Trading The Wyckoff Way

[wjrusnak 10]

  jfw215 said:

Hi wjrusnak

 

Awesome trade! I'm curious do you also have vol loaded on your 1t chart?

 

I do not. I only have volume on my time chart, which above is 1m, but I actually use 25 second bars (don't ask why 25s... I put it in one day and it seemed to look like a nice number).

 

  MidKnight said:

PS: how are you guys embedding the picture within your posts?

 

I simply use . Also, just click the picture above your entry.

 

  jfw215 said:

do you know where I can download the pricehistogram indicator used on your charts? I'm having trouble finding this type of indicator that would work on historical data in NT. If anyone else has suggestions, I'm all ears.

I will PM you later tonight. Edited October 6, 2009 by wjrusnak

[wjrusnak 10]

Remember the boxed off range that I had on my chart yesterday? Well it's back. 1675 did indeed become a mid point yet again. For simplicity I have extended the box from last night to show the 70-80 range. Not too much of a game changer for tomorrow, but we may be heading higher. Fortunately that is no issue since we are very familiar with those higher ranges.

 

[DbPhoenix 42]

A lot of questions about TICKQ divergences today and no time to answer them during trading, so I'll revisit a few points using this morning's chart.

 

First, the TICKQ (TQ) is an aid, not a crutch. It's hardly infallible, and it shouldn't be. All it is is a measure of breadth. There are no settings to be set, no calculations to be made. Sometimes the breadth is with you; sometimes it isn't. One might consider it to be a measure of mood, and other traders are often just as lost as you are.

 

Second, the TQ may be of paramount importance throughout the day, but I attend to it only at the levels of support and resistance that I have anticipated, one, because that is where divergences are most likely to be important and, two, if I were to act on every divergence everywhere, I'd soon be broke.

 

Three, there can be and often are excellent reasons for taking trades that have absolutely nothing to do with TQ divergences. Retracements and breakouts, for example.

 

 

Here, S was anticipated at 80. At the open, price rejected 81.5 (see the inset), so an entry could be taken at or just above this level, even though it's far too early to be looking for TQ divergences.

 

After that, divergences are irrelevant until the first level of R is reached at 90. There is a slight divergence here, but there is never a real test. Price instead just drifts sideways. And the short is never triggered if one places an entry stop behind price rather than just jump in.

 

After that, there is a retracement to R now S at 90. Taking this sort of setup need have nothing to do with TQ divergences.

 

Next up is 1700. There is a divergence here, but if one were to take it, he would be stopped out almost immediately. This, plus that fact that 1700 is a midpoint -- and the target is generally the opposite side of the range, in this case 1708-10 -- should suggest that there is more room to the upside and not to keep hammering away at a short. The TQ joins the party when price gets thru 1700. There is a retracement to 1700 shortly thereafter, but, again, what the TQ is doing need have nothing to do with whether or not one takes the trade (though if it is rising or falling with price, it may be telling you that you're on the right track, confirming the direction of your trade).

 

After that, it's just a matter of waiting for price to get to the other side of the range and the next level of R. Until then, whatever the TQ does is of no particular consequence. And 1100 is my quitting time, so.....

 

 

[Gringo 10]

XLF has quite an erratic price movement which obscures the s/r. Looking at daily in conjuction with Vol by Price gives a clearer pricture of where bulk of trading tooK place and as a result which s/r are likely to be more significant.

 

30min chart is there to show the movements when we zoom in. There are smaller s/r as well for intra-day traders but not labled here.

 

 

 

Edited October 6, 2009 by Gringo

[jfw215 11]

Hi,

 

Attached is a daily chart of GLD and Dollar (UUP). As you can see in gold, we just gapped above a huge resistance level on high volume. I am thinking of buying gold if I also see the dollar break below its intermediate support level (the blue line). I am curious to hear what other aspects you guys will look at if you were to look at this trade.

