Trading The Wyckoff Way

[DbPhoenix 42]

hi, as a native trader in china, i am trying to apply wyckoff principles to china stock market. one thing confused me a lot and would like to have your comments.

 

attached is the monthly, weekly and daily charts of the shanghai 50 stocks index.

 

my ponit is:

 

1. montly - JOC and maybe there would be a retest to the creek as the sharply break in aug causing big tech damage, there definitely need soem cause to resume the uptrend .

of course there is possibility of trend change but also need cause to go down.

 

2.weekly- found support and a feeble reaction ( less than 50%) and retest the support at a higher level( due to national holidays there is only 1 trading day in this week and 3 days in last week)

 

3. what confused me a lot is the daily chart. in the downtrend , demand has to prove itself , look at the volume , very low, specially at the up bar. I think the daily is weak but two bars(green line) I dont know how to interprete . the first is the bar of 9/oct with 5.02% gain at close on 2430 million shares and the second is the bar of 3/sep with 5.04% gain at close on 3966 M shares.

 

are these two bars can be labeled " no demand " ( i was told no demand bar generally has narrow spread) ? how to interprete these two bars( low volume, large spread, close at almost the high) in the intermediate down trend?

 

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Pls be noted that we cant sell shorts in china.

 

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could you pls give some light on thesse two bars with wyckoff method? thanks.

 

As a follow-up to your PM, keep in mind that Wyckoff (a) focused on those markets and stocks that were “on the springboard” for significant moves, (b) initiated entries at those points which offered the highest probability of success, and © exited the positions at the most advantageous time, all with the least possible degree of risk. Therefore, begin with one of his broader measures of strength/weakness, i.e., how the instrument behaves on rallies and declines.

 

Note on the monthly that price was unable to rally more than 50%. This is not a sign of strength.

 

 

 

 

The weekly, on the other hand, appears to have found support at the 50% level of its recent rally. On the third hand, there has been no climactic volume at or near the bottom of the decline. The climactic volume has been at the peak of the rally.

 

 

 

 

Looking at the daily, there again is no climactic volume at the bottom of the decline. And price can't recover more than 50%. However, it appears to find support at the halfway point of the most recent rally attempt.

 

 

 

 

The overall picture, however, is one of weakness, not strength, particularly since there's been no selling climax, and the significance of any one or two bars is minimal at best. And since traders have used every rally as an opportunity to sell, I wouldn't be eager to jump in quite yet.

Edited October 13, 2009 by DbPhoenix

[DbPhoenix 42]

 

DB, I just read your instructions are how to draw demand/supply lines. It makes so much more sense to me now. I included then in both my daily and 10k anchor charts. Please let me know if I got it right

 

 

Drawing demand/supply lines in hindsight is difficult unless one reads the chart from left to right. But difficult or not, there isn't a great deal of point to going back any farther than one needs to. One draws demand lines in order to see where demand is entering the market and propelling a continuation. Therefore, they tend to be tight. But if one is using them to make trade decisions, he will likely find it necessary to include other information, such as how price respects the trendline, or whether or not price holds above the last swing low, or how price reacts to the last support level. Breaking a demand line means little in and of itself other than that momentum has hit a pothole of some sort. They are perhaps most useful when price departs from the trendline, serving to provide an early warning of a change in momentum that might break that trendline, but also serving to remind the trader that the world hasn't come to an end just because momentum has taken what might be no more than a temporary pause.

 

 

[DbPhoenix 42]

I didn't get enough sleep last night. Ended up shorting 39.25 in the morning but closed myself out for BE.. What a shame.. No sleep = no preparation = fear = no disicpline = no profit.

 

Anyways, For tomorrow, I'm a bit confused. We have pivots now at 1740, 1730, 1717, 1708. They are all so close together. Depending on AH action, I'll have a better idea what to do tomorrow.

 

DB, I just read your instructions are how to draw demand/supply lines. It makes so much more sense to me now. I included then in both my daily and 10k anchor charts. Please let me know if I got it right

 

Reply can be found here.

