Trading The Wyckoff Way

[tupapa 10]

Or a RET after a break below S.

 

It is common for beginners to think that price will plummet/rocket as soon as they transmit their order. Which of course it doesn't. There must be other reasons. It's up to the trader to determine what those reasons are and whether or not they are present. In any case, he's just along for the ride.

 

 

When i trade intra-day, I will have my R level on the 30m, then I will look at the 1m for a volatile down-wave, followed by an up-wave that results in a contraction of volatility, resulting in a LH or double top.

 

I am simply applying the same principles, only using a daily and 60m chart instead of 30m and 1m. Isn't this a textbook Wyckoff setup?

 

You are suggesting entering at the break of 1690, after a LH but isn't this simply a matter of price vs information risk? Once price breaks below 1690, I would reduce my stop to breakeven, but I wouldn't be looking for an entry.

 

I am not experienced with trading of daily bars (or trading in general, for that matter) so I might be getting it all wrong..

 

[DbPhoenix 42]

If you can tolerate the stop, sure.

Edited February 14, 2013 by DbPhoenix

[tupapa 10]

Target is 1400 so I can defently tolerate the stop. Anyway, well see how this develops, either way its just a numbers game..

 

Thanks for bringing these charts up.

[DbPhoenix 42]

Whether you can tolerate the stop or not depends on where you place it. And you're currently sitting at potential support, i.e., the midpoint of the last rally.

 

Not sure what you mean by a "numbers game". It's also dollars and cents. Forgetting that can cause one to blow up his account.

[tupapa 10]

I am placing my stop above the LH, around 1740. And when I say it’s just a numbers game, I mean that I have tested this setup (Rejection and resistance followed by a LH/Dtop) and it has a probability of success of around 65%. My targets for the trade are the MP of the range, and the lower limit around 1400, so the Risk/Reward of the trade is very favorable.

 

This is why I can tolerate the stop, and if price rallies today or next week making a new high, I am not going to feel angry or emotional, it would just be one of the losers in the sample. As for blowing up my account, I have a money management strategy that ensures I can last in the game.

 

The irony here, is that virtually everything I have learnt about the mechanics of trading is in this forum, as soon as I found it, I didn't even bother looking elsewhere, I know it is all here, it is all your work. We seem to have a discrepancy about this trade, so I obviously have some questions;

 

1- You are mentioning the 50% as potential support; do you consider the midpoint of every wave as potential S/R? I thought you only looked ad Midpoints of ranges and Hinges.

 

2- When I asked you where you would go short, you mentioned on a Ret, after a breakout below Support. Which support are you talking about?

[tupapa 10]

It's my opinion that both the long or the short are possible. The S&R are our key levels to keep and eye on. Based on whether price has a breakout or a rejection will probably determine which trading decisions is more appropriate.

 

The longer trend does appear to be up and had been taking a breather for some time forming this trading range from 1400 to 1700. Since price turned upwards from the mid point of this range instead of going all the way down to the bottom of the trading range indicates the predominance of demand over supply.

 

For a trader with a longer time horizon staying with the trend and the possibility of a breakout is something to be aware of. That being said a trader with a shorter time horizon could squeeze out some points in case the S&R around 1700 rejects and the the price tumbles.

 

I believe the probabilities favour the long side but price is the ultimate determinant of which side is going to dominate: The long side, the short side or the right side.

 

 

Gringo

 

Interesting Analysis, specially the part about price finding S at the Range MP, I agree that this shows strength.

 

However, I wouldn't say the trend is up, we are simply in a TR, above the 09 lows but below the 08 Highs. As you said, anything can happen, and I would say this is an inflection point:

 

If price breakouts above R, I would go long on a pullback/ret.

If Price rejects R, I go short on a LH, target is the range MP for 1/2, and range lower limit for the second half.

 

This is how I trade trading ranges.

[tupapa 10]

An alternative view on crude:

 

[Gringo 10]

An alternative view on crude:

 

 

Tupapa,

 

You are right there is a chance this could be a turning point. There are however other factors at play as well. The way I look at it the price pull back to LSL was normal and didn't really breach it. The strong demand pushed price up to the S/R and current LSH. At the moment price is moving down. A short term trader can use it to short. For a longer term EOD trader the price is simply bouncing in the TR after BO from the large hinge that was shown in the earlier post. Until the LSL is breached I would considering my longer trade time horizon would be reluctant to go short.

