Trading The Wyckoff Way

[Bearbull 10]

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.

 

Can understand your frustration. Attached 45min(prefer this timeframe, 9bars/day) and 1min chart, the support and resistance levels are evident on the 45min

 

Yes on the 1min a trendline (demand) can be drawn but then observe the climatic action , followed by a number of upbars on no demand (VSA Jargon) and Lower Highs and Lower lows. You can scale out your long position , all depends on your strategy and tactics and then on the break of the demand line , consider a short , as the path of least resistance especially in view of the strong resistance around 2000.

Careful study of the 1min chart after that rapid mark up in price on high vol will reveal all the price/vol principles .

Once again a thorough study of Db's ebook is highly recommended, hasten to add if one is looking for buy/sell setups then one is going to be disappointed, however to gain knowledge on trendlines, support/resistance, price/vol relationships and context, it is invaluable.

[zeon 10]

Yes on the 1min a trendline (demand) can be drawn but then observe the climatic action , followed by a number of upbars on no demand (VSA Jargon) and Lower Highs and Lower lows. You can scale out your long position , all depends on your strategy and tactics and then on the break of the demand line , consider a short , as the path of least resistance especially in view of the strong resistance around 2000.

Careful study of the 1min chart after that rapid mark up in price on high vol will reveal all the price/vol principles .

 

Thanks for helping me out Bearbull. I'm glad you posted this, because this is EXACTLY what I saw the day before. No one has given me an answer yet as to why yesterday it was short signal but the day before it was not. It's very easy to say in hindsight you should've been long or short, but just look at all the similarities between the two situations:

 

(1) a demandline can be drawn, price starts to go up on increasing volume

(2) climactic action (high volume) when price approaches potential resistance (first 1990, later 2005)

(3) rapid mark-up in price on increased volume

(4) peak volume but in both cases price rejects higher levels! look at the close of the bar on high volume in my chart. It's clearly on the lows, while in the rejection of 2005 it closes off the highs, but in the middle. One could even argue that my chart gives a better short signal!

(5) followed by a number of small upbars on low volume

 

You're saying the path of least resistance is down after the break of the demandline. Allright, why is this the case in the right chart, but not in the left (see attached)?

 

The two situations are identical. Whatever setup I choose to test, I keep seeing the same patterns but they work one time and fail the next. I'm never going to find something that works more than 50% of the time. Perhaps you more experienced traders are acting on something that's not in the chart, some 'intuitive feeling' or something...

Edited May 8, 2008 by zeon

[Bearbull 10]

No this is nothing to do with feelings, it is all to do with how price behaves with vol at various swing points, S/R levels and trendlines.

 

I will try to get some charts together later, however it is imperative for a start to clear the mind of all the VSA jargon , i.e markets do not like upbars on high vol, the new slogan: principles create patterns, who is moving the price, professionals, syndicates, smart money etc.

 

Focus on supply and demand, cause and effect.

The Mantra should be Effort - Volume, what is the Result - price/range/close.

 

Best to start the day with a 15min chart, note any previous support/resistance levels from past 5 days, later you can go to higher timeframe and longer time periods for other S/R levels. Now start plotting trendlines in realtime, get hold of Db-ebook .

Just observe the various swings without thinking what you are going to do or would have done. Examine the price action at microlevels on 1min chart or even on 5min and observe how the price reacts on certain vol at various s/r levels.

 

On the NQ 5min chart watch that retracement on the 6th around 1990 level and then the next day at 2005 level, observe the range of bars, go into 1min and carry out the same exercise. again without the VSA jargon.

Remember market can go up on low vol and fall on low vol. just depends on the right context. Just because there is upbar on low vol, does not mean there is No Demand, THERE IS NO SUPPLY, again all in the right place.

More later, have to get back to work.

