Trading The Wyckoff Way

[DbPhoenix 42]

JPM:

27.18 is short. Stop loss 28

Take 1/3 profit 25.5

 

I am looking towards 20 as the possible ultimate target.

 

So did you take your 1/3 profit at 25.5?

[imahippi 10]

Some people say they use mental stops.

I think this is my goal but I find as a beginner I have to put the stop order in right after the buy or I often fold.

Until I develop better discipline I have to do this. It is the primitive form of discipline for me.

I look for the point where---to me--- the trend that I am hoping to capitalize on is broken.

 

In my trading I am working on being more agile, that is , jumping out quickly and watching and then getting right back in. This is not easy for me.

Also, getting in as close as possible to the test of support or resistance.

[Gringo 10]

Hi,

 

Below is QQQQ chart of 60 min bar interval for better correlation with traders here who use futures. Looking at this one keeps me informed about possible S/R and to keep an eye on reversal or continuation.

 

Basically, boxes are drawn in tandem (more or less) with DB's NQ chart so that I can better follow what's being talked about in the chat room.

 

29.5 QQQQ = 1200 NQ (fat grey dotted line)

 

[Head2k 10]

Some people say they use mental stops.

I think this is my goal but I find as a beginner I have to put the stop order in right after the buy or I often fold.

Until I develop better discipline I have to do this. It is the primitive form of discipline for me.

It is also form of safety protection. If broker, your computer, internet connection or electricity goes down, then the stop in your head won't help you much.

[cowseathay 10]

Thank you Db. It's amazing to think that the same problems that plague traders today was dealt with so eloquently by Wyckoff almost a 100 years ago.

 

By the way, you had mentioned in chat that you learned to use buy/sell stops to enter trades from Teresa Lo, but here it seems Wyckoff had suggested the same thing. It's interesting to know that it came from Wyckoff.

[DbPhoenix 42]

Thank you Db. It's amazing to think that the same problems that plague traders today was dealt with so eloquently by Wyckoff almost a 100 years ago.

 

By the way, you had mentioned in chat that you learned to use buy/sell stops to enter trades from Teresa Lo, but here it seems Wyckoff had suggested the same thing. It's interesting to know that it came from Wyckoff.

 

So does a great deal else. Teresa, however, actually gives credit where credit is due, whereas most others like to pretend that whatever they're selling is original.

[MRW 10]

Just some observations - it seemed like this was the place to post them perhaps.

 

It would seem, based upon my learning curve so far, that one of the most important things in trading is the way one thinks about the market. For example, does a price move mean something to you about supply/demand pressures or is price movement a function, say, of your mathematical model?

 

It would also seem that a progression in learning might go from first getting one's thoughts in order, to practicing seeing the way various supply/ demand pressures work themselves, to practice one's observations by taking small, low-risk raes, to gradually working up in size as judgement becomes better.

 

The first step then being to know what you're looking for/at, then gainig experience spotting these things, then working out some guidelines for actually trading them.

 

Sorry for the somewhat rambling, semi-coherent thought process here - I'm just starting to get this straight (assuming I'm not way off base), I think.

 

Would love to hear the thoughts of others!

[dla133 10]

I have done some more reading over the past few days and have gained a better understanding of the basics of supply, demand, support, and resistance. I understand that one way of trading is to look for key areas of support and resistance and watch the price and volume action around those areas. The tape reading books that I have read so far put volume as the most important indicator to highlight supply and demand. At this moment I can only get price action on my charts. If I wanted to trade via volume rather than mainly price, how would I go about doing this?

This relates to live rather than end of day volume.

 

Cheers

Lee

[DbPhoenix 42]

At this moment I can only get price action on my charts. If I wanted to trade via volume rather than mainly price, how would I go about doing this?

This relates to live rather than end of day volume.

 

The first step, of course, is to get a charting program that provides you with volume. There are comments about various charting programs and datafeeds sprinkled throughout the site, but using the search function may help you find what you want. I use Sierra, which can cost you less than $20/mo.

 

Since you are not likely to care about loads of features and add-ons and plugins, you will be able to get by on very little money.

 

As for trading "via volume", there's probably more than you want to know right here in this forum.

Edited February 6, 2013 by DbPhoenix

[Tannism 10]

Hi Lee,

You might check this out. It can be free.

http://www.quotetracker.com/

[BrunoHammerstorm 10]

Great post as always DB,

 

I'm glad that traders are still educating traders. It's a pleasant change from constant vendor interruption and interference.

[Head2k 10]

Just some observations ... Would love to hear the thoughts of others!