 

Nonetheless, the lack of demand to move price above the S/R in your case and LSH is the first red flag and a reason to be cautious for those like me who are long.

 

Gringo

[DbPhoenix 42]

I am placing my stop above the LH, around 1740. And when I say it’s just a numbers game, I mean that I have tested this setup (Rejection and resistance followed by a LH/Dtop) and it has a probability of success of around 65%. My targets for the trade are the MP of the range, and the lower limit around 1400, so the Risk/Reward of the trade is very favorable.

 

This is why I can tolerate the stop, and if price rallies today or next week making a new high, I am not going to feel angry or emotional, it would just be one of the losers in the sample. As for blowing up my account, I have a money management strategy that ensures I can last in the game.

 

The irony here, is that virtually everything I have learnt about the mechanics of trading is in this forum, as soon as I found it, I didn't even bother looking elsewhere, I know it is all here, it is all your work. We seem to have a discrepancy about this trade, so I obviously have some questions;

 

1- You are mentioning the 50% as potential support; do you consider the midpoint of every wave as potential S/R? I thought you only looked ad Midpoints of ranges and Hinges.

 

2- When I asked you where you would go short, you mentioned on a Ret, after a breakout below Support. Which support are you talking about?

 

1. Yes.

 

2. Below which S level do you think shorting a RET would be most successful?

 

There are no "mechanics". There's nothing mechanical about this approach.

 

I'm not channeling Wyckoff. What he would do or not do in any given situation is at best a guess. But he's been dead for 80 years, so the best one an do is study and practice. The principles don't change.

 

Your puzzlements have to do with ignoring context. Trading a daily bar is not the same as trading a 1m bar. The psychology is entirely different. Similarly, a LH after an extended trend is not the same as a LH after finding R at the top of a TR. Since you're not trading daily charts, you have to be careful not to take the wrong lessons out of these charts.

 

Edit:

 

The following chart may help clarify. This chart includes several time segments beginning with the initial hinge. Therefore, it looks far more cluttered than it would if a succession of charts were used.

 

First, the hinge. This is the first signal that a move upward may be imminent. The false "BO" below the hinge supports this hypothesis. Eventually, price breaks above the top of the hinge, further support.

 

Second, price falters at R, coming all the way back to the MP of the hinge. If long, this in and of itself is not cause for concern. If one is looking to go short at R, this is the opportunity to do so.

 

Third, price makes a LH. If price had reached R with no hesitations, this would be a more attractive short than it is otherwise because of all that sellers have to wade through in order to gain any momentum. The midpoint of the last rally, which happened to coincide with the top of the hinge, was one such hurdle. But price still has to work its way through the congestion that created the hinge. In any case, if long, the LH is sufficient justification for exiting, though one might also have exited when price first hit R.

 

Fourth, for a follow-on short, what is far more attractive to me is the relatively clear sailing represented by the blue line. This is a reflection of my conservatism, and not everyone need be as conservative. OTOH, I have a lot more respect for money than most do. On the third hand, I'm still here, and few of those who were here five years ago, much less ten or fifteen, can say the same.

 

 

 

 

Like Jim Rogers, I prefer to wait until I see money in the corner, just waiting for me to walk over and pick it up. The 55pt drop in PL was nice. I'm not eager to give it back.

 

.

Edited February 15, 2013 by DbPhoenix

[DbPhoenix 42]

Tupapa,

 

You are right there is a chance this could be a turning point. There are however other factors at play as well. The way I look at it the price pull back to LSL was normal and didn't really breach it. The strong demand pushed price up to the S/R and current LSH. At the moment price is moving down. A short term trader can use it to short. For a longer term EOD trader the price is simply bouncing in the TR after BO from the large hinge that was shown in the earlier post. Until the LSL is breached I would considering my longer trade time horizon would be reluctant to go short.

 

Nonetheless, the lack of demand to move price above the S/R in your case and LSH is the first red flag and a reason to be cautious for those like me who are long.

 

Gringo

 

The overriding concern for me is whether or not price is doing what I expect it to do, and this is where focusing on traders rather than price or lines becomes even more important. It is important that price found S at the LSL. But far more important is that it did NOT make a HH. This in and of itself need not be a reason to exit, but if buyers can't hold here above the MP of this little TR between 5 and 8, I'd be out. To do otherwise would be to introduce hope to the equation.

