Trading The Wyckoff Way

[jay bird 10]

A couple of setups that I saw using the tick today. My rules concerning the tick are basically if price is trending and the tick is hitting extremes then I only take with trend setups until the trendline is broken and there has been a test of the previous price extreme. If the market is ranging then I look for divergences at S/R.

[tape reader 10]

Motorway understands the situation quite well. You can subdivide price data into equal bundles of time and the trend is not lost. But when you subdivide volume into equal bundles of time, the force of the buying and selling is diffused. It is lost in time. The wave chart, in which price waves and volume are not bound by time, often provides greater insight into market direction and turning points. In his tape reading course, Wyckoff explained how to recognize intraday turns on wave charts. He wrote: [The immediate trend] is likely to change its direction from one to three times in a single session. This is how you detect the change: In an uptrend, when the selling waves begin to increase in time and distance, or the buying waves shorten. Either or both will be an indication of a change in the immediate trend. Apply the same reasoning to a down trend." The attached chart is a sample.

[DbPhoenix 42]

A couple of setups that I saw using the tick today. My rules concerning the tick are basically if price is trending and the tick is hitting extremes then I only take with trend setups until the trendline is broken and there has been a test of the previous price extreme. If the market is ranging then I look for divergences at S/R.

 

That's pretty much what I presented here yesterday, only without the TICK overlay. As you say, all you have to do is ride the trend.

 

Thanks for the contribution.

 

Colorful.

[DbPhoenix 42]

For those who are playing bounce the ball, the focus for this morning is so far 1434.

 

Fasten your seat belt and keep your arms and legs inside the elephant at all times.

[motorway 10]

Price does not unfold in equal units of time

 

It unfolds in WAVES

 

I recognize the sentiments in your post TapeReader

 

and your point of distortion of Price Vs volume..

 

“How long is a coastline?” The surprise answer is an infinite answer. In other words it can be measured over and over again with different scales of measurement producing different answers..

 

Welcome to the world of fractals ( The F in P&F )

 

Price movement creates a graphical representation that is similar to a coastline. Based on this similarity, it only makes sense to measure price movement with the same approach as a coastline.

 

How do we measure coastlines and Mountains

 

With a clock ?

 

What happens if we do ? ( There no longer is a coastline or mountain )

 

Fractals model complex physical processes and dynamical systems. The underlying principle of fractals is that a simple process that goes through infinitely many iterations becomes a very complex process. Fractals attempt to model the complex process by searching for the simple process underneath.

 

 

What is the simple process at work in the markets

 

Waves of buying and selling

That push prices up and down ...

 

They involve volume. And they have certain duration.

 

But ALWAYS involve a move up and down

 

Waves build up and down

 

Most fractals operate on the principle of a feedback loop. A simple operation is carried out on a piece of data and then fed back in again. This process is repeated infinitely many times. The limit of the process produced is the fractal.

 

Almost all fractals are at least partially self-similar. This means that a part of the fractal is identical to the entire fractal itself except smaller.

 

Fractals can look very complicated. Yet, usually they are very simple processes that produce complicated results.

 

 

We start with the smallest waves... They look very simple, these waves join-->condense, build into large waves ( A two way relationship here forms large to small )

 

OK The Point with P&F is this

 

The basic pattern is of fluctuation ...The chart is made up of units of fluctuation

 

Think about this very carefully

If one column goes UP the next will always go down

 

Always

 

--> condense the chart ? Though four columns become two..

 

The self similar pattern remains The same coastline remains

one column goes up and the next always go down

The coastline retains it's structure always... Think of looking at a mountain from different distances It is Always the same

 

Because the up and down are not being deformed by time

 

Even if we made a complete Bull and Bear market

into a Two column P&F chart

 

It would still be the same coastline or mountain

with the same pattern of Waves . This is the only pattern RDW is interested in . Not mechanical appearances But The pattern of buying and selling of the waves this requires the use of JUDGEMENT......

 

 

 

OK not off topic I hope ----> POINT many of the so called,Fractal Chaos cutting edge do dahs DO NOT COME CLOSE to the simple clarity of the P&F chart or its power to reveal the true structure of trend

 

Wyckoff P&F is like Wyckoff anything

 

Waves of buying and selling

But no matter how the P&F chart is condensed

The way up is the same as the way down

 

The mountain always is the same mountain

Just smaller or larger in scale

 

Units of fluctuation of risk and reward

 

In a very real sense units of WORK

Work is what creates future High and lows ( The Wyckoff CAUSE--> The building of expectation )

 

A P&F chart follows the waves of the market as they travel

Through Time Frames .The P&F chart is not trapped in a time frame..

 

motorway

[Copycat 10]

@Motorway

 

Why are there only whole numbers for price in an a wave chart? This way only waves made by whole numbers are visible. Units of price is 1. So for example:

 

44, 45, 46.

