Trading The Wyckoff Way

[wjrusnak 10]

 

• 30 became a mid point for a smaller range (34 & 25)
  

 

I switched my colors (again)... this is easier on the eye I hope.

[deanz 10]

Can the Price of an Individual Stock be in any way effected/manipulated by its equivalent in the Futures market or Options, CFDs etc ?

[firewalker 10]

While distinctions among the threads may seem artificial at times, the purpose of this particular thread is to encourage participants to post their plans for the upcoming day, then, if they wish, to review the day in order to compare what they did with what they thought they were going to do. In this way, hindsight analysis has a different function than the usual CouldaWouldaShoulda (which has its own thread).

 

Therefore, it would help those who follow this thread if you were to post your charts in advance of the coming day and explain what you're looking for and what you plan to do if and when you see it. In this way, you and wj and whoever else is interested in participating can discuss the various options ahead of time rather than after the fact.

 

There was no particular reason for me to post any additional charts yesterday because wj had already illustrated perfectly what I was looking at. As he said literally: short 30, long 13. He didn't say anything about taking trades in the middle, so I'm surprised he did, but then again he's free to change the plan as the day progresses and as you say, that way people can compare "what they did with what they thought they were going to do."

 

From my point of view however, I felt no need to change my plan intraday let alone add anything to wjrusnak's post, as taking a long from the zone around 13 (or short around 30, in case we opened there) was the only thing I was looking to do.

 

I thought it would be interesting to compare the reasons why several people entered long at 13, especially since some got stopped out for a loss, others breakeven, others ended up with a profit, yet almost everybody was looking at the same thing. If you feel that analyzing the "why" of the trade, rather than just the "where", you are free to move my posts to a thread better suited for that particular goal.

Edited September 22, 2009 by firewalker

[DbPhoenix 42]

There was no particular reason for me to post any additional charts yesterday because wj had already illustrated perfectly what I was looking at. As he said literally: short 30, long 13. He didn't say anything about taking trades in the middle, so I'm surprised he did, but then again he's free to change the plan as the day progresses and as you say, that way people can compare "what they did with what they thought they were going to do."

 

From my point of view however, I felt no need to change my plan intraday let alone add anything to wjrusnak's post, as taking a long from the zone around 13 (or short around 30, in case we opened there) was the only thing I was looking to do.

 

I thought it would be interesting to compare the reasons why several people entered long at 13, especially since some got stopped out for a loss, others breakeven, others ended up with a profit, yet almost everybody was looking at the same thing. If you feel that analyzing the "why" of the trade, rather than just the "where", you are free to move my posts to a thread better suited for that particular goal.

 

However, there's no way of knowing what you're looking at or what your plans are unless you post them ahead of time. If all of this is done after the fact, then the thread is no different from any hindsight thread, of which there are many.

 

Again, you're welcome to participate in the thread, but remember that the thread is about foresight, not hindsight. If you prefer not to post anything in advance, the CWS thread would perhaps be more appropriate.

[DbPhoenix 42]

 

• 30 became a mid point for a smaller range (34 & 25)
  

 

I switched my colors (again)... this is easier on the eye I hope.

 

Definitely easier on the eye. Thank you.

 

Good point about 30 being the midpoint of that smaller range. And when activity is that regular, one can suspect that what appears to be the repeated testing of 34 may be the creation of a new range (and the VAP bears that out). Since we are now well above that range (0800), it may provide more solid S than if it were little more than a couple of swing points (though the VAP suggests that the more substantial S lies at 33).

 

Assuming that we stay up here for the next hour or so, will you be looking to go long on a test of 33/34, assuming everything else is in place?

[thalestrader 14]

 

• 30 became a mid point for a smaller range (34 & 25)
  

 

I switched my colors (again)... this is easier on the eye I hope.

 

Yes, much easier on the eyes, thank you.

 

I do not participate in this thread as I do not regularly trade the NQ (I think my last NQ trade was back in the summer of 2007). But I do read the contributions here with great interest. This is an excellent thread. I know that my early trading would have been helped immeasurably; and the "learning curve," aka "losing swerve," would have been much more easily and quickly navigated had I had access to this sort of material and the experienced help so generously provided to and by the participants of this thread.

 

Thank you,

 

and Best Wishes,

 

Thales

[DbPhoenix 42]

Yes, much easier on the eyes, thank you.

 

I do not participate in this thread as I do not regularly trade the NQ (I think my last NQ trade was back in the summer of 2007). But I do read the contributions here with great interest. This is an excellent thread. I know that my early trading would have been helped immeasurably; and the "learning curve," aka "losing swerve," would have been much more easily and quickly navigated had I had access to this sort of material and the experienced help so generously provided to and by the participants of this thread.

 

Thank you,

 

and Best Wishes,

 

Thales

 

Thank you for your comments. Point of clarification, though. The focus of the thread is to post one's plans for the coming day -- in foresight -- rather than in hindsight, within the context of support and resistance (see posts 1-3). The trading instrument itself is irrelevant.