[tupapa 10]

A possible play on platinum, if the current rally results in a LH.

 

 

Foresight trading at its prime

 

Nice, so I guess it is just a matter of preference, for me, the LH at 1733, along with the contraction in volatility is enough to enter.

 

Now price broke below the midpoint of the range, so I have a risk free trade, and I can always pyramid if we break below 1660, on a Ret.

 

 

Your puzzlements have to do with ignoring context. Trading a daily bar is not the same as trading a 1m bar. The psychology is entirely different. Similarly, a LH after an extended trend is not the same as a LH after finding R at the top of a TR. Since you're not trading daily charts, you have to be careful not to take the wrong lessons out of these charts.

This is a LH after finding R at the top of the range right??

 

Yes

Edited February 15, 2013 by DbPhoenix

[Gringo 10]

I have exited the USO long calls position. The fact that demand just disappeared at the open and price even after an hour couldn't muster enough strength to rise prompted the decision to exit.

 

As Db had mentioned earlier I had expected price to rise where instead it stalled at the LSH. In the absence of clear strength there wasn't enough reason to stick around. I was willing to lose the entire value of the options but exited with a 23% loss. The extra funds saved could be put to better use!

 

I do understand oil could turn up here and resume but I can make decisions only in the present.

 

I am eyeing the AAPL short if price pushes closer to the 500 level.

 

Gringo

[tupapa 10]

I have exited the USO long calls position. The fact that demand just disappeared at the open and price even after an hour couldn't muster enough strength to rise prompted the decision to exit.

 

As Db had mentioned earlier I had expected price to rise where instead it stalled at the LSH. In the absence of clear strength there wasn't enough reason to stick around. I was willing to lose the entire value of the options but exited with a 23% loss. The extra funds saved could be put to better use!

 

I do understand oil could turn up here and resume but I can make decisions only in the present.

 

I am eyeing the AAPL short if price pushes closer to the 500 level.

 

Gringo

 

What about a short after a RET if price breaks below 95?

[Gringo 10]

I'll check it EOD. I don't want to get sucked into intra-day trading. Preferably once or twice a day observing price to make a decision should be the norm. My intra-day instincts start to pull me in with every twist and turn of price and it's something I wish to avoid.

 

Gringo

[DbPhoenix 42]

I'll check it EOD. I don't want to get sucked into intra-day trading. Preferably once or twice a day observing price to make a decision should be the norm. My intra-day instincts start to pull me in with every twist and turn of price and it's something I wish to avoid.

 

Gringo

 

A point that should not be overlooked. These charts are posted, after all, with the EOD trader in mind. So if price drops below 95 and if there's a RET, the first entry op won't come before Tuesday.

 

The market loves to lure traders into chop.

[tupapa 10]

Sorry, but I feel like there was a lot more to your last explanation that I could be missing...

 

The following chart may help clarify. This chart includes several time segments beginning with the initial hinge. Therefore, it looks far more cluttered than it would if a succession of charts were used.

 

 

 

First, the hinge. This is the first signal that a move upward may be imminent. The false "BO" below the hinge supports this hypothesis. Eventually, price breaks above the top of the hinge, further support.

 

Ok, so you are going long here preempting a breakout above resistance.

 

Second, price falters at R, coming all the way back to the MP of the hinge. If long, this in and of itself is not cause for concern. If one is looking to go short at R, this is the opportunity to do so.

 

So if you are long, you stay long because the Hinge MP held, so another attempt at resistance is anticipated, makes sense. What about the short, this is the opportunity to do so, but on a Double top or LH right?

 

Third, price makes a LH. If price had reached R with no hesitations, this would be a more attractive short than it is otherwise because of all that sellers have to wade through in order to gain any momentum. The midpoint of the last rally, which happened to coincide with the top of the hinge, was one such hurdle. But price still has to work its way through the congestion that created the hinge. In any case, if long, the LH is sufficient justification for exiting, though one might also have exited when price first hit R.

 

Price makes a LH, isn't this the opportunity to go short you were referring to in the previous quote? (same opportunity that I suggested before the plunge). The part about the hesitations I find interesting: So if price had gone up in a straight line, with no contraction in volatility it would be more attractive to you? Funny, I tend to look at it the opposite way, for me, the fact that there is hesitation on the LH, means that there is still a lot of supply up here, and buyers don't have it in them to bid prices higher aggressively, like they did the first time.