 

There should be less waves if the units are bigger then 1 (44, 46, 48) and more waves if the units are smaller then 1. Theoretically it can be even made continuous.

 

Does this al even matter?

 

My ohter question is regarding the time frame. There is still one time frame when using P&F. The starting point and ending. Where do you need to start? Is there a special reason to choose a particular starting point?

 

Or should i just shut up and read at least something about P&F before asking silly questions? :p

 

I apologize for the bad English.

[motorway 10]

With Wyckoff There are three Types of chart

 

The vertical line OHC chart

The "Figure" chart P&F

& Then the wave chart

 

Why are there Whole numbers ?

 

We live in a Digital Age. Where all sorts of streams and structures are turned into digital

 

Units of 1s and 0s.. This is very useful ...

 

Figure Chartists entered the digital age in the late 1800s

converting the stream of transactions into digital units of up and down.

 

When the unit is changed the resolution is changed

As is frequency and amplitude ( like bit rate ) and time..

 

The figure chart is a non linear digital filter

 

The question of scaling is important and serious

 

We need to understand what happens ( what is revealed ) when we modify the BOX SIZE

and/or change the REVERSAL...

 

And how charts of different scale co ordinate with each other

 

IF the box size was equal to the the bid ask spread the chart for a full market cycle

eg 2003 to 2009 would be enormous . It would be a valid chart ( only if our data supported this resolution though ) But only useful for trading moves of that Box Size relevant scale.

 

P&F is a good teacher ... We always trade moves .. not time frames

 

The Figure chart is the CAUSE AND EFFECT CHART

 

NO CAUSE NO EFFECT.... More important than EFFORT AND RESULT

 

Think on this, Wyckoff measured Cause by digitizing the swings in the trading range

He did not measure Volume --> Change of Hands --> But change in Expectations .

 

How do you scale the Figure chart... One way is to scale in relation to trading range amplitude .... The trading range of interest at the scale you are operating on

 

Another way is to have a universal scale to use as a screen for opportunities to explore

 

Another way is to determine what particular scale the most information is unfolding on

( yes we can do this ) eg Is large scale volatility containing the small scale.. Or are new emergent trends arising form the smallest waves..

 

Is light a wave or a particle ?

 

is it continuous ?? Are the waves of buying or selling ?? Or at bottom are they more like a series of explosions ...

 

Does this matter ... Yes and No because the Coastline is always the same.. Just depends on what scale we want ( Scale not time frame , We trade MOVES )

 

The starting point is the first trade

The ending is the last Box

 

The "Background" or context is everything in between

 

However the various phases and points of interest ( prominent features of the coastline )

where Cause is generated and expended... Are natural starting and end points

"CHAPTERS"

 

 

 

OK ... For the Fractal Doubters... IF Wyckoff had that word available he would have used it. His writings reveal he knew all about scale invariant...

 

Now what do you do with something like a coastline ?

 

You cover it with BOXES to compute the BOX counting dimension

A measure of complexity or Fractal Dimension..

 

OF roughness of ( what are the MOST important features of the Figure chart--RDW ? )

 

CONGESTION...

 

A figure chart does this automatically

We do not need to work out how many Boxes make up ( cover ) the Coastline ..

 

We just need to count them and observe them---> Because they reveal ( They do not conceal )

 

A Figure Chart... never has to move and never has to move sideways ever.

Here is part of its "secret" and why it is different.

movement always means something

movement is WORK

 

Figure chartists and Wyckoff were very fond of Mechanical and Physics type analogies

 

eg "we find many interesting and constructive analogies" RDW

 

"The Forces of supply and Demand can be compared to the mechanical forces of pressure and tension" RDW.

 

Wyckoff used one point charts as the standard for stocks that were not too high or too low

But knew that often we would have to use a different size Figure chart when warranted.

 

motorway

 

Here is a chart of the DJIA it covers 100 years

Box size is 2000 points

 

We can see that the DJIA on this scale is in a trading range ( Anyone trading moves on this scale )

 

Now is there more useful information at higher resolution ?

We will have to see as we approach this Coastline from such a great height

 

But there it is in its structual integrity .

If we zoom in,,, We will find that Fractal really has meaning

and that the Coastline is the same Coastline ALL THE WAY DOWN.

 

Such are some of the static aspects of "" FIGURE CHARTS "

There are also the Dynamic

 

M

[Eiger 10]

...A P&F chart follows the waves of the market as they travel

Through Time Frames .The P&F chart is not trapped in a time frame..

...

 

 

A wave from the Wave Chart represents a figure(s) on the P&F (and vice versa), but few understand this point.

 

Nice to see you here MW.