[pinetree 10]

This chart shows an ETF (XACTBULL 1.5x gearing) on the Swedish OMXS30 Index. I would appreciate some input on the ongoing consolidation as I’m having a bit of a hard time interpreting the volume behavior inside it. To go back from the beginning:

 

1.During phase 1 Xact rose with increasing activity and range expansion to the upside. Buyers were aggressive and wanted to participate and thus drove prices higher out from a good base that had formed since early October. Accumulation must have been going on inside this base. Prices never looked back.

 

2.During phase 2 Xact consolidated with activity initially still high but slowly tapering off during the consolidation. I’m not sure what to make of the spike down (volume huge and range expansion to the downside) on around 15 May, but it looks like a selling climax of some sort as prices quickly recovered.

 

3.During phase 3 prices left the consolidation (which was probably then a re-absorption) and volume built slowly as prices rose. Activity was clearly lower during this phase than during phase 1. Still, prices rose and there seems to have been very few sellers as buyers could push prices up without much effort and without prices looking back.

 

4.When price breaks out of consolidation phase 4 there seems to be a change in behavior. The breakout occurs on huge volume and the range expands. However, at A, buyers back away and prices fall back into the consolidation again. The breakout looks like a climax?

 

5.Activity and range now starts to expand to the downside into B.

 

6.From B up to C activity diminishes and bars seem to get shorter and shorter. Buyers don’t seem interested to chase prices higher at this point. Neither thus sellers show up at C.

 

7.In the wave from C to D sellers seems to enter and push prices lower on increased volume and range. Price finds support at old lows on decent activity. At D buyers seems willing to enter once again and stop the sellers from pushing prices even lower.

 

8.From D and up until now buyers once again back off and decide not to chase prices higher. Activity diminishes and range contracts.

 

I am not sure how to interpret the volume behavior inside the range. Activity and range clearly increases to the downside in the lower half of the range. Is this the “composite man” supporting the ETF while distributing stocks to the “public” after a decent run (from 65 to 120 in 6 months…). Or is it the “composite man” accumulating from the “public” when they panic and sell as soon as prices start pushing downward.

 

From D and up until today prices have rose further than I thought they would (since I’ve been interpreting the change in behavior as a sign of weakness), and today prices are up to the top of the range once again. If distribution is going on here I guess Wyckoff would suggest going short here with a stop just above the old highs?

 

I guess that IF prices break to the downside a lot of that stock that has been accumulated around 112 will be thrown back at the market and cause a further decline. However, if I’m not able to interpret the behavior inside the range I will not see that until after prices break lower, which is too late to establish a position.

 

It would be great if someone could comment on this cause I’m having a hard time interpreting this behavior.

[jfw215 11]

Thanks Db.

 

For today, I'm looking at 53, 40, and 30. Longs are more favorable since its an uptrend.

[DbPhoenix 42]

Thanks Db.

 

For today, I'm looking at 53, 40, and 30. Longs are more favorable since its an uptrend.

 

Only if one considers moves from one end of a range to the other and back again to be trends. For now, we're returning to resistance, so a long is not appropriate unless and until we get through that.

[DbPhoenix 42]

It would be great if someone could comment on this cause I’m having a hard time interpreting this behavior.

 

Fortunately, there's little need to do any interpreting since nearly all the volume here is irrelevant to the price action. But rather than go over your detailed -- and impressive -- analysis point by point, let's get away from the bar by bar and look at trend and consolidation.

 

If as you say some sort of base had formed to the left of this display, buyers clearly were ready to move price out of it since they were able to do so despite the large amount of selling which accompanied the breakout. They were also able to support price after sellers pulled it back down and hold it at a higher low. From that point, all you have to do is follow the trend until the beginnning of May. You can ignore the volume entirely.

