Trading The Wyckoff Way

[Tannism 10]

W analyzes intraday swings in the course and I've wanted to apply it to daily and weekly charts but have never gotten around to it. It would be nice to be able to anticipate the transition from trend to range and vice versa before either one is clearly defined, so that one can switch from a trend following to a range bound strategy in a timely fashion.

 

The warning label on the zig zag is that the last leg will change until the prices are reversed by the filter amount. When the turning point is identified, prices have moved at least the filtered amount in the opposite direction. I think the zig zag on the Ord Daily Chart is 6.25%.

[Upthrust86 10]

W analyzes intraday swings in the course and I've wanted to apply it to daily and weekly charts but have never gotten around to it. It would be nice to be able to anticipate the transition from trend to range and vice versa before either one is clearly defined, so that one can switch from a trend following to a range bound strategy in a timely fashion.

 

Attached is the SPY daily using the trial Ord program. It looks as though the end of the trend in 2007 could have been anticipated with this data. The red numbers are the average volumes per swing that Ord prints out but it looked to small to post. I've added the % change for a couple of swings.

 

I think the first clue to the end of the trend was the high volume reaction at BC with 140m average shares vs. the 68m from AB. This might be called preliminary supply.

 

The CD rally is shorter than the AB swing (14% gain vs. 20%) but volume is almost double (120m vs. 68m). This is similar to an up bar with a more narrow spread on much higher volume; or supply overcoming demand.

 

The third clue, if two weren't enough, was the large volume DE reaction with the 100% retracement of CD. Both, in and of themselves, suggested a range formation. The low volume rally, EF, with the volume cut in half allowed for the anticipation of the upthrust at F.

 

Do you think that the Ord Volume chart is a better indicator if the swing strengths and weaknesses than the Market Analyst chart you posted earlier?

[gassah 10]

Do you think that the Ord Volume chart is a better indicator if the swing strengths and weaknesses than the Market Analyst chart you posted earlier?

 

I made that comparison yesterday. I wouldn't get the Ord program because all it can do is make the swing average volume calculations. It literally does nothing else. Not one other indicator, not even a moving average.

 

For a few hundred more dollars you get a complete TA program with MA, including the above calculations. It isn't as pretty and takes a little more time. It depends on how many securities you will follow. You might consider the Ord program if you are looking at dozens of stocks.

[zeon 10]

For the last couple of weeks I've been trying really hard to get a better understanding of the market through price and volume, and the concepts laid out by Wyckoff and dbphoenix.

 

In real time, somehow something always bites me in the tail though.

 

This is a chart of the ES of today. I had my focus on 1387 because that was the low of Friday and as price opened below that level I was looking for resistance there.

 

'x' looks like a break above support from the previous day, and if I were to trade breakouts this might have been a long. I don't, but anyway my focus was then on potential longs. However at 1000 price fell back below support and after it made a swing high around 1030 I drew a supplyline (blue).

 

My focus now switched to determining when the downmove would end. So the first thing one would look for is a potential selling climax. If I'm correct this occurred at '1': high volume and demand is coming in, which can be seen not only because the bar closes off the lows but also because price manages to move up 2 points.

 

However the demandline is not broken and at '2' we make a lower low and the volume is huge this time with again some demand. At '3' we have a failure to make a lower low and this bar closes noticeably on the highs. The volume is also lower and with a selling climax in the background this looks like the re-test. The next bar breaks the supplyline and gives us a first potential long entry ('A'). After that volume dries up but price stays horizontally. At 'B' the downtrend is decisively broken as price moves up and volume confirms. If you're not in at 'A', then 'B' is another long entry. So far so good...

 

... but then we plunge down on high volume and a bar that closes near the lows around 1230. Here I am again, thinking 'what the hell just happened here?' :\

 

Feedback as always greatly appreciated...

[brownsfan019 17]

 

... but then we plunge down on high volume and a bar that closes near the lows around 1230. Here I am again, thinking 'what the hell just happened here?' :\

 

Feedback as always greatly appreciated...

 

 

 

 

That is a combo - candle/WRB type analysis. You guys can translate it into your own lingo.