Edited June 26, 2009 by Eiger

[motorway 10]

Hello to Eiger and Atto &Tape and everyone else

 

OK The 2000 pt Dow chart ---> Who has tried to interpret it ?

 

It is a One Box reversal chart... A chart of the immediate trend

 

The immediate Trend at this scale ...

 

The trend is up with the Second Box , THINK ,To define the immediate trend

We need two consecutive BOXES in the same direction.

 

Consider a chart drawn from the tosses of a fair coin ( This is very important to consider... We use this chart as a manipulation detector )

 

The minimum Run is HH or TT ... HHT what is the trend ?

HHTHH ? HHTHHHHT ? --> all three the immediate trend is UP

 

On The ( entire history) DOW chart there is a move up of 6 boxes

 

This "coin" has flipped 6 heads in a row ( Question is this a fair coin ? )

There is then one box back ( NOT A CHANGE OF TREND ) DEMAND reasserts and then there is a RISE of 3 boxes

 

We have had a 8 box move without a corrective counter trend

But a step back ( like a test ) With demand reasserting.

 

( If this was a FAIR COIN , You would expect a Run of at least 6 Boxes only 1.6% time with a one box reversal chart)

 

There then is a REVERSAL SUPPLY OVERCOMES DEMAND

and There is a THREE BOX counter trend ( very significant, we could already condense this chart by making it a three box reversal chart.. The fact that it has reversed 3 boxes is significant )

 

And where are We ---> AT THE HALFWAY POINT.... And not only, BUT where Demand was seen to reassert At a POINT of PREVIOUS SUPPORT

 

------

 

Support and Resistance--> Where is it . what is it .

 

A dynamic analogy is of a River...Where does a river meet RESISTANCE ?

 

WHEN it does what happens

When it break through ?

When it is turned back ?----

 

Read Studies in Tape reading

 

The P&F chart teaches us that "RESISTANCE"" IS ALWAYS up ahead and is always being met and overcome ( OR NOT )..

 

What are we interested in --> The Composite Man

The P&F chart is tied around his ankle... he is the one that draws the chart

he determines when the columns change ( SEE -->NOT ANY ARBITARY TIME SCALE )

 

----

 

I will soon post the 1000 pt chart--- WHAT WILL HAPPEN ?

 

eg If the chart was drawn from coin tosses how many more columns would appear on average ( so aggregating 1000 tosses instead of 2000 ) ?

 

What does it mean if we get a very different number with this DOW chart ?

 

A very good question is always -->How would a random chart behave ( hint --> while there would be congestion patterns there would be NO CAUSE--> The Boxes would have NO MEMORY )..

 

One more point the ground is as important as the figure

ie the empty spaces...The River flows as it does because of landscape

 

What does the "Figure Chart" flow through

 

Every BOX is a POSITION..

POSTIONS are made, maintained

and changed...

 

 

The chart is very simple

Simply PROFOUND

 

Much to Talk about

 

Motorway

[za_xc03 10]

I having a few issue hoped friends here can help me :-

 

1)What contrasts between "volume by Price" with "volume in thousand".

2)How to read movement of both "volume". Do it same or having differences.

 

Thank you.

[DbPhoenix 42]

I having a few issue hoped friends here can help me :-

 

1)What contrasts between "volume by Price" with "volume in thousand".

2)How to read movement of both "volume". Do it same or having differences.

 

Thank you.

 

If by "volume in thousand" you're referring to vertical volume bars in histogram form, those represent quantity in time, that is, how many shares (or whatever) changed hands in whatever interval you're using: 1m, 5m, 1hr, 1 day, etc.

 

Volume By Price tells you how many shares etc changed hands at a particular price, without particular regard to time (except of course for the time period you select to plot the VBP). The histogram will tell you how many shares were exchanged during a given time interval, but they won't tell you at what price those shares were exchanged. The VBP will.

 

As to how to read the movements, there are several threads here on volume, though I'd suggest starting here. As for reading VBP, there's also a lot of information in the forum, but a quick and dirty option is here and here.

[Eiger 10]

 

....The chart is very simple

Simply PROFOUND

 

Much to Talk about

 

Motorway

 

 

Yes, it is profound.

 

I think the times in which RDW wrote shaped his thinking, or at least his analogies. Machines and mechanisms were new then, promising a bright future. Freud - writing about the same time - has a mechanistic view of the personality. Perhaps today his analogies would be influenced by the 0s and 1s?

 

In the reverse order from where (I think) you may be going ...

 

A chart of yesterday's activity in the S&P eminis - the 1-point (1x1) Figure Chart (FC) Wyckoff used on many stocks. A fine resoultion of the coastline.

 

A chart of the 5-point (1x5) FC. Same coastline, stepping back.

 

---------

 

I haven't thought about randomness and probabilities with respect to FCs. I am quite interested to see where you will go with this.

