Trading The Wyckoff Way

[DbPhoenix 42]

DB-

I don't understand what he means by Divergent/Covergent Lines. Do you think where he writes Divergent/Covergent lines he is referring to any of these notions: Baskerville, the Rhea Dow theory confirmations, something like Mamis' Market Action Indicators, a stock rising say on falling volume, fantasy lines like the MACD curling, something like the IBD RS-line or something else entirely?

 

Thanks,

Tannis

 

The quote in its entirety may be found here: http://www.amazon.com/Course-Trading-FT-Traders-Masterclass/dp/0273637398/ref=sr_1_3?ie=UTF8&s=books&qid=1235952928&sr=1-3

[brownsfan019 17]

Hey guys - I started a new thread where we can post our daily trades and get some feedback. I know there's quite a bit that follow DB's methods here, so I would assume there's some $$$ being made here!

 

Stop on over here and let's get some feedback & accountability going on this forum!

 

[fxshark 10]

does anybody have indicator P&F for TradeStation?

[Tams 20]

does anybody have indicator P&F for TradeStation?

 

someone sent me this code.

I have never tried it tho.

 

 

 

// PnF EasyLanguage code
// This will simulate "Point & Figure" levels on a bar chart
{Written by Adam Hefner version 01-07-02}

Var: dbh(0), dbl(0), {Daily block high/low}
abh(0), abl(0), {actual block high/low}
dir(0), {direction}
sv(0); {stop value}

inputs: 
BlockSize(1) , {Block Size}
ReverseSize( 3), {Reverse Size}
lookBack(-1) ; {look back period}

Var: 
bs(BlockSize) ,
rs(ReverseSize) ,
lb(LookBack) ;

{daily block high/low calculations}
If Round(high/bs, 0)*bs > High
then dbh = (Round(high/ bs,0)*bs) -bs
else dbh = Round(high/bs, 0)*bs;

If Round(Low/bs, 0)*bs < Low
then dbl = (Round(Low/bs, 0)*bs)+bs
else dbl = Round(Low/bs, 0)*bs;

If currentbar <= 1 {check for first 2 bars of the chart}
then 
begin
dir = 1;
abh = dbh;
abl = dbl;
end
else 
begin
If dir[1] = 1 {direction up calculations}
then 
begin
if dbh > abh[1]
then
abh = dbh {new high}
else 
begin
If dbl <= abh-(bs*rs) {reverse}
then 
begin
	dir = -1;
	abh = abh[1];
	abl = dbl;
end
else
	abh = abh[1];
end;
end
else 
begin {direction down calculations}
If dbl < abl[1]
then
abl = dbl {new low}
else
if dbh >= abl+(bs*rs) {reverse}
then 
begin
	dir = 1;
	abl = abl[1];
	abh = dbh;
end
else
	abl = abl[1];
end;
end;

If dir = 1 {reversal stop}
then sv = abh-(bs*rs)
else sv = abl+(bs*rs);

plot1(abh);
plot2(abl);
plot3[lb](sv) ;

[fxshark 10]

someone sent me this code.

I have never tried it tho.

 

 

 

// PnF EasyLanguage code
// This will simulate "Point & Figure" levels on a bar chart
{Written by Adam Hefner version 01-07-02}

Var: dbh(0), dbl(0), {Daily block high/low}
abh(0), abl(0), {actual block high/low}
dir(0), {direction}
sv(0); {stop value}

inputs: 
BlockSize(1) , {Block Size}
ReverseSize( 3), {Reverse Size}
lookBack(-1) ; {look back period}

Var: 
bs(BlockSize) ,
rs(ReverseSize) ,
lb(LookBack) ;

{daily block high/low calculations}
If Round(high/bs, 0)*bs > High
then dbh = (Round(high/ bs,0)*bs) -bs
else dbh = Round(high/bs, 0)*bs;

If Round(Low/bs, 0)*bs < Low
then dbl = (Round(Low/bs, 0)*bs)+bs
else dbl = Round(Low/bs, 0)*bs;

If currentbar <= 1 {check for first 2 bars of the chart}
then 
begin
dir = 1;
abh = dbh;
abl = dbl;
end
else 
begin
If dir[1] = 1 {direction up calculations}
then 
begin
if dbh > abh[1]
then
abh = dbh {new high}
else 
begin
If dbl <= abh-(bs*rs) {reverse}
then 
begin
	dir = -1;
	abh = abh[1];
	abl = dbl;
end
else
	abh = abh[1];
end;
end
else 
begin {direction down calculations}
If dbl < abl[1]
then
abl = dbl {new low}
else
if dbh >= abl+(bs*rs) {reverse}
then 
begin
	dir = 1;
	abl = abl[1];
	abh = dbh;
end
else
	abl = abl[1];
end;
end;

