Trading The Wyckoff Way

[DbPhoenix 42]

  PrymeTyme said:

well , first i probably would have taken a short at the retest of broken support (24) , as we have a nice selling wave accompanied by increaseing vol. , then on the retest we see that vol actually drops off! , so i would have taken a short there . . .

 

Consider the following, and while I've pointed it out before, it rarely sticks.

 

Price and volume tell two different stories. That they have been joined at the hip by vendors is unfortunate, but to separate them, surgically or otherwise, is not an insurmountable obstacle.

 

Price tells you what the balance is between buying pressure and selling pressure. If buying pressure has the upper hand, price rises. If selling pressure has the upper hand, price falls.

 

Volume tells you how hard buyers and sellers are trying, but it doesn't tell you squat about who's in charge.

 

And that's it.

 

Rising volume on a move downward is not a negative. Rising volume on a move downward tells you that buyers are rushing in to retard, stop, or even reverse the move downward. Whether or not they manage to do so is beside the point. Without the buyers, there would be piddling volume. When price reaches THE bottom, volume may be high or low depending on how much more effort is required, but the volume itself does not signal the bottom. The bottom is signaled by the fact that price is no longer falling.

 

As for high volume to the upside, this is not necessarily a positive, either. The positive is that price is rising. The volume simply tells you how much effort buyers are putting in to move it. If volume is high, they're facing a lot of resistance. If it isn't, they aren't, i.e., sellers are not fighting the rise, for whatever reason. What matters most to the trader, however, is that price is rising. Who cares why?

 

There are a number of important points to this example, but what is perhaps most important is that buyers managed to push price back to the level at which it fell. Not only that, they were able to provide a higher low.

 

Volume, therefore, can provide useful or important or even necessary details, but it's the harmony, not the melody.

[tommyjames 10]

GLD Hinge is getting pretty tight...

 

Edited February 8, 2013 by DbPhoenix

[tupapa 10]

Looking at volume in such a mechanical way reminds me of the indicator folks. It seems to work for you, which is great, but in my case, the extent of the buying and selling waves, and their velocity are enough variables to make a trading decision.

 

That's why I never understood the indicator people; In my case, making a decision relying solely on price is hard enough, and already leads to some hesitation, (Was that rejection strong enough?, Price fell very quickly! How far is this test going to go? etc..) so why complicate things even more?

 

It seems ludicrous, an even masochistic, to add more variables; (Price was rejected, but the MACd is down, and the stochastics are oversold!! Or the volume was higher on the down-wave but diminished on the upwave... etc..)

 

 

I am only a beginner, and I still have so much to learn, but when it comes to trading, I need to keep things simple, I need simplicity, so that I can execute my trades with as little hesitation as possible. Simple means a focus on price, a focus on buying and selling pressure, as shown by the length and extent of the buying and selling waves.

 

Wyckoff explains this perfectly in the Section 5 of the course, Buying and Selling Waves, and gives practical examples of this in Section 22, The Wave Chart. I find this a part of the course that is worth re-reading.

 

Another thing that helps me, is thinking of Fibonacci levels, I don't draw them, but I do keep in mind the 50% of each wave, and I monitor if subsequent waves move beyond or stay below this level (61.2 and 38.2%, although the exact levels are irrelevant).

 

 

For instance, I've drawn a black line, showing the 50% of each wave during yesterday's reversal:

 

 

At 12:30 the down wave is strong, but here an upwave starts, which moves well above the 50% of the down-wave, this shows buying pressure.

 

This up-wave ends at 12:45, and a down-wave ensues, but it doesn't even get close to the 50% of the previous up-wave, this shows strength, and the fact that price stopped at Support, re-enforces this.

 

Then, there is a very strong upwave, that runs out of steam at 13:13.

 

Then a correction that stops at the 50%, the strength is intact.. etc.