 

Thanks

 

JW

[MidKnight 12]

After a reasonable gap up out of the 2 day range, the HSI held respecting the weak zone made on SEPT 8th (see my prior post here). Late in the day, the market broke out of the days range and never looked back. I expected more of a reaction at the 20,770 area but never got any....That is the problem I have with a single line. When real-time trading, the line remains in my mind as an absolute, rather then a zone reminding me to be alert for S/R within a range of a prices. It wouldn't have mattered though in this case as a decent reaction didn't occur until the last 10 minutes of the day.

 

Going into today, I'm removing the old 'weak zone' that was marked and adding a zone around the bulk of yesterdays range. I see USA was up today couple that with the strong rally into the yesterdays close, I'm looking for a gap up and will be keenly watching for R in the next higher zone marked. I'm uncertain if I should remove the 20,772 line because we blew through it yesterday without paying it any attention. I'll leave it there for now and see if it comes into play again.

 

[suriNotes 11]

Hi JW,

 

Here is GLD/UUP Daily Charts that I watch...

Also, see some of my posts 'Gold Chart' on TL forums.

 

Regards,

Suri

 

 

 

 

 

 

  jfw215 said:

Hi,

 

Attached is a daily chart of GLD and Dollar (UUP). As you can see in gold, we just gapped above a huge resistance level on high volume. I am thinking of buying gold if I also see the dollar break below its intermediate support level (the blue line). I am curious to hear what other aspects you guys will look at if you were to look at this trade.

 

Thanks

 

JW

[jfw215 11]

thanks Suri. What scenarios are you going to play on GLD?

[jfw215 11]

Ok, here's what I'm looking at for tomorrow. The 10k volume chart had formed a bull flag. If 1712 breaks to the upside I'm looking for a long. However, we are also forming a smaller triangle and I don't want to fade this triangle as the R:R would be low. I would be willing to take the breakout of the triangle to the downside say flipping 1680 to R. Those are my only 2 plays tomorrow.

[DbPhoenix 42]

  jfw215 said:

Ok, here's what I'm looking at for tomorrow. The 10k volume chart had formed a bull flag. If 1712 breaks to the upside I'm looking for a long. However, we are also forming a smaller triangle and I don't want to fade this triangle as the R:R would be low. I would be willing to take the breakout of the triangle to the downside say flipping 1680 to R. Those are my only 2 plays tomorrow.

 

Keep in mind, however, that Wyckoff had a low opinion of geometric patterns, e.g., flags, pennants, triangles. Nor did he recommend trading breakouts. Consider instead what traders would be looking for by entering previous trading ranges either above or below or by remaining in the current trading range, which is a reiteration of the range from 9/24-5.

[suriNotes 11]

Hi JW,

 

Here is the Gold breakout on 9/2/09 (Symmetric Triangle and ABC Bullish)

from 980 to 1033 and possibly to 1067...

 

Regards,

Suri

 

 

  jfw215 said:

thanks Suri. What scenarios are you going to play on GLD?

[wjrusnak 10]

I have a mess of levels marked here, but some are more bold than others based upon what I feel traders will like more (this could mean nothing in the end). We easily broke up today as I anticipated, and I was scolded in chat by some guru guy for not taking the long at 82. Anyway, we seem to be hanging in this 1712-1690 range. If buyers are serious, I could see us moving up to make another shot at the 1730-1713 range. Maybe this will happen before open and a long off 1712 or 1708 will be the grand move for the day. On the other hand, that same level may provide some nice R to put on a short. Only price action will tell....

 

[jfw215 11]

  DbPhoenix said:

Keep in mind, however, that Wyckoff had a low opinion of geometric patterns, e.g., flags, pennants, triangles. Nor did he recommend trading breakouts. Consider instead what traders would be looking for by entering previous trading ranges either above or below or by remaining in the current trading range, which is a reiteration of the range from 9/24-5.

 

Hi DB,

 

Thanks for your input. I highly appreciate your thoughts. You're one of few people that have really helped me to understand market behavior and price action trading.