 

At the beginning of May, price breaks what has been up to now a trend line. A few days later, as price approaches the level of the last swing low, there's a spike in volume, i.e., a noticeable increase in trading activity. Sellers want to push price down further, but buyers are willing to step up in force and support price at this level, pushing it back toward the May high and keeping it there as it bounces along until July, forming a hinge (volume during this period is also worth noting as there is a general decline in it, a characteristic of the hinge). Price then exits the hinge on relatively low volume, suggesting that buyers are having little trouble propelling price upward (if there was a lot of supply to deal with, volume would be higher).

 

And now, suddenly, volume becomes an issue since sellers are entering the market to halt or impede its advance, i.e., volume increases, and price stops at "A". But buyers can't or don't want to push price further, and sellers back off, and price drops back to "B", at which point buyers come in to support it. This back and forth continues up to "C" and down to "D". Given that volume increases as and when price reaches support but declines when it reaches resistance, buyers appear to be willing and able to support price at "B" and "D", but don't have enough strength to push price further ahead (or they have it but don't want to use it yet, particularly if they are absorbing the supply that's being offered so that an eventual move upward can occur with less resistance to it).

 

Up to now, buyers are putting their ducks in a row. Their efforts have been focused on supporting price at the bottom of the range. If there's a dramatic change in the level of their strength and sellers put their backs into driving price below support, these buyers may just throw everything they've just bought back onto the market and accelerate the decline. That's the way it goes sometimes. But the only way to avoid trading a breakout from one side or the other is to keep selling resistance and buying support until the move is made.

 

As for the "Composite Man", the public is part of the Composite Man. He/it is not something separate. The CM is comprised of every market participant. So there's no need to worry about ulterior motives, even if determining what they are were possible. All you have to do is follow the price action.

[boru 10]

db wanted to thank you for critiquing my chart, it helps lot. I have been under the weather for the last few days or I would have gotten back sooner. After reading your responses I went back to matinthehats thread I feel there is a lot there for me to digest and maybe it won't be so repetetive on the threads anyway thank you John

[pinetree 10]

Fortunately, there's little need to do any interpreting since nearly all the volume here is irrelevant to the price action.

 

Thanks dB! This helps a lot.

 

I’m not sure, but it might be that I’m trying to read too much into the volume and range for each and every bar. I know it all boils down to buying and selling waves and their relation to each other. However, going over tons of Wyckoff material (posted on this blog, in books and other resources) it seems to me that although the waves are important, it is possible to find “meaning” or an explanation to the ongoing battle in almost each and every bar depending on its range, volume and “place”?

 

From the analysis in my previous post, would you say I’m trying to draw too many conclusions from the behavior (especially volume/activity)? As I understand you, you would focus more on price action alone in this chart, i.e. trend and consolidation (and then buy/sell break outs, retracements and ranges depending on one’s personal style). Is that correct and if so, why?

 

My reasoning was this: When prices broke out at “A” it looked like the established trend would continue just like it had been going since March. However, there seems to have been a change in behavior and as you say sellers are entering the market to halt the advance. The whole thing looked somewhat climatic. As I interpret it sellers keep throwing more stock at buyers all the way to “B” where they stop doing this. Range expands when prices fall. I interpreted this action as bearish or at least as a warning sign that the uptrend might be in danger.

 

From “B” to “C” activity clearly decreases and range contracts. The period in the middle of September shows very low activity, small range and indecision. There are 11 days closing in the range 123-125. Here I interpreted this as buyers not willing to chase prices. Why? I don’t know. Maybe they are exhausted from supporting prices at “B” or from pushing prices from 65 in March to 125 in September.

 

I entered a short at “C” due to the above interpretation of the behavior. Activity increased and sellers started (once again) pushing prices lower. Range and volume expanded to the downside and I interpreted this as a further confirmation of my interpretation of the previous behavior (i.e. bearish). Volume didn’t seem climatic to me as prices reached support at “D” so I held on to my short. At “D” sellers backed off and prices rose. Volume decreased and range contracted as the supply disappeared. Buyers could push price higher, but were not very eager to do so and they didn’t have to be since there was no supply.

