Trading The Wyckoff Way

[Niko 10]

Tupapa, in the case of S1 how do you define the entry point in the HL, ticks away from LSL, information from a smaller interval (30 min, etc) or would you wait for the break of LSH in order to take the trade.

[DbPhoenix 42]

Anybody else looking at this?

 

Yes. And silver. And platinum. But you've saved me the trouble of having to fool with it.

 

You're getting sharp. Congratulations.

[DbPhoenix 42]

Is this The Ret you were referring to?

 

The RET at 60 is better. More confusion. More opportunity. It's arguably a WTF trade.

 

Unfortunately, one can't see it on the daily unless he's watching it in real time. In that case, he'll see price retreat even though it's contained in the same bar. Trading it takes a certain size of balls, but with enough practice and legitimately-obtained confidence (i.e., not just arrogance and self-delusion), it could be traded successfully with very little angst.

 

This is all assuming the trader is not still in bed. If he is, he'll most likely wait for the test of support. But that's the way it is with non-trending markets, which these have been for months. Except for the ES, which shows that God has a sense of humor after all.

[tupapa 10]

The RET at 60 is better. More confusion. More opportunity. It's arguably a WTF trade.

 

Unfortunately, one can't see it on the daily unless he's watching it in real time. In that case, he'll see price retreat even though it's contained in the same bar. Trading it takes a certain size of balls, but with enough practice and legitimately-obtained confidence (i.e., not just arrogance and self-delusion), it could be traded successfully with very little angst.

 

This is all assuming the trader is not still in bed. If he is, he'll most likely wait for the test of support. But that's the way it is with non-trending markets, which these have been for months. Except for the ES, which shows that God has a sense of humor after all.

 

By test of support, do you mean a wave that retraces all the way up to 1660? Last night I noticed the Ret in Platinum that I show on my last chart, but I wasn't sure if this was a valid one or if It was safer to wait for a test of 1660.

 

My reasoning was that if I entered on the Red dot on the previous chart, I would need astop above Support (1660) which is very wide...

[DbPhoenix 42]

No, 1660 is old news. I was referring to 1375, though price has to clear the MP of the range first, at around 1550.

 

Trading EOD is not for the hyperactive. Better to look for something else that's on the springboard and let stuff like PLAT percolate for a while. ES looks awfully good, though the best op was yesterday early morning.

[tupapa 10]

Tupapa, in the case of S1 how do you define the entry point in the HL, ticks away from LSL, information from a smaller interval (30 min, etc) or would you wait for the break of LSH in order to take the trade.

 

Ordinarily I am looking for a strong upwave after the climax, followed by a down-wave with a contraction of volatility and preferably lower volume. Then I place a limit order as the lower High is being formed. This is how I trade intra-day

 

Since I am only allowing myself to trade metals EOD, I will update the thread with what I am seing at the end of the day, which might mean that I won't be able to enter with a limit order as the LH is forming, but will have to place a limit above the close of a particular bar.

 

It depends on what the waves look like at the end of the day.

 

Look forward to sharing ideas on this with everybody else.

 

Edit: Anyone know where I can find a chart that shows daily volume for metals??

Edited February 21, 2013 by tupapa

[DbPhoenix 42]

Note: The following originated on a broker site and was posted to another thread in another forum by another member. I'm reposting it here because it is important for beginners to understand just what they are getting in to when they choose Forex for their trading ventures. Clearly I am not refusing to allow postings of Forex trades. What a given trader does with his money is really none of my business. However, this Forex business has been going on now for several years, and so many newcomers have lost so much money in it that I feel some responsibility for pointing out to newcomers and otherwise what a racket the whole thing is. Hence, the following.

 

I will point out, however, that I do disagree with at least part of the thesis of this post in that ES is not the end-all and be-all of futures trading, and it is by no means the first choice of everyone, particularly a beginner, who wants to trade futures. I personally prefer the NQ. Others like the YM. But this isn't so much about the choice of futures as it is a warning to stay the hell away from Forex.

 

There will very likely be some debating/arguing about Forex trading in subsequent posts, which is fine, up to a point. My view is that trading Forex is a terrible idea for anybody but a bank, and readers can take that, or not, for what it's worth.

-----------------------------------------------------------------------------------------------

Why do the Pros Daytrade Futures?