[iso 10]

Hi,

 

I have heard you guys talk about "Midpoint" support or resistance. Why does the midpoint have significance? Is there anything that I can read about this?

 

Thanks

[Head2k 10]

Hi,

 

I have heard you guys talk about "Midpoint" support or resistance. Why does the midpoint have significance? Is there anything that I can read about this?

 

Thanks

A key concept of Wyckoff as well as of Auction Market Theory is that support and resistance are likely to be provided by zones where a lot of transactions took place in the past. That means zones where a lot of trading volume occurred over time. To put it simply, S/R is likely to be provided by former ranges and congestions.

 

But that doesn't mean that the S/R must lie at the very extreme of the former range. Not much volume over time is usually built at the extremes. The S/R is more likely to be provided by such an area in the range where a bulk of trades occurs, so called Value Area. And the S/R can be provided by its edge or by its midpoint, because the midpoint is, after all, likely the place where the very most trading volume occurred.

 

For further information study Auction Market Theory, which is the theory that Market Profile is based on.

[DbPhoenix 42]

Can the Price of an Individual Stock be in any way effected/manipulated by its equivalent in the Futures market or Options, CFDs etc ?

 

Price can be manipulated in many ways, but how is this related to Wycoff? Do you have something specific in mind?

[DbPhoenix 42]

Hi,

 

I have heard you guys talk about "Midpoint" support or resistance. Why does the midpoint have significance? Is there anything that I can read about this?

 

Thanks

 

You may also want to look at this post.

[deanz 10]

Price can be manipulated in many ways, but how is this related to Wycoff? Do you have something specific in mind?

 

You know I got a similar non direct answer from Todd Krueger so I'm wondering if it's too hard a question to find the answer to.

 

And yes I do have something specific in mind, wyckoff wise.

[Gringo 10]

 

And yes I do have something specific in mind, wyckoff wise.

 

What is it that you specifically wish you ask?

[deanz 10]

What is it that you specifically wish you ask?

I have no question at this time relating the the specific thing I had in mind, but thank you for asking.

[wjrusnak 10]

• Yesterday, 30 was a mid point; now it seems to have created S for a smaller "inner range"
  
• The new range may end up being between 41 & 25, but that needs confirmed by a test of 41
  
• It can be noted that price never exceeded 36 during RTH
  
• Hopefully, tomorrow, people don't agree as much as they did today (i.e. 4-5 point ranges)
  

Edited September 23, 2009 by wjrusnak

[wjrusnak 10]

Attempting to post earlier in the evening... so much can change overnight though

 

 

• 41 worked well enough for one weak short but later in the day provided major S for some serious longs during FOMC (too bad I quit at 11 )
  
• the NQ launched higher to make a new high then crashed completely out of this new range (41 being the bottom) all the way down through the next range (41 to 25) into the middle of the previous range (30 & 13)
  
• In any case we ended up in the middle of a range...
  
• Tomorrow I am looking at 30 (which actually might end up being 34 depending on how late the sellers want to wait to sell...), 41, 20, and 13. The remaining lines do not look as important as these areas
  

[boru 10]

And of course lets not forget buying to open, buying to close and selling to open, selling to close.

 

pretty short statement blowfish, but it got my attention in a big way light bulb is getting a little brighter thanks never thought about it like that before

[DbPhoenix 42]

I'm revisiting this thread because of a subject which comes up on a regular basis in chat, that of the breakout, specifically a certain kind of breakout.

 

Wyckoff was not a fan of breakout entries. Neither am I. He advocated entering inside the crest of an upmove and the trough of a downmove. So do I. He felt the breakout carried the highest risk of the entry options, in large part because one would be so late. So do I.

 

But I've noticed for some time that there is a certain kind of breakout that is as close to fade-free as one can hope for in this world. Tolkien in LOTR characterizes the quiet before the onset of war as "the deep breath before the plunge", and during one of my regular visits to Middle Earth, this phrase struck me as the perfect description of how price behaves in this breakout.

 

Clearly, however, there are two problems in using this phrase: one is that price breaks out to the upside as well as the down, so "plunge" is not always the most accurate choice to describe the action; another is that abbreviating it results in "dbp", which creates unnecessary confusion with my name.

 

So I call it the "WTF?!?", since this is the knee-jerk reaction of those who see it and don't know what they're looking at.

 

The WTF occurs when price has been drifting along, minding its own business, not doing much of anything, usually in a sideways congestion, but sometimes in a slightly upward or downward meander, lulling everyone into a doze. Then, out of nowhere, price plunges, or rockets, at the same time volume pours into the market. The trader thinks "WTF?!?". There is a brief hesitation (the "deep breath"), and then the bottom falls out (the "plunge"), or the afterburners kick in, and the trader watches price leave without him. But if the trader knows what he's looking at and keeps his wits about him, and if the entry is taken at the right time, it tends to be a very clean one, and he can segue into management mode almost immediately.

 

They don't come up so often that one sees them all the time, but they come up often enough to warrant at least a little space in the back of one's mind. An example came up today in the NQ.

