Trading The Wyckoff Way

[brownsfan019 17]

I do. Why would I mess with it otherwise? But it's not easy. Simple, but not easy.

 

I showed in the Cajas Famosas thread what I'll be looking at tomorrow morning. I'll short a choke at 40 or buy a break thru it. That's about it. If it doesn't test 40 at all, I doubt I'll do anything unless it tests 10 again. I have no idea what our friends will do .

 

BTW, how come the CC is so quiet?

 

I see. What would be interesting would be track some real trades as a number of us have done throughout the CC.

 

As for the CC, it was just like what you've done here - very active in the beginning (when I really put time into it) and then it died down. I have no desire to constantly be the one updating threads or creating new ones. Hopefully your new area will gather a loyal following to keep you busy DB.

[brownsfan019 17]

I'm sorry DB, help me out - where exactly does it say here what you are doing tomorrow in terms of actual trades? I'm really interested to follow your new area and per our discussion here, I came to the thread you referenced but my simple mind did not find where you laid out the actual trading plan for tomorrow.

 

Something simple for us simple minds would be great... example:

 

I will short if XYZ happens.

 

I will go long if ABC happens.

 

Just to eliminate any confusion, that's all.

[DbPhoenix 42]

If price rejects 40, I'll go short. If it gets there and hovers around that area without rejecting it, I'll look to go long if price breaks through. Ditto at 10. If it doesn't do any of this, I see no reason to take a trade at all. A lot depends on what the volume looks like at the test, if such a test takes place.

 

I should also point out that only one other person trades the NQ intraday, so I probably won't be posting this stuff more than once a week. Gassah, on the other hand, trades EOD and may address that elsewhere.

 

Edit: Nic has now initiated his EOD thread.

Edited May 19, 2008 by DbPhoenix

[brownsfan019 17]

Does the instrument being traded matter? I mean, do the ideas carry over to the ES, YM, etc? If so, I don't see why it would matter who else is actually trading along with you as the important part here is to see actual trades being done. IMO that is where most threads fall short - failure to provide actual, real-time trades.

 

We've both seen those magical, after-the-fact journals over at ET and it would be a nice change to see a forum area here show real trades with real traders being done.

 

As a new person to your concepts, that would be vital to me - seeing the book stuff reproduced in real-time with real trades. I'm an admirer of your work DB and I would like to learn more, but I know for guys like me, the proof is in the pudding. And here, the pudding is providing REAL-TIME analysis and trades, not after-the-fact charts.

 

Thanks for sharing and entertaining my ideas.

[firewalker 10]

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.

 

I believe he said:

 

"A pure tape reading day trader does not care to carry over night. The tape is then silent, and he only knows what to do when it tells him. Something may occur at midnight which may crumple up his diagram of the next day's market. He leaves nothing to chance; hence he prefers a clean sheet when the market gong strikes."

[DbPhoenix 42]

The purpose of the thread is not to show what a great trader I am, or nic is, or whoever. It's to explain W's approach and how to apply it. If after going through the thousands of posts and charts and examples an interested newcomer to it still has no idea how to locate support and resistance or determine the trend or locate a lower high, then I've wasted my time.

 

Firewalker and wasp have initiated a real-time trades thread that has attracted several participants. Perhaps that's what you're looking for. I personally don't learn anything from the "short at 40, stop at 41" type of post, but a lot of people enjoy that, and that's great. But as for teaching somebody how to trade, that requires more time and effort, and I myself can't concentrate on my trading when I'm typing messages to people. For one thing, I just don't have the spare real estate on my screen.

 

As far as detail, I've already provided more than James did with "all in at ES 1400", but I haven't heard anything since. If you want more detail than that, perhaps you could be more specific as to just what it is that you're looking for. Do you have no idea what to look for when price approaches support or resistance? Or do you just want me to tell you if and when I've entered a trade and at what price? Whether the trade succeeded or failed, would that tell you something about me or about the approach? If I fail to use candlesticks appropriately, does that mean that candlesticks are crap?

 

I've explained in detail ad nauseum what I look for. I could be extremely mechanical (short stop-limit two ticks below the bar after a single print at 40 with a stop one tick above the bar blah blah) but what is there to learn from that? Either I take it or I don't, but either outcome is my choice and says nothing about the approach.

 

There are approaches that make little or no sense, and we needn't name names. If this approach makes little or no sense to you, I can try to provide specific answers to specific questions. If all you want to know is where I've gone short and where my stop is, I can do that, but I don't know what anybody is going to learn from it.

