Trading The Wyckoff Way

[kuky969 10]

Hi DB

thanks for your time and willingness which you explain your thoughts and I always look forward for your new contribution. Please If you got a time could you answer me a few questions please. You write somewhere ...I quote

 

".....I determine potential S&R beforehand, then I watch how traders behave when those levels are approached. Is price driven down rapidly to support where it then makes a single print and bounces violently? Does it glide in to support and bounce gently along? Does it hammer away at it again and again as if trying to break through a door? And what's the TICKQ doing all this time? What's going on with volume? Is there a classic decline on the retest, if any? Do buyers pile in as expected, or do we begin a search for a new equilibrium (or "value") level? ...."

 

What do you expect (1 min chart)

---if price bounces violently from SR ??

--- if is hammered away when trying breaks door ???

---from TICKQ behavior on SR levels ?

 

How do you distinguish (1 min)

--classic decline on retest ??

-- begin of search a new equilibrum ??

 

You recommend just watch for 1 min chart buiyng and selling waves.But I dont understand what exactly I could watch ?. OK volume withe movements. and what yet ??

--length of swing ??

---duration of swing ?

 

Thank you a lot

[DbPhoenix 42]

If price bounces decisively off support, then support is most likely good. OTOH, if price tests support repeatedly, the odds of it failing is increased. The resolve of buyers may not be unassailable. As for the TICKQ, is there a divergence during these tests?

 

A classic decline on a retest is a concurrent decline in volume and price with a concurrent renewal of strength in both if and when price resumes its progress.

 

Compare the lengths and durations of the buying waves with the selling waves, i.e., do the buying waves last longer and go farther? Or are they getting shorter and briefer? Or are the selling waves beginning to last longer and go farther? As for the volume, it can be helpful but it isn't necessarily relevant until you arrive at a point or level where you're testing support or resistance. Price can move quite a distance on very little volume if there's nothing to stand in its way.

 

To illustrate:

 

 

Note that price rejected 1920 at the end of the day on Friday after having spent so much time there midday. Price rejected 1920 again this morning. You don't know why. Doesn't matter.

 

 

Now at 3, price tests what might be resistance (1), but it subsequently makes a higher low (4). It tests what might be R again, and it looks as though it doesn't want to go higher. But it makes another higher low (6). It then spends quite a lot of time struggling to move higher, but again makes a higher low (7). This might be called "absorption", i.e., eating away at supply. Price then finally makes a clean break upward at 8, but then moves sideways, digesting the move before moving ahead again at 10.

 

Among the lessons here is that what price does NOT do (i.e., make a lower low) is as important if not more so than what it DOES do and provides just as much information to the trader who's paying attention and is as free of bias as possible.

Edited July 5, 2012 by DbPhoenix
Remove ref to blog

[kuky969 10]

DB

 

THANKS

I admire your patiance and helpfulness. I think almost clear for me from your book and contributions. Just one thing ...timing entry and exits .. I now this is up to me and I try find some combinations movement of price and volume in 1 min chart for resolve .

[DbPhoenix 42]

Understanding how price moves is separate from determining how to profit from it. If you don't focus on the former first, the latter will take far longer than necessary.

[kuky969 10]

Hi Db Phoenix

Please could you give me a few minutes from your time.

This is question from VSA II thread:

 

The point is how do we know the up Bar with strong volume is trend continue or a trap ? I agree that we cannot counter the trend every time you see a big volume and a big range bar. I agree that a "no demand bar is not enough" otherwise we will always counter the trend .However ,What is the obvious signal to confirm it is a trick ?

AND your answer is :

 

Depends on where and why the bar occurs, i.e., the context, or "background". If, for example, you have a fairly lengthy accumulative base with the appropriate volume pattern, buying at a breakout of such a base -- assuming that you've correctly identified it as such a base -- is a high-probability trade. If you can't tolerate any retracement or pullback whatsoever, then you have to be prepared to (a) buy before the breakout so that those who are buying the breakout will propel you to at least a breakeven level or (b) sell when price begins to move against you, then prepare to buy again if and when the retracement has completed itself (there is always the possibility that the "breakout" is in fact a "thrust", and that price needs to spend more time in the base).

 

I WOULD LIKE ASK YOU:

How can you distinguish fairly lenghty accumulative base ? Am I understanding good than accumulative base is that after price rise up ??? In the charts are a lot bases but after some price declines and some price rises . I red your e-book but I can not find in answer in my question. Or something I miss ??? Or please could you recommend good sources (books...)

for learning about it.