If dir = 1 {reversal stop}
then sv = abh-(bs*rs)
else sv = abl+(bs*rs);

plot1(abh);
plot2(abl);
plot3[lb](sv) ;

 

Thanks I will try to make indicator ! )

[subq 10]

nice to see some P&F traders around, what software is everyone using?

 

I have developed quite a few of my own trading methods for day trading with P&F

[Gringo 10]

SHORT position if initated based on QQQ = 31.63(subject to how traders are behaving S/R level may be a little off)

 

Stop Loss: 32 (exit all positions and take loss of 1%)

 

If price moves 1% in favour then stop loss moved to Break Even (BE) point.

Profit target 1: 29.8 (1st half position closed)

Profit target 2: 28 (2nd half position closed)

 

Risk of 1% and reward of 3% (if only 1st target is reached and BE stop is hit on the 2nd half)

Risk of 1% and reward of 9% (if both targets are reached)

 

Re-entry a few times may be attempted because of the largess of the R but breakout upwards means get the hell out and fast.

 

 

There's another bigger box from 25.6 - 31.6 and it can also be used to define entry exit points. I just wrote the number above from box determined some time back. The bigger box perhaps represents a clearer picture of price movement.

 

Upper Limit = 31.6

Mid = 28.6

Lower Limit = 25.6

 

 

 

Gringo

Edited March 25, 2009 by Gringo

[DbPhoenix 42]

While I welcome the participation, you guys do realize that you're in the Wyckoff Forum, right?

[fxshark 10]

nice to see some P&F traders around, what software is everyone using?

 

I have developed quite a few of my own trading methods for day trading with P&F

 

Hi, can you post your methods here? A try to find P&F for TS....but I cant to find it..........Which software u use?

[innovation1520887469 10]

Gringo,, thanks for sharing. I have a few questions based purley on curiosity not any opinion on the validity or otherwise of your analysis, if you don't mind sharing:

 

Are you going to monitor intraday to determine entry based on activity or are you going to enter based on a sell stop order? - If you are watching, what would get you in and conversely what would make you scratch the setup and look elsewhere.

 

What is your SL based on? % risk based on position size or is there some S/R involved? If price gets to 32 is that enough for you to assert that price has broken out?

 

What are your Targets based on?

 

Have you looked at this from the other side? Prices rejection of lower prices at the start of March on lower activity/volume than the previous attempt at the end of November (also the DB) might mean that sellers are done or at least running out of steam on that TF. The fact that volume has not materially diminished and that the gain is in proportion to the effort on the move up from the bottom of the box might mean that buying is also of good quality.

 

This, even if it has some merit may not be important as your setup could still happen as you are only looking to get back to the midpoint of the box.

 

I was just wondering if you had played 'devils advocate' as I tend to. I also then end up with two equally attractive but mutually exclusive setups which leaves me in a sort of 'paralysis by analysis' state.

 

I am thinking of moving to EOD trading from intraday as current out of market commitments have grown recently (Birth of my daughter), perhaps we could collaborate? PM me if you can see any mileage in this.

 

Cheers

[Gringo 10]

Are you going to monitor intraday to determine entry based on activity or are you going to enter based on a sell stop order? - If you are watching, what would get you in and conversely what would make you scratch the setup and look elsewhere.

 

Yes, I'll be looking at 1min intra-day. Based on that I'll see if a consolidation weakens or strengthens and then basically treat the entry as an entry to make profit on 1min chart.

 

What is your SL based on? % risk based on position size or is there some S/R involved? If price gets to 32 is that enough for you to assert that price has broken out?.

 

In all likelyhood I'll be using 1min to determine if prices went against. Which boils down to taking a loss even earlier as going above 31.7 would to me imply underlying strength. 32 I used as a reasonable wiggle room in case I cannot watch constantly the market.

 

What are your Targets based on?

 

Mid point of the box is the main price at which all the fighting is taking place and bulls have pushed prices up to upper extreme of box and bears to lower extreme before giving up. Basically by taking position at these extreme points I am betting that if it is exceeded then new strenght has come in and power dynamics are changing. Opposite extreme is the logical destination but profits are taken at midpoint to ensure that bulls don't push all the way back to BE.