 

The Powerful Advantages of Trading the E-Mini S&P 500 Futures over Stocks, ETFs and Forex

 

Have you ever wondered why many traders prefer futures over equities and/or Forex? If your answer is "yes" and you are interested in daytrading this is definitely an article you should take a minute to read. Make no mistake, there are substantial risks involved with futures daytrading and it is not suitable for all investors, but I feel the following 20 points demonstrate the particular advantages of daytrading the E-mini S&P 500 [see note above] over trading stocks, Forex and ETFs like the SPDRs and QQQs.

 

1. Efficient Market

 

During normal market hours the Emini S&P 500 (ES) futures have a tight bid-ask spread of typically 1 tick or $12.50 per contract. With a current approximate contract value of about $50,000, that comes out to .025% of the contract value, which is one of the best spreads in the trading world. This spread should be considered your cost of entry (not unlike commissions) to enter and exit the market. The wider the spread, the more the trade has to move in your favor just for you to get to break-even.

 

Depending on the stock or currency pair you are trading the bid-ask spread may be much wider. Also, since Forex firms "create" the market and therefore, the bid-ask spread, they can widen it to whatever they see fit. Even when Forex firms advertise a fixed spread, they typically reserve the right to widen when they see fit. Typically, this spread is anywhere from $15 to $50+ depending on the currency pair and market conditions.

 

2. Central Regulated Exchange

 

All ES trades are done through the Chicago Mercantile Exchange and its member firms where all trades are recorded in an official time and sales. All trades are made available to the public on a first come, first served basis and trades must follow the CME Clearing rules, along with the strict CFTC and NFA rules.

 

Forex trades occur "over the counter," (off any exchange floor or computer) where there is no centralized exchange with a time and sales report to compare your fill. Traders with different firms can experience different fills even when trades are executed simultaneously. Even more alarming is that in some cases the Forex brokerage firm you have an account with takes the other side of your trade and is therefore "betting" against you. Even for equity trades many stock brokerage firms direct your trades to brokers that give them a "haircut," rebate or kickback for your order or they go to dark pools or are shown to flash traders before made available to the public. Again, this can become a conflict of interest since your order may not be getting the best possible execution.

 

3. Low Commissions

 

ES commissions are only about $2.00-$3.00 per side and larger traders can even lease a membership to further reduce their fees. This low transaction cost allows daytraders to get in and out of the market without commissions significantly cutting into their profits, but of course the more trading you do the more this will impact your bottom line.

 

While most Forex firms do not charge a "disclosed" commission, they make their money by creating their own bid/ask spread and taking the other side of your trade, typically costing much more than the transaction costs of the ES. The average discount stock brokerage firm charges $5-10 per trade, which can really eat into your potential daytrading profits.

 

4. Level II Trading

 

You can see the 10 best bids and 10 best asks along with the associated volume in real time and you are allow the placement of your order at any price you wish when trading the ES. This transparency of the market’s orders allows ES traders to see where and how many orders have been placed ahead of them. For short term daytraders this information may be very valuable and may be used as an indication of future market movements.

 

Most Forex platforms do not offer Level II type pricing and for the few that do, since there is no centralized market, it is only the orders that that firm has access to and not the entire market. Also, most Forex firms do not allow you to place an order within a few ticks of the last price or between their posted bid/ask spreads, further limiting your trading abilities.

 

5. Virtually 24 Hour Trading

 

The ES futures market is open from Sunday night at 5p CST until Friday afternoon at 3:15p (it closes from 3:15p-3:30p and also closes daily from 4:30-5p for maintenance). This allows you to enter, exit or have orders working to protect your positions almost 24 hours a day, even while you sleep.

 

Even with pre and post market trading, the stock market is open less than 12 hours per day, and the liquidity during these sessions are not always good.

 

6. All Electronic Trading

 

There is no trading pit for the ES which means there are no market makers, no locals and no floor brokers and all orders are matched by a computer on a first come-first served basis no matter how large or small they are. This means that all traders see the same level II market and bid/ask spreads with an equal chance to hit them.

 

While most Forex firms offer electronic trading, some manually approve each order at a trading desk because they are market makers against your orders. Many times larger traders are given preferential treatment and better bid/ask spreads.

 

7. Leverage

 

Of course more leverage is a double edged sword since higher leverage equates to higher risk, but one Emini S&P contract currently has an approximate value of $65,000 and can be daytraded for as little as $500 which is 1% of its total value (about 100:1 leverage). Even if you hold a position overnight, the current overnight margin is only $5,625 which is still less than 10%.

 

Not all stocks and ETFs are available to be traded on margin, and the ones that can, require at least 50% margin to do so. US regulated Forex firms are not allowed to offer more than 50:1 leverage on the major currency pairs and 20:1 on the other currencies. This high margin requirement may be very limiting to daytraders who are only looking for small market movements.