[idaxtrader 10]

"The two situations are identical. Whatever setup I choose to test, I keep seeing the same patterns but they work one time and fail the next. I'm never going to find something that works more than 50% of the time. Perhaps you more experienced traders are acting on something that's not in the chart, some 'intuitive feeling' or something..." ZEON

 

 

This is a very accurate statement that you have asserted. D.B. shed a little light on the principle of context. This is one of the most important principles in all of trading. There is no easy way around context it can only be achieved by experience. I think wyckoff addressed this issue in his book on tape reading where he says that mechanical approaches are never the way to go. That it requires good judgment to trade well. Mechanical patterns are useless without judgment when to say no. In my opinion mechanical can be very good if you can build a super high frequency trading system. More than 100+ trades a day. The principle of just letting your edge play out over an adequate sample size. I tried hard to do this but could never really get this approach to work for me.

 

I've yet to hear my theory on volume addressed on any of these threads. People want to believe volume is the holy grail. Price can move with or with out volume. Its can move massively without volume for example holidays. Your job is to be paid from price not volume. Its only my opinion and I'm not taking a shot on volume traders. If they get it to work for them thats all that matters.

 

(1) Wyckoff's tactics for volume were great in the past but are no longer as robust as before. (2)I believe in his time the volume was a very straight forward thing. Nowadays you never know with volume, its not straight forward. (3)There is to much arbing and spreading and all sorts of complicated trades going on. (4) In your chart of the qqqs there may be no demand bars. But in a complex market there may be large demand in the NQ or the ND or the actual NDX cash. (5) Then add other complex factors such as just a quiet market in the Nasdaq 100 and all its derivatives indicated by your no demand bars but over in the S&P and all its derivatives there is large volume and its building cause to go up further. (6) To even complicate things further both the S&P and Nasdaq may be indicating no demand but there could be some really big players building a bullish position in EuroStoxx50 and its derivatives which could possible fuel a rally. In conclusion my opinion is that volume is a very tricky thing these days. If it were as easy as vendors make you think such as Market Delta and TraderGuider there would be a lot more wealthy traders in the world.

 

My solution is to first master your one setup and then apply a volume filter to your setup. Don't get caught in the trap in taking non confirmed trades saying this or that was no demand or no supply.

[zeon 10]

 

...

 

 

Sorry Bearbull, but no where in your reply could I find something related to the two identical charts I posted. Talking about what I should or should not do, doesn't change the fact on what I see in front of me.

[DbPhoenix 42]

 

(1) Wyckoff's tactics for volume were great in the past but are no longer as robust as before.

 

In my experience, volume just as "robust" as it ever was. However, few people take the time to understand it, much less to apply it, particularly if they are mechanically-inclined.

 

In order to understand volume and its relationship to price, one must be interested and value the effect of trader behavior on price movement. There is an enormous class of traders who has no interest in that. Since they have no interest in it, they don't bother to try to understand it. Which is fine as far as that goes. But many of them go on to claim that none of it matters simply because it doesn't matter to them. And this position overreaches the facts.

 

It takes more than a weekend seminar to learn how to trade via price and volume. And regardless of time served, many people just aren't suited for the task.

[zeon 10]

It takes more than a weekend seminar to learn how to trade via price and volume. And regardless of time served, many people just aren't suited for the task.

 

 

I'm not sure what you are implying by "not suited for the task". Are you saying some people are meant to become traders and others aren't?

[DbPhoenix 42]

Res ipsa loquitur.

[zeon 10]

Res ipsa loquitur.

 

That's not only a very egotistical assumption, it's also a rather presumptuous.

Anyone can learn how to trade, if they are shown the right way by others. Some might need more help than others.

 

I frankly had enough of this elitist talk. It's become quite clear to me that those who whistle your tune are free to say and do what they want, but those who ask concrete questions are often left out in the dark to figure it out for themselves.

 

You think your blog was so insightful, but you forget that almost every question I asked was at best left unanswered, or ignored.

 

Goodbye, and thanks to all those who did offer to help me by PM.

 

One final note, in case anyone reads this later one: I asked one HARD question, and no ONE could answer it.

Good luck trading hindsight principles.

Edited May 8, 2008 by zeon

[DbPhoenix 42]

 

Yes on the 1min a trendline (demand) can be drawn but then observe the climatic action , followed by a number of upbars on no demand (VSA Jargon) and Lower Highs and Lower lows. You can scale out your long position , all depends on your strategy and tactics and then on the break of the demand line , consider a short , as the path of least resistance especially in view of the strong resistance around 2000.

 

Careful study of the 1min chart after that rapid mark up in price on high vol will reveal all the price/vol principles .

