Trading The Wyckoff Way

[DbPhoenix 42]

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.

 

You must have missed my PS on my previous post. FW posted the same thing only using a 1m interval, and it is a hinge. And, except for that one spike, which may be an anomaly, volume does decline throughout (more or less).

 

As for whether any of this amounted to a trade, sellers had their shot, then buyers, then they wound up back where they started. But you can't know that ahead of time, so if you're going to play these, you have to play all of them. Otherwise, they'll drive you crazy. Ask atto. He trades them as a matter of course.

[DbPhoenix 42]

Not much to discuss re follow-up. Price rose to R, as anticipated (not predicted; anticipated), then dropped to the bottom of Thursday's and Friday's trading range (tested yesterday), again as anticipated. Then wound up back at R represented by that last major trading range, again as anticipated (though not predicted). This level is also now clearly the midpoint of this most recent range (66 to 92) and assumes the importance attached to a midpoint.

 

And since we're back where we started, all the S/R levels apply to tomorrow as well.

 

 

Edited June 30, 2009 by DbPhoenix

[firewalker 10]

Volume tended to decrease over the eight bars but I can see how it didn't fit the principle. Thanks for the correction.

 

Actually, just by looking at your chart it seems to fit the principle pretty well imo.

 

You must have missed my PS on my previous post. FW posted the same thing only using a 1m interval, and it is a hinge. And, except for that one spike, which may be an anomaly, volume does decline throughout (more or less).

 

Yes, if it hadn't been for that 'anomaly' the volume declined would've looked more smoothly. And although the volume when price falls out of the hinge isn't spectacular, it's still noticeably higher than the previous 15 minutes.

 

As for whether any of this amounted to a trade, sellers had their shot, then buyers, then they wound up back where they started. But you can't know that ahead of time, so if you're going to play these, you have to play all of them. Otherwise, they'll drive you crazy. Ask atto. He trades them as a matter of course.

 

I'm a fan of hinges myself, but not that obsessed as atto (just jk). However, if this hinge exploded to the upside, I probably would've been more inclined to take the trade, since we were floating 2 points above decent support.

 

But instead, price fell out of the hinge to the downside, and I don't like shorting price so close to support. That's, imo, hoping for a break, something which isn't very likely during lunchtime. Also, if you moved your stop to breakeven in time, you could've gotten away with shorting the break.

[R/R 10]

You must have missed my PS on my previous post. FW posted the same thing only using a 1m interval, and it is a hinge. And, except for that one spike, which may be an anomaly, volume does decline throughout (more or less).

 

As for whether any of this amounted to a trade, sellers had their shot, then buyers, then they wound up back where they started. But you can't know that ahead of time, so if you're going to play these, you have to play all of them. Otherwise, they'll drive you crazy. Ask atto. He trades them as a matter of course.

thanks DB, I saw your edit and link after I made my post.

[DbPhoenix 42]

I'm a fan of hinges myself, but not that obsessed as atto (just jk). However, if this hinge exploded to the upside, I probably would've been more inclined to take the trade, since we were floating 2 points above decent support.

 

But instead, price fell out of the hinge to the downside, and I don't like shorting price so close to support. That's, imo, hoping for a break, something which isn't very likely during lunchtime. Also, if you moved your stop to breakeven time, you could've gotten away with shorting the break.

 

OTOH, that "fell out to the downside" was a shakeout, and led to a move to the opposite. Again, neither may have been worth taking, but one can't know that in advance. What one can be cognizant of is the possibility of a thrust or shakeout when playing these, and not get freaked when price winds up going in the opposite direction.

 

The dynamics of this endgame are not difficult to understand. The hinge, after all, is created because of differences of opinion. That this testing should continue once one side or the other pushes price out of the hinge should not come as a surprise. But clearly one has to be quick on one's feet to avoid getting trampled.

[atto 20]

Trading hinges isn't that hard, but there's a few things you can pick up that'll increase your chance of success.

 

I had already quit for the day, so you're about to see some class A hindsight. I've plotted price (15s bars, but it doesn't matter how you view it), and volume (with a MA - gasp! - so it's a little easier to see the average volume). It's sometimes difficult to get a picture of what volume is doing when it's so spiky.

