Trading The Wyckoff Way

[BlowFish 10]

Well well, DB posting charts with a left hand/outside lines on (channel line). What is the world coming to :o Seriously I had been under the impression that you did not pay much attention to left hand lines. Is this something you have changed in your trading or is it more likely something I have mis remembered?

 

Personally I rather like channel lines and will take a trade from the outside one (despite most people recommending against it as it is counter trend). Of course context and confluence help. (need to think of another C)

[DbPhoenix 42]

As I have not read the SMI course, what do you reckon are the main modifications to the original Wyckoff. Gary Fuller at ltg-trading , I presume employs the former as there are numerous references in his archived charts to

"COB - change of behavior", "Jumping over the Creek", "Break of Ice", terms which Wyckoff never used.

 

Too many to get into. Primarily, the original course is much simpler and more straightforward. The Wyckoff material I've provided here and in my Blog is from the original course. But the course is 500 pages long. To compare and contrast would take an enormous amount of time.and would serve no practical purpose.

 

I learned long ago to focus on source material. What the originators say about their own work is often quite different from what others say about it and do with it (assuming that the "others" acknowledge the sources of their work in the first place, which is not common). That's why I have a first edition of Schabacker and a fourth edition of Edwards and Magee (before editors started rewriting it). When I was playing with indicators, I read Wilder and Appel.

 

There's certainly nothing immoral about Tom Williams or any of these other people offering their own interpretations of Wyckoff's work. One must keep in mind, however, that one is not trading Wyckoff but someone's version of Wyckoff, and the two may be worlds apart (if one is trading at all; one can learn to provide impressive chart analyses and yet be completely unable to trade them).

Edited March 2, 2013 by DbPhoenix

[DbPhoenix 42]

Well well, DB posting charts with a left hand/outside lines on (channel line). What is the world coming to :o Seriously I had been under the impression that you did not pay much attention to left hand lines. Is this something you have changed in your trading or is it more likely something I have mis remembered?

 

I don't. I'm more interested in the (potential) support and resistance that are provided by the market -- such as a swing point -- than I am the imaginary support and resistance that are provided by a line that I manufacture.

 

But Wyckoff used these lines to help him track demand and supply, momentum, and stride, and all of that is perfectly legitimate. The trap lies in persuading oneself that the lines one has drawn begin to provide support and resistance themselves, which is (a) illogical and (b) not the point of drawing the lines in the first place.

[BlowFish 10]

I don't. I'm more interested in the (potential) support and resistance that are provided by the market -- such as a swing point -- than I am the imaginary support and resistance that are provided by a line that I manufacture.

 

But Wyckoff used these lines to help him track demand and supply, momentum, and stride, and all of that is perfectly legitimate. The trap lies in persuading oneself that the lines one has drawn begin to provide support and resistance themselves, which is (a) illogical and (b) not the point of drawing the lines in the first place.

 

AH Ok Ithought that might be your view. Having said that it seems that there is all sort of 'geometry' in the markets that, while there is no directly attributal 'reason', certainly seem to exist and repeats often enough to be more than random. This can certainly be exploted if that is the traders desire.

[DbPhoenix 42]

AH Ok Ithought that might be your view. Having said that it seems that there is all sort of 'geometry' in the markets that, while there is no directly attributal 'reason', certainly seem to exist and repeats often enough to be more than random. This can certainly be exploted if that is the traders desire.

 

The key word being "seem". Most likely is that we're just throwing virgins into the volcano.

[BlowFish 10]

It was a carefully considered word. You have to be very careful of perceptional bias, but thats true of any aproach. If you are rigorous in your definitions you can test some of these things to see if there is statistical significance. For example some of Morge's pitchfork behaviour has 80% or so probability after years of extensive testing.

 

I seem to remember you saying mid points of your rectangles often significant, mid points of swings often seem to be too. Why I wonder? I guess you could argue that being a half way point its a place that both bulls and bears are likely to draw a line in the sand. A bit more abstract are measured moves A-B = C-D. The market does appear to have a tendency to move in similar size segments. And the list goes on. I remain more open minded to some of these sorts of things that to other even though, as you point out, these lines dont represent anything in and of themselves.

[DbPhoenix 42]

Wyckoff, however, didn't base his approach on geometry but on behavior. The "midpoint" to which he paid so much attention represents a return to equilibrium, what some people call a reversion to the mean, what MP calls the value area and the POC. If price doesn't return to the level at which one might expect to find equilibrium, one can interpret that as strength, which may lead to a higher level of equilibrium. If it drops below that level, one can interpret that as weakness and a search for a new, lower level of equilibrium.

