Trading The Wyckoff Way

[firewalker 10]

Yesterday there was an upthrust in the Nasdaq and the Dow. There was also an upthrust of sorts in the SPX, but there've been so many over the past few weeks that they are forming their own base .

 

Whatever these thrusts mean in and of themselves does not matter as much as where they are occurring, i.e., against important, previous support. Therefore, both intraday and EOD traders would do well to concentrate on how price behaves at this particular juncture.

 

As the resident Candlestick guy, I'll tell you that just finding a shape and calling it a reason to trade is exactly why candlestick analysis does not work for some. B/c that's a completely inaccurate way of using them. :doh:

 

The topic of this thread seems to encompass a broad range of interesting elements.

 

Brownsfan, as you're the "resident Candlestick guy", would candlestick analysis tell you to take the upthrust on the NQ as a short signal? It was on decent volume and into previous support (context). Seemed pretty good to me, but I'm not an EOD trader. Intermediate trend still up though.

 

Has anybody else observed that there seem to be a whole lot more of "one-way days" then before? Or is it just my perception?

[DbPhoenix 42]

The topic of this thread seems to encompass a broad range of interesting elements.

 

I hope so.

 

Has anybody else observed that there seem to be a whole lot more of "one-way days" then before? Or is it just my perception?

 

I stopped keeping records of this sort of thing some time back, but daily ranges are twice what they used to be, and the number of trend days has dramatically increased. It's been suggested that two-thirds of the trading days end up in the quartile opposite to where they began.

[firewalker 10]

 

I stopped keeping records of this sort of thing some time back, but daily ranges are twice what they used to be, and the number of trend days has dramatically increased. It's been suggested that two-thirds of the trading days end up in the quartile opposite to where they began.

 

I remember February last year, at a certain point the daily range contracted to around 10 points on the NQ. On some days even less than that. But that was before the correction. Nevertheless amazing to see 40-50 point days.

 

Contraction and expansion in volatility is normal I suppose, but the sudden increase in trend days seems odd. Not that I care a lot about the underlying reasons, but did Wyckoff or anybody else have something to say about this? I believe Steenbarger wrote something about it too in his blog recently...

 

Btw, do you still use the daily range as a potential warning signal the intraday move has exhausted? Had a look at your blog and I did notice some new elements (TICK for example)... a lot of new material to digest, that's for sure.

[DbPhoenix 42]

I don't recall W saying anything about it specifically. One can infer certain things, but I've seen inferences become axioms, and that can lead to all sorts of trouble. One can infer, for example, that the "smart money" hasn't a clue, which helps to explain a lot of what's been going on. But there's not much one can do with that unless he can become especially sensitive to volume surges, breakouts, and fades. There have also been very good trades on both the long and short sides in what anybody would call very dull markets. So, again, one has to be sensitive to flow and pay little or no attention to individual bars.

 

One of the few rules-of-thumb that appear to hold up is that one can't expect one trend day to follow another in the same direction. There has to be a rest of some sort at some point, even if it's only a turn in the opposite direction (e.g., the /\/ pattern we've followed the past three days).

 

As for the daily range, no. As I understand auction market theory better, I rely more on support and resistance. Auction market theory also adds another level to Wyckoff, which enables me to become more sensitive to flow. A side-effect to this is that I don't trade as much, which can be a good thing or a bad thing, depending on how one looks at it.

Edited February 9, 2009 by DbPhoenix

[DbPhoenix 42]

Edit: Incidentally, you posted something about bias. If one looks at market internals and the behavior of small, mid, and largecaps, it's difficult not to acquire a bias. However, it is absolutely essential that one remember that the market can be irrational for far longer than one might believe. Therefore, one must focus on what's there, not on what one expects to be there or wishes to be there.

 

The "smart" money is not any smarter than anybody else. There's just more of it. So when the elephants are swaying back and forth or wandering in a circle or taking a nap, one must be sensitive to that and not make more of it than it is. And if one gets tired of waiting for the mouse and decides to hang it up ten minutes before the big stampede that begins as soon as they've left the room, that's okay too. One can't trade well if he's so bored that his eyes are beginning to bleed.

[DbPhoenix 42]

Regarding the various "upthrusts" and why they didn't make good shorts today, it may help to set aside overhead resistance for the moment and look at the trend, or "stride".

 

Note here that even though the YM and ES are struggling, they are also each coming off their respective demand lines. And while they have been unable to maintain their strength since mid-April, they nonetheless remain in uptrends in this interval.

 

 

 

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As for the NQ, note that its demand line has altered its course.