 

I highlighted the first time "hinge?" would enter my mind. From then on, I want to see volume dying off, and price coiling. Volatility sure drops off, but volume sicks around. The original lines I would have drawn are broken at 11:52, but volume was trash. Let's say, however, I was jonesing for a trade, and I took it. I'd be stopped in at 72.00 or 72.25. Initial stop is 71.00. Price waddles around the entry for 3-4 minutes, which would probably be enough to get me out for a couple ticks in the red. However, if I was stubborn, the push down at 11:56 would get me.

 

A stop out isn't the end of it, so I might be inclined to keep watching. Unfortunately, I'd scrap the idea at 11:59 or 12:05 due to the range it's holding and the volume spikes (which are fine... if price actually moves). Otherwise, you have both sides blowing their loads before any movement. It's lunch, what do you expect?

 

The reason I get particular about hinges is because the difference between a setup that almost always works (and works very well) and one that "often" or "sometimes" works is the small things. Another tip is that I like the midpoint to get some reaction. In this case, no one cared.

 

 

So no, I wouldn't have taken it for that shakeout (or after). If I ended up short in that shakeout down, it would be because the congestion broke out. And firewalker brings up an excellent point about support being so close.

Edited June 30, 2009 by atto

[thalestrader 14]

Price rose to R, as anticipated (not predicted; anticipated

 

 

Very good analysis, Db - Clearly written and readily understandable.

 

Thank you,

 

Thales

Edited July 1, 2009 by thalestrader

[DbPhoenix 42]

Funny, if you have the right sense of humor. A near-mirror image of yesterday, up to a test of R, which failed, then back where we started. Again.

 

It doesn't take an expert chartist to see that 80+/- is important.

 

 

All current S/R levels hold for tomorrow.

 

 

[DbPhoenix 42]

And support and resistance tell us once again what to do and when to do it, all plotted in advance.

 

Price drops away from 80, down thru 77 to the bottom of last Thursday's and Friday's range (1), then back up for another test of R at 77 (2), then down to S at 40.

 

 

 

 

Is it really this simple? Yes, if one is focusing on price movement rather than on what one is using to illustrate it.

 

And since this is the last one, some suggestions for today's entries, on a blow-up of the overnite and morning (these entries are standard and have been addressed in other threads).

 

First, given the demonstrated weakness, a short off the test of S turned R at 77 (2). This takes place an hour before the open.

 

Second, a short off S turned R at 67, just before the opening bell.

 

Third, a short off the springboard which forms just after the open (this lasts slightly less than a minute).

 

 

 

[johnjohn1hew 10]

My statements were ignored in the Hinges thread, so i decided to move over here. Here is my definition of a hinge:

 

It is an occurrence where neither side has an inclination to see price head anywhere (due to the testing of their patience), 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. When price becomes nothing, i conclude that the previous directional disposition is eliminated and a new movement (whether it is in the same direction as the prior movement or not) is it come.

 

What is your opinion?

[Head2k 10]

My statements were ignored in the Hinges thread, so i decided to move over here.

 

Since, as you said, you made statements and not questions in Hinges thread, the fact that there was no reply needn't imply that those statements were ignored. Usually there are replies to questions. A statement deserves a reply in two cases. Either when it is so wrong that it needs to be corrected or when it is so brilliant that others show their appreciation.

 

Here is my definition of a hinge:

 

It is an occurrence where neither side has an inclination to see price head anywhere (due to the testing of their patience), 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. When price becomes nothing, i conclude that the previous directional disposition is eliminated and a new movement (whether it is in the same direction as the prior movement or not) is it come.

 

What is your opinion?

 

I believe the nature of hinges is well explained in the Hinges thread or in Db's blog, but since you ask for yet another opinion, my opinion is that hinges represent indecision. Not because traders would like to test their patience or because they would "realize they would be overcome" but because they are simply not sure about direction. Or at least sure to that extent that they would show enough effort to break the last swing point.

