Trading The Wyckoff Way

[Gringo 10]

UUP is heading close to the support line around 24 area. We'll have to see how it behaves there. The drop has been quit steep with lower volume hinting at lack of support.

 

 

 

Gold is in a long term uptrend.

 

GLD Weekly shows 120 and 123 to be s/r. It's more like a range in my eyes especially after the price broke above 120 two times. Still to be sure 120 is a resonable support/resistance area based on volume. Be aware that after falling below 120 the price didn't just collapse but rather is meandering closer to the resistance line and could break upwards as well.

 

 

For a longer term perspective about GLD. See the trend upwards. Although this current rally couldn't take gold past the previous highs for long and price fell below 120. It could be early signs of weakness, sideways movement, or a random event. All I know is below 120 (under resistance) is not a place to go long in my books. Those with other plans may do whatever they wish.

 

 

Non-Wyckoff Ramblings:

On a side note, notice how GLD advances rapidly after the Tech Bubble and continues to advance thorough the Housing Bubble. Some indicate this to show how expansionary monetary policy is increasing gold value in dollars simply due to the depreciation of dollar. Other North American central banks have been more or less moving in tandem with Fed policies hence a global rise in gold prices in terms of currencies.

 

This straight forward trend analysis and chart makes is simple to see which way price is moving. A lot of hassle is removed from the mind by just having an upward trending line showing clearly the long term trend still being intact.

 

There are signs of gold based exchanges where online a person can bypass currency and have gold account and buy or sell goods in terms of pure gold. There are in Australia mining companies that allow 100% backed gold exchanges - meaning they don't use fractional reserve to lend more than what they have at hand akin to a modern bank. I am not sure how strong this trend is however, the disallusion with too much interference by central banks in the market may be a cause of this.

 

There are so many reasons as to why gold is rising so much faster than other commodities. It's also possible the time for a bubble in gold is close at hand and it might get its due euphoric rise and then a collapse. Most things that go up fast do end up getting dumped at some time. In the 70s and 80s I believe gold went from 50 to 850 That's was quite a rise.

 

The simplest and straight forward way is to keep an eye on price and leave the stories for table talk. It's easier to have a nice story to explain things as opposed to saying simply that the price is below resistance hance I am not long.

[Gringo 10]

AAPL is around support/resistance and long trendline. Break of s/r would imply probability of going down to be greater. Rebound here could take AAPl to the upper bound.

 

Upper limit: 272

Middle: 256

Lower Limit: 240

 

Break of trendline implies the uptrend may be over. It does not imply the uptrend is over. Price could after breaking the trend line move in this manner:

 

a) sideways

b) down

c) up

 

 

 

My preference is to watch action at support or resistance and then decide what I need to do based on price and volume behaviour.

 

Gringo

Edited July 20, 2010 by Gringo

[wunderlich 10]

For the calculation of the Wyckoff Wave, SMI has for each component a mutiplier.

 

Does anybody know, the base for this calculation of the multiplier? And how often or when is he adjusted?

 

Thanks in advance

 

W

[Gringo 10]

Hi,

 

I suggest you check with SMI. Why not get the exact information you need from the source.

[DGC 10]

Hi There.

 

I’ve been reading about the stock market and Richard Wyckoff for some time now and it all makes absolute sense. However, as with anything, there’s always questions you have in your mind which you just can’t, either, find the answer to, or can’t see the the obvious. Like this one for example: -

 

In the normal market cycle, accumulation, mark-up, distribution, mark-down, etc; how exactly does mark-up/mark-down occur? If we take mark-up for example, when all the floating stock has been removed from the hands of “weak holders” in a phase of accumulation, what causes the stock to rise, if the people who want the stock to rise considerably have all the stock? Won’t it just go sideways at the trading range price for ever? Do you understand my confusion; where does the demand come from - whose buying?

 

I mean, if they (strong holders) keep raising their offer price from the breakout of the accumulation trading range, they have to keep selling back to someone (presumably weak holders again) to be able to keep the price slowly rising, and if that’s the case, surely by the time they reach a reasonable level for distribution all their stock has gone anyway.

 

If anyone could clear up this question, another piece of the puzzle would slot into place.

 

Many thanks in advance.

 

DGC.

[SIUYA 11]

Hi There.

 

In the normal market cycle, accumulation, mark-up, distribution, mark-down, etc; how exactly does mark-up/mark-down occur? If we take mark-up for example, when all the floating stock has been removed from the hands of “weak holders” in a phase of accumulation, what causes the stock to rise, if the people who want the stock to rise considerably have all the stock? Won’t it just go sideways at the trading range price for ever? Do you understand my confusion; where does the demand come from - whose buying?