 

As to whether or not anything one draws or plots can have any statistical significance at all is a subject best left to a general trading discussion. For the purposes of this thread, the only "pattern" per se is the hinge, which, again, is the result of specific trader behavior, and therefore exists outside the trader himself.

[Tannism 10]

Db

T/F W's Bulge : DB's breach.

 

Thanks,

TannisM

[Upthrust86 10]

Wyckoff, however, didn't base his approach on geometry but on behavior ... For the purposes of this thread, the only "pattern" per se is the hinge, which, again, is the result of specific trader behavior, and therefore exists outside the trader himself.

 

Surely Wyckoff identified more patterns than the hinge in his work, no? The climax is a pattern just as much as the hinge, and probably more so. The climax has a certain set of characteristics that form a pattern in volume, spread and close, and it is based on trader behavior. The same can be said of the secondary test.

[gassah 10]

Good looking bounce off the top of the lower range for the SP500 today. It appears the upper range is back in control for now.

[That One Guy 10]

Am I, on the right path to reading price and volume. Saw a hard push down, at 11:26 leading to a bit of a light demand push up. Then, we see buyers putting in effort getting decent results to take price back up to the median level. As soon as price finds this area, I see no effort and no results to get back above it, which would show potential for more demand. Sure enough price falls off a cliff making new lows. Just how I read that in real time, no trade was taken, since I'm concentrating on listening to the market not trading it currently.

[DbPhoenix 42]

On a day like today, i.e., a trend day, it's easy to come up the wrong conclusions regarding volume since the smaller waves are pretty much irrelevant to the larger.

 

The key here is shorting resistance at 2005. After that, all you have to do is follow the line of least resistance by means of trend lines and swing points. Typically, price will move sideways during lunch on days like this, and it did so today. Since it rose above a prior swing point only once, at 1300 (ET), you needn't do anything more than just wait and watch your profits increase.

[Bearbull 10]

JWhite

That is pretty good assessment of price/volume action, Get hold of Dbphoenix's e-book, there are very informative sections on this aspect.

[gassah 10]

Good looking bounce off the top of the lower range for the SP500 today. It appears the upper range is back in control for now.

 

Then again, perhaps not.

[zeon 10]

On a day like today, i.e., a trend day, it's easy to come up the wrong conclusions regarding volume since the smaller waves are pretty much irrelevant to the larger.

 

The key here is shorting resistance at 2005. After that, all you have to do is follow the line of least resistance by means of trend lines and swing points. Typically, price will move sideways during lunch on days like this, and it did so today. Since it rose above a prior swing point only once, at 1300 (ET), you needn't do anything more than just wait and watch your profits increase.

 

Hindsight is 20/20... if price had gone up all day, you prob'ly would've said 'the key here is buying support at 1990'. After all, price opened around support, the trend from yesterday was up. There's a very similar example in your blog. So why not do it today? After all, price traveled all the way to resistance next. You can even draw a demandline next to it.

[DbPhoenix 42]

Then again, perhaps not.

 

The key words were -- correctly -- "for now", which is an aspect of this that the pundit wannabees continue to miss. While they may pay lip service to the idea of taking it all "day by day", they are also compelled to "make calls" in order to demonstrate how much they know. Or, actually, don't know. And thus get it wrong yet again.

 

We are now back where we started at the "selling climax", and those who bought here and stopped thinking have now watched all their profits evaporate. Or at least ES and YM (NQ has given back only 75%). What will be interesting now is how they react.

[DbPhoenix 42]

Hindsight is 20/20... if price had gone up all day, you prob'ly would've said 'the key here is buying support at 1990'. After all, price opened around support, the trend from yesterday was up. There's a very similar example in your blog. So why not do it today? After all, price traveled all the way to resistance next. You can even draw a demandline next to it.

 

No reason not to buy the midpoint at 1990, if that's a part of one's strategy. However, doing so would not be "key" to playing the trend day, and the trend day provided the sideways midday movement that I referred to and that I've noted several times in previous posts on the subject.

 

Or one could stubborly hold to a bullish bias, ignore the test of resistance, and stand by while watching most or all of his long profits evaporate. But that's the difference between trading reality rather than dreams.

 

An update to the ES chart I posted last week:

 

Edited May 7, 2008 by DbPhoenix

[zeon 10]

Or one could stubborly hold to a bullish bias, ignore the test of resistance, and stand by while watching most or all of his long profits evaporate. But that's the difference between trading reality rather than dreams.

 

 

The same could be said of yesterday. There was a 'test' at 1990, high volume and the initial reaction pushed price lower, just like today. The difference is that price continued higher while today it reversed. So one should have reversed longs too yesterday than?