 

I am looking into incorporating this into my management strategy

[TheDude 10]

  Gringo said:

You are right. The lines don't dictate what the price is going to do. Their use is mainly to better visualize what currently is happening with the price, hence, the lines generally speaking don't have an impact on the market or price.

 

 

 

No. Having lines by a bunch of traders has no meaning.

 

 

 

The general technical analysis does seem to incorrectly imply as if the lines dictate where the support and resistance are going to manifest and as a result the price is going to either halt around there and reverse because of the lines or will need a powerful breakout of some sort.

 

Here at the Wyckoff forum the lines are used only as a means to staying alert at certain levels where previously price had struggled. If there is no indication by price that a certain level is important then well and good, it isn't.

 

The above talk was about support and resistance lines. Some of your magic lines are demand/supply lines or trend lines. I won't go into the difference but treat them as lines that are showing the direction in which price is moving. One doesn't need lines to know the direction of price but having a trend line is a reminder to stay true to the trend and not swim against the tide of current market direction.

 

Now, you may ask and rightly so, if lines don't have any impact on price what good are they? Isn't it a bit crazy to have something on a price chart that doesn't really have an impact on price? And you'd be right. Lines of any sort have no impact on price, nonetheless they still have an important function for the user. Lines clarify in the mind areas where a potential struggle between supply and demand might take place. All it does is allow one a possible heads up and a chance to enter with a reduced risk. Risk in the sense that the stop could be placed relatively closer in case of an adverse price move.

 

A combination of trend lines and support/resistance lines simply increases the odds of success. The increase might be slight but trading is a probabilities game isn't it?

 

For those who believe markets are efficient and random and human psychology has no impact on prices won't believe a word I have written. For the rest, magic lines if not over done simply lend a helping hand.

 

Gringo

 

Thanks for taking the trouble to explain. Much appreciated, and I respect your point of view.

 

I'm still a little confused however. You say the lines suggest areas where there might be a struggle between demand and supply. Could there be the danger that such areas will create a bias?

 

My magic lines - most of which I admit didn't happen to be so magical in hindsight, may have suggested such a struggle when they were approached, yet there was no such struggle. A trader may have expected a bounce, but instead got a break through. Volume on these points was kind of normal, where as the trader may have had a bias that a breakthrough should be accompanied by heavy volume - so faded the move, and got badly burnt - perhaps.

 

If there were no lines, and no thus bias, one could perhaps may have been more objective?

 

I have the same feelings towards magic patterns and shapes; such as double bottoms, triangles, witches pentagons and so forth. Elliot Wave is of course the prize fools errand of them all in my opinion.

 

I'd suggest the only real levels one should watch for if using a chart are previous congestions, trading ranges/call them what you will. These reflect in my opinion prior perceptions of value as there was most trade there - therefore more emotion/people willing to protect and defend, or give up positions.

 

[DbPhoenix 42]

  TheDude said:

 

I'd suggest the only real levels one should watch for if using a chart are previous congestions, trading ranges/call them what you will. These reflect in my opinion prior perceptions of value as there was most trade there - therefore more emotion/people willing to protect and defend, or give up positions.

 

 

Which is exactly what the two lines in the first post represent: a narrowing trading range in which traders work their way toward a midpoint, or, if you like, a POC. That it happens to form a triangle is a byproduct of this effort, nothing more. By offering a chart full of nonsense you set up a straw man to make a point. But this thread isn't about technical analysis; it's about crude oil.

[DbPhoenix 42]

Those who deride these "lines" should note that platinum fell 35pts yesterday after being unable to break through the resistance which is highlighted by a line. The line, therefore, and the reasons for drawing it, are worth knowing.

 

Note also that the above chart was drawn BEFORE the price drop, not after.

[Niko 10]

After bouncing at the MP of the downswing from 97.22, price is stuck in the chop around the MP of the current TR.

 

 

A break below PDL could mean the intention of sellers to test the bottom of the TR, a break above 97.38 could mean that buyers are willing to defend their position and a test of the top could be the next course of action.