 

Please what means „appropriate volume pattern“ in your answer ???.

 

I red your #1146 in VSA II thread. Did I understand good please ???. „smart money“ first kick off by active buying market and start demand . You can see a big wide spread up bar . Public ,when they see it ,start buying and this is time for smart money and they start selling their holdings to public ??? . If yes, this process can appear during just 1-2 bars (for example in 5 min time frame) or several (5-10 bars). How do you distinguish that smart money got rid all holdings and rise was stopped. ???

 

OK thank a lot for answer and your good job in TL web site

 

kuky

[DbPhoenix 42]

First, keep in mind that, beyond the superficial, VSA and Wyckoff have very little to do with each other, so any reply that I make will have to do with Wyckoff. If you have questions about VSA, you'll have to ask them on one of the VSA threads.

 

So.....

 

How can you distinguish fairly lenghty accumulative base ? Am I understanding good than accumulative base is that after price rise up ??? In the charts are a lot bases but after some price declines and some price rises . I red your e-book but I can not find in answer in my question. Or something I miss ??? Or please could you recommend good sources (books...)

 

Assuming that you understand the purpose of accumulation (you say you have the book, so review "Stalking the Wild Equity"),whether the accumulative base is long enough depends on the float. If the stock has a very large float, then whoever is planning to advance the stock will require more time to accumulate enough of it to (a) make the advance work and (b) make it worthwhile. Some people gauge this by determining the volume each day and comparing that to the float. Once an amount equivalent to the float has turned over, then the accumulation process may be at or near an end. But I haven't investigated any of this, so I have nothing to offer on the idea.

 

As to the volume pattern, volume has to be generally quiet except when price is approaching or reaching the limits of the range. If price is reaching one of these extremes, trading activity (volume) may increase to bring price back into the range (whoever is accumulating the stock doesn't want it leaving the range before preparations are complete). You have to think about this in terms of traders and trades and traders' objectives before it will make any sense. If you view it in terms of bars and patterns and rising and falling, then it will more likely be visual gibberish.

 

As for the other post, I don't get into the "smart money" business. That's a VSA thing. I stand by my response to the post made there, but I don't want to transplant the discussion here, and I've been asked not to post further there. So that's that. If you want to involve yourself in the smart money/dumb money thing, you will find many people to accompany you. For me, however, it's a complete waste of time. If you put yourself in a place where somebody -- or everybody -- is out to get you, then you will trade very differently -- and probably much more inefficiently, from what I've observed -- than if you do not.

[Kiwi 16]

As for the other post, I don't get into the "smart money" business. That's a VSA thing. I stand by my response to the post made there, but I don't want to transplant the discussion here, and I've been asked not to post further there. So that's that. If you want to involve yourself in the smart money/dumb money thing, you will find many people to accompany you. For me, however, it's a complete waste of time. If you put yourself in a place where somebody -- or everybody -- is out to get you, then you will trade very differently -- and probably much more inefficiently, from what I've observed -- than if you do not.

 

That is so true.

 

It seems to me to be part of the desire for certainty - more knowledge means I understand whats happening better so I don't need to be anxious, even at a subconscious level, about trading. But in my experience, and in watching people fail, simplification in your view of the market and in your actions is more likely to result in succeeding.

 

I used to have a cci and two mas on my charts. I have spent hours looking at bid and ask volume at various trade size levels. I have looked at similar/related indexes for clues as to the tradables behaviour. I have looked at tick etc (which can be useful for the very short term if they are not gamed too much). Actually there were two ccis.

 

I now have one ma on my entry chart, a slow chart to see long term support and resistance, and a fast chart to see it ticking back and forth so I can count pushes and retracements inside the move. I have a fairly simple view of the market and trading has become much simpler.

[Chris Paciello 10]

Do you play this as a retracement in an uptrend, or as a lower high after a reversal?

[Chris Paciello 10]

Is "A" a retracement in a downmove, or is "B" a retracement in an upmove?

 

Why?

[Kiwi 16]

Personally I'd bet on a retest of b before a move on toward A if it was what I trade (ie, no trade yet).

 

But that's not the point. The point is that structure offers you an entry point and a point where it's wrong. If that has a good combination of historical probability and target/stop range I take the bet. If not, I wait until I get a combination that works.

[jonbig04 10]

I'm just starting, but if I may

 

I would have to see the bigger picture but it looks to me like A is a retracement of the down move. Look at the vol, steadily decreasing until sell pressure come back in. A reversal means a change in trend, or a change in pressure (eg, selling pressure is greater than buying pressure then buying pressure is greater than selling pressure), does it look to you that buying pressure is now overwhelming selling pressure in the context of the over all trend? It looks to me that sellers have simply taken a quick break, and the pressure hasn't necessarily reversed.