 

8. No Interest Charges

 

For futures trading the daytrade and position margins do not require you to pay any interest on the remainder of the funds. The $500 posted for daytraders is a performance bond and traders do not pay interest on the remaining value of the ES futures contract. No special type of futures trading account is required to be able to take advantage of the daytrade margins.

 

Stock traders typically must apply for a special account in order to be able to daytrade and/or trade on margin and for those who can use the 50% margin, they need to pay interest on the other 50% they are borrowing. Forex has a cost of carry associated with its trading which means interest may be charged or paid on positions taken, but in the end this interest is seen as a revenue stream for Forex brokers and works to their advantage.

 

9. No Pattern Day Trader Rule

 

Futures daytrade accounts can be opened with as little as $4,000 and do not have any Pattern Daytrader Rules associated with them. Of course only risk capital should be used no matter what the amount is that you choose to start with.

 

The SEC describes a stock trader who executes 4 or more daytrades in 5 business days, provided the number of daytrades are more than six percent of the customer's total trading activity for that same five-day period, as a Pattern Daytrader. As a Pattern Daytrader you are required to have a minimum of $25,000 starting capital and cannot fall below this amount.

 

10. Liquidity

 

The Emini S&P futures trade about an average of 2 million times a day which allows for great price action, volatility and speedy execution. At a current approximate value of $50,000, that is over $100 billion changing hands every trading day.

 

Not all stocks and Forex markets are as liquid which means movements can be shaky and erratic, making daytrading more difficult. Forex firms like to make the claim that the over the counter foreign exchange market trades more than one trillion Dollars in volume per day, but most people don't realize is that in most cases you just traded against your broker's dealing desk rather than the true interbank market.

 

11. Tax Advantages

 

US Futures traders have favorable tax consequences for short term traders since futures profits are taxed 60/40, which means that 60% of the gain is taxed at the maximum rate of 15% (similar to long-term gains) and the other 40% is taxed at a maximum rate of 35% as ordinary income.

 

Securities positions held for less than 12 months are considered short term gains and taxed at 35%. Of course everyone’s tax situation is different and should consult a licensed accountant for their specific situation.

 

12. Diversification

 

When trading a stock index like the Emini S&P futures your "news risk" is spread out over the entire market. Should a report or rumor come out on an individual stock it should have very little impact on the whole index you are trading.

 

When you take a position in an individual stock you are susceptible to stock specific risk which can occur without warning and with violent consequences.

 

13. Safety of Funds

 

When you trade the ES you are trading with a Commodity Futures Trading Commission (CFTC) regulated and National Futures Association (NFA) member firm which is subject to the customer segregated funds rules laid out by the US government. In the over 100 years of futures trading the CME has only once had a loss of customer funds due to the failure of a clearing member because of these rules that are in place. While there are never any guarantees that you can't lose money, this track record is unprecedented.

 

Even with regulated US Forex firms, funds are not considered segregated, so if a regulated firm goes bankrupt clients funds are not offered the same protections as they are in the futures market.

 

14. Focus

 

Many ES futures traders only track the ES market and find it is the only chart they need to follow. There are always opportunities and great volume throughout the trading day. When large institutions or traders want to take a position in the market or hedge a portfolio they usually turn to the futures markets to get this done quickly and efficiently. Therefore, why not trade the market the "Big Boys" trade?

 

Most traders agree that individual stocks and therefore, the market as a whole follow the futures indices, and not the opposite. In fact, many stock traders will have an Emini futures chart up next to the stock they are following. As a stock or Forex trader you may need to scan dozens of stocks or currency pairs for opportunities. Many times specific stocks fall out of favor so volume and, therefore opportunities dry up and traders are forced to find a new stock to trade.

 

15. Go Short

 

There are no rules against going short the ES, traders simply sell short the ES contract in hopes of buying it back later at a lower price. There are no special requirements or privileges you need to ask your futures broker for.

 

Most stockbrokers require a special account with higher requirements for you to be able to go short. Some stocks are not shortable, or have limited shares that can be shorted. Also, up-tick rules could be re-enforced and in the past the government has put temporary bans on stocks that can be shorted.

 

16. Direct Correlation

 

On average the ES futures are directly correlated to the underlying S&P 500 index in the short and long term. If you pull up an Emini S&P 500 futures chart and compare it to the S&P 500 index chart they should almost look identical.