 

As for levels of interest:

 

[DbPhoenix 42]

  tommyjames said:

GLD Hinge is getting pretty tight...

 

 

It would help if you were to outline -- or preferably detail -- how you plan to trade this (hence Trading In Foresight). Otherwise it is more appropriately posted in the AMT thread, particularly if you haven't decided how to proceed.

[PrymeTyme 10]

i dont think iam doing anything wrong here guys..

 

 

just some exerpts of the OG wyckoff course ....

 

.

[tupapa 10]

  PrymeTyme said:

i dont think iam doing anything wrong here guys..

 

 

just some exerpts of the OG wyckoff course ....

 

.

 

Don't take it personally mate, I just don't rely on volume for intra-day moves, but if it works for you, who cares, as long as it makes you money consistently, you are doing much better than most...

 

Also, Wyckoff wrote this long ago, when there was no computerized trading, don't you think all the HFT could affect intra-day volume analysis?

[DbPhoenix 42]

  PrymeTyme said:

i dont think iam doing anything wrong here guys..

 

 

just some exerpts of the OG wyckoff course ....

 

.

 

No, you're not wrong. You're just stopping short. If you settle for volume as a "thing" (strong, weak, increasing, decreasing and all the other terms used by products that are "based on" Wyckoff) rather than as an activity, then you risk misinterpretation of what is happening with regard to buying and selling pressures.

 

For example,

 

 

and

 

 

why is "increasing volume" "bullish"? Price is rising. Is that not bullish enough? Why is it more "bullish" that it's doing so on increasing volume?

 

And here

 

 

How does one know that "selling is light" because the "volume on the reaction diminishes appreciably"? How is this a "bullish indication"?

 

And finally,

 

Why should "prices breaking through the low point . . . on increasing volume" prompt a short? Is it the volume? Or it is the violation of the low point?

[YertleTurtle 10]

A little off topic but god I hate fibs. I do watch the 50% level occasionally but this isn't a fib level. I'm not sure how 50 got added to the fibonacci sequence for traders but it certainly isn't based on the math of the sequence.

[DbPhoenix 42]

I agree. Fibs are shiny, flashy things that are dangled in front of beginners, drawing them into the weeds.

 

Ditto "pivot levels".

[TheDude 10]

  DbPhoenix said:

Which is exactly what the two lines in the first post represent: a narrowing trading range in which traders work their way toward a midpoint, or, if you like, a POC. That it happens to form a triangle is a byproduct of this effort, nothing more. By offering a chart full of nonsense you set up a straw man to make a point. But this thread isn't about technical analysis; it's about crude oil.

 

Aah ha! That makes more sense to me.

 

May I offer the following then......

 

Possible POC in green that is perhaps offering what you chaps refer to as resistance as the market slows down with the increased liquidity?

 

If your're interested, the POC is actually at 99.0, and the POCvolume is at 86.1

 

TPO counts are 8788/38825 suggesting longs appear to be keeping prices up the majority of the time, however the VPO (volume counts) are 92916/56651 suggesting sellers are very keen to provide the liquidity to the longs and then some. Perhaps the sellers are more passive?

[DbPhoenix 42]

The green line is just a line. No reason for it to offer resistance. The bulk of the trades have been taking place around 97. This may offer support if price rallies from it and retraces to it. Or maybe not. What matters most is what traders are doing, and, as you say, the buyers are holding it above the midpoint of the range. For now, that's all that matters.

[TheDude 10]

Yep. The green line was just where I thought the POC would be before I decided to check and post the numbers. It certainly isn't magic! As you say, it's just a line, but draws the attention to a zone (as Gringo uses them) where price should slow - giving more time to put trades on/off. Sometimes it may be a barrier, sometimes not. It is an area where there has been most trade - so there will be more vested interest of defending or attacking the zone.

 

Personally, I prefer to look at volume POC's (lower down). As this is actual contracts traded, I would have thought there would be more vested interest, rather than a level where prices may have traded a lot, but not as much business transacted.