As to where the hinges form, one can expect them to form where the traders are likely to be unsure. That is before news, in centers of developing ranges and above S, below R or around both.

 

As for elimination of the previous directional disposition, it is true in appropriate proportions (on appropriate trend scale). If one is interested in trading across more wave scales he needs to be aware of the scale, location and context of the hinge. He should be aware of what it is the traders are indecisive about. That's not only direction but also a meaning of where we are going from (what does the midpoint represent) and going to (what we are against or not against in case of any particular direction).

 

As for the ending of the hinge, that "horizontal line", it is usually not a line at all, or at least I don't perceive it that way. The hinge is just a series of tests. And in the end of the hinge, there is usually the final test. What one can see as a line is usually a test of midpoint of the hinge. The fact that traders in force (either bulls or bears) don't manage to test the other side but are stopped with almost no effort in midpoint (in fact they are not stopped but rather stop by themselves) implies that they are done. Reversion to the mean doesn't require any particular effort. What requires effort is trying to push to the other side. So once they don't push through the midpoint I expect they are done. Of course this is not the only possible ending of a hinge, but I think it is the one which is the best readable and quite common.

 

And last, I am not an expert on hinges. I am just a beginner on a sim who, as of now, doesn't even trade them. If you are interested in hinges in particular, I think atto or Db are the best people to enlighten you. You can often reach them in the chat room and debate about developing hinges in real time.

[motorway 10]

The standard compliment of statistical techniques used to identify predictable market structure assume that the data are independent and identically distributed.

 

Further,they are only capable of identifying regular periodic cycles. Yet, financial returns data are not independent and cycles are most probably not periodic.

 

Non-Periodic Australian Stock Market Cycles:

Michael D McKenzie

 

 

The "Figure Chart" is not standard compliment..

 

 

From the general formations (not so-called patterns such as “saucers,” “baskets,” “fulcrums,” etc., which are popular with some purely theoretical technicians) on the figure charts we are able to detect accumulation or distribution, and we see, clearly marked, the lines of support and supply.

We can also identify the marking up and marking down periods to excellent advantage by means of these charts.

RDW

 

 

500pt x 1 chart... I have marked some previous points of support and resistance, some halfway points

and the current trading range.

 

 

Now look at the chart and consider How the campaign is conducted..

 

 

Consider what it means that columns are long or short --> without correction ?

How a following column confirms or negates .

How a statement by one column is rejected by another

and how demand and supply assert in turn

and then reassert..

 

 

It is a dialectical Discussion

Every column is a statement ( Bullish or Bearish )

A thesis and then the anti-thesis

But never a FINAL synthesis

 

 

We still only have here the static aspects

But , consider how a column can slow and pause before a reversal

or could accelerate into the reversal

How a column could accelerate from the reversal .

or how a reversal could occur as the "swings" decelerate

 

 

Think of how in a dynamic sense the chart can come to a "dead centre"

 

 

The chart is a graphic of demand and supply

consider what it means when price moves up or down with a series of short columns

backing and filling

 

Consider how at times how differences of opinion vanish and large "uncorrected" moves occur

 

 

How is the Campaign conducted ? ( It is visible right here before your eyes )

 

These BOXES contain significant amounts of PRICE VOLUME & TIME

Every reversal is important

every time more or less ground is made

is revealing something right then--Something that matters.

 

 

eg The last column is the most significant reversal since the "TOP"

 

 

Every reversal is a point of SUPPORT or RESISTANCE

 

 

The Dynamic aspects are why we can not simply Buy "double tops" or sell "double bottoms"

Why we need to identify ( By The Action ) a spring board

 

We could draw more sensitive trend lines

But what is the action of tops and bottoms suggesting ?

 

Are the points of resistance still falling lower ?

How important is the next column ?

Where are the significant zones of previous support and resistance

 

What happens as price approaches or leaves those areas

When it meets those areas

up ahead

 

 

Some obvious observations

any others ?

 

motorway

[SRspider 10]

Question on a number 1 spring and a breaking of the ICE. What are the clues that the break down through support is either a number 1 spring or a braking of the ICE? Sorry if this is in the wrong thread.

