Trading The Wyckoff Way

[DbPhoenix 42]

How could W not use MP?

 

He did. Just not in so many words.

[zeon 10]

Hello, sulong. Yes, materials and energy have been doing well, and that would be the place to look for longs when we turn.

 

 

I hope you don't mind me picking up this post from earlier in this thread. But why materials and energy? I probably don't know enough about fundamentals...

[DbPhoenix 42]

Why it pays to be aware of hinges:

 

[BlowFish 10]

I agree this sounds all very simple. But most books I read consider scaling out as a less profitable strategy in the long run. This strategy also assumes that you only take one trade a day and try and maximize it's potential. Which I fine I suppose as far as it goes. In trending days, this will keep you in the market with at least a small part of your position till the end. But in ranging days it might mean several stop outs at break-even. Perhaps it's just not possible to find a 'one size fits all' exit strategy.

 

On the whole that will be true, running analytics will show one exit strategy to be more effective from a pure profit point of view. However there are a couple of advantages to scaling out. Firstly psychological - a lot of people find it easier to manage a trade once it is 'paid for' by taking some of the position off (i.e. they can no longer lose). Secondly it will result in a smoother equity curve.

[Hlm 10]

I agree this sounds all very simple. But most books I read consider scaling out as a less profitable strategy in the long run. This strategy also assumes that you only take one trade a day and try and maximize it's potential. Which I fine I suppose as far as it goes. In trending days, this will keep you in the market with at least a small part of your position till the end. But in ranging days it might mean several stop outs at break-even. Perhaps it's just not possible to find a 'one size fits all' exit strategy.

I know this is a little off topic so I will keep it short.

 

I believe that many of those who scale out do it incorrectly. The market is extremely dynamic so you must be as well. In order to know where to scale out you must understand the time frames, S/R, Supply/Demand, etc that are around you. By knowing and understanding these areas you can estimate rough probabilities of them getting hit during certain situations. This will allow you to keep more on for trending days and take most off during consolidation days. I believe that the concept itself is somewhat "one size fits all" but how you measure these levels and create probabilities can vary dramatically.

 

Of course this is a more advanced way of thinking and takes lots of studying and screen time. This is why you find many newer traders taking a large portion off quickly at a fixed amount and then trailing a smaller portion looking for the larger trend. It's kind of a quick fix to the problem.

I also agree with what BlowFish said.

[Tannism 10]

Tim Ord explains one of his charts on Decisionpoint. Advisors Corner.

 

http://www.decisionpoint.com/TAC/ORD.html

[gassah 10]

W stated:

 

"After you have bought, you sit through a number of small, medium and good-sized waves, until finally you observe that it is about flood tide in that stock. Then watch for an especially strong up-wave and give your broker an order to sell your stokc at the market.

 

The waves of the market furnish a clear insight into changes in supply and demand. By learning to judge all sizes of market waves, you will gradually learn to spot the time when a rising market or a rally, and the time when a declining market or a reaction, has halted and is about to reverse. These are the turning points."

 

When I read Barros' book and he mentioned that he calculated the percent moves of waves and used standard deviations to help determine when it was "flood tide" I recalled the above quotation.

 

The attached shows the weekly chart of EURUSD hitting the top of a channel. The AB wave happens to be far above the average wave for the past ten years. I have an Excel program that'll quickly measure these. AB is well beyond the the 3rd standard deviation at 37% and is at high risk of reversing. I mention all this because it's having trouble on the daily.

[Tannism 10]

I haven't read the book, but I do look at standard deviations. Allowing for stockcharts, does this illustrate the point?

 

The envelope is 3 standard deviations using 20 periods.

 

If this illustrates the point, I'll post one using % moves, standard deviation and PnF.

[DbPhoenix 42]

Speaking of broader markets, only three out of nine sectors continue to hold above their "breakout" points: energy, technology, and utilities. Anyone trading the NQ should keep this in mind.

[zeon 10]

I posted this a week or so ago. Bigger timeframe and all.

 

Within the context of Tuesday's selling climax and re-test, I thought it might be interesting to discuss 'the big picture'. Mainly, because I seem to recognize the same concepts and as they apply on each timeframe,...

 

From what I can see:

(a) is a selling climax on huge volume, and demand overcomes supply because if you blend the bars, it's a hammer-like formation and price closes well off the lows

(b) a break of the demandline

© a higher low

(d) a re-test of the low, and on lower volume

(e) a shake-out and in effect another test, on higher volume but price closes off the lows

(f) a higher high

(g) and a higher low => confirmation of new uptrend

(h) a new (cyan) demand line can be drawn

 

Forget for a minute that everybody is saying that this is a bear trend and just look at the chart. Or for the sake of the exercise suppose that this is a intraday chart instead of a daily one, doesn't this validate taking a long position? What elements have I interpreted incorrectly?