 

I like this definition of chaotic - "a system that appears random but behaves according to a well-defined set of rules." The rules I think about have to do with cause-effect, effort-result, supply-demand, and now, up-down

 

---------

 

And speaking of up-down, a third chart showing the 3-point (1x3) FC with the Wave Chart superimposed. Facinating, isn't it?

 

Now, add an element shown in Tape Reader's chart and you have something marvelous, which, of course, Wyckoff saw so long ago.

 

Eiger

[motorway 10]

When something is both simple and profound ..

 

We will need many analogies to see all sides and possibilities..

 

The FC is a non linear digital filter

 

This is the perfect tool ( RDW wanted precision instruments )

Because sometimes the signal is noise and sometimes the noise is signal

 

The one box reversal is the foundation it is the immediate trend

It is always following the "line of least resistance" not in a time frame

But in intrinsic time ( wait for it ) WITH NO LAG...

 

We need no Moving average to remove periodicity to reveal trend

We need no bollinger band to see if volatility is contracting or expanding

 

Certainly NOT any momentum or rate of change indicators

 

The "Figure chart" is always revealing velocity ( ROC )

It is always slowing down and speeding up. Stopping and starting so as we can get on and off..

 

What is wrong with all those time based indicators ?

 

They are always non optimised

 

and they always LAG....

NO LAG ? But there are only whole numbers---->

 

"Why are there only whole numbers for price this way only waves made by whole numbers are visible. Units of price is 1. So for example:

 

44, 45, 46.

 

There should be less waves if the units are bigger then 1 (44, 46, 48) and more waves if the units are smaller then 1. Theoretically it can be even made continuous.

 

Does this even matter?"

 

Very good question . To expand....

 

Does it matter to your HD 1080P TV ?

 

This is a question of meaningful scale... With the 2000 pt DOW chart

From this distance ( scale , magnitude related to time horizon )

 

You would not see any movement that is smaller than 2000 pts

 

Think ! We are on the moon almost looking at a great river on the earth

At this scale the immediate trend is 2000 pts....

 

Eiger's charts-- Without scale or notation ?

 

His charts could be the 2000 pt DOW chart

and mine could be one session on the S&P emins

 

SCALE INVARIANT

 

Many of the indications, such as the extent of reactions, lines of resistance, etc., will be found equally operative in the broader swings, just as an enlargement of a photograph retains the lines of its original.

 

Preparation for a long advance or decline, as well as for the intermediate movements are numerous, is clearly apparent to those who understand the art of Tape Reading.

 

In judging the market by its own action, it is unimportant whether you are endeavouring to forecast the next small half hourly swing or the trend for the next two or three weeks.

 

The same indications as to price, volume, activity, support and pressure, are exhibited in the preparation for both.

The same elements will be found in a drop of water as in the ocean, and vice versa.

 

A study of the stock market means a study in the forces above and below the present level of prices. Each movement has its period of preparation, execution and termination, and the most substantial of movements are those that make long preparation. Without this preparation and gathering of force, a movement is not likely to be sustained.

 

RDW

 

 

With one caveat----At the smallest scale , at the bid ask spread ..There are

No longer smaller waves as building blocks there is No "FRACTAL DEPTH"

 

---

 

With a one box reversal chart the next box ( If random ) has a 50% chance of being UP or DOWN.... So we need two consecutive Boxes to define an up or down trend/wave or move = The immediate trend

 

The three box reversal chart is a special condensation , It condenses the horizontal aspect of the chart ( Hint---> Some of the Empty Spaces )

While retaining the same unit of RISK and REWARD..

 

It is the Intermediate Trend . It takes Four consecutive Boxes to define ( or change ) an Up or Down move ( Think of the coin toss chart again )

 

Four is twice Two ( The One Box Chart ).... You might like to think of what a Five reversal chart needs to define an Up or Down Move

 

* Non Linear

* No Lag

* Always Optimized ( at a particular scale regardless of time frames )

 

Please read the Wyckoff PDF of Figure charts, look at the construction rules.

 

Does Volume lead Price ?

Does Price lead Volume ?

 

This is the realm of effort and result...

 

( hint) There are two sides to the buy sell spread.( so ).Price and volume follow each other

 

effort and result are Effects

 

In the beginning is Cause

 

( more on this later )

 

 

The FC is the Cause and Effect chart. And a picturization of the TAPE itself

So it is a graphic of the LAW of Supply and Demand ( when demand overcomes what happens ? When supply ? )

 

Wyckoff is interested in the patterns of demand and supply

of conditions that lead to outcomes

 

He is not interested in mechanical patterns

 

The river exists as a river because of certain stable recurring forces at work ( Laws )

 

But We really can not step into the same river twice

 

( who said that ? It is very Wyckoff )

 

Our aim is to recognize conditions ( causes )

Not look for mechanical patterns

 

Before we move on to the 1000 pt chart

 

Here is the 2000 pt x 3

 

The intermediate trend is Up ( at this scale )

 

Question to consider -->Just what are these boxes made / filled / WOVEN with...