 

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Keep in mind that resistance is not a line but a zone. And that the herd is always right. Except at turning points.

 

 

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[Kiwi 16]

"Keep in mind that resistance is not a line but a zone. And that the herd is always right. Except at turning points."

 

I don't know if you've read the wisdom of crowds but its worth adding to your late night reading pile. One thing I found interesting was a distinction made between situations when crowds are wise and situations when they are not. Crowds are wise when they vote individually - wiser than the individuals. Crowds cease to be wise when they start paying attention to what everyone else is doing the ultimate expression of which is group-think. Does that remind you of anything

 

A comment on volume and Wyckoff. I never got volume. I kept trying. For years. And I still didn't get it. I think my problem was that I tried to assign too much importance to it, vsa like, and it wasn't until I'd read a million of dbphoenix's sometimes irritatingly vague posts and peoples sometimes frustrated questions that I started to get it. Now volume is an integral part of my trading and the most useful thing it does is keep me out of trades I would have taken without the little clues that volume adds to the pattern of price movement.

[DbPhoenix 42]

 

A comment on volume and Wyckoff. I never got volume. I kept trying. For years. And I still didn't get it. I think my problem was that I tried to assign too much importance to it

 

See post 387.

[Bearbull 10]

"Keep in mind that resistance is not a line but a zone. And that the herd is always right. Except at turning points."

I think my problem was that I tried to assign too much importance to it, vsa like, and it wasn't until I'd read a million of dbphoenix's sometimes irritatingly vague posts and peoples sometimes frustrated questions that I started to get it. Now volume is an integral part of my trading and the most useful thing it does is keep me out of trades I would have taken without the little clues that volume adds to the pattern of price movement.

 

Yes patience, persistence and effort pays off with wyckoff and db's posts in the end, when I first started with candlestick charting , I went through similar phase, thought I had discovered the holy grail, all I had to do was to identify engulfing patterns, doji, morning , evening star etc and money would roll in, took some time to learn the importance of context, same is happening in the VSA world, to the newly so called enlightened wannabe traders who have emerged out of the 3 recent weekend seminars on VSA armed with the ability to read all the footprints of the smart money, mulling and chewing of every upbar and downbar. When an effort is made to point out the fallacy and the divergence of VSA from its original source Wyckoff, instead of engaging in productive discussion, it is looked upon as an attack on their Gurus teachings and in turn they try to teach you the right way of trading, sometimes I wonder how Db manages to persist and keep on casting pearls..............and putting up with the aggro.:crap:

[gassah 10]

When an effort is made to point out the fallacy and the divergence of VSA from its original source Wyckoff, instead of engaging in productive discussion, it is looked upon as an attack on their Gurus teachings and in turn they try to teach you the right way of trading

 

I find it strange. People with more experience are offering advice after having been through the exact same material and it's looked upon as hostile. If somebody in my field (medical) acted that way after coming out of residency with another person who had years of experience they'd be laughed at and ignored. That rarely happens though because you'd have to be a fool not to pay attention to somebody who's been around the block.

 

You guys made a valiant effort and have probably helped winnie at least.

[firewalker 10]

This is how I see it. Haven't gone through the whole thread yet, but I suspect similar charts have been posted before. Big hinge formed in January/February, which broke out to the downside. The midpoint of the hinge seems to be the starting point of a move up. Since the March low we haven't really seen anything other than higher highs and higher lows. The red supply would indicate than price isn't even overbought. And, as illustrated in your post, the demand line has taken a steeper angle. I'm not sure what all of this means 'in the big picture' but I can't deny the fact that (a) the bulls have regained two thirds of the move down in a relatively short period and (b) the March low looks like a re-test of the selling climax in January, and © the downtrend line is broken. :hmpf:

 

 

Regarding the various "upthrusts" and why they didn't make good shorts today, it may help to set aside overhead resistance for the moment and look at the trend, or "stride".

 

The blue rectangle is where I expected some sort of pause, and in fact I believed the upthrust two days ago to be a sign of rejection. That's why the U-turn yesterday came as a relative surprise and got me trading on the wrong side.

 

One of the few rules-of-thumb that appear to hold up is that one can't expect one trend day to follow another in the same direction. There has to be a rest of some sort at some point, even if it's only a turn in the opposite direction (e.g., the /\/ pattern we've followed the past three days).

 

Whenever a nice trending day presents itself, I suspect the next day to be more of a ranging one and am cautious about intraday reversals. Lately however, it seems there's only one way of catching the whole range, and that's by leaving at least something of your position on till the end of the day. Yesterday was pretty straightforward imo, if you got the right entry from the start that is... Red dot is short entry(*).

