing as buyers failed to test the opening trading range, further weakness should not be a surprise.

 

A new sl is drawn, once price pauses and then makes a LL. This new sl is broken at 14, so sellers are looking for a higher low, given that no obvious S/R is in sight, but sellers get a warning at 10:11, when price fails to fall. The question the trader has to ask here is whether a brk of the immediate sl, followed by a HL, followed by a break above the LSH enough reason to enter long, even if it doesnt take place at S/R...

 

The tickq may be useful here.

 

Either way price pauses at 10:16, (at the swing low level at 20), and the breakout comes to the upside, further confirmation should one need it of buying strength.

 

Buyers then hit 30, make a LH, but then fail to follow through (also note that the downmove fails at the top of the opening trading range). Not on the chart is a double top and a congestion, another attempt to head down that fails to make a LH, let alone break that LSL.

Edited November 28, 2012 by pjohnm

[Gringo 10]

Price was dropping early in the morning and then reversed with quite a vengeance. Those who had gone short probably had to cover their shorts and exit.

 

Now the situation is a bit tricky. This could very well be a retracement and a subsequent rise that we talked about earlier. Although the speed of which was such that it caught me off guard and I couldn't conceive of going long so quickly. As a day trader I could see the rise but even at smaller intervals it wasn't the easiest to pick the bottom. Probably those who use ticks might have caught it. I am digressing here.

 

Coming back to the 2 hr chart, the price went as low as the gap but didn't close it. It went up and is currently above the last swing high (LSH) of 65.5. The way things stand the probability of further price rise has increased in the light of today's activity. This of course doesn't mean the down move is out of the picture but shorting as long as price is above 65 to 65.5 has become riskier. Price has also made a higher low and risen above the LSH turning it into an uptrend.

 

Price is at the mid-point of the trading range (TR) from 65-66.25. Generally speaking the mid point is the place where most of the trades take place hence a lot of up and down movement. Most of the times it's not advisable to initiate a position around the mid because it's the average and price keeps coming back to it after going from one extreme of the TR to the other.

 

From here only a long seems viable if price continues up and short is not in the picture unless some kind of a weakness develops to clearly show price having problems going up. So far that hasn't happened after BO from the red trend line.

 

Those who use indicators, especially indicators that rely on price to revert to the mean are probably in some kind of trouble. Price hasn’t done much of reverting and seems to have changed direction to the upside. This can lead to serious losses especially if one holds onto to losing positions as the price looks even better as a short the move it goes up and away from the mean. Eventually the desired turn might come but after how long and after how much emotional damage?

 

Those who rely on price hopefully realized their mistake faster and exited when supply/demand showed balance shifting to the demand side. It’s not an easy job by any means but those who entered two days ago at the break of DL from the 2 hour chart, would have exited at worst at break even when strength in demand showed up.

 

The daily chart has a visible DL which now is our guide to prevent us from premature shorting. The weekly is showing price reaching the mid of the larger trading range. As stated earlier the mid is an area where a lot of activity and directional changes can take place. Weekly is quite clear and price simply bounced up from support.

 

The options after exit or for those who were waiting for the rebound were tougher. Because of the speed to the upside, and lack of drop in price, it was tougher to hop on the bandwagon to the long side. When the LSH was exceeded by price to the upside, it could have been taken as a sign of strength and some longs initiated. I congratulate those who had the sense to do that.

 

This kind of price behaviour has taken place in the past. At times it is due to real demand and at times it’s short covering by those who got caught on the wrong side. We don’t know which one it is this time around. In this environment the prudent thing is to either be long or stay out.

 

Also keep in mind that 65 could turn into a potential support for price. If there is real demand then price might rest a bit within this TR and then propel upwards.

On the dailies you can see it was a V bottom from which price rose. These are hardest to catch due to their speed and lack of a test for further confirmation.

 

It sure is fun isn’t it?

 

 

 

 

Gringo

[Niko 10]

Great analysis G.

 

As for the futures, the main observation I have now is that we are in the MP of the Sept Nov decline (682), so we could expect some pressure as the advance continues.

 

 

Yesterday´s low provided the HL we needed to draw a DL and the close above LSH provided the elements to have a TL, I have also plotted a SL to trace the channel.

 

If buyers keep their enthusiasm and manage to take out the MP which is also the MP of the Mar-Apr TR the next levels of R to watch out would be:

 

• 727
  
• 762
  
• 786
  

 

If the MP holds and the decline resumes we would possibly find S at:

 

• 643
  
• 578
  
• 514
  

[Niko 10]

It has been a rough ride for the shorts, who tried to retake control yesterday morning but finally gave up without much of a chance.