 

Double or triple weighted ETFs do not track the S&P accurately over longer periods, and some currency ETFs have credit risks associated with them which could hinder their ability to correlate.

 

17. Deep Market

 

The S&P 500 index is comprised of very actively traded stocks with some of the largest market capitalizations and with hundreds of billions of dollars invested in some fashion in them. With such large dollar values and high trading volume it would be very hard to manipulate its movements.

 

On the other hand sometimes it is easy to move or even manipulate a particular stock and even a foreign currency market. George Soros has been accused of intentional driving down the price of the British Pound and the currencies of Thailand and Malaysia and many stock "promoters," insiders and markets makers have been convicted of manipulating stocks.

 

18. Big Players

 

The old adages follow the "big boys" and "smart money" are usually true when it comes to trading, and large money managers, pension funds, institutional traders, etc. tend to be very active traders in the futures markets. The S&P 500 futures contract is generally recognized as the leading benchmark for the underlying stock market movements.

 

Most active equity traders admit they first look to the index futures for an indication of what the stock they are trading might be doing, so why not just trade the leader of the market, the Emini futures?

 

19. Volume Analysis

 

Volume can be one of the most useful indicators a trader can use, those little lines at the bottom of the chart are not just there to look pretty they should be used as another indication of the validity or lack thereof, of a particular move. In other words combined with other indicators and/or chart patterns volume can be used to confirm a move in the market. Most market technicians would agree that a move made on relatively light volume is not as significant as a move made on heavy volume and should be treated accordingly.

 

Since the Forex market is over the counter (OTC), there is no centralized exchange, no one place where trades take place therefore, there is no accurate record of volume and most, if not all, Forex charts will not show any indication of volume. So what might appear to be a significant move on a Forex chart, may just be a false move on low volume and could not be filtered out if you were looking at a Forex chart.

 

20. Clearing Reliability

 

During the May 6, 2010 "Flash Crash" the Emini S&P futures continued to trade within a reasonable price range reflecting what the cash S&P 500 index was indicating. No trades on the Emini S&P futures were cancelled and all trades cleared.

 

According to the joint study by the SEC and CFTC, ETFs made up 70% of the securities with trades that were later canceled. Furthermore, there were about 160 ETFs that temporarily lost almost all of their value and 27% of fund companies had securities with trades broken. Had you bought or sold during this event you may had been notified after the market closed that your trade was no longer good and left with potentially dangerous consequences.

 

 

As you probably already know trading is hard enough, so why choose a market where the odds are stacked more against you before you even place your first order. The above mentioned 20 points clearly make the E-Mini S&P 500 futures the best choice for daytraders and will give you the most bang for your buck. Before you trade futures, though, please make sure they are appropriate for you and that you only use risk capital.

[tupapa 10]

Silver bounced of the top of that August congestion.

 

Today was the second day of no downside progression after a prolonged decline and we had a bounce, however, I would want to see a stronger up-wave than this to start to consider a reversal.

 

Below this, there is major support at 26. Do you even consider 28 as support? Or do you wait for 26 to get tested?

 

 

[DbPhoenix 42]

This is where you want to introduce volume. That may help you interpret what these people are up to.

[Gringo 10]

The question here is whether we are at a level where going long seems appropriate. It is my view that perhaps it's better to wait a little bit until the SL is broken and price proves that the down trend is over. Yes, there is an old support around 150 but it must prove itself before we believe it's still there.

 

I find trading these commodities to be tougher. Their propensity to change direction on a whim is a sight to behold. If you notice on the daily, the gaps are too frequent and maybe trading the futures may be better than these gap prone ETFs.

 

In any case here's some analysis:

 

 

 

Focusing on price behaviour around 150 seems appropriate at this time. I am looking for a break of SL and then some test or show of some kind of strength before considering this a buying opportunity. There are those who may choose to enter at the first sign of climax but I've had my share of scares with that kind of an attitude, hence, caution on my part.

 

Gringo

 

p.s. Db, your campaign against the Fx is going to get intresting . Perhaps I'll write something about it later on.

[tupapa 10]

This is where you want to introduce volume. That may help you interpret what these people are up to.

 

Yesterdays volume was climactic, and the market closed above the low, which shows there is considerable buying interest at these prices.

 

 

Today, so far, sellers have been unable to make a new low, but there hasn't been the strong rejection caused by a lack of selling that follows a climax, which suggests that even though buyers are happy bidding around 28.4, there is still selling pressure at 28.8.

