Trading The Wyckoff Way

[Seeker 11]

DBPhoenix,

 

I've been trying for a while now to draw Demand and Supply Lines similar to how you have drawn them in various 1-min chart examples on the NASDAQ, but I have two problems that perhaps you can enlighten me a little bit.

 

The first is that I seem caught between two places. On the one hand, I can draw the line very tight to price, but then I would exit early, which is good to prevent losers but also means I miss a large part of the good moves, whereas if I draw the lines a little more 'loosely' I can stay in the good moves but then of course I stay in too long on the losers. I suspect there is no real answer to this, and just experience and picking one camp over the other, but I thought I'd ask anyway.

 

The second issue is that I'm wondering how the SL and DLs fit together over differing time frames. For example the Daily may be indicating an upward trend, and the hourly is indicating that it is breaking out og that daily Demand line, and 1 min is indicating up. Would you say it is best to consider demand and supply lines on only one time frame? Or should I always be trading in the direction of the daily for example, and using lower timeframe to help me pick entry points?

[fxpaulm 10]

I'm not sure I understand, the hinge is also a pattern created by price and its characteristics are the same as the symmetrical triangle pattern that is also created by price - filled with price and trading activity tapering off as it approaches the apex.

 

The formation of the triangle and hinge occur for the exact same reasons. Also, the hinge does not tell you which way it will BO and neither does the symmetrical triangle per Shabacker.

 

Is this just a case of looking at the same thing and one saying I see a pattern and another sayingno I see PA? For example, if you described the hinge to a pattern trader that uses Shabacker he would know it as a symmetrical triangle.

[Niko 10]

DBPhoenix,

 

I've been trying for a while now to draw Demand and Supply Lines similar to how you have drawn them in various 1-min chart examples on the NASDAQ, but I have two problems that perhaps you can enlighten me a little bit.

 

The first is that I seem caught between two places. On the one hand, I can draw the line very tight to price, but then I would exit early, which is good to prevent losers but also means I miss a large part of the good moves, whereas if I draw the lines a little more 'loosely' I can stay in the good moves but then of course I stay in too long on the losers. I suspect there is no real answer to this, and just experience and picking one camp over the other, but I thought I'd ask anyway.

 

The second issue is that I'm wondering how the SL and DLs fit together over differing time frames. For example the Daily may be indicating an upward trend, and the hourly is indicating that it is breaking out og that daily Demand line, and 1 min is indicating up. Would you say it is best to consider demand and supply lines on only one time frame? Or should I always be trading in the direction of the daily for example, and using lower timeframe to help me pick entry points?

 

Seeker,

 

You need to define a setup, based in all the things you observe from the market action. Then you need to backtest it, after that you will find the answers to the things you are asking here (Use a tighter or looser DL/SL, which bar interval to use, etc). They are also more or less answered within the threads of the W forum.

[Niko 10]

I'm not sure I understand, the hinge is also a pattern created by price and its characteristics are the same as the symmetrical triangle pattern that is also created by price - filled with price and trading activity tapering off as it approaches the apex.

 

The formation of the triangle and hinge occur for the exact same reasons. Also, the hinge does not tell you which way it will BO and neither does the symmetrical triangle per Shabacker.

 

Is this just a case of looking at the same thing and one saying I see a pattern and another sayingno I see PA? For example, if you described the hinge to a pattern trader that uses Shabacker he would know it as a symmetrical triangle.

 

Fx, the thing with triangles, is that you can find them everywhere, most of them are just noise and will fail if used as trading setups, the hinge as DB said is filled with price and the volume has an specific behavior as well. All hinges are triangles, but not all triangles are hinges.

[Niko 10]

A look at the AD Line for equities, showing three blatant divergences. The number of advancing stocks is increasing, but the overall index is, so far, struggling to keep up.

 

 

Tupapa, what have you been doing, great seeing you around.

 

Long time no see a sacrilegious MA in the W forum. :haha:

[fxpaulm 10]

Niko,

 

Thanks for the reply, but a quick follow-up. The point I’m not grasping is that the symmetrical triangle described by Shabacker in “Technical Analysis and Stock Market Profits” is exactly like the hinge – filled with price and specific volume behavior that is identical to each other.

 

Of course I understand that not all triangles are hinges, but I was referring to the symmetrical triangle. Now Shabacker discusses false moves, but nothing is said about the pattern failure. That is why I asked if this was just a simple case of saying the same thing just using different jargon.