 

 

We are still in an UT that started on the 16th, whose TL has shifted to the right, as of now (8:20AM) price has reached R at 81 and is struggling. If 81 is taken out my next levels of R are:

 

• 95
  
• 04-06
  
• 13-18
  
• 30
  

 

If 81 holds and prices start reversing my levels of S are:

 

• 69-67
  
• 57
  
• 49-45
  
• 37
  

[pjohnm 10]

The areas of strength and weakness are starting to become more apparent in RT, but still some way to go before I'm confident in each scenario (the first 2 blue dots after the open in particular). The changes in pace were quite obvious, but buyers still couldnt make it above 88 and that perhaps made the stall even more telling.

 

 

The toughest area was the congestion after the climactic selling wave. We had a poke above that failed and a rapid fall back to 76, then a BO, a PB and another rapid rejection.

 

One thing to consider is where this happened, the MP of the trading range from the open level / pre open low.

[Gringo 10]

Price has retraced about 50% from the 70.5 to 61.3 drop to about 66 area. So far the the trend is up and DL is intact. Immediate level of potential resistance is around 66.25. Nothing much to do other than observe.

 

Notice the rise has been quite steep, which in bear markets is the norm to get shorts to exit, excite the public and inducing them to buy. Later the price fizzles. Do we know if this is the case this time around as well? No, we don't so we keep our eye on the trend and for any weakness in case it develops.

 

 

 

 

 

Gringo

[Niko 10]

Well, we are almost at the same spot we were yesterday and prices are very congested, it looks like buyers had lost their interest as up-bars can seldom close at the high and prices are easily rejected from R. Although during the today´s morning prices managed to breach the TR it is not really a significant poke and we might be facing a thrust .

 

 

If prices manage to find S at the 81-85 area and make a RET then we could expect a resumption of the UT towards:

 

695

704-06

713-18

730

 

 

If this is actually a thrust and prices return to the TR then we should expect S at:

 

682-79

673-67

657

649-45

637

[Niko 10]

The market was in a very tight TR the whole session, it oscillated around the 82 level, buyers did not have enough strength to move prices beyond 88 and sellers were unable to get bellow 73.

 

During the session I pointed out in the chat that 77 and 73 looked like levels of interest, but I did not have them plotted in my chart so I did not pay much attention to them, something to work in into the future.

 

 

My analysis for the day´s action:

 

1. Before the open prices had been rising towards R at 82, after the open 82 was taken out and a small RET gave an opportunity for an entry, although this one is tricky because of the small poke above R, that could easily be a fake break of R.

 

2. After a more significant upswing prices made a V reversal at 86 and started a bumpy descent, the bumpiness was a signal of buyers not giving up on the way down, so one must be alert for a RET opportunity that came up around 9:40.

 

The result of the Ret was a rapid advance above the LSH, but then price stalled at 88, broke the DL (not drawn) and then made a LH and a LL. At first this looked like a normal pullback but then at 9:47 the rapid collapse in prices gave signal that something was wrong with buyers.

 

3. Finally sellers managed to reach S at 82, but were rapidly rejected by buyers. Sellers were not giving up and sold all they could making prices fall fast as well, but then again buyers were just too strong at S and prices bounced making a DB and then a HL, from there prices rose rapidly with hardly any sellers interference until they reached the 88 level (HOD) and marked a DT.

 

4. After the rapid REV from the DT at 88, buyers gave it a last try at 82, but by then sellers had gained a following and got what they wanted, breaking bellow 82. The first minutes bellow 82 were a little bumpy with buyers interference but after the (LOD) was taken out sellers went into frenzy taking prices lower and lower. Finally buyers came in at 73 where a V reversal showed the conviction of their intentions.

 

Around 76-79 prices congested and finally around 10:26 there was a BO from the TR, but it was short lived and stopped on the now R area of 82.

 

5. Prices bounced from R making a LH and then went back to the TR around 76-79, there buyers started acting with growing conviction making HLs.

 

6. Buyers reached R again, but found strong sellers interest, sellers managed to make a LH, which could have prompted a short entry, but then buyers entered strong and broke R which would have triggered the stops on that short entry.

 

By 11:00 prices had broken R and were making HL and HHs.

[DbPhoenix 42]