 

Playing the 1712 to 1685 range is definitely an option I'll keep open. How did I not notice the trading range starring me in the face. If vol is light tomorrow, I will look to fade these pivots with proper setup (5sec vol and tick div). My only concern is NQ may be doing a small triangle and if that happens I would rather not be shorting lower and lower nor buying higher and higher (inside the 1685-1712 range). If we do form an triangle and it breaks out one way or the other, I would not want to fade the current trading range but rather look for a pullback after breakout. Of course, if we don't form a triangle then fading the range it is! I guess this all depends on how globex plays out tonight.

 

For me, one of the most important aspect of trading is planning out all the potential moves so that when the times comes I can act without hesitation. Thanks again for all the time and dedication you've put into this board.

 

Cheers

 

JW

[jfw215 11]

  wjrusnak said:

I have a mess of levels marked here, but some are more bold than others based upon what I feel traders will like more (this could mean nothing in the end). We easily broke up today as I anticipated, and I was scolded in chat by some guru guy for not taking the long at 82. Anyway, we seem to be hanging in this 1712-1690 range. If buyers are serious, I could see us moving up to make another shot at the 1730-1713 range. Maybe this will happen before open and a long off 1712 or 1708 will be the grand move for the day. On the other hand, that same level may provide some nice R to put on a short. Only price action will tell....

 

 

DubJ,

 

I like your thinking. I think if we do form a triangle and then breakout to the upside I'll be looking for a pullback long (like today's 82 long). Who scolded u lol... I didn't see anything in the chat. Don't feel bad, I took that long off ES today but didn't close out and ended up making 1 tick (commission + lunch yah!). I thought the low 50's area in ES would hold as support but I guess I was wrong. Also, being unicar doesn't help at all. I'm actually switching over to NQ so I can scale out. If no triangle, I'll be shorting 1712's too (depending on globex).

 

Cheers

 

JW

Edited October 7, 2009 by jfw215

[wjrusnak 10]

Epiphany: My "10 Range Charts" and "20 Range Charts" are measured in ticks, not points. The 10 Range charts have 2.5 point range bars and 20 Range charts have 5 point bars. Just thought I'd clear that up with everyone, since I just realized it myself. :doh:

[DbPhoenix 42]

  wjrusnak said:

I have a mess of levels marked here, but some are more bold than others based upon what I feel traders will like more (this could mean nothing in the end). We easily broke up today as I anticipated, and I was scolded in chat by some guru guy for not taking the long at 82. Anyway, we seem to be hanging in this 1712-1690 range. If buyers are serious, I could see us moving up to make another shot at the 1730-1713 range. Maybe this will happen before open and a long off 1712 or 1708 will be the grand move for the day. On the other hand, that same level may provide some nice R to put on a short. Only price action will tell....

 

 

Those gurus. *sigh*

 

Take care not to get too focused on the trees. To do so can mean more and more levels, many of which are drawn from points rather than ranges, and the focus of course is trending and ranging. And introducing extraneous material, like patterns, obscures more often than it clarifies, at least so far as understanding what traders are doing and will likely do.

 

Consider backing up to a six-month chart to reacquaint yourself with the longer-term demand and supply lines and the remarkably well-defined channel in which we find ourselves. Once you have the current lateral (1650 to 1750) and diagonal (which extends to 1800, if traders behave predictably) ranges, you can then put the intraday into better perspective. Once you've done that, you'll note that we're dead-center in both the lateral and diagonal ranges, and what appears to be a "downtrend" from the supply line may in fact be nothing more than the usual trip from one side of the channel to the other which, unless there is a change in trend, implies a move higher.

 

In sum, the levels and ranges and volumes are a great help, but the focus is on what is in traders' heads, what they want, how they are most likely to go about getting it. That is in large part what separates the Wyckoff approach from the various mechanical approaches one finds in other threads and what enables the Wyckoff trader to jump into trades that to other traders seem insane.

 

Edit: I may as well post this since I have it. Don't be distracted by the "geometry". The purpose here is to locate the demand and supply lines in part as context for the current trading range (the shaded portion). The midpoint of the channel is eyeballed, but close enough for its use.