 

 

EDIT: this is just a quick observation. For example if this occurred at a major S level, i would be more inclined to think that in may be a reversal. What i said above was just a quick picture in time, kind of thing.

 

EDIT again: That and price made a lower low even with the little kick up in buying pressure.

Edited August 31, 2008 by jonbig04

[Kiwi 16]

Thats why its important to know what you're trading (and you're right, the big picture would help.) In some contracts the behaviour of volume in particular can be quite contrary and knowing how that market trades helps find setups with a good potential return.

 

But. Once you have a view that view needs to present you with a stop, a target and a probability of it being right (price reaches target zone before moving back to the stop).

[Chris Paciello 10]

What does this tell you:

[jonbig04 10]

What does this tell you:

 

 

Honestly not much. By bigger picture I meant larger time frame, months, weeks, etc and a million other things haha.

[Head2k 10]

Retracement vs. Reversal is a question of scale. In both cases price turns and travels in the oposite direction. But the diference is that reversal changes the main trend while tetracement only pauses it. Thus to answer the REV vs. RET question you need to ask yourself what is a (main) trend for you, what is needed to recognize the trend and what is needed to recognize its termination or change. You must form a definition. Then you must define potential S/R levels, because those are places where the trend could change with higher probability.

So the conclusion is that you must think about it a lot a define what is (potential) REV or RET yourself, based on how you define a trend and S/R.

[cunparis 10]

I have a question about volume driving price. I wasn't sure which forum to put it in but I choose this one because based on what I know of Wyckoff (admittedly not a lot) volume is a major part of the method, and also because I know dbphoenix is a volume fan. If there is a more appropriate forum for this question then please feel free to move it to the appropriate place and accept my apologies.

 

I just today read this about the SB volume oscillator:

 

# A volume surge that appears as the index is rallying (i.e., occurs during a price advance) indicates that institutions are selling in large quantities. We call such volume spikes “selling surges”;

# A volume surge that appears as the index is declining (i.e., when prices are weakening) indicates that institutions are buying in large quantities. We call such volume spikes “buying surges”;

I had thought it was the opposite. That if price goes up on big volume that institutions are buying. But here they are saying the opposite. Could someone elaborate on this?

 

 

 

Thanks!

Edited June 23, 2009 by DbPhoenix
Remove commercial link

[jonbig04 10]

Also you would need to define exactly what a retracement is. if it retraces 15 points and then comes back, was that a 15 trend, or a 15 point retracement? Its all subjective based on your time frame, risk tolerance etc.

[Flojomojo 10]

Hi everyone,

 

My post would be better suited for the closed ‘Riding the Wyckoff Wave’ thread as this is not really a question, but I’m still very interested in your opinions!

I’m practicing to read price action and its resulting movie of the tug of war between supply and demand. I’d be glad to get some feedback to my story and what I should improve. I’m using a daily chart to determine the big picture and a 15min chart for the intraday move. The 15min chart is a bit crowded when displaying the entire week, to view it properly you can download and magnify it as you please. I’ve also attached the ‘raw’ versions in case you want to add some insight on a clean sheet.

 

The Forest on 24.08:

Looking at the daily chart the following activity in the recent past can be noted: After the severe drop in the EUR, price finds its first halt in the upper region of the Oct-Feb trading range. Demand is yet still not enough to reverse the clear downward trend and falls down to the middle of the past trading range. There the first serious buying interest sets in which is enough to bring price back up to the point where the first demand showed up, but gets clearly rejected towards the end of the week. By this quick look, I would still assume that there is still supply in the market and there is more down movement to watch out for. The important levels on a macro basis are for the week:

1.4800 = close of the week

1.4900 = rejection level / previous upper range

1.4650 = potential support / middle of past range

1.4400 = potential support / bottom of past range

 

The trees 24-29.08:

The week starts at the same level as previous weeks close. After drifting sideways a few bars sellers step onto the plate at point 1 and test for supply at the 780 level. When demand steps in to pull the price back up again, it is unable to push price back to the initial high => more supply is entering. As prices drift lower again demand retreats (or is overwhelmed…not possible to tell since no volume figures).