 

Have you looked at this from the other side? Prices rejection of lower prices at the start of March on lower activity/volume than the previous attempt at the end of November (also the DB) might mean that sellers are done or at least running out of steam on that TF. The fact that volume has not materially diminished and that the gain is in proportion to the effort on the move up from the bottom of the box might mean that buying is also of good quality.

 

You are right. On weekly I did see prices make a higher low which indicated supply diminishing. Based on longer term it may not be too wise to attempt a short. Due to my liking for smaller time frame I am taking it initially as if it's only an intra-day trade. In case prices start following the intended direction I would hold and continue to hold. I would still be fine with just placing mechanical stops and letting it go at that to have a shot at it with limited risk rather than not taking a position which in my eyes has clear points for reference. 34 area is also another resonable point to look for as DB/TOG recently mentioned in CJ thread.

 

Keep in mind I would be more comfortable if prices went above the high and came back and second time couldn't reach earlier high to short.

 

I was just wondering if you had played 'devils advocate' as I tend to. I also then end up with two equally attractive but mutually exclusive setups which leaves me in a sort of 'paralysis by analysis' state.

 

Both cases here have same R so once I get 1% stop comes to BE and then it's just managing the trade. Overnight holding does have the risk of gaps which is somewhat of a sore spot.

 

I am thinking of moving to EOD trading from intraday as current out of market commitments have grown recently (Birth of my daughter), perhaps we could collaborate? PM me if you can see any mileage in this.

 

I know what you mean. I like intra-day more but forseeing future obligations and time commitments EOD is attractive. Besides it makes me feel more in control and less eager to trade when there's nothing to trade intra-day.

 

I am liking the larger box better due to its clarity.

 

Gringo

Edited March 27, 2009 by Gringo

[DbPhoenix 42]

Yes, I'll be looking at 1min intra-day. Based on that I'll see if a consolidation weakens or strengthens and then basically treat the entry as an entry to make profit on 1min chart.

 

 

 

In all likelyhood I'll be using 1min to determine if prices went against. Which boils down to taking a loss even earlier as going above 31.7 would to me imply underlying strength. 32 I used as a reasonable wiggle room in case I cannot watch constantly the market.

 

Aren't you mixing perspectives? If you're trading off a daily chart, the 1m is irrelevant. Your entry should be below your green bar and your stop above. Unless you want to wait until price actually reaches the upper limit of your range. If so, the same procedure applies.

[Gringo 10]

Aren't you mixing perspectives? If you're trading off a daily chart, the 1m is irrelevant. Your entry should be below your green bar and your stop above. Unless you want to wait until price actually reaches the upper limit of your range. If so, the same procedure applies.

 

Yes, I am actually waiting for upper (pink) line to be reached. If this trend up hadn't had a higher low in early March, I could have picked short yesterday when it was very close to my target line but due to underlying strenght I am not pushing my luck here.

 

Targets are determined using daily but initiation of position is based on my looking at 1 min when weakness is determined due to TD + vol reduction on test and possibly supply lines hunching over etc in the range of the target determined on daily.

 

So far, I am more comfortable shorting strength than letting the market move in my direction and pick me up on the way down. The logic is sound, however, but as everything else in life, a few bad hits are required before it's taken up.

Edited March 27, 2009 by Gringo

[cowseathay 10]

 

 

Gold is near support that has held since February. A buy stop limit at 90 with a stop loss order at ~87 could be placed as a bounce-off-support trade. Potential problems: Gold is near resistance in the longer time frame (weekly), so even if it were to bounce off support again, it may not yield too many points unless a breakout occurs to the upside. Also, when price repeatedly gets rejected at an S or R level, there is a good chance that eventually it will just break, so we could see it breakdown below this 87 level and go into the value area I've highlighted.

 

I'm a complete beginner to trading off daily charts, so any comments are appreciated.

 

Thanks.

Edited April 4, 2009 by cowseathay

[DbPhoenix 42]

The difficulties presented in many cases center around the trader's wanting to trade when he wants to trade and not when the market tells him to. In this case, the market told him to buy in November and sell in February. Other trades, while potentially profitable, are not as compelling.