 

Like Gringo, if I was to trade this, I would wait for an upwave that breaks the SL decisively, followed by a test that doesn't result in a LL.

 

[Gringo 10]

Like Gringo, if I was to trade this, I would wait for an upwave that breaks the SL decisively, followed by a test that doesn't result in a LL.

 

Hi tupapa,

 

I would add this here just as a reminder that I am not looking for a HL after the SL break. Even a LL is fine as long as the demand shows up and blasts the price up clearly indicating that the push below the previous low was a feeble attempt by the supply side. Db, had recently reminded this to me somewhere. And yes, a HL would be a clearer sign of the changing supply/demand dynamic.

 

Gringo

 

Edit: Another thing we seem to have overlooked is the possibility of a break below the S. Then the regular RET and short might come into play. I am bringing this in for discussion because S&P has also reached a long term pot. R and if there's a rejection that's serious enough then gold might tumble down with it. Fundamentalists, would call it the weakness in economy leading to less demand for commodities. In 2008 the margin calls forced gold liquidation as was claimed. There are many reasons but there's one price. Follow the price and enjoy the rice.

Edited February 21, 2013 by Gringo
add break of support scenario

[DbPhoenix 42]

Yesterdays volume was climactic, and the market closed above the low, which shows there is considerable buying interest at these prices.

 

Today, so far, sellers have been unable to make a new low, but there hasn't been the strong rejection caused by a lack of selling that follows a climax, which suggests that even though buyers are happy bidding around 28.4, there is still selling pressure at 28.8.

 

You may want to open up the bar and look at the volume on the hourly. You can get this from barcharts.com.

[V_2008 10]

Hello, DbPhoenix!

I was trying to identify activity within wave.

How it is possible to do better?

Like this?

Or like this?

 

Also I have a question about calculation of a wave activity.

 

Thanks in advance!

[tupapa 10]

You may want to open up the bar and look at the volume on the hourly. You can get this from barcharts.com.

 

I am not an expert on reading Vol, but it appears that we have a selling Climax, and short after this, a buying climax around 28.85, big effort, no result, which shows there is still strong supply at this level.

 

This, confirms the hypothesis that the selling pressure prevails right?

 

Edited February 21, 2013 by tupapa

[DbPhoenix 42]

I am not an expert on reading Vol, but it appears that we have a selling Climax, and short after this, a buying climax around 28.85, big effort, no result, which shows there is still strong supply at this level.

 

This, confirms the hypothesis that the selling pressure prevails right?

 

I wouldn't call it a selling climax, regardless of the volume. The bar at 1 o'clock the previous afternoon is more of a selling climax, not so much because of the volume, but because of what price did. Sellers either didn't want to or couldn't push price down further, so it bobbed back up like a cork. Nor was there any follow-through.

 

Your bar closed nearer the low and volume was higher, suggesting that buyers were flooding in to stop the decline. And since price has held above the midpoint of this little range thereafter, I wouldn't put it past the little buggers to be creating a springboard for an advance. Your buying climax may be more an effort on the part of sellers to keep price from rising too soon. This isn't quite the same dynamic as the acc/dist cycle with stocks as there is no float. However, silver is a commodity and there is a finite quantity of it and the futures contract is linked to the underlying. All of which sounds like babble but it does serve as a rationale, if not a rationalization, for price behavior here.

 

Stay tuned.

[DbPhoenix 42]

Hello, DbPhoenix!

I was trying to identify activity within wave.

 

How it is possible to do better?

 

Thanks in advance!

 

I see you're from Russia. Do I know you? If not, tell me a little about yourself.

[Niko 10]

 

Note: The following originated on a broker site and was posted to another thread in another forum by another member. I'm reposting it here because it is important for beginners to understand just what they are getting in to when they choose Forex for their trading ventures. Clearly I am not refusing to allow postings of Forex trades. What a given trader does with his money is really none of my business. However, this Forex business has been going on now for several years, and so many newcomers have lost so much money in it that I feel some responsibility for pointing out to newcomers and otherwise what a racket the whole thing is. Hence, the following.

 

I will point out, however, that I do disagree with at least part of the thesis of this post in that ES is not the end-all and be-all of futures trading, and it is by no means the first choice of everyone, particularly a beginner, who wants to trade futures. I personally prefer the NQ. Others like the YM. But this isn't so much about the choice of futures as it is a warning to stay the hell away from Forex.

 

There will very likely be some debating/arguing about Forex trading in subsequent posts, which is fine, up to a point. My view is that trading Forex is a terrible idea for anybody but a bank, and readers can take that, or not, for what it's worth.