 

As price falls the first signal of demand entering again occurs at point 2 where price is rapidly driven back up to the open. Is this going to be a V-bottom? The next bars reveal that although buyers clearly have interest at this level, supply is still there. Minor buying waves push price higher but have a hard time as the red candles indicate. A couple of hours later the seems to be no demand but still selling interest at 740. Price slowly creeps up to that level in the last swing only to encounter another wave of supply.

 

Price breaks again but obviously has a tough time breaking the low set at 2 where the first demand showed up. Sellers push down price to 700 making a new low (This is the time we can draw trendline T1) but this time again demand overwhelms demand. Can supply still overcome demand here? As the first green candle appears we can look back at the price behavior at 2. There demand seemed to have stepped in hard, not really sure whether supply is done yet. At 3 though supply slows down resulting in narrow candles => supply dries up or demand sucks it all up / big effort, no result. Price is struggling at the 720 level and supply is unable to push price lower again, but demand is able to produce larger and larger candles, also breaking T1 which just got established. This time flow seems to swap to the demand side.

 

Price rises back up to 750 and experiences a quick drive down again. This has the taste to it as if the most scared buyers liquidate their positions in fear that there is again substantial supply entering at 720.

 

There is enough demand though to push prices higher. We can now draw a new trendline T2 through the lows. This time price follows the trendline and breaks through the weeks open price. Note here though that as price rises, it encounters repeatedly small supply waves and seems to have a tougher time rising than previously falling. In the region around 800 supply steps in again. Buyers push but repeatedly encounter supply. When the trendline is broken there is still demand entering at the high of a previous minor swing, but this time when price reaches the 800 level, it is unable to make a higher high before being overwhelmed by supply again. From here its down again. At 5 price halts in the middle of the last major swing outlined by points 3 and 4. Note that the fall in price from 4 to 5 was again a lot smoother than the previous rise, indicating that shorts are still the way to go. Price now catches some breath but 760 holds for the minor swings.

 

Now the carpet is pulled away again and price revisits the area of the previous low. Now we can draw T3. Traders are scared that demand could be entering again and some start to cover their shorts again resulting in a small rally. The bar size indicates little buying pressure though…this might be partly due to the fact that this action happened in the Asian session. Nevertheless price hesitates at 720 and there is its down from here again. Note now that the two previous drops are both around 40pointish before encountering the next demand wave. This though price drops less and candles become more erratic. News is coming up at 10am, so this is rather normal. Hungry sharks now step in and push up prices in order to check whether that last drop overnight was for real. It was and as the number that came out was even in favor of the supply side, price falls hard as all short term market participants all rush to the trend side. Price slowly drifts lower. Now price has covered already quite a distance and one should watch out because that last drop might have been unnecessarily big. As demand starts to enter from 600 onwards it is able to pull price around at 580 and form a V bottom, indicating that the last drop was not substantiated.

 

At 7 supply enters again only to meet demand again at the 620 level. Now things calm down for traders to take a breath and a hinge is formed…at the 650 level previously identified as potential support. From here price breaks and makes anew high which lets us draw T4. The following action is rather erratic 620 shows to be resistance which coincides with the highest high of the hinge.

 

At 8 price is unable to reach the open of the week indicating that supply enters again.T4 is then broken and price travels down again to previous support where demand takes over again. The spiky tops and bottoms are an indication that the market has now switched from ‘trend’ to ‘range’ mode.

 

At 9 price hits resistance again and reverses, but this time it is able to revisit the 800 level. As price makes a new high T5 can be drawn. After initial rejection at 800 price behavior gets rather violent again with lots of pulling between supply and demand. Not here now that after 800 is reached for the first time one could draw a two supply lines…one from the swing high of 7 through to the high of 8 and the other from the high of 8 to the high at 10. The decreasing angle of the supply line and the repositioning of the trendline from T4 to T5 suggest a decrease in buying pressure.

 

When at 10 price revisits the region above 800 selling steps in once more and this time there is no demand stepping in at the 760 level…down we go again! Previous support at 680 proves itself once more, but this time there is no V-bottom forming, indicating that this time ‘good selling’ came in. Demand is though able to push price back higher again. At 60 though, price fins resistance again, unable to make a higher high than 10 or even 8.

 

Price ultimately drifts lower and takes out the previous swing low, giving us the opportunity to draw T6.

 

In the end at 11 price again finds support at the 650 level and slowly drifts upwards as traders cover their short positions and get into the mood for the weekend.

 

The Forest on 29.08:

Initial downtrend got rejected but was able to make a new low. As seen on the 15min chart, the tug of war at 1.4800 was ultimately won by the supply side. For next week, look for shorts again.

 

If you read this line I thank you for your interest in all of the above and would be glad to hear what you think about it!