 

motorway

Edited June 28, 2009 by motorway

[johnjohn1hew 10]

Wyckoff said that hinges represent the end of one chapter and the beginning of another. So basically i believe hinges to be the re-balancing (unwinding) of the market that follows a period of instability (trends and wide ranges). The traders in hinges are continually unwilling to take price higher and lower as they are aware that in this range, they are constantly going to be trimmed by the opposing force which resides in the direction in which they are taking price. So this is represented on a graph by declining volume coupled with lower highs and higher lows. The breakout of this pattern could be caused by covering shorts/long or by new bulls/bears. Since the majority of the traders are out of the market, they will most likely re-enter when they see a new opportunity in the direction of the breakout (the beginning of a new chapter).

Edited June 28, 2009 by johnjohn1hew

[johnjohn1hew 10]

In response to #76

 

**Hinges do not necessarily have to take place after a period of instability, they can take place anywhere, after anything. **A breakout is not necessarily caused by position covering, but can be caused by any form of buying/selling. A hinge just represents a balancing of the market forces, thus why it indicates the end of the old and beginning of the new. It is an occurrence where neither side has an inclination to see price head anywhere, represented by the traders' lack of participation. What ever buyers are willing to take price up, realize that they will most likely just be overcome and price will go back down and the sellers do the same thing when they are getting closer to the support. These movements become smaller and smaller until price is practically a straight horizontal line.

Edited June 29, 2009 by johnjohn1hew
Grammar

[DbPhoenix 42]

Based on recent comments and questions in the chat room, it's become clear that the two threads in the Wyckoff Forum which are most focused on support and resistance have succumbed to the Dreaded Thread Bloat, having become too long to read. This does not imply, however, that we will begin again. Rather I will ask those who are interested in this subject to read the following threads:

 

LESSON: Trading By Price

LESSON: Auction Markets

Supplementary Reading: Support & Resistance and Trading Trend

Those who are really interested can read the posts in the discussion threads accompanying the abovelinked "lesson" threads. And if even these are insufficient, there is the original course in its entirety.

 

Those who have questions that are answered in the above material will be referred to the above material. Those who have questions that are answered in the above material but who do not wish to read the above material will be given a copy of our home game and our best wishes. Questions that are not answered in the above material will be answered to the best of our ability (by "our" I mean any or all of those who are doing this and are as capable of answering the questions as I am).

 

The purpose of all this activity is to show how one can apply Wyckoff's notions of trend, trading ranges, support, resistance, and the importance of midpoints to actual trading, and not only trading, but trading in foresight, not just hindsight (where everything is clean and perfect and smells as fresh as an alpine forest). I've done this before, but the posts are buried in too-long threads, and perhaps this time I can make it even simpler.

 

The point of all this, of course, is to plan one's trades in advance, thus avoiding the headaches resulting from the head-banging associated with CouldaWouldaShoulda. The next post, therefore, will address the plan for tomorrow.

The first step for a trader is to determine the current trend of the market.

 

The second step is to determine one's place in the current trend.

 

The third step is to determine the proper timing of one's entry into whatever it is he's trading.

 

-- Richard Wyckoff

Note: When I closed this thread, the post count had risen to beyond 900. That's really sort of ridiculous. You ought to be able to get the gist of this in 50 posts, if that. If it grabs you, then by all means read as much and as far as you wish to go. But by no means do you have to read the whole thread to "get it". What matters most is the practice of plotting your trades in advance, not reviewing what you should have done at the end of the day and beating yourself up over the lost opportunities, and not paying a great deal of attention, if any, to those who post only hindsight charts.

 

Db

Edited April 30, 2013 by DbPhoenix

[DbPhoenix 42]

We begin with the macro, here using a 100,000 Constant Volume Bar (CVB) chart. The reasons for using this are two-fold: (1) volume bars don't matter until you get to some level of support or resistance where price is most likely to do something useful, like reverse, and (2) the CVB enables the trader to incorporate overnight and weekend action without having a long seventeen-hour+ trail of nothing going on that takes up unnecessary chart real estate.

 

I hope it's unnecessary for me to draw the various trendlines that accompany price up to the end-run swing high in May. They aren't particularly relevant right now. The swing high is, as is the month-long process of getting a running start toward making a new high. That swing high provided resistance, which we have since broken.