 

I mean, if they (strong holders) keep raising their offer price from the breakout of the accumulation trading range, they have to keep selling back to someone (presumably weak holders again) to be able to keep the price slowly rising, and if that’s the case, surely by the time they reach a reasonable level for distribution all their stock has gone anyway.

 

If anyone could clear up this question, another piece of the puzzle would slot into place.

 

Many thanks in advance.

 

DGC.

 

I dont use Wyckoff but just from a simplistic point of view....... (stocks and futures are different here as stocks have limited amounts whereas futures dont but the makret mentality is the same.)

stocks can go up from a level as NEW/Late entrants enter. These are often referred to as dumb money (ignore all these names). Focus instead on a simplistic idea of being a late entrant......

You want to buy, someone will sell, but you have to hit the offer..... your desire to buy may over ride your sense of value, so you will bid it up....

Now take your ideas/mentality and multiply it by the many people in a market.

then add people who wish to short a market, people who will buy and sell, people who will trade intraday, people who will arbitrage, some of the original entrants will take profits, some of the original entrants will buy more and average in.

The extreme of this relies on the greater fool theory.... that is you will buy in the belief that someone else will buy at a higher price..... its at this stage supposedly all the smart money/strong hands have already departed and you are riding a ship of fools. This is ultimately who is buying at extremes.

Once you have a liquid stable market happening, there are more than just one set of players..... its dynamic, living and not reliant on a few players.

Its often great to think about extremes..... what happens if there are only two market participants.... what happens if there are unlimited numbers of participants, what happens if the market trades continuously, what happens if the market only trades once a day, once a week, once a year...... what then happens.

 

(NB - ignore all the silly names - its really just a liquid market)

Edited August 13, 2010 by SIUYA

[KeyToTheCastle 10]

Hi There.

 

I’ve been reading about the stock market and Richard Wyckoff for some time now and it all makes absolute sense. However, as with anything, there’s always questions you have in your mind which you just can’t, either, find the answer to, or can’t see the the obvious. Like this one for example: -

 

In the normal market cycle, accumulation, mark-up, distribution, mark-down, etc; how exactly does mark-up/mark-down occur? If we take mark-up for example, when all the floating stock has been removed from the hands of “weak holders” in a phase of accumulation, what causes the stock to rise, if the people who want the stock to rise considerably have all the stock? Won’t it just go sideways at the trading range price for ever? Do you understand my confusion; where does the demand come from - whose buying?

 

I mean, if they (strong holders) keep raising their offer price from the breakout of the accumulation trading range, they have to keep selling back to someone (presumably weak holders again) to be able to keep the price slowly rising, and if that’s the case, surely by the time they reach a reasonable level for distribution all their stock has gone anyway.

 

If anyone could clear up this question, another piece of the puzzle would slot into place.

 

Many thanks in advance.

 

DGC.

ahh...my dear old friend Mr Wyckoff.

 

Wycoff theory was one of the 1st things I tried to absorb as a young, newbie trader. Although my understanding of underlying market dynamics has evolved quite a bit since my early days I have found that Wyckoff definitely helped to form a basis for my understanding of market structure and the underlying forces that drive the market.

 

Demand in the mark up phase is coming from a mix of short covering and initiating longs.

 

Let me break down the sequence of events that typically occur during the transition from sellers to buyers at market swing lows:

 

As range extension lower brings in heavy selling from long capitulation , smart money sellers who are deep in the $$ with shorts from above start to buy to cover. This brings in more short covering which in turn brings in other smart $$ participants buying to go long. Then late chasing sellers (those who went short late in the down move) start to cover. All of this buying mixes to form ample fuel/demand for the ensuing rally.

 

Hope that helps to further your understanding!

[Stock.Jock 10]

Does anybody have indicator P&F for the ThinkOrSwim trading platform?

[Gringo 10]

AAPL bounced from the 240 support and is up. I had emotional cloudiness over this s/r as my heart believed s/r was going to break and AAPL was doomed. The priced kept hoovering around s/r for quite a few days indicating it didn't have much power to rebound.

 

Just like many other things in market individual opinion count for naught. I was wrong and as soon as AAPL regained 240 long was the play with tight stops. It was a good reminder to stay true to price rather than formulate doomsday theories. Couldn't a child have traded this easily with knowing just that above 240 is long?

 

 

Q's are approaching s/r around 47.

 

I looked at gold closely and saw the below s/r. It's touching s/r right now. My earlier charts had GLD with one box but two seems a better fit than a wide one box.