 

If none of that is satisfactory either, there are two weeks' worth of real-time application with suggestions for entries and exits in my blog. And if even that is not enough, perhaps nic can provide what you need.

Edited February 6, 2009 by DbPhoenix

[erierambler 10]

Does the instrument being traded matter? I mean, do the ideas carry over to the ES, YM, etc? If so, I don't see why it would matter who else is actually trading along with you as the important part here is to see actual trades being done. IMO that is where most threads fall short - failure to provide actual, real-time trades.

 

Thanks for sharing and entertaining my ideas.

 

Even then someone else could trade differently using the same ideas as Db or who follows the principles of Wyckoff. I trade the ES. I took a short position at the end of Friday's trade , looking for weakness to present itself this morning with the reasoning that the high of Friday was already a test and the close was a lower high. Should price hold here this morning I will get out quick. So you can't get any more real time than that, for now. I would get back in the trade on the test of the high. I can attest to Db's trading acumen as to what he says he trades as I have been in a trading room with him.

erie (who doesn't reveal too much of his trades)

[brownsfan019 17]

DB - as my post said, what would be a great compliment to what you've done here is provide real examples from real trades. You've laid the groundwork with all the theories and book ideas, now letting us see how this works in a real-time environment is the next logical step IMO.

 

That's it. That's all I was saying. The groundwork is laid, now show the reader how and when to apply this in real-time to the markets. That would be the next logical step in the education process, would it not?

 

And like I said - it would provide some substance that many forums simply do not - the art of actually trading.

[DbPhoenix 42]

Assuming that you'd like to know more than where I entered the short and what my stop is, what would you like to know that is not included in the Dailies in my Blog?

Edited February 6, 2009 by DbPhoenix

[rsi 10]

Well. I have a question with regard to Point and Fugure charts. I am still studying Wyckoff method.

 

I have read that Wyckoff was using Point and Figure charts to estimate price target. Am I right?

 

If the answer is yes, then I have a suggestion. How about starting a seperate thread on teaching Point and Figure charting methods, its uses and its benefits etc.? I am quite sure, there will be many members who are eager to learn these aspects. I must confess, I am yet to learn this method of charting.

Thanks in advance and regards

[DbPhoenix 42]

Well. I have a question with regard to Point and Fugure charts. I am still studying Wyckoff method.

 

I have read that Wyckoff was using Point and Figure charts to estimate price target. Am I right?

 

If the answer is yes, then I have a suggestion. How about starting a seperate thread on teaching Point and Figure charting methods, its uses and its benefits etc.? I am quite sure, there will be many members who are eager to learn these aspects. I must confess, I am yet to learn this method of charting.

Thanks in advance and regards

 

I asked nic about that just a couple of hours ago since he knows far more about it than I do. Unfortunately, he's very busy at work and doesn't know when he'll get to it. But he will get to it eventually.

[gassah 10]

then I have a suggestion. How about starting a seperate thread on teaching Point and Figure charting methods,

 

I'm working on it.

[firewalker 10]

Firewalker and wasp have initiated a real-time trades thread that has attracted several participants. Perhaps that's what you're looking for. I personally don't learn anything from the "short at 40, stop at 41" type of post, but a lot of people enjoy that, and that's great. But as for teaching somebody how to trade, that requires more time and effort, and I myself can't concentrate on my trading when I'm typing messages to people. For one thing, I just don't have the spare real estate on my screen.

 

As my name has been mentioned, I'd just like to say that I agree that the posting of live trades will most likely not help anyone else to trade profitably. In fact, I'd rather suggest against using it to learn how to trade, because there's no point in following what anybody else does, or did, if you don't understand the "why". But all that has been laid out here.

[DbPhoenix 42]

The following chart is of the ES.

 

 

 

The story is not just in the trading ranges nor in just the trend or -- if it forms -- the trend channel. The trading ranges, or PV "clusters", tell you where traders are finding trades and where the extremes of each of these zones are. The trend, or "stride", tells you how strong or weak the overall movement is and also warns you of potential changes in strenghth or weakness, i.e., changes in momentum.

 

Here, for example, price struggles to move higher with regard to vertical movement, but it's also hugging the trend/demand line. It can maintain this course for quite some time, but it clearly is not as exuberant as it was.

 

And the micro:

 

Edited December 29, 2012 by DbPhoenix
update

[gassah 10]

The attachments will get us started. The first one is from Wyckoff, Section 4.

[Note: see also W's book on daytrading, attached to the Introduction to the forum]

Figure Charts.pdf

Schroeder PnF.pdf

Edited January 14, 2009 by DbPhoenix

[DbPhoenix 42]

Since my posting these rectangles, or "boxes", in a separate thread appears to have created more confusion than clarity, I'll be posting them here since they are at bottom about support and resistance.