 

 

 

After having broken resistance, we then began working our way higher, forming a channel. This channel, however, was especially sluggish, each retracement nearly coming all the way back to the point where it started. Therefore, you have an awful lot of trades taking place in this channel, even though it does not provide the rectangular shape of a trading range. Therefore, displaying as it does some of the characteristics of both a channel and a trading range, we'll look at it both ways, the black rectangle being the trading range, with a midpoint of 85.

 

Resistance then becomes support as price drops back toward 40. This creates a tight, inner trading range (the gray rectangle) surrounded by a looser trading range which incorporates the extremes (the black rectangle). The midpoints of each are about the same, or at least not different enough to matter. Price then drops below support, but bulls aren't done, so they shove it back up again (this is called a "shakeout") in an apparent effort toward a new high.

 

So far, then, we have 85 as one focus -- the midpoint of that first, large trading range -- and 77 as another, the top of the next, most recent trading range.

 

Now the relevant lines and rectangles are brought forward to a 10,000 CVB.

 

 

 

 

Here price found R premarket at 85 today, the midpoint of that first, large trading range. This reinforces its importance, particularly since the effort to make a new high failed, and that becomes a resistance level to watch overnight and tomorrow, as does today's high. Thereafter, price showed the support provided by Thursday's swing high to be important (67), and that has to be watched tomorrow in case the current levels do not hold.

 

If price drops below the level of the top of the last trading range, at 77 (it found support there at the end of today), then the next destination becomes the midpoint of the range from 67 to 77 (those who follow MP will likely find a POC here). After that, 67 again. If that doesn't hold either, then the midpoint of the last trading range, at 57, which is also Wednesday's swing high (and probably another MP POC). After that, 40 to 35.

 

So there are the levels to watch. Once price arrives at one or more of them, the trader must then see how traders behave. If price bounces off support, a long might be appropriate, depending on one's own strategy. If it rejects resistance, a short. If it just sits, then so does the trader.

 

Edited June 30, 2009 by DbPhoenix

[DbPhoenix 42]

Premkt update:

 

Though 85 continues to be an important area due to that trading range at the beginning of the month, that was three weeks ago, and one has to adjust according to current conditions. The market is telling us "by its own action" that 86 may be the more important level (it's only a point difference, but a point means a lot to some groups).

 

This also illustrates the idea that support and resistance can be strengthened by having been broken if the break fails to hold (here, the break above 86 at 0600). Note also that this is a range bar chart, and that, again, what is important is price movement, not how one chooses to display it.

 

 

[motorway 10]

Markets are Manipulated

Participants do not passively observe something separate to them.

 

Participants Observe and Participate

 

Causing feedback loops & non linearity and also chaotic edges..

 

The BOXES on the FC are woven by Price Volume & Time

 

We need not consider any of these separately in order to utilize the chart

 

( compare Eigers chart & the 1000 X 1 chart )

 

The FC is an adaptive chart ... Boxes are filled at what ever velocity and with with what ever constituency that the tape determines

 

eg Think of the FC moving slowing with BOXES heavy with Volume versus moving with great rapidity and lightness ... The FC chart adapts to the action... This is the difference between intrinsic time and clock time..

 

Congestion areas build "CAUSE" by resolving differences of opinion and changing the floating supply...

 

one unit of cause produces one unit of effect

 

Hence in a manipulated chart ( ie as defined above , A non random chart )

 

There will be movements over a cycle ( accumulation ,markup, distribution & markdown ) where the aggregate reactions total 50% of the aggregate movement in the trend direction..

 

one unit of cause = one unit of effect---> the natural inclination of the chart

is to move in 45 degree diagonals ( This observation goes back a long way.. But is seen today in so called "Bullish'' and 'bearish" support and resistance

lines of what is known as chartcraft P&F.. Also consider Gann angles ( wrong sort of time )..

 

This movement has to do with the adaptiveness of the chart.. It can simple stop while differences arise and then resume when they resolve.. Moving in "Stair steps"...

 

 

RDW did not draw explicit 45 degree lines

But they are implicit in his quantification of cause and effect

and it is not a particular line but an inclination...

 

On these charts I have drawn some trend lines

determined by the action itself

 

There is only one way that a trend-line is crossed on a FC

The mere passing of time will not cause a crossing to occur..

 

The chart is a chart of EVENTS and RESPONSES

NO WORK---> no movement.

-

 

Ok Eiger's chart has the same dynamic as the 1000 x 1 chart

 

Interesting

 

We look for points of resistance

We look for reaction back relative to the half way points

We identify trading ranges

 

We observe the ground made and retained or lost ( what is increasing )

and when active or dull.

 

The 1000 pt chart has a series of step backs

A sideways trend a reaction back that allows us to draw our trend line

 

 

OK Hit a button there somewhere

have to Post the charts and more to follow

 

Motorway

Edited June 30, 2009 by motorway
posted to soon

[motorway 10]

OK

 

If the chart was a chart of coin tosses ( fair coin )

halving the BOX size would result ( On average ) in a doubling of the columns ( obviously the height )

 

The FC is also a superior map of volatility

 

What do the waves do ?