 

Like Jim Rogers, I prefer to wait until I see money in the corner, just waiting for me to walk over and pick it up. The 55pt drop in PL was nice. I'm not eager to give it back.

 

Sorry, but I don't understand this part, what 55 pt drop are you referring to, the one from 1740? Is this a scalp from the first test of R to the MP of the Hinge?

 

And one more thing:

 

Your puzzlements have to do with ignoring context. Trading a daily bar is not the same as trading a 1m bar. The psychology is entirely different. Similarly, a LH after an extended trend is not the same as a LH after finding R at the top of a TR. Since you're not trading daily charts, you have to be careful not to take the wrong lessons out of these charts.

 

I read in one of your posts that once you test a setup on a bar interval, it is applicable to any other. In this case I am replacing my usual intra-day intervals, (Daily/30m for S/R and 1m for entry) for longer term trading (Weekly/Daily for S/R and 1h/4h for entry).

 

I thought this was the logical thing to do.

 

Thanks for this fruitful discussion, as always so much to learn...

[PrymeTyme 10]

well the funny thing is , u only know it in hindsight! funny isnt it ! but thats how it is

 

u may know that a potential selling climax is forming and therefore u may lay out a plan

how to trade such a scenario ... as a selling climax only is one after it has been retested

and it held.. same for buying climax...

 

 

an example.. on HLF herbal life Daily TF... we have evidence of a potential selling climax

here .. and we are on the way to test the lows of it.. but it looks like we may .. find a

higher low atm.. where at least for my trading plans.. a Long setup would be justified on

the break of the actual bar .. whereas .. i even would consider a reverse if the long play

wouldnt play out (long1) .. cause we have not ,much interrest as seen on the volume ie.

activity... yes we closed on the highs .. but u want to see more bullish activity the more

the better if ya play the SC to soon.. .. ie not near the lows of the SC.. therefore .. u

should be ready .., to even reverse the long position and take a short ,, playing the Retest

of the lows Of the pot. SC.. (short1 rev.) ..

 

as u can see u have to lay a plan ahead before jumping in... especially that soon...

 

from then on other scenarios .. come into play aswell.. if PA dictates o fcourse..

 

as on Short 2 a range may develope .. wheras the Long 2 may be the Succesfull retest of the SC and would justify,.. a long .. etc..

 

u have to play the markets how they develope. and judge its behaviour.. at any time..

 

Ie. u gotta be prepared

 

cheers

 

ooops

 

Daily:

Hourly:

[Gringo 10]

Ok, so you are going long here preempting a breakout above resistance.

 

Someone could choose to go long. Having a hinge so close to potential R gives a controlled and determinable exit point. Also note it is a potential R and might not even act at R hence taking advantage of a hinge so close may be utilized in the even that price just starts going up from here.

 

So if you are long, you stay long because the Hinge MP held, so another attempt at resistance is anticipated, makes sense. What about the short, this is the opportunity to do so, but on a Double top or LH right?

 

One's plan regarding how to play a hinge is paramount here. If you have a plan then use it here, otherwise wait for R.

 

Price makes a LH, isn't this the opportunity to go short you were referring to in the previous quote? (same opportunity that I suggested before the plunge). The part about the hesitations I find interesting: So if price had gone up in a straight line, with no contraction in volatility it would be more attractive to you? Funny, I tend to look at it the opposite way, for me, the fact that there is hesitation on the LH, means that there is still a lot of supply up here, and buyers don't have it in them to bid prices higher aggressively, like they did the first time.

 

The hesitation I believe is visible around the 1710 area (the puny bar) after the first rejection. On the way down after the test this hesitation could have become a hindrance. You in RT wouldn't know whether this hesitation could turn into a rallying point for demand to show up. In hindsight the hesitation area didn't cause much issue after the test for R but was something you had your eyes on just in case.

 

Sorry, but I don't understand this part, what 55 pt drop are you referring to, the one from 1740? Is this a scalp from the first test of R to the MP of the Hinge?

 

I believe so. Keep in mind this is futures and a 55 point drop is quite significant, perhaps to take some partial profits. However, whether a profit is taken or not is based on one's plan and may not be something you or I would do just because Db might prefer it.