I am a beginner and I've been studying Wyckoff for quite a short time, but I belive your observations are basically correct.

First one needs to choose a way. A way of thinking about market, understanding, interpreting and analyzing the market's action. After some rambling from one thing to another I found Wyckoff and fell in love with him. This way is beautiful in its simplicity and it gives you a chance to get in harmony with the flow of the market (Not saying I got to this phase, but I have some bright moments). Being in harmony with the market's flow provides a kind of inner peace, and implies confidence.

 

As for the process of learning, first one needs to understand the theory. This forum and Db's blog are great for that. Texts and static charts should serve the purpose.

Once you think you understand the theory to some meaningful degree and you can interpret historical charts, you should move to live charts. Not trading, but analyzing and interpreting. Without hindsight it gets much harder. Then, if you think you gained enough experience to actually exploit your understanding, you should start with strategy development and paper trading. And once your plan is developed and you gain consistency on paper, you can start live.

[dla133 10]

Thanks,

 

I have sey up a demo account with Sierra.

 

DBPheonix,

 

If all I want to do is trade currencies and indexes, which package from 1 to 8 would you suggest? Could I get away with the most basic package for now? This would be package 1 priced at 17.5 USD.

 

Cheers

Lee

[MRW 10]

Thanks, Head - interesting to hear someone else is thinking along very similar lines!

[DbPhoenix 42]

Thanks,

 

I have sey up a demo account with Sierra.

 

DBPheonix,

 

If all I want to do is trade currencies and indexes, which package from 1 to 8 would you suggest? Could I get away with the most basic package for now? This would be package 1 priced at 17.5 USD.

 

Cheers

Lee

 

If you have no experience, I suggest you begin with the least expensive option available, though what is least expensive will depend in part of what datafeed you select, and what datafeed you select will depend on what you decide you want to trade. Since you'll need nothing but price and volume, there's no need to purchase anything more involved.

 

After that, I suggest you select one of either currencies or indexes, whichever you understand better. If you don't understand either of them, consider ETFs or even stocks. If you don't understand those, either, find something that is not a complete mystery. Then get to know it.

 

Once you have a basic understanding of whatever it is you want to trade, then begin studying how it's traded. And for that, Head2K's advice in another thread is pretty much what I would suggest. But coming from a fellow beginner (I assume you're a beginner, or close to it), perhaps it will carry a bit more weight.

 

I am a beginner and I've been studying Wyckoff for quite a short time, but I believe your observations are basically correct.

 

First one needs to choose a way. A way of thinking about market, understanding, interpreting and analyzing the market's action. After some rambling from one thing to another I found Wyckoff and fell in love with him. This way is beautiful in its simplicity and it gives you a chance to get in harmony with the flow of the market (Not saying I got to this phase, but I have some bright moments). Being in harmony with the market's flow provides a kind of inner peace, and implies confidence.

 

As for the process of learning, first one needs to understand the theory. This forum and Db's blog are great for that. Texts and static charts should serve the purpose.

 

Once you think you understand the theory to some meaningful degree and you can interpret historical charts, you should move to live charts. Not trading, but analyzing and interpreting. Without hindsight it gets much harder. Then, if you think you gained enough experience to actually exploit your understanding, you should start with strategy development and paper trading. And once your plan is developed and you gain consistency on paper, you can start live.

 

Each of these steps is going to take time, perhaps more time than you're willing to invest. If you go through these steps methodically and deliberately, it will take less time than if you rush. And if that sounds like I said it backwards, I didn't.

 

Another resource is the Trader's Journal, which will help you figure out what you want and how to go about getting it. You may have already made some of these decisions, which is all to the good.

Edited March 7, 2009 by DbPhoenix

[DbPhoenix 42]

Lest this thread wither, I refer interested readers to review a series of posts made to the EOD thread. They do go on a bit, but they jibe nicely with the material that Bearbull et al have posted here. The process of identifying trading opportunities is after all the same, whether one is trading EOD or intraday.

[dla133 10]

Thanks DB,

 

Wise words indeed.

 

Here is my thought process so far.

 

I want to trade a market that is liquid. FX seems to do that but it may be too liquid for me and my little skill. I have seen the FX markets move 400 - 500 pips quite a lot. Indexes are also liquid but seem in my eyes a little less volitile.

 

I don't know if I have got this completely wrong but here goes.

 

The more volitile the price movements, the better trader you need to be to react to those movements. So since I am still learning and my skills will be slow, I need a market that moves a little slower so I can keep up.