 

As a side not there's been some strength in cloud computing stocks. These are the stocks that have benefited from the proliferation of iphone and related products. NFLX, FFIV and others. Notice the lack of slowdown over the past year. Most are exteneded from s/r but those with interest can stay alert to better entry points.

[MadMarketScientist 11]

Gringo,

 

Great analysis and thanks for posting the charts.

 

AAPL for me has been a long-time favorite to trade -- usually I end up trading the straight calls or puts when I get a set-up I want to take. It is a favorite of mine on the daily chart but I also like it quite a bit using 195 minute and 130 minute charts. They behave almost identical to the daily chart since they are "slow" but you get 2x to 3x the number of trades which can help in case you get bored waiting for set-ups on a daily. That's bad to admit, but it happens to me sometimes.

 

Others that I have found trade very well on the daily include ADSK, WYNN and of course GOOG.

 

MMS

[Autaret 10]

Hello, first time here! I discovered Wickoff via Hank Pruden's book, "The three Skills of Top Trading" (just one month ago). Even if English is not my native language, I'm going to read all the contents of the forum and get acquainted with the original Wickoff's thinking. Special thanks to the owner Mr. DbPhoenix.

[Gringo 10]

Special thanks to the owner Mr. DbPhoenix.

 

Yea, the owner appreciates your praise!

 

Gringo

[macrovector 10]

I find it disconcerting to use PnF when I can't see the individual bars of the equity and can't use other indicators along with PnF.

I like to use Darvas box instead with a fixed height. I realize some may not agree that Darvas used fixed height boxes, but in an illustration in his book "How I Made $2,000,000 in the Stock Market", on page 189 he shows an illustration of boxes and they are all the same height.

In any event, if all boxes are the same height, that in effect makes a PnF in that the only factor creating a new box is price movement and time is ignored. To me, the advantage over PnF is that other indicators can also be used.

You can see the long box at the top of the screen in which the equity was flat, and no new box was formed.

[jaykay71 10]

Originally, through studying Linda Raschke's work. I bought a few books, which wound up on the bookshelf with my many other unread trading titles.

 

I then re-discovered him through researching VSA, which naturally led me here to this forum.

 

I'm currently on the first read through of his original 1930s course on Market Science & Technique.

[srag&birdie2 10]

I find it disconcerting to use PnF when I can't see the individual bars of the equity and can't use other indicators ..................

 

Well, I find it disconcerting that you want to use price bars and indicators with P&F.

 

P&F is a very old method -- way, way before indicators and way, way before bar charts.

 

What you have onyour chart is not P&F. It's more like Darvas Boxes. You can look inthe 'Cajas Famosas' thread for more of that (which clearly ain't no Wyckoff and certainly ain't no P&F (so why it's in Wyckoff I don't know) -- I would say it is more like Cajones Famosas, but who be me?)

 

Get yourself a good Wyckoff book-like the course-or track in with Motorway, Darvas Boxes don't really make no Wyckoff, though they seem to truck here. Like I say, this ain't it, mo.

[Tams 20]

I am looking to buy an indicator or an add-on for Tradestation that charts waves and charts

the volume for each wave. The indicator shown on the chart posted by Tape Reader on Page 4 would do just fine.

 

if you can come up with the logic specification,

any indicator can be programmed.

 

 

ps. you can start a new thread to lead the discussion.

[DaKine 10]

IRT allows you to add indicators to pnf charts...

 

Investor/RT - Point and Figure Charts

 

Point and Figure is now supported in traditional charts as a periodicity (and a drawing style). This significant enhancement marries the powerful features of the traditional chart window (indicators, buttons, multi-panes, etc) with this unique drawing style.

[ETFTrader 10]

IRT allows you to add indicators to pnf charts...

 

Investor/RT - Point and Figure Charts

 

Point and Figure is now supported in traditional charts as a periodicity (and a drawing style). This significant enhancement marries the powerful features of the traditional chart window (indicators, buttons, multi-panes, etc) with this unique drawing style.

I am a big fan of Investor R/T charts for P&F trading. I tested several charting programs for P&F charts but I ended up with Investor R/T.

[jitasb 10]

Hello.

 

Have just strated to read thru the Wyckoff material. Have a quick couple of questions:

 

1. When you plot volume by price in order to highlight the 'zones' of most trading activity. Is the idea to trade breaks, false breaks,break and retrace type behaviour from these zones ? rather than trade within the zones themselves ? In which case one could also draw lines at these extremes rather than enclose them in a box.

 

2. If trading Forex, would a volume by price chart still be tradeable, or would you need to just view the zones uisng price action areas of support and resistance.?