 

I was still viewing this as bearish behavior and was preparing to add to my shorts if prices were to halt and reverse back down around the midpoint of the range. However, prices kept rising all the way back to the top of the range (and I was stopped out where I initiated the trade). Yesterday, buyers were aggressive pushing prices higher on expanding range and activity. Sellers were trying to repeat what they previously did at “A” and “C”, but buyers were clearly stronger and managed to push through resistance. Suddenly it seems that the whole range has been bullish (as you wrote, buyers seem to have been supporting prices around “B” and “D” and were just waiting for a good time to push through resistance at “A”-“C”). On the other hand yesterday could almost be considered to be somewhat climatic, couldn’t it?

 

Now, buyers have pushed prices through resistance and this chart no longer looks bearish to me – unless sellers emerge and push prices back into the range. However, there is no reason for me to expect that at this point. Sellers entered at around 125 and managed to halt the advance. Buyers were willing to support prices at around 115 and managed to take all supply that sellers were offering in the range. Does it matter that sellers entered at around 125? Would it make a difference if buyers were just not willing push prices higher (i.e. there would be no volume breaking out to A)?

 

Am I trying to read too much into the behavior inside the range? Does the volume matter here? As I understand, Wyckoff didn’t like entering into trades as price breaks resistance/support, but it is really hard not to with the behavior of this chart. Is it possible to anticipate here that prices would break out to the upside? Not buying the B/O here means I have to wait for a retracement (if one comes and depending on how it behaves), but I guess that all back to one’s personal trading style and not really Wyckoff related…

[DbPhoenix 42]

I’m not sure, but it might be that I’m trying to read too much into the volume and range for each and every bar.

 

Correct.

 

From the analysis in my previous post, would you say I’m trying to draw too many conclusions from the behavior (especially volume/activity)?

 

Correct.

 

As I understand you, you would focus more on price action alone in this chart, i.e. trend and consolidation (and then buy/sell break outs, retracements and ranges depending on one’s personal style). Is that correct and if so, why?

 

That's the basis of Wyckoff's approach.

 

Am I trying to read too much into the behavior inside the range? Does the volume matter here? As I understand, Wyckoff didn’t like entering into trades as price breaks resistance/support, but it is really hard not to with the behavior of this chart. Is it possible to anticipate here that prices would break out to the upside? Not buying the B/O here means I have to wait for a retracement (if one comes and depending on how it behaves), but I guess that all back to one’s personal trading style and not really Wyckoff related…

 

I can't think of anything useful to add to what I said above about the current range. Either buy support and sell resistance until price exits the range or wait for the breakout and buy that or the retracement, if there is one. Anything more is over-analysis.

 

The original Wyckoff material is contained in the stickies and in the threads marked with a green circle and black arrow. If anything you've read conflicts with that, I suggest you set aside what is inconsistent with Wyckoff's own work. To get started, click here.

[wjrusnak 10]

I’m not sure, but it might be that I’m trying to read too much into the volume and range for each and every bar.

 

If you are trading ETFs on a swing basis, as it seems that you are doing, then you are not confined to one instrument. Furthermore, you seem to be looking for setups that are either not there or are not optimum. Why not browse some other ETFs and see if any have a better setup?

 

Many of us stick to trading only the ES, NQ, ZN, ZB, YM, etc., but this is generally on a day trading basis. This means that we may have to wait only minutes, hours, or maybe a day for a better setup, while you could possibly wait months (or years!).

 

My suggestion to solve your overvaluation of this stock is to move on. Find a stock that is about to setup for a reversal inside a range, or one that is trending and in a retracement, since these seem to be the setups that you're looking for. Anyway, good short, but maybe it would have been wise to take some off at S. You don't want to stray from your rule of selling R and buying S. Good trading.

[DbPhoenix 42]

If you are trading ETFs on a swing basis, as it seems that you are doing, then you are not confined to one instrument. Furthermore, you seem to be looking for setups that are either not there or are not optimum. Why not browse some other ETFs and see if any have a better setup?