 

They build up and down ( magnitude not direction )

 

Sometimes the number of reversals will not change much

Because there are large forces at work

and the volatility on the large scale is constraining and containing the volatility on the smaller

 

Often ( when liquidity does not disappear ) There will be more "Information"

unfolding on the smaller scale ( Like this 1000 pt chart compared to the 2000 pt chart )

 

Obviously this is a manipulated market

 

 

On the 1000 pt chart

there are hollow spaces that the chart has flowed around

 

This today ( Fractals ) would be called the lacunarity....

 

It is a pointer to the fact that there are forces of a larger scale

impacting ...

 

 

We must think how markets are different today than in the day of RDW

 

( PRINCIPLES do not change )

 

eg decimalization & price levels

 

The chart itself will inform us what scale we should be looking at

 

( consider if when we had halved the BOX size . We only produced the coin toss chart increase of the number of reversals or less even )

 

The empty spaces are important in this respect too...

 

 

Many today are interested in fractals & chaos etc

 

Figure Chartists did not have the same terminology But They did have the TOOL..

(many spouting fractals today DO NOT )

 

On the comparison to coin toss charts

and probabilty of runs

and the different behavior etc

 

A series of articles in the Magazine of Wallstreet in 1926/27

examined these...

 

OK People might be getting the idea

That there is more to the FC than is obvious . Certainly much more than is found in modern descriptions

 

motorway

[motorway 10]

The Figure chart can become inactive ( but ) On the other hand, It may show many fluctuations..... while the verticals are unchanged. For example, if the

high full figure of a stock on a certain day were 45 and the low 40,

there might be several fluctuations back and forth between 42 and 43

on the figure chart, but no indication of this would appear on the

vertical chart.

 

For these reasons it is vital to keep both forms of chart

 

A loose quote from RDW....He is talking about the adaptive nature of the FC

compared to the static nature of the vertical line ( A BAR in a Time Fame )

 

Fixed Time intervals march across the horizontal Axis

They can give a false sense of predictive power

 

I can always tell you what the time will be at any time in the future

 

But I can not tell you how many reversals there will be on the FC

That is intrinsic time . Time that speeds up and down

 

It is work done ---> Energy being transferred

 

A modern Figure Chartist ( he seems to realize it too )--->

 

Every morning, Richard Olsen hops on his bike, buckles on his helmet and glides down the hill to his office in Zurich, Switzerland. In the evening, he pedals uphill to his home. "It takes about eight minutes to get to the office," he says, "but I need 16 or 20 minutes to get home - depending on the weather."

 

In his head, however, the uphill journey takes many times longer than on his watch. "That's the difference between intrinsic time and physical time," he laughs, referring to one of the epiphanies that got him hooked on "high-frequency finance" - his term for an approach to markets that, in part, measures time in terms of volatility instead of seconds. "It's the same concept that's behind point-and-figure charting, except we do it mathematically instead of visually, which is not an insignificant achievement."

 

Why do it ?

 

why are (RDW) Both types of charts VITAL

 

Richard Olsen---->

 

One fundamental problem in analysing financial

markets is that we’re working on the wrong scale,

the wrong time-scale. In other words, we interpret

that scale - the spatial, physical time-scale -

entirely wrongly. We haven’t got any intrinsic time!

So we have to find out what’s meant by the term

«intrinsic time» and how it should be used.

 

I say we’re taking up a wrong

position if we calculate using physical time.

 

 

Mandelbrot’s formula ( Fractals ) is

only an abstract mathematical aid. Everything

depends on how it’s used -

 

in my case, for

example, I have to transform physical time into

intrinsic time and use it to find the right scale.

 

There are many

people who have made use of a fractal approach

without knowing. Technical analysis, for example,

is full of fractal thinking. But the people involved in

that don’t talk about a science, they simply start

from experience and see that fractal thinking is

something extremely useful.

 

But it’s important to

realise that that the fractal element is only one part

of the solution.

 

The other is the intrinsic-time

concept. Without that concept, you can’t arrive at

the right solution.

 

 

Intrinsic time is a key concept

 

( The secret of the whole business lays in the fluctuations----unfolding in their own time, The Game In Wallstreet ~1898 )

 

 

When we talk about

fractal structures, we’ve only got half of it…

 

 

The other half is provided by

intrinsic time. And if you build that in too, it makes

everything even more fractal. The world only

seems less fractal than it is because we operate

with physical time. But if we replace it by intrinsic

time, the world becomes much more fractal.

 

 

Intrinsic time is - to put it a bit

drastically - when you think about --Real Life.

 

In our normal lives, physical time is a foreign body.