 

The principles in trading off daily charts are no different than trading any other chart. The results just take longer. In this case, while anything's possible, the chart does not scream STRENGTH to me. Price could not make a higher high in February over July, nor could it hold a higher high over the swing high in September. In addition, it's broken the Nov-Jan trendline. On the other hand, you're at an important S/R level dating back to December.

 

I suggest, therefore, that you look at both sides of the trade and prepare a short as well as a long. A break lower might not be especially clean, and your stop might have to be wider than you'd like. But at least your chances of showing a profit off the trade would be enhanced.

 

There are also opportunities for scaling in and out of these trades that are not easily accomplished in intraday trading. You needn't, for example, go all in at 90. You could instead enter in thirds. Not only does this help to temper whatever emotional baggage you may bring to the trade but it also presents more opportunities for managing the trade toward profit.

[atto 20]

I have a good friend who works at BBY and has an employee stock purchase program. Every 6 months, he gets a good amount of discounted shares, and he always asks, "Should I hold it, or sell right away?" (this isn't money specifically allotted to equity investing, so he is risk averse). Since the entry is unavoidable, my main goal is to see if a long is a good trade, and how risk can be managed.

 

Here's the majority of my analysis of BBY. Of course, I'm not making any recommendations to you here, but the thought process may help some. My analysis takes a "zoom in" approach for the issue, applicable sectors, and larger market.

 

 

Let's start with BBY itself. Here's an annotated chart showing about 16 months. There's a few things we can pick up from here before going deeper. First, the stock recently gaped up, and has yet to fill the gap. This is traditionally a sign of strength, as bears are not pressing down enough to get it into the "air" (highlighted). However, in general, if/when price enters the highlighted zone, there are few people to protect positions, and the gap will generally fill. In this case, since there wasn't much value before the gap, the move would most likely test down to the $31 area.

 

Additionally, look at the recent price formation. Starting in December to mid March, price congested in the $26-$31 area. After a quick shakeout (on slightly higher volume than usual), price traversed the value area and broke out.

 

 

Onward. Next we will look at $RLX, the S&P Retail Index. BBY is clearly stronger than $RLX, which is still in it's bottom consolidation range. It's right at the upper end at R, which does not help the long side. However, there is also a fairly large low volume zone, highlighted, above. Few people will likely be defending positions inside this. On the flip side, if one were to short this, a stop right above the range would be practical, at around $305.

 

 

And a quick look at XLY, the Consumer Discretionary SPDR ETF. This one is a bit broader than $RLX, and is lagging both BBY and $RLX. It's currently at the midpoint of the range, which may provide R. If it is able to get above this value area, there's some "air" above.

 

 

Finally, the NYSE composite index. It's lagging the most, in a definite downtrend, and made a major lower low when the rest double bottomed. Price is also right at potential R.

 

So, the composite index is quite bearish, Consumer Discretionary has double bottomed, but has some potential R to deal with. S&P Retail is doing better, at the top of it's congestion range with a recent higher low. BBY is leading all of these, well out of its congestion and peaking into old value. While BBY looks fine, we also have to consider the sectors and market it is in. All things considered, I'd prefer to have decently tight stops in BBY. Due to S below, the gap, and low volume area all the way down to $31's, right around $36 would be the best logical stop for a swing trade. Looking up, we then have ~$41.5 then ~$43.5 to deal with.

 

I certainly wouldn't initiate a new long here, but wouldn't be against holding a position. If the sectors and general market find R where they are, BBY will likely return to test old value. If they can break out, BBY will likely traverse the value area from last year.

 

I welcome any thoughts, comments, additions, or other views.

[DbPhoenix 42]

I agree with your analysis, but there is a problem with using the top-down approach here. Now that CC is pretty much out of the picture, there is no other retailer in the RLX like BBY. Rather it consists of grocery stores, discount retailers, clothing stores, department stores, etc. Therefore, what the retail index and consumer discretionary are doing may not be particularly relevant. BBY may be doing well because it is in some ways unique. But it may also revert to previous value for the same reason. In other words, the group and sector may not be helping to propel it forwards, but they may not provide support on the way down, either.

 

Your plan, then, as far as the stop goes, is well-considered. But go past that. What happens if the stop is triggered? Is there a re-entry in that area? What if it goes all the way back to 31? Is there a re-entry there? How will any of this be played if and when it occurs? By thinking about all of this in advance, your friend will be better prepared to take advantage of whatever opportunities arise rather than wallow in disappointment over the fact that his stop was hit.