 

 

The setup is not so much an issue as a misunderstanding of the nature of trend and consolidation. If price is in a trading range, "bearish" and "bullish" are inappropriate. One sells resistance and buys support. Pinetree didn't buy support at "D" because he was "bearish", but sentiment was irrelevant. If he had bought then, he would now be in a position to take advantage of whatever breakout occurs. If there is instead a reversal, then he can get out of his long and enter a short. That's how trading ranges are played.

[DbPhoenix 42]

To Pinetree:

 

Given that this ought to be about Will rather than CouldaWouldaShoulda, what now? If the ETF posted mirrors the activity in the OMX, it's struggling at resistance, appearing to want to break out.

 

What will you do if it does?

 

What will you do if it doesn't?

[pinetree 10]

The setup is not so much an issue as a misunderstanding of the nature of trend and consolidation. If price is in a trading range, "bearish" and "bullish" are inappropriate. One sells resistance and buys support. Pinetree didn't buy support at "D" because he was "bearish", but sentiment was irrelevant. If he had bought then, he would now be in a position to take advantage of whatever breakout occurs. If there is instead a reversal, then he can get out of his long and enter a short. That's how trading ranges are played.

 

Makes complete sense when you write it, but I guess one must first define a reversal? Does it include activity or is it just based on price action? Is it breaking previous bar’s high/low? I know time interval does not matter (and thus whether it breaks a day’s/hour’s/10min bar high/low) since it is an ongoing process, but one have to define it in order to see it, correct?

 

To Pinetree:

 

Given that this ought to be about Will rather than CouldaWouldaShoulda, what now? If the ETF posted mirrors the activity in the OMX, it's struggling at resistance, appearing to want to break out.

 

What will you do if it does?

 

What will you do if it doesn't?

 

Today prices traded above resistance but closed back below it. Activity was almost as high as y’day but sellers halted the advance from “D”. Activity is now higher than anytime previous in the top of the range. Buyers are more eager to push prices upwards and sellers are now selling up here instead of down at the bottom of the range. How should I (or should I even?) interpret this – I don’t know, but now that we are at a point which has previously been resistance, it should matter?

 

This is probably down to specific setup, but if prices fall back into the range tomorrow, one could argue that resistance held and a short position will be put on - we are still in the range and thus selling resistance and buying support. If price continue up, I will wait for a pullback to previous resistance and then enter a long.

 

This however leads me to the next issue, and once again a definition of a move, what is a move back into the trading range and what is a pullback to support? I will enter into a short if prices break below today’s low with a stop above today’s high. If prices continue up, I will enter into a long if a pullback occurs on what looks like lower volume and lower range. If a pullback doesn’t occur I will most likely miss any move higher which is a downside to this plan.

 

Does this make sense?

 

 

Wjrusnak, I do trade other stocks, etf etc, although I thought I spend more time on one particular to really get a feel for the buying/selling pressure, waves etc - knowledge that I could then apply to other issues. However, this might have led me to overanalyzing it and forcing trades where there are none...

[DbPhoenix 42]

The setup is not so much an issue as a misunderstanding of the nature of trend and consolidation. If price is in a trading range, "bearish" and "bullish" are inappropriate. One sells resistance and buys support. Pinetree didn't buy support at "D" because he was "bearish", but sentiment was irrelevant. If he had bought then, he would now be in a position to take advantage of whatever breakout occurs. If there is instead a reversal, then he can get out of his long and enter a short. That's how trading ranges are played.

 

Makes complete sense when you write it, but I guess one must first define a reversal? Does it include activity or is it just based on price action? Is it breaking previous bar’s high/low? I know time interval does not matter (and thus whether it breaks a day’s/hour’s/10min bar high/low) since it is an ongoing process, but one have to define it in order to see it, correct?

 

Since you're trading off daily charts, the daily chart is all that should matter to you. As for defining reversals, this has been addressed at length in other threads.