 

 

Price started off in the right direction, but paused immediately. The congestion led to a change in the demand/supply equilibrium, on which price reversed and I stopped myself out for a small loss. I'm still wary of SAR, so I stood aside and waited for a later entry but I don't like taking trades late in the day. I also had +/- 1990 as support.

 

I've circled a setup from my early days. Upthrust (or a shooting star in candlestick analysis) at potential resistance. High volume too, if you plot it. Doesn't this constitute as a short signal as per VSA? Anyway, demandline not broken, so it's a lower probability trade.

 

 

______

 

(*) My actual entry was on the YM, but the principle is the same, I used an NQ chart because that's the instrument you trade.

[DbPhoenix 42]

This is how I see it. Haven't gone through the whole thread yet, but I suspect similar charts have been posted before.

 

Unfortunately, the thread may already be too long. It's unreasonable to expect newcomers to plow through hundreds of posts, many of which may not even be especially pertinent. Splitting all of this into multiple threads is a possibility, particularly if its popularity continues (it's become the most-viewed thread in the TA forum, after VSA).

 

I've circled a setup from my early days. Upthrust (or a shooting star in candlestick analysis) at potential resistance. High volume too, if you plot it. Doesn't this constitute as a short signal as per VSA?

 

Given the several varieties of VSA, I really can't say. However, VSA and Wyckoff have little to do with other. VSA is about bars; Wyckoff is not. VSA also takes an entirely different view of the market environment than Wyckoff does. This is not unlike the difference between those who obsess over candlestick patterns and candlestick names and candlestick shapes and those who see candlesticks as illustrations of market dynamics and price flow.

 

Wyckoff would have you "ride the wave". As long as you got in at the correct point, you'd ride the trend until it was broken, or at least changed its character. If you didn't get in at the correct point, you'd still have to be aware of it and determine any subsequent entry based on where that correct entry was, then trade as though you were pyramiding. The market doesn't know whether or not a trader missed the correct entry and couldn't care less. Thus the landscape doesn't alter itself for him just because he wasn't around when the low-hanging fruit was ripe for the picking. Entering later also carries implications for the width of the stop, and though one may feel like a Grade A putz for having missed the correct entry on a trend day, standing aside may be the best option for the account balance.

[DbPhoenix 42]

Lately however, it seems there's only one way of catching the whole range, and that's by leaving at least something of your position on till the end of the day.

 

Addendum: about this, see post 207.

[DbPhoenix 42]

Knowing how much people love my cajas famosas, here is what I'm looking at now. Those who've followed from the beginning will recognize this as an amalgam of several POVs previously posted.

 

Edited May 16, 2008 by DbPhoenix

[gassah 10]

Wondering if the US $ will resume the downtrend?

 

 

There appear to be simultaneous potential FX setups to possibly take advantage of this on the dailies:

 

Longs:

• AUDUSD breaking out?
  
• EURUSD springing?
  
• GBPUSD off support?
  

 

Short:

• USDJPY top of channel
  

[DbPhoenix 42]

Given the popularity of this thread and that it has reached a length that discourages all but the most devotedly curious from reading all of it, and due to the variety of topics contained within this one thread, James has graciously allowed us to tranform the thread into a forum.

 

As a forum, the essentials can be made into Stickies and easily found and accessed. And the various aspects of Wyckoff's approach can be discussed separately, making life easier for those with special interests. Gassah and I are the moderators and will be initiating threads that are of interest to us. However, anyone who wants to pursue some particular aspect of Wyckoff's approach is welcome to open a new thread himself.

 

Now that the thread has "opened up", it will now be closed.

Edited March 2, 2013 by DbPhoenix

[DbPhoenix 42]

Since you are talking about waves, it could be interesting, what happend since 2000. I compared the downmove from the high to the low in October 02 with the upwave to October 07. This upmove last nearly two times longer than the preceding downmove. Volatility increased since the last high and in this view it's doubtable, if the 1250 lows forms a long term bottom. If I'm correct in Db's interpretation of support and resistance, the we have resistance at 1555 and support at aroung 800. To mitigate the worse scenario, we need now a rally up.

 

 

Swing points provide a form of support and resistance, yes, but it's somewhat different from the support and resistance provided by zones. The "resistance" provided by points, particularly if they are isolated, is provided primarily by the inability of the trader to find a trade (which, after all, is the business of the trader). There's nothing going on up there, or down there, so price returns back to an area where these trades can be found, which is where the "value area" comes from.