 

Again, in terms of Wyckoff, what all this illustrates are the trading ranges (the shaded rectangles, similar to the MP "Value Area"), the support and resistance that they provide (whether at the extremes or throughout the trading zone), the midpoints of these ranges (which represent the "equilibrium" level which price seeks -- similar to the MP "POC" -- and which help gauge strength or weakness when price either breaches or doesn't breach these levels), the levels at which demand and supply enter the equation (blue=demand, pink=supply), and the overall "stride", or trend. Hinges are also plotted when they occur.

 

This is the macro for the ES:

 

 

The story is not just in the trading ranges nor in just the trend or -- if it forms -- the trend channel. The trading ranges, or PV "clusters", tell you where traders are finding trades and where the extremes of each of these zones are. The trend, or "stride", tells you how strong or weak the overall movement is and also warns you of potential changes in strenghth or weakness, i.e., changes in momentum.

 

Here, for example, price struggles to move higher with regard to vertical movement, but it's also hugging the trend/demand line. It can maintain this course for quite some time, but it clearly is not as exuberant as it was.

 

And the micro:

 

Edited May 20, 2008 by DbPhoenix

[DbPhoenix 42]

Given the confusion over the purpose of this thread, I'll be posting these charts in the Support and Resistance thread and am closing this one.

[Sledge 13]

I have dabbled with P&F charts and although every site I went to said "These are so simple to use" I know there is plenty more than that. I welcome a nice in-depth discussion of these charts as I am as green as grass with them. Hoping we can get some seasoned P&F chart users to give this thread a go!

Sledge

[DbPhoenix 42]

I hope those who are following this understand that the boxes are drawn around areas of price congestion (and that volume will of course be greater within these areas because that's where most of the trades are taking place) and that price does not congest in a certain place simply because I've drawn a box there. In other words, keep the horse before the cart.

 

Also understand that these charts are dynamic. As the chart tells me over time that one area is important and another is not so much, I may modify prior boxes or even delete them. It all fits because of where traders are finding value and where they used to find value.

 

Given all of that, it's important not to get too wrapped up in the micro. Therefore, I've provided two charts, one the usual, and another following which shows the major PV congestion zones within the micro. If that makes any sense.

 

Those of you who've been following along know that the midpoint of a move was important to W. Clearly there are good reasons why.

 

 

And the three longer-term (12 days +) zones:

 

 

The ES has two:

 

Edited May 20, 2008 by DbPhoenix

[JT_E 10]

thx for updating these charts, I can compare my updates with yours, I'm getting closer, still subtle differences though .. I must say my charts have cleaned up, don't have lines all over the place any more. JT

[karim0028 10]

Yeah, i gotta say i appreciate these charts as well... As i am beginning to find the importance of midpoints. Its eerie how price/traders pay attention to the midpoints.... Now i just sort of plot and watch...

 

Great stuff!

[DbPhoenix 42]

You can thank auction market theory. But I find these easier to read and understand than Market Profile charts, especially when I'm looking at interactions across time.

 

I read somewhere recently -- and can't remember where -- having to do with Market Profile, I believe -- that most experienced traders will avoid trying to catch the tops and bottoms and focus on "the middle", waiting for confirmations to enter and confirmations to exit. However, since "the middle" is by definition where most of the trading is going on and is largely non-directional, there is also a lot of whipsawing in the middle, and that generates a lot of losing trades. One can sometimes avoid this by widening the stops, but, since the market always teaches us to do what will lose the most money, this will turn out to be an unproductive tactic.

 

The safest and generally most profitable trades are found at the extremes. Therefore, you wait for the extremes. Wyckoff used a combination of events to tell him when a wave was reaching its natural crest or trough: the selling/buying climaxes, the tests, higher lows/lower highs, and so on, all confirmed by what the volume was doing and by the effect the volume had on price (effort and result). As a result of this work and of his exploration of trading ranges, he developed the concepts of support and resistance along with their practical application. Auction Market Theory (AMT) takes these investigations into support and resistance further, an “organic” definition of support and resistance like Wyckoff’s, that is, determined by traders’ behavior, not by a calculation originating from one’s head or from a website somewhere. Determine whether you are trending or “balancing” (ranging, consolidating, seeking equilibrium, etc), determine the limits of the range (support and resistance), and you’re in business.