Thanks

[atto 20]

Question on a number 1 spring and a breaking of the ICE. What are the clues that the break down through support is either a number 1 spring or a braking of the ICE? Sorry if this is in the wrong thread.

Thanks

Neither of these terms (or direct concepts) were used by Wyckoff, but rather were added later in the Stock Market Institute course. You'll likely have to poke around elsewhere to get that answered.

[SRspider 10]

Thanks atto,

I am new to this stuff and I was a bit confused as to where things or terms came from. I have the SMI course and at first thought it was the Wyckoff course. Are the principles the same? It seems that from the Wyckoff course came the SMI course and then from that came the VSA stuff.

[DbPhoenix 42]

Thanks atto,

I am new to this stuff and I was a bit confused as to where things or terms came from. I have the SMI course and at first thought it was the Wyckoff course. Are the principles the same? It seems that from the Wyckoff course came the SMI course and then from that came the VSA stuff.

 

There's a long answer to this and a short one. The short one can be found here.

 

The long answer, in a nutshell (if that's not a contradiction in terms), is that Wyckoff -- along with Dow, Elliott, Schabacker and a few others -- was an original. Thus much of what we do today is "based on" Wyckoff, from Dunnigan to Ross to Darvas to CANSLIM. But to suggest that one is "applying Wyckoff" when he is using something several times removed from the original material is to do an injustice to that material. This is not to say that the various adaptations and modifications and reinterpretations are worthless. They may in fact have much to offer. But those variations are not the business of the forum, which is understanding and applying the original material. Once one has gone through that process, he is then in a better position to determine whether or not a given variation is an improvement.

 

As to your question regarding a breaking of support, one can put both the question and the answer in simple terms that don't require extra jargon as long as one focuses more on the behaviors of those who are breaking those supports and less on what terms to use to describe their efforts. However, coming up with a set of rules, or even of guidelines, is not likely to get the trader very far. If you can post charts which illustrate your questions, you will likely be better able to recognize these phenomena in future situations, preferably in real time.

[thalestrader 14]

Trading ranges, support, resistance, midpoints, swing points, trend: it's all the same now as it ever was. And it really doesn't even require language.

 

Excellent, excellent post, Db.

 

It took me longer than it should have, but I eventually learned that if someone has to invent an entire new vocabulary or lexicon to explain their interpretation of price action, rather than use the tried and true concepts that carried the earliest market practitioners to success, then they are not explaining price action.

 

Thank you for this wonderful example,

 

Thales

[DbPhoenix 42]

It took me longer than it should have, but I eventually learned that if someone has to invent an entire new vocabulary or lexicon to explain their interpretation of price action, rather than use the tried and true concepts that carried the earliest market practitioners to success, then they are not explaining price action.

 

Well, all the jargon and "patterns" sell books. And software. And seminars. And DVDs.

 

Picks and shovels.

[cowseathay 10]

I thought today was a great day to see many of the Wyckoff concepts in action in a very clear way. I'm attaching a 5s and 1M chart of the NQ from this morning pointing out a few key clues to the beginning of the giant reversal that occurred. And all of these clues were pointed out in real time in chat by Db, atto and others.

 

You can see that with each potential selling climax price drops sharply with a dramatic increase in volume. The final climax that occurred didn't seem to have any big volume bar, but a lot of volume occurred in a small period of time, which you may not pick up if you were following bar by bar. Also, note that the final climaxes and shakeout occurred at support (or right below), which signals a much higher chance of a reversal than if they occurred in the middle of nowhere. You can also see lower volume on the test, and then large volume during the shakeout followed by rapid price reversal. The job of a shakeout is to get rid of "weak hands" so that a new move could be started. And as you can see that job was accomplished with great success.

 

 

Edited July 13, 2009 by cowseathay
image upload

[atto 20]

Yep. Price gave several scaleout opportunities for the short. And on the long, there were several decent spots to add or initiate a position if you didn't catch the bottom real time (I didn't).

 

I got in at the springboard shortly after the bottom. Volume spiked as price broke the 08 area again (longer term zone), and then entered a period of sideways congestion as volume tailed off. On top of that, you have the bounce off of S to the lows, and a series of hh's and hl's (a trend up).