 

 

Edited October 7, 2009 by DbPhoenix

[DbPhoenix 42]

  jfw215 said:

Hi DB,

Thanks for your input. I highly appreciate your thoughts. You're one of few people that have really helped me to understand market behavior and price action trading.

 

I'm glad the forum has helped. But you seem to missing my point. This isn't about patterns; it's about trader behavior. And while Wyckoff acknowledged the breakout as an option, he considered it to be the riskiest and least attractive option for entering a trade. And perhaps the most fundamental principle of this particular approach is to minimize risk.

[traderGeorge 10]

I've been reading Jack Hutson's comments on stops and it's still a grey area for me. Let's say I trade short term,i.e. no open positions overnight, with 2 instruments NQ and AAPL. With NQ if I have identified a resistance level of say 1500.00 and I want to trade a possible reversal off that level, what would be an appropriate stop (in the number of points or fractions thereof) that a stop would normally be placed above the resistance level. I know there are many factors to consider, but I'm just looking for a ballpark here.

 

Same question with AAPL where I have identified a resistance level at say 150.00. Where would you place a stop above that resistance level.

 

Also, Hutson would sometime refer to a very "tight stop". Could you give me an inkling in percentage or point terms of how much we are talking about.

[bakrob99 11]

Any stop should be outside the current market's noise. This level can be determined using the Average True Range of the past N-bars. I am looking at an ATR on my fastest ES chart right now that is at 1.7 points which is 7 ticks. That should be about the minimum for me. For an account size of say, $25,000 with a 7 tick stop risking 1% per trade you could trade with a maximum of 3 contracts.

 

Typically, I consider a minimum stop to be about 6 ticks for the ES futures contract which is tight. Any tighter and you can easily be stopped out on a trade only to ave it continue in your planned direction.

 

I sometimes use a slightly larger stop and if I have to absorb 6 or more ticks of heat, then I will exit on a retracement back or near to my entry point and scratch the trade.

[DbPhoenix 42]

  traderGeorge said:

I've been reading Jack Hutson's comments on stops and it's still a grey area for me. Let's say I trade short term,i.e. no open positions overnight, with 2 instruments NQ and AAPL. With NQ if I have identified a resistance level of say 1500.00 and I want to trade a possible reversal off that level, what would be an appropriate stop (in the number of points or fractions thereof) that a stop would normally be placed above the resistance level. I know there are many factors to consider, but I'm just looking for a ballpark here.

 

Same question with AAPL where I have identified a resistance level at say 150.00. Where would you place a stop above that resistance level.

 

Also, Hutson would sometime refer to a very "tight stop". Could you give me an inkling in percentage or point terms of how much we are talking about.

 

In terms of what should be done, it's best to go to the source, i.e., Wyckoff, i.e., the first post in this thread. What I would do isn't pertinent. And there really aren't any set rules as to what everybody should do. What you should do depends on (a) your understanding of what the market is trying to tell you through price action and (b) your risk tolerance. If your risk tolerance is such that you can't place a stop where you're supposed to, then either scale back your initial position or don't take the trade. If you instead place a tighter stop than you should, or trail the stop, then you will likely be stopped out, and what have you gained?

 

If R on the NQ is 1500 and you're particularly good at determining what the market is telling you through its actions and the entry is in fact 1500, then you can put your stop a tick above 1500. But if you're not particularly good, and the setup isn't particularly clear, then set a wider stop or pass on the trade.

 

What matters more than exactly where to place the stop is understanding what's happening in front of you. Once you are comfortable with the latter, the former just won't be an issue.

 

 

Edit: Since a picture is worth yada yada, here's an example from this morning.

 

R was anticipated to be around 1712. However, the overnite high was 1708.5. This was tested at 1018. So when price reached this level again at 1105, it seemed reasonable to look for the typical "Wyckoff setup", i.e., a test which is accompanied by lower volume.