 

Today prices traded above resistance but closed back below it. Activity was almost as high as y’day but sellers halted the advance from “D”. Activity is now higher than anytime previous in the top of the range. Buyers are more eager to push prices upwards and sellers are now selling up here instead of down at the bottom of the range. How should I (or should I even?) interpret this – I don’t know, but now that we are at a point which has previously been resistance, it should matter?

 

This is probably down to specific setup, but if prices fall back into the range tomorrow, one could argue that resistance held and a short position will be put on - we are still in the range and thus selling resistance and buying support. If price continue up, I will wait for a pullback to previous resistance and then enter a long.

 

This however leads me to the next issue, and once again a definition of a move, what is a move back into the trading range and what is a pullback to support?I will enter into a short if prices break below today’s low with a stop above today’s high. If prices continue up, I will enter into a long if a pullback occurs on what looks like lower volume and lower range. If a pullback doesn’t occur I will most likely miss any move higher which is a downside to this plan.

 

Does this make sense?

All the self-talk is fine, but the results of it are what matters in terms of taking action, i.e., the following:

 

1. If price continue up, I will wait for a pullback to previous resistance and then enter a long.

 

2. I will enter into a short if prices break below today’s low with a stop above today’s high.

 

3. If prices continue up, I will enter into a long if a pullback occurs on what looks like lower volume and lower range.

 

If a pullback doesn’t occur I will most likely miss any move higher which is a downside to this plan.

 

This is a plan, though the more specific you can make it, the better. It is specific enough at this point, however, for those who wish to comment to do so.

 

Given that you're trading daily charts, there is also the matter of the chart you posted last February. Since the selling climax and test had already occurred by the time you posted the chart, I assume you didn't buy the test. And since you are not now in this instrument, I assume you didn't buy any of the other entrance opportunities. If you think about why, perhaps you will learn something about your real-time mindset and your risk tolerance that will help you in this current trade.

 

 

Edited September 26, 2015 by DbPhoenix

[ziebarf 10]

Like poetry in motion. I don't want to make predictions, but I wouldn't be surprised if we see some downward motion to the bottom of this range (1730). Although it might just be a smaller range and 1740 is the bottom. I am having trouble reading the VAP for this area, so I am just going off price action here. Anywho, market looks like it is coiling, maybe we will get some nice moves this afternoon.

 

EDIT: Looking at the VAP, 1740 looks to be the bottom and this appears to be a really tight range

Edited October 15, 2009 by ziebarf

[pinetree 10]

This is a plan, though the more specific you can make it, the better. It is specific enough at this point, however, for those who wish to comment to do so.

 

As for making it more specific, are you thinking about price target etc. I.e. if I get into the trade and price go here I will do this or this if this happens?

 

Given that you're trading daily charts, there is also the matter of the chart you posted last February. Since the selling climax and test had already occurred by the time you posted the chart, I assume you didn't buy the test. And since you are not now in this instrument, I assume you didn't buy any of the other entrance opportunities. If you think about why, perhaps you will learn something about your real-time mindset and your risk tolerance that will help you in this current trade.

 

The selling climax had occured and I had actually done a few trades within the range at time I posted the chart. Looking over them now in hindsight, some of them makes no sense to me. Just a short run through of my trades on this chart:

 

A: Went long as volume was extreme but buyers manged to push prices to close in the middle of the bar for several days. Final poke down (oct 27) was on less volume than previous bars and close in middle.

 

B: Went flat as prices put in an ”extreme” up day without accompanying volume surge against an area that could work as resistance.

 

C1: Started scaling in on the pull back. Idea here was to buy the retest of the climax at A. Not being sure how to get in at the right time I scaled into this position with a stop below A.

 

C2, C3: More scaling in.

 

C4, C5: At the time a continued scaling in as I considered theese to be pullbacks on low volume. Looking back at this now this reasoning makes no sense to me. I think that I, at the time, was afraid of missing a potential break out to the upside and prices came back to the middle of the range where I thought it would find support.

