Trading The Wyckoff Way

[DbPhoenix 42]

Assuming that this is the instrument you're interested in, you'll notice that you're in the same range you've been in for three years.

 

 

Zooming in, you'll note that there appeared to be preliminary support in the area marked "1". There then appears to have been a selling climax at 2, which is logical considering where it took place, then a test at 3. The downtrend was broken at 4, but this break immediately failed (5). So you are now drifting.

 

 

Since this has been declining for nine months and has lost more than half its value, it is unlikely that whatever accumulation may have taken place over a day's time will have any appreciable, immediate effect on the stock price. However, price appears to have been supported in late August at or about 206, selling dried up thereafter, and perhaps price may now be being supported again. Unless you are for some reason in a hurry, I suggest you watch and wait.

Edited September 14, 2008 by DbPhoenix

[rsi 10]

You make a number of statements but ask only one question, and the answer-- without considering trendlines -- is that there is a selling climax, a technical rally, a test, and a rally above the last swing high. Reverse for a downtrend. I can't apply this to your charts because it's next to impossible for me to see the volume on them, plus they're too scrunched. However, there does appear to be a selling climax on your third chart in March '07.

 

All right. Let me try to put it in this general way, without any charts.

 

Incase of V shaped rally or ^ shaped downfall (as the case maybe), I think it will be impossible to see climax and distribution (accumulation), breaking of ice (JOC) etc. Or may be I may witness climax (buying or selling as the case may be) but not the other phases. What I am intending to ask is, in the absence of some of the sequences in developing of trend or changing of trend as described by Wyckoff, what would be the guidelines to be followed to detect such end of trend or change of trend? What should be/could be the safeguards one can take in such situation so as to avoid giving back all profits earned? Are there any other methods described by Wyckoff? (other than many non Wyckoff methods such as breaking of trendline, 1-2-3- formation, moving stoplosses etc.)

 

I sincerely hope I have made my point clear this time.

Thanks and Regards

[DbPhoenix 42]

"Breaking of ice" is not a Wyckoff term. You'll have to take that subject up on the VSA thread. As for the rest, if you're not going to follow Wyckoff, there are any number of ways to suppose a change in trend and/or a reversal. Sperandeo is one. However, if you're operating in a VSA context, I suggest you'd have much better luck looking for answers within VSA.

Edited September 6, 2015 by DbPhoenix

[freeflyva 10]

Hi,

 

I've studied every piece of Wyckoff literature I could get my hands on in the past and I was wondering if anyone here has his correspondence course?

I know SMI carries a course but I believe it's a mod of the original. Thanks

[freeflyva 10]

rsi,

 

It sounds like you're sincere in your search....so I'll give it a try. Are you familiar with the terms Db used (selling climax, technical rally, test and rally)? This is a very important pattern (given correct volume supports each "leg" of the move). You're basically looking for higher support on the next reaction (if long)....and the opposite if short. The best time to exit or enter (other than the potentially risky climax) would be at the confirmation of that higher support (volume drying up on the dip) Final confirmation would be rising above the top of the previous rally (if long) and the reverse if short. Accumulation and distribution doesn't always have to be a long sideways movement. It can be visible in the ^ movement you speak of....if on the upleg you see signs of distribution. You can also compare volume and gain of the current upmove to previous to gauge supply entering the market. Of course, previous levels and the ability of price to get through them (especially on high volume) are very important also. All of this followed by lower lows, highs and closes is a good sign the party is over.

Your stops should correspond to these key levels since breaking one is a significant event. They should also be moved even closer to current price if two or more conditions are present. Good luck -

Edited September 14, 2008 by freeflyva

[StoneTrader 10]

Sorry about the miss-placed question.

 

I have been thinking about this for a while, and I would like to better understand why S and R occur.

 

I don't mean ultra-specifically, of course everyone has different reasons for why they by and sell. But why does price become S? Why does it become R?

To me S and R are just price levels that, for whatever reason(s), are important to people. What I'm curious about is why S and R form, and why R often turns to S and vice ver

 

This is my interpretation: Support is an area where an overwhelming amount of people (w/ large positions) for any variety of reasons decide that they should buy. Resistance is an area where enough people (w/ large positions) for any variety of reasons decide that they should sell.

 

Support & Resistance often "flip" because all of the "losers" from the last time the zone was fought over decide that they want to break even with their losing trade that has come back from hell. They may even double up and reverse to go along with the path of least resistance.

 

What I think is really interesting is watching reversals happen at S/R Zones where the prices move *towards* large sizes (liquidity) available on contracts. For instance, if we are fighting against 1200 as resistance, we might see an immense amount of limit sell orders at 1200 and slightly above. Once those large orders are taken out, we'll experience a crush of stop market buys and the market "Zooms" past. Someone pointed this out on ET many years ago and I just started to notice it and recalled my own ill attempts at front running "size" only to be stopped out dramatically.

 

Hope that helps,

 

Stone

[jonbig04 10]

I think I know what you mean. Like a run on the stops. I swear sometimes its intentional haha

[jcavalieri 10]

DB if buying and selling pressure is show in the actual candles then how should we view volume. i know its just amount of shares traded or activity and i know it shows effort or force. is there any other way i should be viewing it?