I definitely still need to train my brain to read more with the Wyckoffian definitions like test/mark up/etc in mind. I'm planning to do this practice for the entire past year, do you see added value in me posting them here?

 

Have a great week,

Flojomojo

[Flojomojo 10]

Here's the excel file for the 15min data with the original and blank sheets.

Week15MinDaten.zip

[Flojomojo 10]

Price breaks again but obviously has a tough time breaking the low set at 2 where the first demand showed up. Sellers push down price to 700 making a new low (This is the time we can draw trendline T1) but this time again demand overwhelms demand.

Sorry for any confusion...last word should be obviously 'supply'

[jcavalieri 10]

im sure DB will explain it in more detail than myself but whats happening when you see volume surges as price rallies is the large players are dumping some of the supply they had accumulated earlier in the process. they do it as price is rallying because they know this is causing the herd to become greedy and they will be buying in fear of missing out. The herds buying creates the liquidity the institutions needs to dump off the large amounts of supply they had accumulated without immediately stopping the up trend..although when the institutions are selling and you see this volume surge in an up trend you can be sure the trend will be ending shortly. As for the volume surge during the down trend what is happening is exactly the opposite. the market is completely bearish and the public is panic selling thinking the stock is going to zero. The institutions, however, realize the end of this down trend is near and absorb all the supply the public just threw on to the market at discounted prices. The down trend may not immediately end after the surge but soon price will form a range and the process of accumulation begins and starts the process all over again.

[AgeKay 10]

im sure DB will explain it in more detail than myself but whats happening when you see volume surges as price rallies is the large players are dumping some of the supply they had accumulated earlier in the process. they do it as price is rallying because they know this is causing the herd to become greedy and they will be buying in fear of missing out. The herds buying creates the liquidity the institutions needs to dump off the large amounts of supply they had accumulated without immediately stopping the up trend..although when the institutions are selling and you see this volume surge in an up trend you can be sure the trend will be ending shortly. As for the volume surge during the down trend what is happening is exactly the opposite. the market is completely bearish and the public is panic selling thinking the stock is going to zero. The institutions, however, realize the end of this down trend is near and absorb all the supply the public just threw on to the market at discounted prices. The down trend may not immediately end after the surge but soon price will form a range and the process of accumulation begins and starts the process all over again.

 

I find it funny how everybody thinks it's the institutions/big players/smart money against the public where the institutions take all the money from the clueless public. Don't forget that more than 80% of volume comes from "institutions", of which about half or 40% lose money too, it has to be, since there is a loser for every winner.

I've also read that many limit order studies that conclude that institutions provide most of the liquidity through limit orders while the public uses mostly market orders, so "the herd" does not create liquidity that the big traders can use to dumb their accumulated stock. There are many smaller and bigger traders that trade all the time and one side does not all of the sudden decide to do one thing while the other decides to do the opposite. They all have different time frames, profit targets, and strategies. Some use limit orders only, some use market orders only and some use both. The whole story about greed, fear, herd, panic selling, public vs. big traders is way to simplistic

Edited June 23, 2009 by DbPhoenix
Personal remarks

[AgeKay 10]

To answer the question of the thread opener: Volume does not drive price. Two-way liquidity supply (limit orders) vs. liquidity demand (market orders) drives price. You can have a huge amount of volume in form of market orders on one side but the price won't move until all the limit orders are matched. You might even see a lot more buy market orders than sell market orders, and price could still go down because in that case there would a lot more offers than bids that keep the price from going up.

I suggest that you learn how price discovery/order matching works to understand what drives price changes.

[Head2k 10]

I really liked one particular definition of who the "smart money" is. I believe I read it in Master the Markets. Smart money is that which stands on the right side of the price movement That is the only definition I am willing to accept.

I think the whole concept of the smart money is built on human need to personify. In this case, personify an enemy or somebody worth following, respectively. It doesnt really matter who stands behind supply, demand and volume.

But the concept of buying and selling climaxes is logical with or without smart money.

[AgeKay 10]

I really liked one particular definition of who the "smart money" is. I believe I read it in Master the Markets. Smart money is that which stands on the right side of the price movement That is the only definition I am willing to accept.

I think the whole concept of the smart money is built on human need to personify. In this case, personify an enemy or somebody worth following, respectively. It doesnt really matter who stands behind supply, demand and volume.

 

Yes. I absolutely agree.

 

But the concept of buying and selling climaxes is logical with or without smart money.

 

Could you please elaborate what you mean by "buying and selling climaxes"?