 

I read in one of your posts that once you test a setup on a bar interval, it is applicable to any other. In this case I am replacing my usual intra-day intervals, (Daily/30m for S/R and 1m for entry) for longer term trading (Weekly/Daily for S/R and 1h/4h for entry).

 

I thought this was the logical thing to do.

 

Seems logical. Just see what you find comfortable. The objective is just to see price move somehow and bar interval is just a aid in doing so.

 

As always this is an interpretation on my part of what Db might have implied and there's no guarantee that's what he meant. I am sure he'll correct me where I am wrong.

 

Happy trading,

 

Gringo

Edited February 16, 2013 by Gringo

[PrymeTyme 10]

gotta be prepared ..

 

 

ooops

 

Daily:

Hourly:

 

15 Min HLF

[tupapa 10]

Lovely jubbly, I am keeping an eye on this.

[tupapa 10]

The hesitation I believe is visible around the 1710 area (the puny bar) after the first rejection. On the way down after the test this hesitation could have become a hindrance. You in RT wouldn't know whether this hesitation could turn into a rallying point for demand to show up. In hindsight the hesitation area didn't cause much issue after the test for R but was something you had your eyes on just in case.

 

Could you elaborate on this? maybe bring up some charts? I am most interested in this since it is what confronts the most with the short I suggested.

 

I believe so. Keep in mind this is futures and a 55 point drop is quite significant, perhaps to take some partial profits. However, whether a profit is taken or not is based on one's plan and may not be something you or I would do just because Db might prefer it.

 

Futures or not, Db has repeatedly pointed out that this charts are aimed at EOD trading, not scalping.

 

If I was to short Platinum, on a rejection of a weekly resistance level, using EOD charts there is no way I would be taking a 55 point winner.

[tupapa 10]

I like Abengoa, they are involved in the construction of Concentrated Solar Power plants, which I believe will be a major technology in power generation.

 

I made my preparation last night:

 

A few weeks ago, they handed every shareholder 3 shares per share they owned, hence the violent drop in price.

 

On the 5h, there was a strong up-wave from 2.00 which we are now testing, and it looks like we could be making a HL.

 

 

Since today was the 3d day of support at 2.9, I entered at 2.13, if the reversal is confirmed, I have a primary DL to play with.

 

 

A hard stop is placed below the HL at 1.9

[DbPhoenix 42]

As always this is an interpretation on my part of what Db might have implied and there's no guarantee that's what he meant. I am sure he'll correct me where I am wrong.

 

Not wrong. Anything but. However, there's a matter of context here. A lower high carries the same message whenever and wherever it occurs: selling pressure is beginning to have greater influence than buying pressure. But a lower high on a 1m chart, for example, does not provide the same result as a lower high on, for example, a daily chart if for no other reason than so fewer people even see it. Similarly, while a lower high at the end of an extended run on, for example, a daily chart might provoke frenzied selling (e.g., AAPL), a lower high after hitting R in a trading range would likely provoke no more than a ho-hum since this is what is expected and has been anticipated ever since price bounced off support.

[Gringo 10]

How does this look as a long? It is a bit away from the base hence greater danger of a reversal. In any case there are clear levels for stops which make it somewhat easier to handle. Price isn't coming down to close the gap. I would look at it as a sign of strength.

 

 

Gringo

[tupapa 10]

Third, price makes a LH. If price had reached R with no hesitations, this would be a more attractive short than it is otherwise because of all that sellers have to wade through in order to gain any momentum. The midpoint of the last rally, which happened to coincide with the top of the hinge, was one such hurdle. But price still has to work its way through the congestion that created the hinge. In any case, if long, the LH is sufficient justification for exiting, though one might also have exited when price first hit R.

 

Thought I would answer my-self here, and correct me if I am wrong. I believe when you mention, "if price had reached resistance with no hesitations it would've been a more attractive short", you were referring to the Hinge in Platinum, not that small hesitation on the test.

 

I can see why you would mention this, as we have seen with Platinum, price approached R but formed a Hinge before the level.

 

If we compare this with silver for instance, that also reached the top of the range but a few months ago, we can see how it went up in a straight line, and there was no Hinge or other congestion to deal with, so the LH was a much more attractive short.

 

 

Makes total sense now, cheers DB.