 

Incidentally, Bearbull, nice analysis. You've been doing your homework.

 

There are times, however, when SAR is called for, particularly when there's a flat-out reversal signal. Waiting for a break of the demand line may entail a stop that's uncomfortably wide and the trader may decline to pull the trigger.

 

But all this will come as you continue the work. What matters at the beginning is understanding the price movement and how it relates to the volume. What to do about it comes later.

[zeon 10]

 

There are times, however, when SAR is called for, particularly when there's a flat-out reversal signal. Waiting for a break of the demand line may entail a stop that's uncomfortably wide and the trader may decline to pull the trigger.

 

 

Lol, even more remarkable that in this particular hindsight analysis of yours, it's the first time a SAR is mentioned. Whatever fits the case, I guess... First it was a test, than a rejection, now it's a reversal signal. :\

 

Don't worry, this was my final post on the matter. I just think you should put a disclaimer underneath your posts. It's curious how many times you mention where one should exit his trade, with a lot of "assuming" and where he "should have" entered, often leaving out the entry until mentioning it at the EOD (like yesterday).

 

Ciao.

[DbPhoenix 42]

To those who are interested, there's a first edition of Schabacker up for bid at eBay: Schabacker

 

There's a reserve that has not yet been met, but don't pay more than $30.

[Bearbull 10]

Sorry Bearbull, but no where in your reply could I find something related to the two identical charts I posted. Talking about what I should or should not do, doesn't change the fact on what I see in front of me.

 

Once again understand your frustration which actually stems from the fact that the market is not behaving as per your expectation based upon a pattern or an indicator be it VSA or a price based derivative. or S/R or

Trendline.

 

1. If you reflect on this with an open mind, the message is loud and clear, the price is going to do what it is going to do. It cannot be dictated just because something on our chart(RSI, CCI divergence, head and shoulder, VSA no demand and upthrust, moving average crossover, doji, engulfing bar etc) tells us that the market should go up or down.

 

2. For any indicator or pattern , there will always be two identical examples , one which panned out and other did not. This has to do with the inherent uncertainty and probability of outcome in the market. It is logical to ask why did demand or supply emerge at a particular location but illogical to expect it to emerge there just because the indicator or the pattern on my chart says so. It is like shouting out: what right the buyers or sellers had to come out at this price and time. and take the prices in the wrong direction:crap:

 

3. If you study Wyckoff's analysis (believe the pdf file is on this thread) of a year's price action, you will consistently note how he is detached from the outcome, the entry is taken based upon his reading of price/vol, then he looks for ongoing signals which will confirm, or contradict his trade or force him to modify as the trade is managed.

 

4. It is going to take a while to reach this stage of detachment where one approaches the market without fear or anxiety and allow the market to dictate your action. Hence the need for the exercise with 15min charts etc which I suggested. It is not a question of singing anybody's tune, I have gone through the same stages and finally it dawned that the answer is not out there but in the charts themselves. It will put you in the driving seat, in control, not of the market but how you manoeuvre, if there is a diversion, you follow that path without resisting, think Db posted an excellent analogy of being a passenger on a bus somewhere, worth looking it up.

 

5. You mentioned the 2 identical chart patterns, actually you are looking at different time frames, 5min and 1min, and that is why I directed you to look at both the setups on 5min, so the answer was there. We are all looking at the same price action, as you say what is in front, but interpretation is based entirely on what we have been taught/observed and what we believe and expect. Surely you can appreciate that.

 

Anyway I will make another attempt via the attached:

 

1. NQ 5min (a) 2 arrows showing climatic vol, this has been the ongoing problem for the past 6years with VSA tutoring, and has been ingrained in many mindsets, wait for a no demand, upthrust, short and vice versa.

 

In the chart the first trendline (black) is broken following just such a no demand and yes you could have shorted but then prices find support at 1970 , here the bars are narrow with low vol, then the market reacts up once again with low vol, NQ 5min (b), if there was supply, how could the prices go up on low vol, the demand must be of good quality, hence this was absorption . Hence you have to modify your stance and go with the flow of the market.