 

In a V formation, price never stays anywhere long enough to provide these zones, and one is equally likely to find a trade at point A as point B or C or any other point. Since the ES has reached that top zone twice now, the resistance it provides is a bit more formidable than a single point. But whether we make a trip all the way down to the bottom is anybody's guess. If you'll look closely at this particular chart, what appears to be a V has some of those value areas or consolidations within it. 2004 was spent going more or less sideways, then the first half of 2005, then the second half of that year, then a little more than half of 2006. Each of these represents a potential waystation. We're at the first of them now.

Edited February 6, 2013 by DbPhoenix

[DbPhoenix 42]

This is a catch-all thread for general Wyckoff questions that don't quite fit anywhere else.

Edited March 8, 2013 by DbPhoenix

[mister ed 10]

Db - would you not prefer the questions in the "Riding the Wyckoff Wave" thread?

[cantana 10]

Concerning the charts at the end of the PDF “Determining the trend of the Market”.

 

These price bars has the “close” only, no “open” hash mark. For some reason W felt the open was not an important piece of information, or at least not important enough to record it.

 

So I'm thinking to myself, Why wasn't the “open” price important?

It might be that, at the time there was not the gamesmanship of gaping the opening price outside the previous days range, resulting in triggering the EOD orders at an unfavorable price. Or,

 

Maybe, a open price, had no importance to the overall story the market is telling?

 

Anyway, I know the “opening” price is significant to a modern day traders plan of action, Maybe the “open” is not so important to EOD traders?

[DbPhoenix 42]

Good question, sulong (I was afraid the first question might be something along the lines of "Did W wear boxers or briefs?"). And I don't want to pundit the answer because I really have no idea, and there are some awfully smart people in this neighborhood.

 

It may help to keep in mind that these charts were done by hand (though they may have been provided by a service). Therefore, one would include only that information that he considered to be important, as today. Ergo the open price may not have been considered to be all that important (I know the logic here is a stretch and that there may be other possible conclusions). It may also help to keep in mind that W was not about bars but about flow, or "waves" (but you knew that). He was also about energy, and balance, and he would more likely have been interested in who won the daily contest than in what the relative positions of the players were at the beginning of the contest. Whatever follow-through there might be the following day would be told by the high and the low.

 

All this is just conjecture, though. I'll have to chew on this some more. The answer may be embarrassingly simple.

[firewalker 10]

How about Gann ? Wasn't he one of their comtemporaries ? Besides his writings, his amazing trades were verified by the Ticker magazine back in 1909. I guess nothing is popular with the TL crowd here unless it has something to do with volume ?

 

Actually, Wyckoff seems to have thought that Gann was pretty hot stuff, which I found surprising (and I should have included Elliott). But perhaps this could be addressed in the new Wyckoff Forum rather than the VSA thread (what you quoted was posted before the new forum was created).

 

I thought the above was an interesting question.

 

Especially since so many Gann followers seem to depart from the belief that it IS possible to predict the markets. Although I can honestly say I have not studied anything Gann related in depth, it seems like some of the foundations are similar to Wyckoff (supply, demand, support, resistance, trendlines), with one extra layer, being the 'time' factor...

 

OAC, Perhaps a reason why so little Gann talk is to be found, is because there are 'issues' about his 'credibility' (the use of astrology for example), where I believe there weren't any about Wyckoffs.

 

This might be interesting, Gann interviewed by Wyckoff:

http://www.tradingfives.com/gann/wd-gann-interview-1909.htm

[DbPhoenix 42]

Since Gann may not be "Wyckoff-related", perhaps opening up a Gann thread elsewhere in the TA forum might be the way to go. Perhaps someone who's actually read one or more of his books (I haven't) might then shed some light on the subject.

[erierambler 10]

Good question, sulong

Ergo the open price may not have been considered to be all that important (I know the logic here is a stretch and that there may be other possible conclusions). It may also help to keep in mind that W was not about bars but about flow, or "waves" (but you knew that). He was also about energy, and balance, and he would more likely have been interested in who won the daily contest than in what the relative positions of the players were at the beginning of the contest. Whatever follow-through there might be the following day would be told by the high and the low.

 

All this is just conjecture, though. I'll have to chew on this some more. The answer may be embarrassingly simple.

 

Could the possible answer be that Wyckoff was not about intra-day trading?

erie

[DbPhoenix 42]

Could the possible answer be that Wyckoff was not about intra-day trading?

erie

 

Actually, he was. He wrote the Day Trader's Bible, which is posted to the Introduction, as well as including a tape-reading segment to his course.