 

 

Thank you, your comment is a must read for begginers. Forex dealers are 21st century bucket shops.

Edited February 22, 2013 by Niko

[tupapa 10]

Gold recorded its highest volume on the 20th, as Gringos chart shows. If we open up the daily bar, we can see how most of it was recorded as buyers provided preliminary support, and later at the extreme low, at 1555.

 

 

Gold is now temporarily (or lastingly) in strong hands and since the force of supply is now exhausted, we are witnessing a technical rally. If buying on the break was for the purpose of relieving the panic, the support will be thrown back into the market on this technical rebound.

 

Now we have two potential scenarios;

1- The support Gold is thrown back into the market on the technical rebound, this and other selling might increase supply sufficiently to drive prices through the lows recorded at 1555 and bring a new decline.

2- A secondary reaction takes place, and prices hold around or above 1555 with volume shrinking appreciably, we have an indication that liquidation was completed.

 

This is a quick adaptation from Wyckoff’s section 7m, and it is my interpretation of what is happening right now with gold. I find it extremely useful to do this in real –time and I think it is the best way to learn.

 

As usual I have some questions…

If what we are now experiencing is the Automatic Rally, wouldn’t you expect a more pronounced angle on the rejection? The bars are quite narrow and there is none of the explosive up-move I would expect if selling pressure was truly exhausted… Doesn’t it feel like more of a correction?

 

I am moving to gold for the time being because it is stronger than silver, which is strange since it tends to be less volatile, but I am following both.

[V_2008 10]

I see you're from Russia. Do I know you? If not, tell me a little about yourself.

 

Sorry for being so impolite for not introducing myself earlier. My name is Oleg and I live in Russia, Moscow. I have started to learn markets since 2007 (paterns, guessing, thinking that this is an easy game). Somewhere in 2008 I have noticed your posts. But due to Wyckoff long-windedness and VSA brilliance, I have decided to study VSA. So after 4 years, learning VSA principals I haven't made any success to trade and analyze markets well. I can't say that I have wasted my time learning VSA, they taught me some interesting principals, though I was always thinking that I miss something. By that time being unprofitable trader and thinking that answers on my questions are lying within VSA, one man (very appreciate his persistence to start to learn Wyckoff) has introduced me Wyckoff analyzes (Structure of the market, selling, buying waves, SOS, SOW, Springboards, 50% corrections, time and duration, Philosophy etc) So since 2012 I am a man who has finished learning VSA and has started to learn Wyckoff. I always knew that if I will be willing to learn Wyckoff I will find many followers on Wyckoff analyzes with leader DbPhoenix (not ass licking, but only poor truth). By this time I have read and examined many Wyckoff followers (SMI, Robert Evan, David Weis, Garry Fullet, Dr. Gary Dayton). I have discovered that each person has its own way to learn Wyckoff principals. So I have decided to learn poor Wyckoff principals and understand what is going on?! With followers I was trying to come closer to Wyckoff, not paying attention on fact that I am leaving from his statements. I like to work with buying and selling waves thats why I want to understand it fully, how they works. But not only waves, also other principals in which I am interested.

As for me as a person, I am a good man with an open heart, trying to learn hard and help others.

 

 

P.S.: It can be hard for you to understand what I am telling due to Russian native language. Sorry for making mistakes.

[DbPhoenix 42]

Gold recorded its highest volume on the 20th, as Gringos chart shows. If we open up the daily bar, we can see how most of it was recorded as buyers provided preliminary support, and later at the extreme low, at 1555.

 

Gold is now temporarily (or lastingly) in strong hands and since the force of supply is now exhausted, we are witnessing a technical rally. If buying on the break was for the purpose of relieving the panic, the support will be thrown back into the market on this technical rebound.

 

Now we have two potential scenarios;

1- The support Gold is thrown back into the market on the technical rebound, this and other selling might increase supply sufficiently to drive prices through the lows recorded at 1555 and bring a new decline.

2- A secondary reaction takes place, and prices hold around or above 1555 with volume shrinking appreciably, we have an indication that liquidation was completed.

 

This is a quick adaptation from Wyckoff’s section 7m, and it is my interpretation of what is happening right now with gold. I find it extremely useful to do this in real –time and I think it is the best way to learn.

 

As usual I have some questions…

If what we are now experiencing is the Automatic Rally, wouldn’t you expect a more pronounced angle on the rejection? The bars are quite narrow and there is none of the explosive up-move I would expect if selling pressure was truly exhausted… Doesn’t it feel like more of a correction?