 

D: Went flat at very narrow range up bar on low volume against resistance as prices were refusing to break out to the upside.

 

E: Went long here as price fell on low volume back to an area where buyers had previously been supporting the price. In hindsight, this was the best possible entry I could have throught the whole range, but it was probably more luck than skill entering here (as you later see how I managed this trade….). Price was not really down to a support but more an area in which buyers started pushing price up agressively in the beginning of March.

 

F: Went flat as I considered prices making very litte progress on still large volume. (Overanalyzing I guess….?)

 

G1: Went short on break of trendline as the final push up to G1 was on lower volume than the push up to F. I thought buyers were not willing to chase prices higher and that sellers would take over. As you see, the trade started out great as range and acticity increased to the downside. I considered this to be a confirmation of my previous analysis (but again overanalyzing probably...?).:crap:

 

G2: Added to short as prices rose on decreasing activity from previous swing low.

Price didn’t continue down but instead settled into a range and developed into a hinge on decreasing volume.

 

H: Stopped out as price broke to the upside.

 

I and J: The trades as discussed in previous posts.

 

The circles are probably good areas to enter (tests of support or break outs). It is clear from looking back that I was trying to be smart and overanalyzing it around F and G, I and J. Analyzing my own trades I seem to like entering into trades against the trend (like at G and I when range and volume expands to the downside and sellers then back off so that buyers can push price back towards last swing high although on lower range and activity….). That took me out of a trade that could have made my year from E.

 

All the trading around at C also makes no sense looking back at it. C2 is probably the only reasonable entry.

 

I think, going back to what you say about learing something about my real time mindset, I think I am afraid of missing a move. I.e. I don’t let price show its card at resistance/support. Instead I’m trying to enter into trades in the middle of ranges.

[DbPhoenix 42]

As for making it more specific, are you thinking about price target etc. I.e. if I get into the trade and price go here I will do this or this if this happens?

 

As specific as it has to be in order for you to know exactly what you're going to do and when you're going to do it. For example, it has as of now retraced its way back to resistance. When and where and how are you going to go long?

[pinetree 10]

When and where and how are you going to go long?

 

Price have penetrated resistance but to me (might be me overanalyzing this again...) sellers have once again showed up (increased activity at resistance) throwing stocks at bullls. This has caused price to retrace back to resistance (even below depending on how you define it but that is up to me not the market). On friday price once again rose (and fell back) but this time on lower activity. No interest in pushing price higher here and now.

 

I am still comfortable going short on a break back into the range. I am however not comfortable going long as the chart looks to me like I could end up being whipsawed.

 

Plan: I will short if price breaks below fridays low. Stop 1 point above high. If price reach mid point of last range I will lower stop to BE. If price reach support I will close position. If price break friday's high I will stand back and wait for a pullback to support.

 

Would you say I'm still overanalyzing and trying to interpret to much into the action instead of just buying now at support?

[Gringo 10]

Hello Pinetree,

 

In my opinion we are under the s/r (I am considering s/r to be dynamic rather than a static number). Simply because if it were a proper breakout price would blast forward and not get slammed back down.

 

Volume was higher when price did break upwards but couldn't stay above s/r. Three times price tried and first two times high vol (high intensity) struggle ended with supply winning both times. The third time demand gave in quite easily considering on last attempt volume is lower. Either the demand doesn't want to push prices up right now or is actually exhausted after failed attempts to break upwards.

 

I am leaning on the side of demand exhausting due to the higher volume intense attempts to push prices up. If demand had not wanted prices to go higher it would have given up easily earlier, but higher volume attempts suggest intent and then failure.

 

Another small thing to note is the general level of volume being lower as compared to the price when it was basing around 100. I am not sure if it has any significance apart from the fact that lower intensity is able to achieve now what higher intensity was required to achieve earlier. Are bulls and bears unwilling to press on the gas due to fear of being not completely sure?