 

Incidentally, you said at the top that "(this isn't money specifically allotted to equity investing, so he is risk averse)". Don't you mean that under these circumstances he is risk tolerant?

[wjrusnak 10]

FAZ anyone? I'm not suggesting a buy here, I just would like to discuss some of the risk/reward. I hope I'm not alone in thinking that the financial sector is not going straight up from now on and will dip back down to test lows. This as well as other ETFs seems disproportional to what has happened with the actual index. Even if the S&P never tests its lows again, I would assume there must exist a down side potential, thus boosting this ETF once again.

 

Anyway, from >100 to 10 in less than a month. Looks like it could be a good setup soon. R/R: If the markets test bottoms again, you could easily make a factor of 10 on your money (1:10). Just seems like a great choice for an ETF.

 

Let me know what you guys think.

 

-- Bill

 

[thrunner 10]

FAZ anyone? I'm not suggesting a buy here,.......

You are not serious. It is bad enough they disguised options under the banner of a stock ETF, they have to triple the leverage on it. Why wouldn't something like this goes to zero if the options expired worthless?

 

I am sure you can get a bounce here, it being at the 3 months and lifetime low, but long term, why should any body invest in an options instrument?

 

The stopping volume on the SKF also suggests the shorts are out of this stock, but that doesn't mean it can't go lower.

 

What a country, you can short the shorts.. and there will be those who would short the shorts who are shorting the shorts... we will never run out of shorts because in the end we will all be wearing them.

[wjrusnak 10]

You are not serious. It is bad enough they disguised options under the banner of a stock ETF, they have to triple the leverage on it. Why wouldn't something like this goes to zero if the options expired worthless?

 

I am sure you can get a bounce here, it being at the 3 months and lifetime low, but long term, why should any body invest in an options instrument?

 

The stopping volume on the SKF also suggests the shorts are out of this stock, but that doesn't mean it can't go lower.

 

What a country, you can short the shorts.. and there will be those who would short the shorts who are shorting the shorts... we will never run out of shorts because in the end we will all be wearing them.

 

I never suggested a long term buy, as I generally close my stock positions days or a few weeks after I open them. And I am well aware that this thing can go to zero, which is why I said it could be setting up for a nice trade. They key word being trade. I appreciate your opinion though. It is amazing that these short ETFs have made such a hype in the past few months. And you're right, shorting shorts just sounds insane...

 

-- Bill

[DbPhoenix 42]

How would you apply Wyckoff principles to a trade here? What, for example, is the trend?

[wjrusnak 10]

How would you apply Wyckoff principles to a trade here? What, for example, is the trend?

 

Speaking in terms of Wyckoff then, I would not touch this thing long yet. Path of least resistance lies with the trend it is most certainly a down trend. One method of trying to catch a reversal would most likely have to be done in a smaller time frame, where you can view the intraday support and test of support. Stops would no doubt be tighter and a trader would be looking for R at the trend line or at ~20. If one wanted more proof, he could wait for the break of the trend line and attempt the breakout, or maybe even wait for a pull back after the break out. On the contrary, the trader could simply short this depending on the strength of R at 20 or the trend line. It just doesn't seem like there would be as much to profit from a short though, unless you increased your position, and that would seem like suicide against a 3x leveraged ETF. In essence, for my style and comfort zone, I would be looking to wait...

 

[Guest Rishi]

<<<@!1!@>>>

[Gringo 10]

Hello,

 

XLF is showing below with 10, 11 and 13 areas as S/R. I am not guessing here which way price may go but am using common sense (now I call it common sense!) to show possible important S/R levels.

 

Others before me have also identified these areas to be important so I claim no credit for originality or intelligence except for the colour scheme used on chart!

 

[DbPhoenix 42]

Hello,

 

XLF is showing below with 10, 11 and 13 areas as S/R. I am not guessing here which way price may go but am using common sense (now I call it common sense!) to show possible important S/R levels.

 

Others before me have also identified these areas to be important so I claim no credit for originality or intelligence except for the colour scheme used on chart!

 

Don't forget also to monitor the other sectors and the major averages, at least. Anyone having done so would have seen the strength prior to today's action. StockCharts makes it easy to do this with their "CandleGlance Groups".

 

I've posted these before, but it won't hurt to post them again. Just try to ignore the MAs and the color-coding.

 

Doesn't seem to be much weakness here, does there?

Edited May 4, 2009 by DbPhoenix