 

I am moving to gold for the time being because it is stronger than silver, which is strange since it tends to be less volatile, but I am following both.

 

First, there is no "Automatic Rally". Perhaps you mean a Technical Rally. This takes place immediately following a selling climax. If you have had a selling climax, the technical rally took place immediately after your "PS" and lasted for four bars. Whatever shares were thrown back onto the market were traded at that time, and that activity took you to a slightly lower low, what the Wyckoffettes like to call a "spring" *sigh*. Any transfer of shares or whatever to stronger hands took you past the first swing high at 1570+. That ship has sailed.

 

Second, your "HH" was in place four bars earlier. A higher swing high is something else. This can't be defined until it's completed, and by the time you have a completed swing, you may be well past the best entry point.

 

Third, you're looking at a different chart than Gringo so your hypotheses are based on false information and can't be used as a basis for conclusions. This appears to be the XAU, which is an index. Gringo was using the ETF. There is also spot gold and gold futures. Each of these charts will tell you anything from a slightly different to a very different story.

 

So, no, you're not experiencing an Automatic Rally. You aren't experiencing a Technical Rally, either. You may not even be experiencing a selling climax (if you were, you're too late).

 

1. Whatever you've been reading to get "Automatic Rally", don't read that anymore. Rely on the course.

 

2. Study section 7 further. Don't resort to any "quick adaptations". Ctrl+F is your friend. Read section 7 every weekend.

 

3. Don't get so skittish that you sacrifice thoroughness for the sake of what seems at the time to be the "best" entry but which may quickly turn out to be a mistake. The entry on a shorter-term chart is found after the "set-up" is found on the longer-term chart, at least the daily. There's nothing remarkable about the daily, at least at this moment. Therefore, there's no entry to look for. However, you're nearing the time when there will be an entry to look for, so begin monitoring several gold charts, e.g., the spot, the ETF, the futures. You can also follow the index if you like, but I'm not sure there's any point in doing so. TMI can be a disadvantage.

 

4. Remember that there can be a lot of "climactic" selling before you reach the bottom (the Wyckoff posse doesn't tell you that). You're just barely kissing the supply line, and once you get to a legitimate secondary reaction, you won't have any trouble jumping onto the train before it leaves the station.

[Gringo 10]

As usual I have some questions…

If what we are now experiencing is the Automatic Rally, wouldn’t you expect a more pronounced angle on the rejection? The bars are quite narrow and there is none of the explosive up-move I would expect if selling pressure was truly exhausted… Doesn’t it feel like more of a correction?

 

Yes, there hasn't been an explosive rally yet. Price hasn't shown a kind of explosiveness to the upside. This in my opinion makes the assumption of technically rally a bit premature. Now, this doesn't mean price couldn't muster a rally from here straight up or even a technically rally that would get exhausted at some time, but based on the evidence classifying current price behaviour as a technical rally may not accurate. We may still be in a downtrend continuation mode and we don't have to classify price rise as a technical rally anyways. It's only in hindsight, after the successful test, we'll be able to classify the previous price rise as a technical rally.

 

Gringo

[tupapa 10]

Automatic Rally was a Lapsus and its funny how these things come out. Before I found this forum, I read a Wyckoff adaptation elsewhere, but didn't give it much importance as I found it confusing (Unlike the original course). The term clearly stayed in my head even after one single reading.

 

Anyway thanks both for your views, since I am not used to EOD trading, I think I may be focusing to much on the smaller waves, and leaving aside the larger ones, that are visible on the daily interval.

 

The idea of looking for the setup on the daily and the entry on the hourly (for example) makes a lot of sense.

[DbPhoenix 42]

Sorry for being so impolite for not introducing myself earlier. My name is Oleg and I live in Russia, Moscow. I have started to learn markets since 2007 (paterns, guessing, thinking that this is an easy game). Somewhere in 2008 I have noticed your posts. But due to Wyckoff long-windedness and VSA brilliance, I have decided to study VSA. So after 4 years, learning VSA principals I haven't made any success to trade and analyze markets well. I can't say that I have wasted my time learning VSA, they taught me some interesting principals, though I was always thinking that I miss something.

 

By that time being unprofitable trader and thinking that answers on my questions are lying within VSA, one man (very appreciate his persistence to start to learn Wyckoff) has introduced me Wyckoff analyzes (Structure of the market, selling, buying waves, SOS, SOW, Springboards, 50% corrections, time and duration, Philosophy etc) So since 2012 I am a man who has finished learning VSA and has started to learn Wyckoff. I always knew that if I will be willing to learn Wyckoff I will find many followers on Wyckoff analyzes with leader DbPhoenix (not ass licking, but only poor truth).