[Head2k 10]

DB if buying and selling pressure is show in the actual candles then how should we view volume. i know its just amount of shares traded or activity and i know it shows effort or force. is there any other way i should be viewing it?

I know you asked Db, but I will try to write an answer. Db can correct it. I am learning how to view volume myself, so I can at least sort what I have observed so far.

 

I watch changes of volume in time. Little volume per time unit = low activity. High Volume per time unit = high activity. This is useful to watch in context or in relation to expectations. E.g. if resistance should be broken one would expect appropriate activity. If activity diminishes instead, the breakout is less likely.

I watch change of price on volume (volume chart is the best for that). This tells me when price moves smoothly without resistance and when there is a tug of war. The time factor is important here, too.

I dont watch single bars much, I rather switch to lower time frame and I watch swings inside those bars. For this I use volume chart with dense vertical time grid.

Single bars are usefull when they have a logical beginning and end, like daily or weekly bars.

[BlowFish 10]

 

What I think is really interesting is watching reversals happen at S/R Zones where the prices move *towards* large sizes (liquidity) available on contracts.

Stone

 

This is an interesting paradigm shift and can help a trrader in how they approach things. A quick for example is establishing targets.

[Head2k 10]

Standing limit orders act as resistance to price movement. Marketable orders move price. When there is a trade recorded it matches a standing limit order (passive buying or selling) with a marketable order (active buying or selling). I think of voume as of amount of willingness to participate actively, to move price. Because while limit orders are standing ready there, the volume depends on how many marketable orders arrive to match those limit orders. Therefore volume thows activity or effort to move price (in form of marketable orders).

Now if price moves depends on the other side - the standing limit orders which present resistance to movement. So by judging price movement on unitary volume you can observe this resistance.

Also you must watch all this in regard to time to distinguish activity x laziness, tug of war x indecision.

I am in the beginning of my journey, but this is the approach I adopted.

[NAVEEVIa 10]

So by judging price movement on unitary volume you can observe this resistance.?

Can you please elaborate on this

[Head2k 10]

So by judging price movement on unitary volume you can observe this resistance.?

Can you please elaborate on this

I hope there is no misunderstanding. It is simple. Volume represents effort to move price. How price actually moves on that volume represents the result - in other words what were the opposing forces to that effort.

On a volume chart if you see an upswing which starts to round out you can say that price progress on unitary volume is decreasing. That means the forces moving and opposing are becoming equal. If you are aware of time as well you can say whether this happens due to intensive tug of war or due to reluctancy of the "movers". It is about watching the dynamics, changes in effort and resistance to this effort.

I didnt mean I can see at a glance resistance meant as a turning point. (But maybe it will come one day )

[NAVEEVIa 10]

At support /resistance levels is it better to switch to volume charts i.e. push-pull will be better reflected with volume charts

[Head2k 10]

At support /resistance levels is it better to switch to volume charts i.e. push-pull will be better reflected with volume charts

As I said I am at the beginning of my journey so I cant really say what is better. I can only say how I am trying to do it. When deciding what chart to use you must ask yourself what relations do you want to observe and what any particular chart provides.

Volume chart provides nice "effort vs. result" picture, however it provides worse "effort in time" (activity) and "result in time" picture.

Time chart shows result in time and effort in time, but not clearly effort vs. result.

Anyway, all is observable from time chart with volume histogram as well as from volume chart with time histogram. One must only think about what he wants to observe and what are the best ways for him/her to see it.

[Head2k 10]

To reassume the subject of the last few posts I am attaching a 100 Volume Chart I started to use to judge the dynamics of NQ. I was thinking of the best way to observe relations between changes of price, volume and time, and this is the result. It is in fact a 100V chart combined with a 30 second chart. Every dotted vertical line shows an end of one 30 sec interval. So areas of dense vertical lines show little activity in time, and vice versa. Within each 30 sec interval I blend the volume candles and plot a time candle behind them. On the bottom I plot volume histogram for these 30 second intervals. In fact the histogram just shows spaces between the vertical grid lines so it is a kind of redundant, but I find it more graphic.

 

The action displayed on the chart shows NQ on 09/19 and some extraordinary support being constantly hit until broken at 1750.

[Flojomojo 10]

I've prepared a little macro view of the last EUR/USD swing. Are the congstion areas drawn correctly? :hmmmm:

(Origninally I posted the graph here in post #40)

 

Thanks for the feedback!

080921_BoxStory.xls

[DbPhoenix 42]

Hindsight's a bitch. But what I probably would have done in real time is shown below.

 

The first box is pretty straight-forward. I would then have drawn the second, then the third, then perhaps joined them, though joining wouldn't have been necessary.