 

 

 

 

If you were to take this trade, the stop could be placed at 1708.5. Where you enter, on the other hand, is entirely up to you. If you're confident with this "setup", there's no particular reason to wait for loads of confirmation and your entry can be very close to your stop. If you're not confident and you want more confirmation, then your entry will be farther away from your stop and your price risk will be higher. The stop, then, is where it should be, above the "danger point". Your price risk is determined by where you choose to enter, and that's entirely up to you. To put it yet another way, the question is not so much of a tight stop since the location of the stop is determined by the market, but of a tight or loose entry, which is determined by the trader.

 

 

Edited October 7, 2009 by DbPhoenix

[jfw215 11]

  DbPhoenix said:

I'm glad the forum has helped. But you seem to missing my point. This isn't about patterns; it's about trader behavior. And while Wyckoff acknowledged the breakout as an option, he considered it to be the riskiest and least attractive option for entering a trade. And perhaps the most fundamental principle of this particular approach is to minimize risk.

 

Hi DB,

 

I may have been lost in the trees a bit. Thanks for that nice longer picture view.

[Gringo 10]

There is Weekly and daily analysis of GLD. I have bothered to include UUP because there seems to those who believe GLD and US Dollar are inversely correlated. This may be the case, however, I believe it's better to trade what you see than what may or may not be correlated. Even if gold and USD are correlated in some way there isn't a guarantee they have a cause and effect relationship.

 

Gold Weekly:

 

Gold Daily

 

USD Weekly

 

In any case, what USD is showing is that it's between a box and has had quite a down trend. Once it breaks above TL then we'll think about upside move. For now we we focus on the s/r in front of us. GLD is in NH ground. It has no prior resitance above and has grater potential to run, but no guarantees it will run.

 

Some will argue how can USD go up and gold go up as well when they are inversely correlated? It's possible if inflation is faster than the rise in US interest rates to curb that very inflation. Rates increases in other countries lag US rate increases causing USD to go up. But wait! Inflation is faster still, hence, investment money runs to the inflation hedge i.e., gold. Now gold's priced in USD hence causing people to buy USD to eventually buy gold leading to USD and gold prices to become positively correlated!

 

Oh, and I haven't even talked about the news that OPEC + Russia, China etc, are in secret meetings to trade oil in their local curriencies instead of dollar and middle east working on creating a unified currency. What will this do to USD, to the economy, to inflation, to political instability, to alliances? What will that do to inflation and USD? What about healthcare? Will that affect defecits and USD?

 

There are so many possibilities and each has merit in someone's eyes. I simply prefer others to lose sleep over what might occur while I use support and resistance to make my trading decisions.

Edited October 7, 2009 by Gringo

[DbPhoenix 42]

Nice analysis. And I see you noticed the hinge. Somebody asked me about this a couple of years ago, though I don't remember where, and I pointed out the hinge that formed in November/December ('07). I don't remember if he wanted to go long or short, but these hinges -- if one interprets them correctly -- can be powerful movers.

[Gringo 10]

  DbPhoenix said:

Nice analysis. And I see you noticed the hinge. Somebody asked me about this a couple of years ago, though I don't remember where, and I pointed out the hinge that formed in November/December ('07). I don't remember if he wanted to go long or short, but these hinges -- if one interprets them correctly -- can be powerful movers.

 

There's something about screen time and pain of losing that makes a lesson stick .Yes, I not only noticed the hinge, but also noticed how price is not moving too smoothly within it (not filling it well). This reduced my confidence in the hinge but for an agressive soul this is another way of getting in earlier and profit. My bread and butter is still s/r but I do take note of hinges and stay alert especially if they occur close to s/r.

[DbPhoenix 42]

  Gringo said:

There's something about screen time and pain of losing that makes a lesson stick .Yes, I not only noticed the hinge, but also noticed how price is not moving too smoothly within it (not filling it well). This reduced my confidence in the hinge but for an agressive soul this is another way of getting in earlier and profit. My bread and butter is still s/r but I do take note of hinges and stay alert especially if they occur close to s/r.

 

Tuck this away in your scrapbook:

 

 

 

 

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