 

The circled areas are places that I'd enter. Logical stops on both are at 07.00-07.25.

 

[thalestrader 14]

Hi folks,

 

I have noticed a fair number o fhtose who participate here in the Wyckoff forum seem to favor the NQ as their trading vehicle; and I am just wondering if that is because the NQ lends itself more readily to Wyckovian analysis than the other index futures? Or is there some other reason? Or is it just coincidence?

 

Best Wishes,

 

Thales

[atto 20]

I am just wondering if that is because the NQ lends itself more readily to Wyckovian analysis than the other index futures? Or is there some other reason? Or is it just coincidence?

I've yet to find an instrument that doesn't yield well to Wyckoff analysis. In its core, it's simply a study of supply and demand to analyze trends, congestion (or simply, lack of a trend), support, and resistance. These dynamics exist in all liquid, free (as in market), and tradeable instruments.

 

As for the reason, I've found that ES tends to mess around for a while. I used to trade it exclusively, but found I like the personality of NQ better. Tick size is also smaller, so I can use smaller stops (my average initial stop loss is around 1.25 NQ). I would be able to go back without any problems, though.

[DbPhoenix 42]

I thought today was a great day to see many of the Wyckoff concepts in action in a very clear way. I'm attaching a 5s and 1M chart of the NQ from this morning pointing out a few key clues to the beginning of the giant reversal that occurred. And all of these clues were pointed out in real time in chat by Db, atto and others.

 

Yes, it was a good day to see these concepts play out, and fun in a twisted, geeky sort of way to see it happen. Because today was almost a template for Wyckoff -- that is, true price action -- trading, I'd like to get into the S&R of it. But I don't want to mark up your charts, and I want to back up a little bit in order to explain further what I mean about planning these trades in advance. So......

 

First, we back up to the larger timeframe:

 

 

 

 

Because of where the overnite action took place (again, there are no gaps in futures) and where price lay just prior to the open, it isn't necessary to plot those S/R levels which aren't likely to affect price after the open. The most likely S/R levels to be important are 1438/40, 1425, and 1392.

 

Extending these levels into a nearer timeframe, we see that 1403 might also be important (NeoTrader brought this to everyone's attention):

 

 

 

 

And zooming in even further to get a more detailed view of the immediately-preceding activity, it's easier to see why 20 may be important. It's also easier to see the thrust that was made thru 25 (the arrow). One can also see that price made one more test of 1403. This serves to narrow one's focus considerably.

 

 

 

 

And then the games begin. Here we see the same thrust only on a 1m chart. All the previously-plotted S/R lines have been brought forward. One could short at several places during or after the thrust, including a drop below 18.

 

 

 

 

After that, it's just a matter of waiting until price reaches S. One could scale out at the first test of 1403 and wait on the rest to see if we dropped all the way to 92. If he did so, and if he were paying attention, he'd notice the shakeout 10m later (see the second arrow). This offers a signal that 1403 may hold and that he should anticipate the necessity of exiting entirely and going long, which he could do when price exits this congestion (I should point out that most of this can't be seen on a 5m bar chart).

 

If the trader does go long, then his target becomes 1440. But, as atto pointed out with regard to scaling out on the short, there are also obvious places to scale out on the long, if one worked out the S/R in advance.

 

 

 

 

Note here that price chokes at 20, 25, and 38. Surprise, surprise. Even at the first test of 38, however, one needn't exit his position entirely, assuming he has more than one contract left. The trendline isn't broken, and the last swing low at 35 has not been breached. So if he wanted to try to squeeze out a few extra points, why not? The risk is clearly determined (one or more ticks below 35 or a break of the trendline).

 

One can then be satisfied and quit, or hang around and hope for another trade. I suppose that depends in large part on the weather.

 

 

 

Edited September 16, 2015 by DbPhoenix

[billbose 10]

Can the Wyckoff methods be applied to inverse ETFs? Especially the 2x and the 3x ones?

Thanks.

[DbPhoenix 42]

They can be applied to anything that is freely traded in an auction market.