 

The notion of support and resistance has been and is the missing piece for many market practitioners. One can try to hit what appear at the time to be the important swings again and again and be stopped out again and again, hoping all the while that once one hits the true turning point, all the effort will turn out to have been worthwhile and the P&L will change from red to black. But by waiting for the extremes, one avoids most or all of those losing trades, and, even more important, avoids trading counter-trend. These boxes -- which are simply a graphic variation of the Market Profile distribution curve, whether skewed or not, or of the VAP (Volume At Price) pattern -- are nothing more than a means of locating those extremes. What I've found more useful about them is that they are encapsulated by time, i.e., the price and volume ranges have a beginning and an end. This enables me to see at a glance where the important S&R are, or at least are likely to be. Without them, one ends up with line after line after line until the S/R plots become a parody of themselves.

 

All of this can be very confusing to someone who’s learned to view the market in a different way, perhaps less so to someone who’s just starting since he has so much less to unlearn. But backing up to the basic tenets of AMT, as well as to the concepts developed by (and in some cases originated by) Wyckoff, one can perhaps find a solid footing and proceed from there.

 

To begin with, in the market, price is often not the same as “value”. In fact, one could say that since the process of “price discovery” is a search for value, they match only by accident, and then perhaps for only an instant. Blink and you missed it. Add to this the fact that for all intents and purposes there is no such thing as “value” but rather the perception of value. After all, what is the “value” of, say, Microsoft or GE or that little stock your stylist told you about? This state of affairs may seem like a recipe for chaos, but it is in fact the basis for making a market, that is, reconciling the differences – sometimes extraordinarily wide differences – in perceptions of value.

 

As Wyckoff put it, if a stock (or whatever) is thought to be below “value” and a trader or group of traders see a large potential for profit ahead, he/they will buy all they can at or near the current level, preferably on “reactions” (or pullbacks or retracements), so they don’t overpay. If the stock is above what they perceive to be value, they'll sell it (or short it), supporting the price on those pullbacks and unloading the stock on rallies until they are out (or as much out as they can be before the thing begins its downward slide). “This”, he writes, “is why these supporting levels and the levels of resistance (a phrase originated by me many years ago), are so important for you to watch.” When price then begins to lose momentum and move in a generally sideways direction, you’ve found “value” (if value hasn’t been found, then price won’t stop advancing or declining until it has). Value, then, becomes that area where most of the trades have been or are taking place, where most traders agree on price. Price shifts from a state of trending to a state of balancing (or consolidation or ranging), the only two states available to it.

 

The trading opportunities come (a) when price is away from value and (b) when price decides to shed its skin and move on to some other value level (that is, there’s a change in demand). This is also where it gets tricky, partly because demand is ever-changing, partly because you’ve got multiple levels of support and resistance to deal with and partly because we trade in so many different intervals, from monthly to one-tick. If we all used daily charts exclusively, it would all be much simpler, though not necessarily easier. But that’s not the case, so we must remember always that a trend in one interval – say hourly – may be a consolidation in another, such as daily. The hourly may be balancing, but there are trends galore in the 5m chart. Or the 5s chart. Or the tick chart. Regardless of how one chooses to display these intervals – line, bar, dot, candle, histogram, etc – there are multiple trends and consolidations going on simultaneously in all possible intervals, even if they’re in the same timeframe, even if that timeframe is only one day (to describe this ebb and flow, Wyckoff used an ocean analogy: currents, waves, eddies, flows, tides).

 

To sum up where we are so far, and keeping in mind that there is no universally-agreed-upon auction market theory, the following elements are, to me, basic, and are consistent with what I've learned from Wyckoff et al:

1) An auction market's structure is continuously evolving, being revalued; future price levels are not predictable

 

2) An auction market is in one of two conditions: balancing or trending.

 

3) Traders seek value; value is price over time; price is arrived at by negotiation between buyers and sellers.

 

4) Change in demand drives change in price.

 

5) One can expect to find support where the most substantial buying has occurred in the past and resistance where the most substantial selling has occurred.

Now let’s translate all of this into a chart.

 

I'm sure everyone has noticed that swing highs and lows and the previous days’ highs and lows and other /\ and \/ formations can serve as turning points and appear to act as resistance. However, this type of resistance stems from an inability to find a trade and is accompanied by low volume*. Price then reverts to an area where the trader finds it easier to close that trade. That's what provides that ballooning look to the volume pattern “A” in the following chart. "Resistance" in this sense, then, refers to resistance to a continuation of the move, whether up or down.

*Volume may look “big” at the highs and lows, but the price points are vertical, not horizontal (as they would be in a consolidation), so the volume – or trading activity – at each price point is lessr than it would be if the same price were hit repeatedly (again, as it would be in a consolidation).