[DbPhoenix 42]

The same could be said of yesterday. There was a 'test' at 1990, high volume and the initial reaction pushed price lower, just like today. The difference is that price continued higher while today it reversed. So one should have reversed longs too yesterday than?

 

No, one should have traded what was in front of him, buying a test of support at or around 1015 (in the case of the NQ), waiting through the midday sideways movement, then following the trend upward until the close.

[zeon 10]

No, one should have traded what was in front of him, buying a test of support at or around 1015 (in the case of the NQ), waiting through the midday sideways movement, then following the trend upward until the close.

 

 

You're being somewhat selective. About yesterday, you're assuming one is long when price hits 1990, so he stays in or takes some off his position off instead of shorting. While today you are assuming that shorting 2005 is 'the key trade', because the trader is still flat.

 

If you look at it from another pov, you could easily say short 1990 yesterday (high volume) and go long on support 1990 today, expecting a continuation of the uptrend. Your reply is going to be that there's no reason to short yesterday as the demandline wasn't broken which is correct, but neither was it today if you draw one from 1990 up to 2005. I'm sorry, but it seems like the decision to take the trade or not, depends on something else which you forgot to tell us perhaps.

 

Also, there was no way knowing today was going to be a trend day. You said it yourself, after a trend day (like yesterday) we usually have a consolidation day. So was there a reason not to go long off support today? And if a trader was long, should he not have patience and perhaps take off some of his position at the next resistance (2005), but leave some open. You've given plenty of examples yourself. So, following the approach you illustrated, one would exit part at 2005, wait for the demandline to break to exit some more and exit the rest at break-even. Not a whole lot of profit and he misses out on the big move.

[DbPhoenix 42]

Yes, I'm assuming that one is long when price hits 1990 because he ought to be long if he's paying attention. If he isn't, then the twists and turns you get caught up in with regard to "1990" are irrelevant to the task.

 

And, no, there was no way of knowing that today would be a trend day. One shorts resistance then follows the line of least resistance. That's it. But since you refuse to study any of this, or practice, it all continues to be a mystery to you.

 

As I've said repeatedly, you don't understand support, resistance, price action, the relationship between price and volume, nor have any sort of defined and tested setup to enable you to take advantge of whatever you might learn if you were to study and practice. Instead, you prefer to take direction from message board posts.

 

If you refuse to do the work, you're going to continue to be confused. And there's absolutely nothing I can do about that.

[zeon 10]

Yes, I'm assuming that one is long when price hits 1990 because he ought to be long if he's paying attention. If he isn't, then the twists and turns you get caught up in with regard to "1990" are irrelevant to the task.

 

 

I can understand one is long yesterday from earlier on in the day.

What I don't understand is why you choose to ignore the possibility that one is long today, from support, at 1990 (for the reasons I stated), but you choose to focus solely on the short from resistance. While, if I'm reading the chart from left to right, at the time is at resistance, he is still in a long trade.

[DbPhoenix 42]

His post had to do with the action at midday. I addressed that within the context of the trend day. With a different context, I would have addressed it differently. That's what "context" means.

 

If you ever get around to study and practice, all of this will eventually become clear. However, as long as you continue to avoid doing the work, you'll also continue to ask the same questions.

[DbPhoenix 42]

Ten Core Ideas of Trading Psychology

by Brett Steenbarger

 

1) We are most likely to behave in inhibited or impulsive ways, violating trading rules and plans, when we perceive events to be threatening;

 

2) What we perceive to be threatening is a joint function of events themselves and how we think about those events;

 

3) A key to gaining control over trading and maintaining consistency is to be able to reduce the threat associated with market events and process adverse outcomes in normal, routine ways;

 

4) We can reduce the threat associated with adverse market events through proper money management (position sizing) and through proper risk management (limits on losses per position);

 

5) We can reduce the threat associated with adverse market events by training ourselves to respond calmly to adverse outcomes (exposure methods) and by restructuring how we think about those outcomes (cognitive methods);

 

6) Optimal skill development in trading will occur in non-threatening environments in which learners can sustain concentration, optimism, and motivation;

 

7) A proper mindset is therefore necessary to the development of trading skills, but does not substitute for such development;

 

8) The cultivation of trading expertise is a function of the amount of time and effort devoted to learning and the proper structuring of that time and effort[emphasis mine];

 

9) Proper structuring of learning involves the setting of specific, doable, cumulative goals and the provision of rapid feedback and correction regarding the achievement of those goals;

 

10) Practice does not make perfect in trading or anything else; perfect practice makes perfect[emphasis mine]. Training must gradually build competencies and correct deficiencies in a manner that sustains a positive mindset and optimal concentration and motivation.

 

more.....

[DbPhoenix 42]

.

The forest: