Trading The Wyckoff Way

[mazda11 10]

I recently purchased a book written by Gavin Holmes of

Tradeguider. I thought I could learn some new material on

the Wyckoff method.

 

The book turned out to be a marketing brochure for the

software. I regret buying the book. It is sad that the name

Wyckoff is used in this book. Comparing Wyckoff's original

course to this book is like comparing a Ferrari to a AMC

Gremlin.

 

Attending free webinars from them is more of the same. They sell

mentorships, trading courses, seminars, software, VSA club,

etc.

 

I tried Al Brooks free trial in his trading room since

I trade the NQ off of a 5 min chart. The commentary was

so vague that it was virtually useless. Plus, Al maintains

that volume is useless, which is a insane thing to say.

It is no wonder his read on the market in real time

was not good to say the least.

 

DbPhoenix, you are so right about the Gold Rush thing.

Vendors are sellling so many stuff that it is mind

numbing.

 

I have read so many different books that it is not funny.

Time for me to clear all garbage and focus on the original course.

[Gary Fullett 10]

 

 

 

There is a substantial risk of loss in trading commodity futures, options and off exchange foreign currency products. Past performance is not indicative of future results.

[atto 20]

I'll be damned. How's it going?

Doing great. You? Still trading NQ?

[gaelgss 10]

One question for the experts...

 

When trading the wyckoff way, the first step is to identify the current trade and then establish ones place in the trend.

 

The following image shows a 60 minute and 5 minute chart of the ftsee futures, before the opening.

 

By looking at the charts, is it correct to say that we are in an uptrend, although the 5 minute chart shows an obvious downtrend?

 

In this situation, would Wyckoff look for long setups?

 

Cheers.

[DbPhoenix 42]

One question for the experts...

 

When trading the wyckoff way, the first step is to identify the current trade and then establish ones place in the trend.

 

The following image shows a 60 minute and 5 minute chart of the ftsee futures, before the opening.

 

By looking at the charts, is it correct to say that we are in an uptrend, although the 5 minute chart shows an obvious downtrend?

 

In this situation, would Wyckoff look for long setups?

 

Cheers.

 

You could argue that you're in an uptrend if you limit your timeframe to the 10th and forward. And if you drop your interval to 1m or less, you can find “trends” all over the place. So I suggest you not become entangled in the trend question and think about probabilities. Your market broke its uptrend a week ago and is in the process of testing the last swing low from the downside. So what are the probabilities for upside here? What is more probable of success, a long trade or a short one? What would be your strategies and tactics for either? Or both? What do you need to do to avoid being surprised?

 

Db

[gaelgss 10]

You could argue that you're in an uptrend if you limit your timeframe to the 10th and forward. And if you drop your interval to 1m or less, you can find “trends” all over the place. So I suggest you not become entangled in the trend question and think about probabilities. Your market broke its uptrend a week ago and is in the process of testing the last swing low from the downside. So what are the probabilities for upside here? What is more probable of success, a long trade or a short one? What would be your strategies and tactics for either? Or both? What do you need to do to avoid being surprised?

 

Db

 

So even though the 60 min chart shows a series of higher highs and higher lows, starting from the 9th of May, you don't consider this an uptrend?

 

Answering your questions:

 

1- The probabilities for the upside remain as long as there is a succesfull test of the last swing at 5480, can you quantify the exact probabilities for the upside?

 

2- I would say a long trade has a higher probability of success because the market is making higher highs and higher lows, although another thought I have is;

 

There hasent been a considerable number of trades in this area to provide sufficient support, so we could anticipate a further test of the last swing low. If there was stronger support, provided by a larger number of trades in this area, I would be more biased towards the long-side.

 

3- When looking for long trades, I look for climatic action, and signs of selling exhaustion at a pre defined level of support. My problem here? I have no predifined level of support.

 

4- In order to avoid being surprised, I should anticipate the different scenarios that I foresee at this, still unidentified, Support level and have a plain for each one.

 

My main issue here is following the wyckoff methods first step

 

The first step for a trader is to determine the current trend of the market.

[DbPhoenix 42]

So even though the 60 min chart shows a series of higher highs and higher lows, starting from the 9th of May, you don't consider this an uptrend?

 

As long as you ignore everything before the 10th, yes.

 

Answering your questions:

 

1- The probabilities for the upside remain as long as there is a succesfull test of the last swing at 5480, can you quantify the exact probabilities for the upside?

 

But the last swing low may not be tested. If you're in an uptrend, price may reverse at the trendline. Don't be surprised if it does.

 

2- I would say a long trade has a higher probability of success because the market is making higher highs and higher lows, although another thought I have is;

 

There hasent been a considerable number of trades in this area to provide sufficient support, so we could anticipate a further test of the last swing low. If there was stronger support, provided by a larger number of trades in this area, I would be more biased towards the long-side.

 

If you are trading an uptrend, you have to be biased toward the long side anyway since the distance from the swing low to the next swing high is greater than the distance from the swing high to the next swing low, hence a greater profit potential.

 

3- When looking for long trades, I look for climatic action, and signs of selling exhaustion at a pre defined level of support. My problem here? I have no predifined level of support.

 

4- In order to avoid being surprised, I should anticipate the different scenarios that I foresee at this, still unidentified, Support level and have a plain for each one.

 

My main issue here is following the wyckoff methods first step

 

The first step for a trader is to determine the current trend of the market.

 

Again, in an uptrend, your "support" is the trendline as well as previous swing points (preferably both). Remember what Raschke says in the "article" I wrote on support & resistance and trading trend, that, transitioning from a trading range to a trend, you must be prepared to switch from trading reversals to trading retracements. And remember that by defining "current" as only the last few days, your target becomes the upper trend channel, or supply line. If you find yourself in profit, you cannot then change your perspective midstream and decide to hold on for a test of the last swing high, or the one before that, or the one before that.

 

Db

[gaelgss 10]

 

Again, in an uptrend, your "support" is the trendline as well as previous swing points (preferably both). Remember what Raschke says in the "article" I wrote on support & resistance and trading trend, that, transitioning from a trading range to a trend, you must be prepared to switch from trading reversals to trading retracements. And remember that by defining "current" as only the last few days, your target becomes the upper trend channel, or supply line. If you find yourself in profit, you cannot then change your perspective midstream and decide to hold on for a test of the last swing high, or the one before that, or the one before that.

 

Db

 

I thought that the support provided by a trendline is coincidental, since TL are drawn by traders and don't represent a large number of trades?

 

If this is the case, would you look for long trades at the TL or only if it coincides with a previous swing low?

[DbPhoenix 42]

I thought that the support provided by a trendline is coincidental, since TL are drawn by traders and don't represent a large number of trades?

 

If this is the case, would you look for long trades at the TL or only if it coincides with a previous swing low?

 

While I don't want to seem dismissive, we're getting into questions here that have been answered on multiple occasions. With charts. I suggest you look at the Trend thread, do a search of the Forum using "trend*" (with or without my name), review Section 15 of the course, and review the material that I sent you. That will tell you everything you need to know about entering or exiting positions off demand lines, supply lines, and trendlines.

 

You may also want to look at "Part Two" of Wyckoff's course, "Tape Reading and Active Trading" (97p). This was written 10+ years after the DayTrader's Bible and offers a different perspective. This particular download is available only to Facebook users (which doesn't include me or I'd upload it here), but you can read it online for nothing (which is why I have no moral objections to providing the link). You can also search the document, though the search function is pretty clunky.

 

Db

[DbPhoenix 42]

Where we are:

 

 

[gaelgss 10]

So we are looking for shorts until we reach the potential Support level, around 2400 right?

 

Which levels should the nasdaq daytrader anticipate for tomorrow?

 

The following 15 and 60 minute charts show the most recent action in the NQ. I have identified a Resistance area between 2515-2521, are there any other areas that shoul be taken into consideration for NQ daytraders?

[DbPhoenix 42]

So we are looking for shorts until we reach the potential Support level, around 2400 right?

 

Not necessarily. Price was in the process of testing 2490, and it may well bounce up and rally. Or it could fall right through. You have to be prepared for both. 2400 isn't exactly a secret, and it's under these conditions that "the market" surprises and reverses ahead of support. Or not. Again, you have to expect the unexpected.

 

Which levels should the nasdaq daytrader anticipate for tomorrow?

 

If you haven't read the daytrading part of the course yet, I suggest you do so, at least the first three chapters. It's quick reading. The "levels" are those I've provided on my chart. However, the only trend that matters to a daytrader is the trend that manifests itself tomorrow. You have to be quick to figure out what that trend, if any, is going to be. The second chapter will explain how to do that, though you may skip the Wave part since you are in effect trading the market itself.

 

The following 15 and 60 minute charts show the most recent action in the NQ. I have identified a Resistance area between 2515-2521, are there any other areas that shoul be taken into consideration for NQ daytraders?

 

You'll have to watch the strength of traders to determine how likely it is that price reaches those levels. It may fail to do so, and you'll have to deal with the reversal.

 

If you don't know what to do, I suggest you do nothing but watch. If this is new to you, you can't focus on traders' behavior if you're worried about what you're going to do about it. Eventually, you'll get a sense of what traders have in mind and how far they're willing to go.

 

And if you insist on daytrading, I also suggest that you get used to a tick chart. If you're not tape reading during the day, you're very likely in the weeds.

 

Db

 

Edit: Sorry, I was looking at your chart and it's not complete. Price is already below those levels. But the rest of what I said still applies.