 

I realise that these questions are probably very basic, so feel free to refer me to a page/thread which probably already contains the answers.

 

Thanks

[cunparis 10]

Hello.

 

Have just strated to read thru the Wyckoff material. Have a quick couple of questions:

 

1. When you plot volume by price in order to highlight the 'zones' of most trading activity. Is the idea to trade breaks, false breaks,break and retrace type behaviour from these zones ? rather than trade within the zones themselves ? In which case one could also draw lines at these extremes rather than enclose them in a box.

 

This is precisely what I do. I look for trade opportunities at the boundaries. I just blogged about this today:

 

A look back on my journey – Part 6 – Volume Profiling » Trade With The Flow

 

For forex, we don't have volume information so how are you plotting volume by price?

[jitasb 10]

This is precisely what I do. I look for trade opportunities at the boundaries. I just blogged about this today:

 

A look back on my journey – Part 6 – Volume Profiling » Trade With The Flow

 

For forex, we don't have volume information so how are you plotting volume by price?

 

Thanks,

 

I'll have a look.

 

In terms of Forex, I mis-phrased my question. As you say we don't have volume. So the question should have been "Since no volume on Forex, you can't identify the zones via volume peaks. So do people just use Price action behaviour to identify the zones" ?

[cunparis 10]

Thanks,

 

I'll have a look.

 

In terms of Forex, I mis-phrased my question. As you say we don't have volume. So the question should have been "Since no volume on Forex, you can't identify the zones via volume peaks. So do people just use Price action behaviour to identify the zones" ?

 

Me personally I trade the currencies, euro mainly, based on S/R with the price extremes. I'm new to trading currencies this way so I'm still doing a demo account but so far results are positive and I plan to go to a micro account soon.

[Head2k 10]

In terms of Forex, I mis-phrased my question. As you say we don't have volume. So the question should have been "Since no volume on Forex, you can't identify the zones via volume peaks. So do people just use Price action behaviour to identify the zones" ?

Notice that DbPhoenix doesn't use Volume At Price much, but identifies the zones in a price chart (see e.g. this thread). For that purpose a chart constructed of bars dependent on amount of activity is more suitable than a time based chart. DbPhoenix uses Constant Volume Bar (CVB) charts. If volume is not available, you can as well use N-tick charts.

[mikew 10]

Hi

I'm new and have been reading about trading by price for a while. I've follow DB's pdf's from his yahoo groups days. I still don't feel like I have a grasp on things.

 

A quick question I have is, how can one use the past prices to determine the future? I mean, even with all this price analysis, at any moment a huge surge of people can come in and send the price in the opposite direction that you've predicted. How can you ever account for that? How can you swing the probabilities in your favor with this uncertainty?

 

For example, you see a double top, or a head and shoulders, it would seem that buyers are exhausted and cannot move the price upward. It seems like a good short opportunity when price breaks a support line or hits a resistance line. You enter short. But how can you be certain that in the next five minutes, a huge surge of buying doesn't come in and overwhlem the sellers? This has been nagging at me..

[cunparis 10]

at any moment a huge surge of people can come in and send the price in the opposite direction that you've predicted. How can you ever account for that? How can you swing the probabilities in your favor with this uncertainty?

 

There are no certainties in trading for the exact reason you mention. Any trader can do anything and that can set off an entire chain reaction.

 

I wanted to answer this question for myself so I set out to learn about order flow. This doesn't help me to see the future, but it helps me to see that big trader (or surge of people as you said) and see that maybe price isn't going to do what I thought and I can get out of the trade.

 

So instead of thinking about predicting think about confirming your trade continuously and when something doesn't support the trade you can decide to act upon it. Now it's not as easy as that, for example:

 

we make double top and I go short. we go down 2 ticks and I see a bunch of buyers. I exit my trade at breakeven. Price goes up 1 tick and then a bunch of sellers come in and drive price down 2 pts. I could have gotten out for nothing. Or if I'm continuing to monitor the order flow I can see the sellers returning and I can enter short again.

 

There is another answer without using order flow (IMHO order flow is more useful for scalping). That is just to accept the randomness and let the trade play out. If you risk 1 to make 3 then you can be wrong twice and right once and still make money.

 

What you're looking for in trading is the more probable event. Nothing is certain. It's a probabilities game. Just like in poker. I don't know what my opponents have but if I have pocket aces then the probabilities are high that I'll end up with the best hand. Then I can get a flop that has 3 of the same suit (and not my suit). Now probabilities can favor the flush for one of my opponents. So I can fold or just call & hope for the best. Folding would be like using order flow to bail out of the trade and calling & hoping is like using the R:R and letting the trade play out.