 

Bottom line is that there was no follow through after your WRB on your chart. As I've mentioned previously about WRB's - they show a TEMPORARY imbalance between the bulls and bears. That imbalance WILL come back into harmony sooner or later. The very next candle that printed - a spinning top on low volume - gave a hint that that up move may have been short lived.

[BlowFish 10]

One advantage of it is that the trader can eliminate the volume window. However, I can't use it for signals as time is a factor in my signals.

 

For charting the 24/7 activity, tho, it can't be beat as the overnite amounts to only a few bars, not 17 hours' worth.

 

You could also display time as a histogram underneath the constant volume bars, much as volume is on regular time based charts. Likely to need a programmed study, I'm not aware of anything that does that off the shelf.

[zeon 10]

 

That is a combo - candle/WRB type analysis. You guys can translate it into your own lingo.

 

Bottom line is that there was no follow through after your WRB on your chart. As I've mentioned previously about WRB's - they show a TEMPORARY imbalance between the bulls and bears. That imbalance WILL come back into harmony sooner or later. The very next candle that printed - a spinning top on low volume - gave a hint that that up move may have been short lived.

 

I'm sorry to be skeptical about this 'spinning top' business but this is a 2-min chart. I'm used to 5-min charts but dbphoenix suggested I go to 1-minute bars. I had some problem with that so for the time being I'm watching 2 and 5-min charts next to eachother. The fact is that this kind of candle can appear anywhere and if that would be a reason to get out I'm sure I could find loads of examples where this 'spinning top' is nothing more than a pause. It reminds me of the VSA people that said I should get out of a long position after two downbars/candles...

 

Thanks for the answer though, it's always interesting to see how other people think.

Edited April 21, 2008 by zeon

[DbPhoenix 42]

You're looking at a one-bar swing and test at "3". Which is fine as far as it goes. But you have to acknowledge that this is an aggressive entry, which carries with it a willingness to enter earlier and exit if and when the trade runs into trouble. A better test takes place an hour later, but if you don't understand why the aggressive trade didn't succeed, you probably won't take the more conservative one.

[gassah 10]

 

Feedback as always greatly appreciated...

 

Following the supply line break it's very common to test the low before the break, so this just needs to be part of the plan.

[gassah 10]

Ray talks about Ord today.

 

http://tradingsuccess.com/blog/314-314.html

[zeon 10]

You're looking at a one-bar swing and test at "3". Which is fine as far as it goes. But you have to acknowledge that this is an aggressive entry, which carries with it a willingness to enter earlier and exit if and when the trade runs into trouble. A better test takes place an hour later, but if you don't understand why the aggressive trade didn't succeed, you probably won't take the more conservative one.

 

Following the supply line break it's very common to test the low before the break, so this just needs to be part of the plan.

 

Thanks for answering my question.

 

If I understand correctly I should have waited, or if I insisted on taking the early entry, my stop should be below the low of the '3'. As for aggressiveness, I thought entering on the re-test is waiting for more confirmation... entering early would be at the selling climax itself.

 

One final question though, all of this is happening 'in the middle of nowhere'. I have my support drawn around 1376. I didn't want to mention it myself, because I thought that might be the reaction of some members, but I couldn't find much of this in Wyckoffs texts. This is why I'm wondering if this is a good trade. When price failed to break through resistance decisively, perhaps my bias should've been towards the down side...

[DbPhoenix 42]

You waited for more confirmation anyway by entering at B rather than A. You therefore assumed more price risk. If you had entered at A, you could have been out at breakeven. If you had then considered that A was not the retest you thought it was, you would have been able to assess the real retest more objectively.

 

As for taking place "in the middle of nowhere", look back at 4/4.

[brownsfan019 17]

I'm sorry to be skeptical about this 'spinning top' business but this is a 2-min chart. I'm used to 5-min charts but dbphoenix suggested I go to 1-minute bars. I had some problem with that so for the time being I'm watching 2 and 5-min charts next to eachother. The fact is that this kind of candle can appear anywhere and if that would be a reason to get out I'm sure I could find loads of examples where this 'spinning top' is nothing more than a pause. It reminds me of the VSA people that said I should get out of a long position after two downbars/candles...

 

Thanks for the answer though, it's always interesting to see how other people think.

 

But you fail to read my entire post young grasshopper.

 

CONTEXT, CONTEXT, CONTEXT.