 

Am I on the right track with this thought process?

 

Cheers

Lee

[Gringo 10]

 

Daily is somewhat confusing for me. I see lower highs and drew a demand line as well. I am taking lower highs to be a sign of weakness and am perceiving (guessing) price to not reach the R around 98 area. This to me is implying that 90 - 98 range as the place to initiate shorts and more specifically 95 to be the point to look for as a daily box has resistance around there. 90 is the midpoint from the weekly chart and could provide resistance as well.

 

 

I wrote the above a few days back in this same thread while analyzing AAPL as a possible short candidate.

 

Now I am amazed at how AAPL hit precisely 95 and reversed. I am also amazed at how JPM was also jumping between S/R lines that were drawn in advance from the boxes. Is this magic or coincidence? Or is this really how better traders end up making money while the rest of us dwell in mediocrity?

 

There's a fountain of wealth within these Wyckoff Forum threads and I sure am glad to have found it.

Edited January 31, 2009 by Gringo

[DbPhoenix 42]

I wrote the above a few days back in this same thread while analyzing AAPL as a possible short candidate.

 

Now I am amazed at how AAPL hit precisely 95 and reversed. I am also amazed at how JPM was also jumping between S/R lines that were drawn in advance from the boxes. Is this magic or coincidence?

 

It's magic (see my avatar). I'll take you to Diagon Alley to get your wand.

Edited February 1, 2009 by DbPhoenix

[DbPhoenix 42]

Thanks DB,

 

Wise words indeed.

 

Here is my thought process so far.

 

I want to trade a market that is liquid. FX seems to do that but it may be too liquid for me and my little skill. I have seen the FX markets move 400 - 500 pips quite a lot. Indexes are also liquid but seem in my eyes a little less volitile.

 

I don't know if I have got this completely wrong but here goes.

 

The more volitile the price movements, the better trader you need to be to react to those movements. So since I am still learning and my skills will be slow, I need a market that moves a little slower so I can keep up.

 

Am I on the right track with this thought process?

 

Cheers

Lee

 

If you've spent more than ten minutes on message boards, you must know that my answer is going to be "it depends", or, better still, "yes and no".

 

The core of W's approach is to find the best opportunities at the time one can expect them to move and to limit one's risk to the fullest extent possible at the time of and during the trade. You're on the right track, but you need to think long and hard about risk.

 

You have a lot to think about and a lot of prep to do. But there's no hurry. The market will be here whenever you're ready to go for your first ride. Take your time and go step by step. That way, there'll be no fear, no anxiety, no panic.

[imahippi 10]

Managing a winning trade is one of the best feelings in the world!!! In my top ten favs!!!

[jonbig04 10]

Managing a winning trade is one of the best feelings in the world!!! In my top ten favs!!!

 

 

Really? I like the "target filled" moment, only because i know no matter how far I'm up, that thing can come right back and stop me out.

[dla133 10]

Thanks again DB,

 

To give you a better understanding of my journey so far, please read the following.

 

I started my investment journey with Mutial Funds inside what we call in the UK an ISA Wrapper. Basically all your investment including returns is TAX FREE. Once I became comfortable with these (Getting used to watching my account rise and drop in £1000's) and believing what I was doing was right. Since then I have had a fair bit of success even with this current bear market. Rather than become fearfull of loosing my capital, I see opportunities to invest at reduced prices.

 

I then wanted to look at ways to invest/trade to earn around £15,000 a year. I can only trade early in the morning or last few hours in the evening because of my full time job. This money would allow me to invest the maximum allowance inside my ISA account each year (including my wifes) without putting undue stress on our finances. I have placed trades in the FX market and stock market via spread betting, won some and lost some. Over the last 2 years I am probably down around £3000 (this shows how amateurish my approach is since I can't even tell you what I have lost).

 

What I am about to say my shock some people and make others nod in agreement. Each time I traded I had no belief in what I was doing. I would sit and hope I was right rather than believe I was right. When the trades started going against me I would loose faith in what I was doing and trade out. So many times as I traded out, the market would then go in my favour and I would loose out. Fear was may greatest enemy as I had no belief in what I was doing. I used indicators, read books, listened to other people untill my mind was a complete and utter trash can.

 

Now the good bit

 

Since reading some posts in this forum I feel a light has come on. That is trading via price and volume action. Looking for supply and demand. Guys in the past made very successful careers in trading way before all this fancy technical analysis was around by purely reading the tape. Understanding what the market is doing right NOW, rather than what it was doing yesterday. I know it seems obvious but, we are trading in the NOW not in the PAST. Yes history can give us key areas of market behaviour (Support / Resistance) but it can't predict what will happen in those areas in the future. Actually watching the market action in those areas in real time is the only way to know what is going on at that precise time. Who is in charge the BULLS or the BEARS?