[DbPhoenix 42]

A look at the AD Line for equities, showing three blatant divergences. The number of advancing stocks is increasing, but the overall index is, so far, struggling to keep up.

 

The AD Line is relatively useless for anyone but a fund manager, and not much even then, because of how it's constructed.

[tupapa 10]

The AD Line is relatively useless for anyone but a fund manager, and not much even then, because of how it's constructed.

 

Isnt it the same as the tickq for day traders?? Can you elaborate? I thought id been using it succesfuly so far lol

[tupapa 10]

Tupapa, what have you been doing, great seeing you around.

 

Long time no see a sacrilegious MA in the W forum. :haha:

 

Not bad, enjoyin the markets from the distance how are u??

 

I know that chart is dbs worst nightmare, missing the macd haha

 

 

I wouldn't call it my worst nightmare. If people want to use indicators, there's not much I can do about it. However, those who do will take far longer to understand all this, if they ever do, than those who set them aside.

Edited April 27, 2013 by DbPhoenix

[tupapa 10]

I know, it was actually a joke, I am not advocating the use of indicators..

 

I did however, start using the AD line after reading the nature of risk, which you recommended. Mamis talks about the AD line and the New High, New Low being the language of the market.

 

I find these statistics legit, since they represent unadulterated market information, unlike technical indicators that rely on mathematics.

 

Anyway, you posted the New Highs/New Lows statistics and the Advance-Decline Volume a few days ago so I assume you rely on these rather than the AD line I posted.

 

Cheers

 

 

I don't necessarily agree with everything included in the books I recommend. And there's much else of great value in Mamis' three books.

 

But even if one uses the AD line, which is not "unadulterated", it isn't of much use if one doesn't know how it's calculated or what one should compare it to. The TICK(Q) and the AD line have little in common, nor should they be compared to the major indexes without regard to composition.

 

As for NH:NL and UV/DV, that's raw, unmodified data, and the NDX and the COMP are usually highly correlated. though not so much over the past four months.

Edited April 28, 2013 by DbPhoenix

[DbPhoenix 42]

For those who read only the most recent post, I should point out that if one had followed tomerok's tactics last Monday, he'd be 80pts in profit. See also the chart I posted on the 25th.

Edited May 6, 2013 by DbPhoenix

[fxpaulm 10]

Question about when to enter trade based on a HL. What kind of confirmation did Wyckoff use before he got long on a HL?

[Niko 10]

Niko,

 

Thanks for the reply, but a quick follow-up. The point I’m not grasping is that the symmetrical triangle described by Shabacker in “Technical Analysis and Stock Market Profits” is exactly like the hinge – filled with price and specific volume behavior that is identical to each other.

 

Of course I understand that not all triangles are hinges, but I was referring to the symmetrical triangle. Now Shabacker discusses false moves, but nothing is said about the pattern failure. That is why I asked if this was just a simple case of saying the same thing just using different jargon.

 

FX, if you want to trade hinges, you will first have to define them, in order to avoid the hundreds of formations that look like hinges (w/o volume I guess it is nearly impossible to do it in FX, but perhaps 6E could be a good proxy). Once you define the hinge you will have to do some backtesting, find a 100 and see what the pattern failure and success rates are. (I did that with NQ and CL and it did not look good so I abandoned the hinge trading idea) If it looks promising keep on back testing if it doesn´t perhaps that is not the road you should be traveling.

[fxpaulm 10]

Does anyone just use price to trade? No volume or other indicators.

 

S/R levels and TL and price nothing else.

[fxpaulm 10]

Does anyone know if and where Wyckoff discusses the position of the close and its relevance?

 

I've done a search through the course, but have not been able to find anything.

[fxpaulm 10]

Section 4M page 26 Wyckoff wrote

 

Net Gain or Loss.

Changes in Pressure Up or Down

 

About closing price.

[fxpaulm 10]

Question-

 

If you determine that price is on the springboard, then when do you buy according to Wyckoff?

[Niko 10]

Fx, is not that easy.

 

You have to define your own setups based on wyckoff principles, and then backtest them to get the answer to your questions.

[fxpaulm 10]

Nothing is every easy, but I thought he had some general guidelines. Otherwise what exactly is the Wyckoff Method? Seems like its watch price & volume and determine if you want to trade, how is that different from the Joe Smith method?