 

The Figure Chart is not out of date

It is mainly just misunderstood

 

 

Differences of opinion impact on the "floating Supply"

The adaptive nature of the FC means that it's velocity

is directly determined by these differences of opinion

 

We do not need so many shares to "change hands"

 

Because the Floating Supply is a fluid quantity

Which the Fluctuations Themselves impact on and change ...

 

YES there is change of ownership

strong and weak hands

 

But there is also the crystallization of sentiment

and the building of value ( or opposite )

 

Value is a slippery concept

 

For our purposes it is built up and torn down by the "fluctuations"

 

The FC is always moving to and away from congestion

From areas of Risk and Reward

Cause expended ( extended ) and engendered

 

Where are the ENTRY points ?

 

The structure and the dynamic will reveal

 

motorway

[R/R 10]

On today's NQ 5 minute, a nice little hinge developed at 11:35 EST that lead to an apparent shake-out.

[DbPhoenix 42]

On today's NQ 5 minute, a nice little hinge developed at 11:35 EST that lead to an apparent shake-out.

 

If you mean what I think you mean, that wasn't a hinge. A hinge should be "filled with price", lower highs and higher lows gradually drawing toward a point, concurrent with declining volume.

 

OTOH, you may be looking at something entirely different. Chart?

 

Edit: Is this the hinge (1m) you're talking about?

Edited June 30, 2009 by DbPhoenix
Add PS

[firewalker 10]

It's been a while since I posted a decent analysis here, so for old times' sake (and also to keep the mind sharp), here's a review of today including the why and the how!

 

It's my personal perception, so don't take any of it as 'true' or 'right'. Comments are welcome. Attached is the NQ of today, 1 minute candle chart.

 

It's been pretty lackluster couple of days lately, with price action at times so slow that watching paint dry has been more fascinating... this is also the week leading into 4th of July, so I'm guessing lot of traders are sipping cocktails on the poolside instead of studying their charts!

 

Anyhow, before the day opened I had identified support around 1468-1470 (same level as previous days), resistance around 1508 and the previous day high (minor resistance) at 1492 and 1488 the midpoint. Incidentally, 1487.50 was the premarket high. So those were the areas I was looking to take a trade.

 

(1) Market opens and rallies towards PDH and fails to show much strength. I wasn't following the TICKQ, but I assume there was a divergence somewhere there. And shorting here, in hindsight, was probably the best trade of the day. Price pulls back towards 1485, makes another attempt and then stalls minutes before the hour. Where it stalls is interesting, considering it's +/- the midpoint of the bigger range. However, I didn't want to get shaken out by the news, so I stayed flat.

 

(2) At the hour there was a news report (CB consumer confidence), which explains the volume peak. But we already had signals that buyers weren't that interested in pushing price higher.

 

(3) Price falls, and there is no reason to take a long trade, the trendline isn't broken until after we reach support. At 1630 we have what looks like a selling climax but price falls further in the next minutes.

 

(4) However there's more interest from buyers (they clearly like 1469), and despite that price is stall falling, an aggressive long entry could be taken here...

 

(5) And price reacts off support (technical rally after selling climax), but volume takes off rapidly and the demandline breaks.

 

(6) And here price action is really zip at first... but if you zoom in it's actually a mini-hinge. Question is does it have potential, I like to evaluate where and when it takes place.

 

(7) playing around with support here... but we're still in lunchtime

 

(8) a bigger test, notice the higher volume. It's outside of lunchtime hours, but more importantly, it shows a poke below 1468 which immediately gets rejected and buyers rush to push price higher. Long entry here with 2pt stop (green dot).

 

(9) volume drops off after the reaction... it's like everybody stopped caring (notice the gradual volume dry-up almost to zero). It might be hard to see because volume is so tiny, but after a successful test, volume often dries up, in anticipation of a continuation.

 

(10) the rest of the day is just following the line of least resistance. The first 'target' would be the high of the technical rally at 1477.50.

 

(11) And by the time we get there, there's not much time left. So what you do here is up to personal preferences, but I called it a day (exited at purple dot) and started typing this.

 

Finally, I added some letters (A,B,C and D) to annotate volume peaks which I didn't pay much attention to. Partly because they didn't make sense to me, but most importantly because I couldn't relate price action to the rise in volume. Most of them occurred during lunchtime hours anyway.

 

[R/R 10]

If you mean what I think you mean, that wasn't a hinge. A hinge should be "filled with price", lower highs and higher lows gradually drawing toward a point, concurrent with declining volume.

 

OTOH, you may be looking at something entirely different. Chart?

 

I was referring to this little consolidation that ground down to a point while the closes oscillated around the center line. Volume tended to decrease over the eight bars but I can see how it didn't fit the principle. Thanks for the correction.