 

Here price was in a generally sideways drift. The angle is slightly downward, but each swing pulls well back into the previous swing rather than stair-stepping; there is no concerted effort to drive price downward.

 

Then price drops out of this straight down, accompanied by a spike in volume.

 

 

 

 

There is a hesitation at that point (between 23 and 24) which may last for no more than a few seconds. Here one can set his sell stop just below this hesitation with a very tight stop. If this is a shakeout, his entry will not likely be triggered (if it is triggered, he can be out for little or no loss). If it is instead a breakout (or, more accurately, a breakdown), then the trader is in it, with very little risk.

 

 

 

 

I haven't kept an archive of these examples, so I'll add a few as they come up. In the meantime, it will benefit the Wyckoff trader not to assume that every short, sharp shakeout or thrust that's accompanied by a spike in volume is in fact a shakeout or thrust. It may in fact be the mirror image, and continue in the direction that the apparent shakeout or thrust has begun. Playing it well, however, will require the trader to follow the price action, i.e., a 1t chart, not just a summary of the price action (from the initial drop to the continuation in this instance was less than a minute).

 

Additional Example: Friday, Sept 25

 

After having said above that these don't come up so often that one sees them all the time, there was at least one good example on Friday and another today (Monday, the 28th). Perhaps traders are becoming more jittery.

 

Friday provides several examples of what aren't WTFs. This is good. Seeing these may help prevent the trader from being dazzled by the glitter rather than wait for the gold.

 

Support on Friday was in the 1698-99 area. Note that once it settles into that level, there is a high volume bar that is unaccompanied by a drop below S. This is followed by another high volume bar 15m later that is accompanied by a breakout above what appears to be R. But there's no follow-through. Price lingers between 1701.5 and 1702.5, but it never gets past that. Hence, no trade. There is then a drop below S, but unaccompanied by volume (first arrow). Then another, but still no volume (second arrow).

 

Finally, there is a drop below S and also an unmistakeable rise in volume. This is the one worth waiting for.

 

 

 

 

This lingers around 1697.5, and a short just below here enables a very tight stop.

 

 

 

 

There are then one or two "WTFs" that technically qualify, but which are not as attractive as the first entry, i.e., the best entry (best because one of the chief advantages of the WTF is the element of surprise; once it's occcurred, there no more surprise).

 

A couple of minutes after the above entry, you have another plunge accompanied by high volume, but, as mentioned above, the element of surprise is gone, and price rebounds higher on this entry than on the first, calling for a wider stop. Not only that, but price piddles around for over 15m before resuming the downmove. Since one's entry price is hit repeatedly, this can be wearing, particularly since buyers appear to be offering support at around 1204.

 

Finally, there is another plunge accompanied by high volume just after 1215. But the real volume comes in on behalf of buyers trying to support price here. And since the next level of S happens to be 1690, there are a number of risks involved in taking a short trade at this level, this late.

 

 

 

 

Not all WTFs, then, are created equal. The best are those which come as a surprise. In confusion lies opportunity.

Edited September 28, 2009 by DbPhoenix

[Gabe2004 10]

 

Price does not just stop as if it were hitting the sidewalk after being dropped from a highrise. Its fall is gradually slowed, as if brakes were being applied, until it comes to rest. The accumulation which made possible the rise from 1400 to 1440 did not occur just in those few minutes after the shakeout. It began long before, from the first time buyers tried to halt the decline..

 

I like to compare the market to a mechanical system.

Just like a ball that is dropped to the floor does not come to a complete and immediate rest right at the first touch of the ground, and just as a spring which is released from an extended position does not contract immediately and stop exending and contracting, the market is the same.

It moves with impulses that start with a gradual acceleration and then a deceleration phase that takes several osscilations to get to a steady state.

 

I hope that the above visualisation is clear.

 

Take care

 

Gabe

[wjrusnak 10]

I zoomed out a little more for these levels, which intentionally should amplify the more important ones.

 

 

• I would think that the buyers want to stay above 1690, otherwise we're headed straight into a lower range
  
• The last time we were in this area, we basically "blew" through it (refer to prior than 9/17); our only reaction was at 1700
  
• A long at 1690 could very well be a nice set up (but we could wake up and be at 1730 already )
  

[forrestang 10]

Breakouts have freaked me out for a while too.

 

Watching for the breakout, is the entry placed prior the breakout, or is one waiting for a confirmation via volume to show interest in the move down?

[DbPhoenix 42]

Breakouts have freaked me out for a while too.

 

Watching for the breakout, is the entry placed prior the breakout, or is one waiting for a confirmation via volume to show interest in the move down?

 

If you're referring to my post above, there's nothing to watch for, which is why it's call a WTF, and there's no time to wait for confirmation. I wouldn't classify it as a beginner's setup.

[DbPhoenix 42]

Traders found buying interest on that overnite poke to the downside, at least enough to take us back above 1700. But now there's been another as a result of the DG report. This complicates things a bit. 1700 may not be so easy the second time around.

[wjrusnak 10]

 

Sitting at Support as I type this...

[DbPhoenix 42]

Too bad you had a cold today. You nailed S&R perfectly.