 

 

2. Once the prices rise above the swing high, the second trendline (blue) can be inserted. and price action read in a similar manner. (NQ 5min © (d)),

prices rise after retracement on low vol, why? there is no supply in this instance, but yes there will be cases when it encounters resistance and prices will plummet, and VSA team will point out that as no demand , their

ideal setup.

 

3. Now we move on the next day 7th May, the short around 2000 which has led to all this controversy. NQ 5min (e), again the black trendline is from previous day, you can take the previous days low and draw a new trendline (blue) after the prices break the previous day's high.

And again a new trendline on the day (brown). Now compare the price action and the bar ranges once this trendline is broken to that observed around 1990, zoom into 2min or 1min and study, am sure you will find it a revealing and rewarding exercise.

 

This is the best I can do.

[Bearbull 10]

More charts here, Zeon

[DbPhoenix 42]

Very nice, Bearbull. I find myself wondering whether anybody is getting this or not and then you provide such a well-thought-out analysis.

 

Today provided (and is providing) excellent examples of having to modify one's approach according to traders' zigs and zags rather than glue oneself to mechanical trade-by-number. I'll post something later if I have time.

[DbPhoenix 42]

First, an overview of yesterday's move and what had been the various potential support levels:

 

[DbPhoenix 42]

The when and where and how to short has been addressed. What is presented here addresses what is required as a prelude to today's trading.

 

Once one has taken the short, there's no need to do anything else other than wait for a test of support, unless of course the short is stopped out, but, again, that is not the subject here. Volume can be ignored because without any sort of test, it's irrelevant (as Bearbull explained so well earlier). Once the first "counter-wave" has completed itself, a supply line can be drawn:

 

[DbPhoenix 42]

When price resumes its decline, volume rises on the downmoves, but even when the first level of potential support is reached, the volume doesn't even approach climactic. In the meantime, the supply line can be extended:

 

[DbPhoenix 42]

Price eventually breaks the supply line, but there's nothing remarkable about the volume, and price doesn't come anywhere near approaching the previous swing high, much less breaking it:

 

[DbPhoenix 42]

Price then resumes its decline and volume becomes climactic. However, even though price breaks the newly-extended supply line, it does not break the previous swing high. Nor is price anywhere near the next potential support level of 1970. All of this constitutes continued weakness.

 

[DbPhoenix 42]

Price continues its decline and volume is again "climactic". Even more so. But, again, price doesn't even come near the supply line, much less the previous swing point:

 

[DbPhoenix 42]

Price now reaches the next potential support level at 1970. Since the angle of decline is greater, an additional, more form-fitting supply line is drawn. Volume is again "climactic" and the "test" is on lighter volume, a seeming classic buy signal given that all of this is taking place at potential support.

 

However, even though price breaks this new supply line, it breaches the previous, minor swing high by only a couple of ticks, and there's no "bullish push". The experienced Wyckoff trader takes note of all of this and exits his long, if he had taken it at all.

 

[DbPhoenix 42]

Now we approach the next potential support level, the midpoint of the upmove on the 1st, and the trader begins paying attention to volume again.

 

Here the angle of decline increases again and a new supply line is drawn (the experienced trader knows that as these angles become more acute, the probability of their being broken increases), but even though volume becomes increasingly "climactic", price doesn't break the supply line, much less reach the previous swing high. A new element is a general increase in volume throughout.

 

[DbPhoenix 42]

We now get to the next level of potential support, and volume is again "climactic". But even though price breaks the newest supply line, it does not reach the previous swing high, nor does it break the prior supply line. The effort becomes a new -- though not higher -- swing high and the previous supply line is extended. Price continues its decline.

 

[DbPhoenix 42]

Now to the next level of potential support, and we're running out of time. Price hits 1950, again on "climactic" volume, breaks the supply line and breaches the previous swing high. This attempt fails, but, this time, price makes a higher low, tries again, and holds above the previous swing high.

 

 

Whether a trader goes long at the test of 1950, at the break of the supply line, at the breach of the previous swing high, at the higher low, at the second breach of the previous swing high, or anywhere else inbetween is not Wyckoff's problem. It's up to the trader to decide based on his sensitivity to and analysis of market forces, on his risk tolerance, and on his skill.

 

In any case, this is how we begin today (which I'll get to later).