 

The context of that spinner is what I posted. NOT PLAY 'FIND A SHAPE' WHICH IS WHAT YOU ARE SUGGESTING HERE.

 

Good luck!

Edited April 21, 2008 by brownsfan019

[DbPhoenix 42]

..........

Edited April 21, 2008 by DbPhoenix

[brownsfan019 17]

An unnecessary attack, bf. This thread is not about candlestick analysis. Nor is it about individual candles. Or bars, for that matter. And while you may not consider zeon to be a "real trader", he is making an effort to learn this, as are others. If they do not meet your standards, that's hardly their problem.

 

Edited to meet your approval DB.

 

[zeon 10]

 

As for taking place "in the middle of nowhere", look back at 4/4.

 

Hmm, I must admit I previously had support around there but removed it as of last Friday :doh: since price just went through it like a knife through butter and I figured my assumption that it would provide resistance on the way up was wrong.

[cantana 10]

..

 

... but then we plunge down on high volume and a bar that closes near the lows around 1230. Here I am again, thinking 'what the hell just happened here?' :\

 

Feedback as always greatly appreciated...

 

A little late on this, but..

 

I've always found that a glance to the left on a chart, will alert me to important price points. A horizontal line from the low of the opening bar, carried across to the right shows that, that price area was important 3 previous times before a break of your supply line. That price point turned out to be important one more time on your chart.

[DbPhoenix 42]

Since no one else (but zeon) has mentioned this particular long opportunity, and since it is so far worth up to six ES points, I'll post this now rather than later.

 

It should be self-explanatory. The green dots represent most if not all the available entry points, selection of which depends on the skill, talent, and risk-tolerance of the individual trader.

 

 

And suggested stops:

 

 

The pink dot is also a stop, tight because the entry is so late.

 

.

Edited April 21, 2008 by DbPhoenix

[zeon 10]

 

It should be self-explanatory. The green dots represent most if not all the available entry points, selection of which depends on the skill, talent, and risk-tolerance of the individual trader.

 

 

Aren't the first two green dots more like a (calculated) gamble? The trend is still down and there hasn't been a higher high, let alone a failure to make a lower low (at least on the first green dot). That and the supplylines...

[DbPhoenix 42]

"The green dots represent most if not all the available entry points, selection of which depends on the skill, talent, and risk-tolerance of the individual trader."

 

Don't ignore the volume cues.

Edited April 21, 2008 by DbPhoenix

[zeon 10]

db, would you classify this as a springboard or is the volume pattern not right?

 

It doesn't exactly seem to lead to much of an advance... if I understood correctly it should lead to an energy release. In this however, I can only see an attempt to go lower which is rejected immediately (high volume) but going higher fails as well... not much potential then in this pattern

[DbPhoenix 42]

You're ignoring the higher-volume bars, which may be why it failed. That may be insufficient reason for not taking it, but the better entry is before it ever occurs.

[Upthrust86 10]

I made that comparison yesterday. I wouldn't get the Ord program because all it can do is make the swing average volume calculations. It literally does nothing else. Not one other indicator, not even a moving average.

 

For a few hundred more dollars you get a complete TA program with MA, including the above calculations. It isn't as pretty and takes a little more time. It depends on how many securities you will follow. You might consider the Ord program if you are looking at dozens of stocks.

 

Thanks. Wyckoff talks about how volume swells at the end of a wave and serves to stop price movement. Ord averages that volume into the wave, which seems to miss the occurance of that climax volume. I am reading his book now, and he has some interesting ideas. Software will probably never capture Wyckoff, at least totally. Thanks for the Barros link. I didn't know he was a Wyckoff guy.

[gassah 10]

Thanks. Wyckoff talks about how volume swells at the end of a wave and serves to stop price movement. Ord averages that volume into the wave, which seems to miss the occurance of that climax volume. I am reading his book now, and he has some interesting ideas. Software will probably never capture Wyckoff, at least totally. Thanks for the Barros link. I didn't know he was a Wyckoff guy.

 

I read his book today and he does cover climaxes separately. I thought it had some excellent ideas. And yes, Barros and Ord state their Wyckoff wave influences. I'm enjoying the new tools.

[gassah 10]

Oh, and Ord's book comes in an ebook version from http://www.ebooksabouteverything.com/