 

Doesn't it look like we had a double bottom confirmed now?

I mean, this week the NQ broke much higher, the ES is back to 1400 and the DOW almost to 13000...

[DbPhoenix 42]

[habi 10]

Speaking of broader markets, only three out of nine sectors continue to hold above their "breakout" points: energy, technology, and utilities. Anyone trading the NQ should keep this in mind.

 

I know, that you posted somewhere the sector charts you track, but I couldn't find them. Are they similar to Amex Select Sector SPDR's from Stockcharts? Thanks

 

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=msummary&cmd=show,iday[Y]&disp=SXA

 

[DbPhoenix 42]

I had trouble finding them myself: here

 

I didn't include utilities.

 

I'm less interested in what's up or down at any given time than I am in whether or not each is still range-bound.

[habi 10]

I had trouble finding them myself: here

 

 

I'm less interested in what's up or down at any given time than I am in whether or not each is still range-bound.

 

 

Thanks Db. I was interested, because you said, that only three out of nine hold above the breakout. I will have a look on them tomorrow.

 

The link seems not to work correctly, its post 256

 

http://www.traderslaboratory.com/forums/104/ym-es-and-djia-analysis-2275-6.html#post33679

[DbPhoenix 42]

Thanks Db. I was interested, because you said, that only three out of nine hold above the breakout. I will have a look on them tomorrow.

 

The link seems not to work correctly, its post 256

 

Works for me. (?)

 

These are the three I was referring to. I won't update them in toto until there's some important change.

[gassah 10]

Allowing for stockcharts, does this illustrate the point?

 

The envelope is 3 standard deviations using 20 periods.

 

It looks different because it's following the bar movements and not the waves.

[DbPhoenix 42]

While this may not be Wyckoff, it is Wyckoffian: raw breadth data without anyone having screwed around with it.

 

The decline in the volume of advancers as compared to the previous highs in the Nasdaq does not portend collapse, but it does bear watching.

 

The decline in the number of new highs, however, does suggest that the market is being driven higher by large-cap stocks, and the advance may not be a broad one.

 

The story's pretty much the same with the NYSE.

[gassah 10]

While this may not be Wyckoff, it is Wyckoffian: raw breadth data without anyone having screwed around with it.

 

In one of W's books he does mention taking into account breadth data. I can dig it up if somebody wants proof.

[Tannism 10]

.... market is being driven higher by large-cap stocks

 

A view of NZ 100 showing large caps significance. Market cap weighted index is higher than equal weighted.

[DbPhoenix 42]

How are we to know in advance why and to what extent someone else is prompted to buy or sell? We cannot know; it is impossible for us to foretell what actuates all of those whose orders are poured into the vast intake of the Stock Exchange machinery during the day's session.

 

But if we study the action of prices; the responses; the speed of the ticker, indicating urgency or the contrary; the intensity of the buying or selling, as indicated by the volumes; and the intervals when the volume is heavy or light -- all these in relation to each other -- then we gain insight or the design and the purposes of those who are dominant in the market situation for the time being.

 

All the varying phases of stock market technique may thus be studied and interpreted from the buying and selling waves as they appear on the tape. From these we form a conclusion as to the balance of the probabilities. On this we base our commitments.

 

Richard Wyckoff

[zeon 10]

Been reading some of Wyckoff's articles...

 

I came across this, but I'm not quite sure how to interpret this. I didn't think Wyckoff had targets are made predictions as to how far a move could stretch or where his exits might be. I couldn't find any references to 'projecting' targets in this thread nor in the excellent PDF files dbphoenix provided.

 

Judging distance

Another important adjunct in stock trading, known by very few people, is how to judge the number of points the averages or any group of stocks or any individual stock should move in a certain direction, subject to continual confirmation, correction of perhaps contradiction, as indicated by market action.

[gassah 10]

I didn't think Wyckoff had targets are made predictions as to how far a move could stretch or where his exits might be. I couldn't find any references to 'projecting' targets in this thread nor in the excellent PDF files dbphoenix provided.

[/i]

 

He used point and figure charts to project. I'll quote some this weekend.

[zeon 10]

He used point and figure charts to project. I'll quote some this weekend.

 

Good idea. I wonder why nobody who's trading is based on the principles laid out by Wyckoff is using these 'projection methods'. Although I don't find much references to it further in the book I'm reading, it still surprised me because I think he didn't do much "predicting". But if your projection targets than I guess that's exactly what you're doing.

[gassah 10]

Here's a little.

 

http://www.hankpruden.com/dow14400.html

Schroeder PnF.pdf

[zeon 10]

Here's a little.

 

http://www.hankpruden.com/dow14400.html

 

 

Wow, that 14400 projection was spot on. If you have more where that came from, keep it coming. It's hard to find good information on the web these days. Most trading related stuff is about spread betting and indicators and system sellers crap.