 

[DbPhoenix 42]

I don't plot or quantify volume separately. In fact, I don't even draw these lines. They are solely for communicating what I'm looking at. I could also use circles or arrows or rectangles. If price is ranging, I look for the intrarange trading ranges or clusters since this is where the volume will necessarily be. It is these clusters which will act as support or resistance, not, generally, swing points (a notable exception was the platinum chart I posted last week).

 

Otherwise, unless price is at a point where one could expect fireworks, I don't pay any special attention to it. Currently, volume is nothing special, but price is at a level where it ordinarily would launch itself. I see no evidence that it will (with the possible exception that it has failed to drop below the last swing low), but we've been following this for a while, so I posted an update.

 

Sometimes one gets results quickly, as with platinum, sometimes one has to be patient.

[Niko 10]

Perhaps a longer term view can help:

 

[tupapa 10]

Hello everybody, I am working on a plan for tomorrow's Bund session but I am a bit unsure about my levels to the down-side, maybe some of you have a helpful view on this:

 

First of all, on the daily, we are still in the middle of the most recent TR, so I am assuming that is why the market is choppy. but so far, the bears don't have it in them and the bulls are pushing prices higher, making a new high on Friday.

 

On the 30m we can see a series of HHs and HLs, that so far, are finding R at 143.08. This is an obvious level for me, and my plan around it is clear:

 

 

If tomorrow we reach 143.08, and there is a rejection, I will go short.

If tomorrow we break above 143.08, I will go long on a pullback.

 

The levels above 143.08 are also fairly clear.

 

Now on to the 15m chart, which is making be doubt...

 

 

Below 143.08, I have noted first Support at 142.82 because Friday evening there was a strong up-wave that was supported here on two occasions.

 

Below this I have S at 142.75, which I am considering to be the lower limit of the current range's value area.

 

My plan would be to go long on a reversal of either of these levels, looking to target the top of the range (143.08) for 1/2 of my position. and scale the rest, if there is a breakout.

 

Would you agree that both 142.82 and 142.75 are valid supports or would you be looking at things differently?

[TheDude 10]

  Nikorivera said:

Perhaps a longer term view can help:

 

 

Indeed!

 

Speaking of long term, it may be worth considering some fundamentals. Apparently, most middle eastern 'governments' base their fiscal policy/economy on $80 a barrel. WTI will trade at a premium to middle eastern crude due to its lower sulphur content. Interesting how that just above $80 seems to be a rough area of congestion ranges.

[DbPhoenix 42]

All these lines may prevent you from seeing that the bottom of your trading range is a zone. A rather wide one. Therefore, when the time comes, you're going to have to focus on the B&S Waves to determine who has the upper hand and trade your reversal on that basis.

[tupapa 10]

  DbPhoenix said:

All these lines may prevent you from seeing that the bottom of your trading range is a zone. A rather wide one. Therefore, when the time comes, you're going to have to focus on the B&S Waves to determine who has the upper hand and trade your reversal on that basis.

 

Ye, thats what I am struggling with, determining the bottom of the Range, would you say it is simply 62-72? I mentioned 142.83 in my previous post but I'm not sure about this one, it seems like this could be trading in the middle of the range, which as you've repeatedly point out, is non directional....

 

The trend is up, and Dlines are intact so a long at support seems like the best option for the time being, I'd much rather enter on a reversal of support than waiting for a breakout..

 

[Niko 10]

Long term analysis for FGBL:

 

 

Shorter term context:

 

 

Conclusions:

 

Still within the context of the shorter term TR, above the MP of the last downswing, so buyers are showing strength. But in the longer term context we are inside a TR zone between 42.44 and 43.63 and below the MP at 43.04 that might provide R on the upside so will have to be on the look for a reversal of the shorter term uptrend.

[Niko 10]

Oil for today:

 

The longer term view:

 

Still struggling within the TR:

 

 

Levels at the shorter term level:

 

[Niko 10]

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