 

As for the second set of boxes, if one doesn't have "volume", which you don't, he must be careful not to trivialize time. The amount of time spent at a given price or in a given range can be as important as the "show-off" volume which attracts so much attention with regard to the quantity of shares, contracts, etc, traded. In other words, if price spends a great deal of time within a given range, that activity can be more important than that which accompanies the short-lived spikes. The swing highs and lows, particularly in spikes, can be important, particularly since they draw so much attention to themselves. But they do not necessarily imply a great many trades, and perhaps not nearly as many as have been made during those long and boring and seemingly pointless sideways movements. Therefore, I would focus on the more "filled" ranges (that's not advice; I'm just telling you what I'd do). Note also that the midpoint of box 7 corresponds to the low of box 5 and the high of box 6.

 

[Flojomojo 10]

Hindsight's a bitch. But what I probably would have done in real time is shown below.

 

Since I guess you also correct your boxes in hindsight, this is fine for me. I still try to embrace most of the activity in my boxes and hence catch myself drawing them too big. Thanks for your valuable input!

[DbPhoenix 42]

Since I guess you also correct your boxes in hindsight, this is fine for me.

 

I try to avoid it, because one can easily begin a type of curve-fitting. However, I might draw a box too soon. Or the market may show me that I've drawn it incorrectly by its subsequent behavior. I will then modify them so that I know what to do next, not so that they act as some sort of evidence as to the efficacy of this means of finding support and resistance. They are, after all, a tool, not a "method".

 

The point of all this is to understand what the congestion is and why it's occurring. These congestions may not be as important in Forex as they are in futures and stocks, in which case drawing the boxes will be of no value. Examining old data might answer this question, but I don't have any of that.

[firewalker 10]

I was wondering if anyone had anything to say about "the angle & speed a directional move". I try to gauge momentum by looking at how far each swing goes. If price makes new swings bouncing off support, but each swing failing to reach it's previous high, I am thinking 'weakness' and would be careful going long. Basically I am looking at the picture as it is unfolding during the day, and try to adjust my decisions based on what I see, instead of just buying or selling on a signal.

 

Each situation is different, and context is what matters, right?

So, here are a couple of charts from yesterday's S&P e-mini 500 (ES).

 

I've annotated the chart with my observations real-time. What I am looking at is the angle of the three directional moves. The first (drop) and second (rise back to S now R) are pretty matched in terms of speed and angle, but the last move, just one hour before the close, is pretty sharp. Price falls quicker and on higher volume too. Wouldn't the bias be to the downside in this case?

 

Yet this morning the market has gapped higher and we are around 1202 as I speak, with price already having touched 1210 (see 15-minute chart)! Regardless of news or any external factor, I am wondering if (and where) the chart showed clues that it was actually buyers picking up on the low prices, instead of sellers dumping more, in anticipation of a further fall.

[Kiwi 16]

I often wonder whether the clues are there at all.

 

Part of that is that I suspect that a lot of so called "smart money" is actually a little stupid. It seems to me that the reason that smart money enters before I do is that, being bigger, they can't wait for my opportunities (or they wouldn't fill).

 

In the case of the Sept 23 chart I'm reminded of the adage that "the best moves come when participation is minimized." I really like to trade situations that follow an overall trend but see people join, place their stops, and then get stopped out. In that situation there is a lot of extra liquidity available to get in when the trend recommences. In the case of your chart the second leg is steep and breaks any stops on the 3/4 waves up from 19:30 and any close stops on the bottom around 1186.70.

 

So, I wouldnt claim any magical perception of what was going to happen but the breaking of all those probable stops does free up a lot of liquidity to jump on the next days up move.

[Head2k 10]

...but the last move, just one hour before the close, is pretty sharp. Price falls quicker and on higher volume too. Wouldn't the bias be to the downside in this case?

 

Yet this morning the market has gapped higher and we are around 1202 as I speak, with price already having touched 1210 (see 15-minute chart)! Regardless of news or any external factor, I am wondering if (and where) the chart showed clues that it was actually buyers picking up on the low prices, instead of sellers dumping more, in anticipation of a further fall.

I would not try to short after such a sharp decline, mostly because I would consider the real opportunity missed. IMO such a decline creates an oversold state. My bias (if any) after such a decline would be a rally or correction, not further decline. Depending how would this rally look like, I might look for shorts. But after such a decline I feel a problem with lack of overhanging resistance, that is, not many congestion areas representing locked-in traders above.

[Flojomojo 10]

I havn't got the proper data feed so I had to stick to a screenshot of a yahoo finance chart.

A clue can be found on the longer range macro view.

 

Honestly I myself am not sure yet how to judge pressure over time via swing steepness.

 

Just my 2c

Flojo

S&P.pdf

Edited September 24, 2008 by Flojomojo

[firewalker 10]

I havn't got the proper data feed so I had to stick to a screenshot of a yahoo finance chart.

A clue can be found on the longer range macro view.

 

Honestly I myself am not sure yet how to judge pressure over time via swing steepness.

 

Just my 2c

Flojo

 

Flojo, you have BigCharts, ProRealtime and StockCharts that all provide free charts in case you don't have a data feed.

 

Just by looking at your chart, I would say the move lower is happening slowly and steadily, as opposed to the move higher to the left of your chart, which occurred quickly and almost vertically.