[DbPhoenix 42]

There are very few people left who contribute to this Forum, and while I'm sure they're not intentionally ignoring you, they probably don't want to offend you either.

 

I think it's great that you're interested in this stuff. However, the Wyckoff Forum is intended to be a resource, not an online course. The only course is Wyckoff's, and that's available for download in the Stickies. Granted few people actually read it, but that's beyond my control.

 

But even though the Forum is not intended to be a course, there are many arcs in the Forum that serve to act as tutorials. They aren't always easy to find, but doing a search will disclose nearly all of them. If you're truly interested, I suggest you take advantage of the search capabilities (see, again, the Stickies).

 

Given that this thread is now over 700 posts long, and I can't imagine any question that hasn't already been asked, I'm closing it and renaming it "FAQ". Doing so may divert interested individuals' attention to the Stickies. Or not. But nothing is to be gained by extending the length of this thread.

 

As another long-time member says, "good luck to all".

[DbPhoenix 42]

If the exuberance in the NQ is puzzling, note that the Naz has been making new highs for weeks.

[DbPhoenix 42]

So our NQ long is now 130pts in profit. Whether or not it reaches the top of its TC (see post above) before breaking its support line remains to be seen.

[gozila 10]

Hi DbPhoenix

how to identify the change of trend from wyckoff view point ?

 

 

See Section 15 of the course.

Edited May 3, 2013 by DbPhoenix

[DbPhoenix 42]

See this thread for the content portion.

 

Ask what you like, but don't be surprised if you're requested to do a search. For instructions on how to do searches, see the Stickies.

Edited May 3, 2013 by DbPhoenix

[TradeRunner 10]

DB, nice to see a new thread whose aim is to help traders become better traders - a rarity on TL at the moment!

 

Here is a question for you

 

Traders then sit around for three minutes examining their manicures before buyers decide they're heading north, and they do so. Decisively. Breaking the line. Which means you exit your short. Without even thinking about it. You just do it. No hope, no fear. Just do it.

.

.

.

And now we separate the traders from the hobbyists.

 

By now you've drawn your supply/resistance line and it gets broken just 5m later. If you took the first RET, you may be intrigued, but if you took the second one, you're underwater and may not be thinking clearly.

 

But if you can sit tight for a moment, just a moment, you'll see that the first break barely qualifies as one. You may after all have drawn your line -- if you actually drew it -- a bit off. So you wait, and the second bar barely registers. So you wait a bit longer, and though the third bar most definitely is outside your line and appears to be heading north, it can't make a higher high than the bar two previous. So you decide to take the chance, being the proficient price action reader that you are, and continue to wait it out. And it is at that point that price drops back below your supply/resistance line.

 

There is a balancing act here between when you give a trade time to work and other times just get out.

 

Here is the 1 minute chart with the two shorts supply lines drawn in:

 

 

and a 1 second chart with same entries and lines:

 

 

Can you go into more detail on why in the first short you do not hesitate but the second short is given more time?

 

Are you poised on the buy button before the supply line is broken on the first trade because price fails to break 2812.25 several times?

 

Would you mind adding a mark where you would have hit the buy button on the 1 second chart?

 

TradeRunner

 

 

Re the first short, price doesn't do what's expected, even though it has at least two minutes to do so. If it were a good short, it wouldn't be hanging around at that level for two minutes before reversing and breaking the supply line. And there's also the fact that one is underwater as soon as the trade is executed. What a beginner feels at that time is not conducive to clear thinking. And even though your 1s chart shows a probably coincidental pause at your line (the market can't know what lines you've drawn), price doesn't waste any time pushing north.

 

Re the second short, however, you're in a more comfortable position when price hesitates, plus you've had a series of lower highs and lower lows. And when price breaks through the line, it retreats immediately. On a 1m chart, this shows a "close" in the middle of the bar.

 

As for showing the "buy" on the 1s chart, I assume you mean the cover. And no, I really can't as that would be pure conjecture as I wasn't watching the 1s chart. But, again, the key question isn't where to exit the short but that price isn't falling. An equally legitimate choice would be to exit before the supply line is even broken. Price is in effect waving a flag and saying Yo, I'm not going down, fool, I'm going up.

Edited May 9, 2013 by DbPhoenix