 

When reading Wyckoff and other similar material, it all seems to make sense. So I am going to start my journey again, with BELIEF in what I am now doing rather than HOPE and FEAR.

 

With the help of some experienced people on this forum I am confident I will become a far better trader. Will I actually become a successfull trader, who knows?

 

Finally to give a little analogy.

 

I used to do quite a lot of weight lifting in the past and would read all the modern fitness books on how to train. They would give all the fine details about different specific exercises. I tried all different approaches and saw very little improvement over a 2 year period. I then discovered old weight training books by guys who trained years before steriods and fancy machines. They basically told you the only way to progress was to add weight to the bar eevery time you trained or do more lifts with the same weight. They advocated big basic lifts using the entire body, rather than small individual exercises for individual muscles. This all seemed to make sense to me and so of I went to the gym with real belief in what I was doing. I made more progress in the next 6 months than I had made in the previous 2 years.

 

What I am trying to say here is that my belief is that understanding Supply and Demand is the basics of trading and without that you will make very little real progress.

 

Sorry for going on here quite a bit but you can hopefully see how excited I am to actualy feel I am now on the right track.

 

Cheers

Lee

[DbPhoenix 42]

Remember first of all that daytrading is not the ultimate goal of every market participant. There is no generally-held belief that you have not arrived until you're a daytrader. Granted it all appears romantic and sexy, but it is primarily little more than busy. Playing World of Warcraft would keep you just as busy and it would be a lot easier on your pocketbook.

 

Keep in mind also that many of those who go on about the riches to be found in daytrading aren't actually trading, or, if they are trading, they are making little or no money (eventually they disappear, with or without fanfare, and one learns after a while not to pay a great deal of attention to the claims made on message boards).

 

Therefore, rid yourself of any notions that if you're not daytrading, you're not really trading. Traders can also trade daily charts, or even weekly. And if you can't be at your computer during the trading session, daytrading -- or intraday trading -- just may not be for you.

 

Since you have experience with mutual funds, you know all about patience. And given your particular tax situation, frequent trading will likely generate more frustration than it's worth, certainly more than is necessary. Consider, then, a postponement of your trip to the real-time world as well as all the paraphernalia required to go there and work there. Once one has decided to make a big change, he naturally wants to get on with it, and as quickly as possible, which is why so many people go from the one extreme of long-term investing to the other extreme of intraday scalping. You appear to understand that there's more to it than buying a charting program, subscribing to a streaming datafeed, and opening a brokerage account. You also appear to understand that there is a process through which one must go, either now, fresh and with a clean slate, or later, after a string of disappointments and failures.

 

Therefore, at least entertain the idea of EOD (End Of Day) trading. Not only will this not require you to be in front of your computer all day every day, it will neither require you to wait an intolerable amount of time for your work to pay off. While some have compared EOD trading to watching concrete set, doing it the "Wyckoff way" is something different, waiting until just the right moment to take the trade, then reaping the benefits (or getting stopped out) almost immediately. Gringo, for example, proposed two trades in the EOD thread, one of which he took and one of which he didn't. But both ripened within only two or three days. For someone with a full-time job and family responsibilities, two or three days is a mere blip.

 

Of course, if you're desperate to daytrade, why not? The best way to learn what you're in for, and up against, is to try it. But if you have a life, and many things to occupy your time, you may find that EOD trading is just the thing. Far faster than the mutual fund route if you approach it as Wyckoff would, but without all the pressure and anxiety of intrady trading. The same principles apply, the same procedures, and often greater rewards.

 

And you don't even need a real-time feed.

[dla133 10]

Thanks again DB.

 

I look forward to posting my progress over the next few years. Notice I say years not days as I already know this will take a long time before I will see the fruits of my labour. EOD trading may be better for me, only time will tell. My intension is too give myself around 3 hours a day to watch, analyse, and learn. I will look at real time data while the markets are open and also look at the EOD data and write my thoughts accordingly. The live data will be for possible short term scalping and the EOD for a more long term approach. Which one I will finaly settle on will be which one I feel more comfortable with. People may say you shouldn't look at both as its too much for a beginner. I say unless I look at both how will I know which one I prefer.

 

I hope that with the help of this forum and guys like yourself sharing your experiences I will find my own path to success.

 

Cheers

Lee