 

Pinetree, from your posts it's apparent that you're not too green when it comes to analysis. I had to think twice before posting anything due to your apparent mastery and depth of deducing meaning out of every wrinkle. I fear my analysis, showing your propensity for excellent micro-analysis, would fall short. What I fear more, however, is the effect on your psyche, of doing such deep analysis and then finding price to do the opposite. A knife master doesn't just stab you to death, but instead bleeds you into weakness and delusion before you fall to your own death. Beware of these small nicks to your psyche.

 

Gringo

Edited October 19, 2009 by Gringo

[wjrusnak 10]

Steelers Messy game, but none the less... a win. Anyway, after a week off, it's time to get back to work.

 

Tomorrow we have a mess of levels, but I want to keep to the more obvious ones (marked in bold). We still seem to have that 30ish-13ish range in tact on the lower end and 40 to 55ish on the upper end. 35 also made a light appearance. Overall a larger up channel was breached (noted in chart below). My guess is that we will have some difficulty traveling through the middle of this range (i.e. 25 & 20). That is, of course, if traders decide to move in that direction. The plan: Short R... Buy S.

 

[firewalker 10]

Tomorrow we have a mess of levels, but I want to keep to the more obvious ones (marked in bold). We still seem to have that 30ish-13ish range in tact on the lower end and 40 to 55ish on the upper end. 35 also made a light appearance. Overall a larger up channel was breached (noted in chart below). My guess is that we will have some difficulty traveling through the middle of this range (i.e. 25 & 20). That is, of course, if traders decide to move in that direction. The plan: Short R... Buy S.

 

Given the choppiness around what looked like S at 40 last week, I am now considering 25-54 as the new range now. The area around 25-28 was also important the last three days of September, and although it looked like 30 was the extreme, I tend to believe that shifted now.

 

At the moment when I'm typing this, we're back in the middle around 42 after reacting off 25 premarket. Therefore, unless there's a serious rejection of R in the low 50's, I will prefer to go long if the market breaks higher.

[Soultrader 12]

ES chart attached. Thanks.

[DbPhoenix 42]

Since price moved away from 1712, we've been in a situation where extremes become midpoints (i.e., 30 and 40). Midpoints tend to be choppy and extremes tend to prompt reversals. If a given level is both, this can create problems for the trader. My advice, then, is that if what you perceive to be a setup isn't obvious, leave it alone and wait for an opportunity that is.

 

Edit: Here's an update on the chart I posted a week ago.

 

 

Edited October 19, 2009 by DbPhoenix

[DbPhoenix 42]

Overall a larger up channel was breached (noted in chart below).

 

I don't mean to pick on you. You just happen to be handy . And I would have posted this earlier, but I had to leave at noon.

 

Your channel isn't really a channel. Or, rather, it's a channel, but the wrong one. And drawing these correctly, or at least according to Wyckoff, is important if for no other reason than to avoid adopting a bearish or bullish stance where none is justified.

 

In an uptrend, one begins with the demand line, and the first demand line here is clearly too acute, and price leaves it very quickly. A second one is then drawn along the price line that eventually makes it to 1710. When this one is broken and a new high is made, a third one is drawn along the price line that eventually reaches 1730. This one is also broken and price makes a swing low at 1707.

 

At this point, one can draw a line beginning back at 1658 or so and connect with this swing low. Drawing a parallel supply line creates a line that is clearly way off base. On the other hand, drawing the supply line first (even though you're not supposed to), along the tops of the swing highs, provides a much better fit, and it provides a clue as to where the demand line ought to be drawn, i.e., the long-dashed line. Thus you do have a channel, but it's not where you thought it was, and the poke below the demand line was not at all serious but just a tiny test of support at 30.

 

 

 

 

Take care, then, not to overlay a channel and shoehorn the price action into that channel. Look instead at the swing highs and lows and see where demand and supply are turning price back. This will enable you to avoid being misled by channels that are pretending to be channels but aren't really.