 

By this time I have read and examined many Wyckoff followers (SMI, Robert Evan, David Weis, Garry Fullet, Dr. Gary Dayton). I have discovered that each person has its own way to learn Wyckoff principals. So I have decided to learn poor Wyckoff principals and understand what is going on?! With followers I was trying to come closer to Wyckoff, not paying attention on fact that I am leaving from his statements. I like to work with buying and selling waves thats why I want to understand it fully, how they works. But not only waves, also other principals in which I am interested.

 

As for me as a person, I am a good man with an open heart, trying to learn hard and help others.

 

 

P.S.: It can be hard for you to understand what I am telling due to Russian native language. Sorry for making mistakes.

 

Don't worry about my understanding you. You're doing just great. I'm more concerned about your understanding me. If you have trouble, don't hesitate to ask me to try again. I'll do the same if I have trouble understanding you.

 

Your story is not unusual. Stories like this sadden me, or anger me, depending on the mood I'm in. I don't know of anyone who trades or teaches Wyckoff as originally written, including all the "experts" you mention (what I call the "Wyckoff Posse"). They all teach their own variations and interpretations, or the variations and interpretations of somebody else, which is not necessarily bad. Sometimes updates are necessary. Times change. But I have never encountered a so-called "Wyckoff expert" or "Wyckoff practitioner" or "Wyckoff trader" or whatever who was able to make a living at it. In fact, I've never encountered one of these experts who was able trade whatever they're pushing in real time. They may be great at trading it in hindsight, but what good does that do other than to sell courses and DVDs and software and counseling services and mentorships, which appears to be how the Posse makes its living.

 

You may have trouble getting rid of all that you know that isn't true. All the SOS, SOW, JOC, AR stuff is only going to make things more difficult. While computers and streaming data make much of the course no longer necessary or even pertinent, the core of it provides everything you need to know to become a successful trader. If you don't have a copy of the course, links to both parts of it can be found here. You needn't read all of it, but about half of it is essential. I've selected what I consider to be most important into what I call Wyckoff Lite.

 

So about waves.

 

Understanding waves and what causes them can come in handy both in real time and in hindsight. They help you to see the balances and imbalances between buying pressure and selling pressure. You can also use bars to help you see how much effort buyers and sellers are putting into reaching their respective goals. Or you can use a line chart, particularly if you're following price in real time. Or, if you don't like charts, you can use a time-and-sales display which shows transactions only (not Level II or DOM).

 

The most important thing to understand about Wyckoff's approach is that price is continuous. This is the element that got left by the side of the road very early when all the interpretations and adaptations got started. VSA in particular left this behind when Williams decided to focus on the bar and the bar's spread. However, if you can't grasp the continuity of price, Wyckoff will be of little use to you. It may even be a contributing factor to you failure.

 

The next most important element is the nature of demand and supply, or buying pressure and selling pressure, and how the interaction of these move price. Waves can help you get a feel for this, particularly if you haven't spent enough time just sitting in front of your computer with a 1-tick chart and doing no more than watch price move up and down, not with any thought of where you'd enter or exit or in any way profit from the movements, but only with the goal of becoming sensitive to the flow of it, like currents and eddies.

 

Once you have developed, or at least begun to develop, a sense of this, the waves will seem far more natural. You needn't fool with any calculations. You needn't concern yourself with anything mechanical, largely because to try would be a waste of time. All you need to be concerned with is the duration of the wave, that is how long it lasts, and its extent, that is how high or low it gets.

 

I've started you off here with one of your charts. Start at the far left. The green are upwaves and the red are downwaves. Look at how long each of them last and how high or low they are, that is, how far they get in terms of price. As you become sensitive to the movements of these waves, you'll begin to become sensitive also to who's in charge and whose influence is waning (judging the market by its own action). This sensitivity will help you detect ahead of time that one side or the other is losing strength, and a change in trend is imminent.

 

 

 

 

 

And if you just can't get it, don't give up. There are other ways of making money in the markets. This particular approach, however, may make you feel more like a real trader than someone who relies on an assortment of crutches.

 

If you have trouble understanding any of this, let me know. Or maybe you have access to a good translator .

Edited February 22, 2013 by DbPhoenix

[DbPhoenix 42]

Next time just breath into a paper bag until the urge to jump in passes.