Note that you may have more than one "zone of concentration" (this is how jargon gets started), as in the first balloon. Nearly all the volume is encompassed by the pink lines, but there is a heavier concentration within the blue lines because of where price spends the greater part of its time. The volume in the balloon “B”, however, is more evenly distributed throughout the zone, partly because price spends so much time in it and partly because it ranges fairly steadily within it. Instead of rushing to the limits and bouncing back toward the center, they linger at those limits, the sellers trying to push price lower, the buyers trying to push price higher. Thus there is more volume at these edges than in balloon “A”, but buyers eventually fail in their task as sellers do in theirs, and trading drifts back toward the center, providing, again, a relatively even distribution of volume throughout the range.

 

Balloon “C” is similar to “A” but much thinner due to the fact that price has made only a single round trip to the bottom of the range. It lingered a bit in the middle, simultaneously creating that protrusion in the center of the volume pattern. But volume at each end is thinner than in “B”, thinnest at the bottom due to the \/ shape, giving the volume – if one is fanciful – something of a P shape.

 

 

 

 

If price drops through one of these zones, those who bought within that zone are going to be miffed. Some of these people are going to try to sell if and when price re-approaches that zone. This is the basis of resistance. There's just too much old trading activity to work through in order for price to progress unless there is enough buying pressure to take care of all those people who want to sell what they have, then push price even higher (in which case those who sold may think they screwed up yet again and buy back what they just sold). However, those who bought or sold at the outer reaches of these zones will also be disappointed if they can't find buyers for whatever it is they just bought, not because there's too much volume but because there isn't enough.

 

So how does one trade all this? First, you will have to monitor several intervals at the same time in order to (a) find out what interval you want to trade and (b) where price is within whatever range or ranges is/are in that interval. For example, if you’re most comfortable with a 5m interval, you’ll want to check a smaller interval or two to see what price is up to down there, but you’ll also want to look at larger intervals, such as the 15m or 60m or even the daily (I’m using time intervals here in order to keep this from becoming even longer than it will be, but the same approach applies whether you’re using range bars, volume bars, tick bars, candles, lines, etc).

 

Second, locate the ranges. Box them or circle them or color them or in some other way highlight them. If you find a range that is wide enough for you to trade (that is, there are enough points from top to bottom to make a trade worthwhile), get “into” the range via a smaller interval in order to find a trend. Perhaps at some smaller interval, price is at the bottom of that range. That gives you a good possibility for a long (or it may be at the top of the range, giving you a good possibility for a short).

 

At this point, you have three options: a reversal, a breakout, or a retracement. If, for example, price bounces off or launches itself off the bottom of the range (support), trade the reversal and go long. If instead it falls through support, short the breakout (or breakdown, if you prefer). If you don’t catch the breakout, or you prefer to wait in order to determine whether or not the breakout was “real”, prepare yourself to short whatever retracement there may be to what had been support and may now be resistance.

 

A more boring alternative is that price is nowhere near the top or bottom of any range that you can find but rather drifting up and down, aimlessly. No change is occurring; therefore, there is no trade, or at least no compelling trade. Finding the midpoint of the range may be useful since price sometimes ricochets off the midpoint, or launches itself off the midpoint if it has settled there. Such actions represent change since price may be looking for a different value level. It may come to a screeching halt and reverse when it gets to one side or the other of the range and return to the midpoint, or it may launch itself through in breakout form and extend itself into the next range, if there is one, or create a new range above or below the previous range (in determining which, back off into larger intervals in order to determine whether or not price is in a range in one of those larger intervals).

 

This isn’t all there is to it, of course, but there are more charts posted in this thread than in any other, and I hope that enough information and examples are provided in these posts to enable you to develop a consistently profitable strategy based on these principles.

 

 

 

Edited December 29, 2012 by DbPhoenix

[treadstone 10]

Top work as always, Db. Your continued efforts are appreciated.

[JT_E 10]

wanted to show a chart using pit session only, I used for todays trade.

 

it looks quite different than Db's chart of ES yet all the main boxes & turning points are clear, the 1371-72, 1384 - 85 , 1403 - 04 & the 1421 - 22.

 

I've been plotting both pit & all-session data and am going to stick with the all session from now on.... Seems to be easier using all session..

 

I have been at this for a while now and am just getting the hang of it. thx Db for this approach. it has certainly cleared up my charts, i had lines on top of lines. made me crazy!!

[zdo 20]

db,

 

Do you have a minimum number of bars in a ‘box’ (/ zone) and if so, how many? Many thanks.

 

zdo