 

Db

Edited May 23, 2012 by DbPhoenix
Update link

[DbPhoenix 42]

Nice bounce off 2465, but so far it looks weak.

 

Db

[DbPhoenix 42]

The following 15 and 60 minute charts show the most recent action in the NQ. I have identified a Resistance area between 2515-2521

 

And here we are. Now what? Short?

 

Db

[Niko 10]

While I don't want to seem dismissive, we're getting into questions here that have been answered on multiple occasions. With charts. I suggest you look at the Trend thread, do a search of the Forum using "trend*" (with or without my name), review Section 15 of the course, and review the material that I sent you. That will tell you everything you need to know about entering or exiting positions off demand lines, supply lines, and trendlines.

 

You may also want to look at "Part Two" of Wyckoff's course, "Tape Reading and Active Trading" (97p). This was written 10+ years after the DayTrader's Bible and offers a different perspective. This particular download is available only to Facebook users (which doesn't include me or I'd upload it here), but you can read it online for nothing (which is why I have no moral objections to providing the link). You can also search the document, though the search function is pretty clunky.

 

Db

 

Thank you Db, I had been looking everywhere for the second part of the course. BTW this thread is great, it had served me a lot to understand plenty of things that I did not get from reading the Wickoff course directly.

 

Edit: Db, the Scribd file is corrupted, do you kwow where else can this part of the course be found?

Edited May 21, 2012 by Niko

[Niko 10]

Building this particular car requires a familiarity with and an understanding of the continuous movement of price. Unless and until the individual develops this understanding, the Wyckoff approach will likely be very frustrating.

 

Db, when you say that the trader must understand the continuous movement of price, what do you suggest (if is in another thread, I apologize for asking something that has already been written) is a good methodology for learning how to grasp this continuous price movement. I currently try to do that using a 20 seconds bar chart with volume, and a tick by tick chart with volume, although I have not been able to consistently identify real changes in the short term trend from the second.

 

Thanks for your valuable contribution in this thread

[20814md 10]

Edit: Db, the Scribd file is corrupted, do you kwow where else can this part of the course be found?

 

It was recently posted in the Wyckoff Resources thread for download. give that a try.

[gaelgss 10]

This is my reading of the behaviour of price around the 2516 R area, I am simply trying to put into practice the little kwnoledge I have aquired from this message board and Wyckoffs word. Hopefully one of those things I will look back in the future and think: Shit, what the F**k was I thinking...

 

At point 0 the market is in an uptrend and retraces on descending volume, a bullish sign.

 

At point 1 there is another retracement, also on descending volume. At this point there is nothing in the chart that makes me expect a reversal.

 

Between points 1 and 2,on the wave chart, we can notice the upward waves are becoming shorter, showing a clear increase in selling pressure, but still no climatic action.

 

At point 2 there is another retracement, this time lasting longer in time and of greater magnitude, however, there are still no clues from volume.

 

At point 3, buyers step in again (or sellers give up) and price starts ascending. As prices moves higher, volume decreases for the first time, showing less efort from the part of the buyers and a bearish sign.

 

At point 4, buyers are exhausted and price makes a Lower High and reverses on realtively low volume, however, price finds support again at around 2510.

 

Is it worth going short on that lower High? I don't care as it depends entirely on the individual traders strategy, I am interested in the analysis of the relationship between price and volume at this potential resistance level, as it is independent of strategy.

 

After this, price drifts for a while and eventually breakouts but It would be good to read other traders views on this.

[DbPhoenix 42]

Db, when you say that the trader must understand the continuous movement of price, what do you suggest (if is in another thread, I apologize for asking something that has already been written) is a good methodology for learning how to grasp this continuous price movement. I currently try to do that using a 20 seconds bar chart with volume, and a tick by tick chart with volume, although I have not been able to consistently identify real changes in the short term trend from the second.

 

Thanks for your valuable contribution in this thread

 

I know of no better way of understanding the continuous nature of price movement than watching a tick chart. Identifying "real changes" in the "short term trend" is not, at the beginning, the point, even if you were to define "real changes" and "short term trend". You may not be able to trade off a tick chart, much less grow wealthy from it. But when you do look at bars, you won't view price as bobbing up and down for a certain amount of time before jumping to the right to bob up and down some more. Even if most traders understand that trades occur continuously, very few trade as if they understood it (if they did, they'd acknowledge that the "close" of a bar is irrelevant, much less wait for it).

 

What you may gain from watching a tick chart, if you relax into it, is an understanding of "activity", i.e., where price moves and how fast it moves there. You'll see price make a beeline for certain levels or points, and you'll see price just drift aimlessly. You'll see excitement infect a movement, even though you may not know why it's occurring. You'll see traders get tired, and price roll over. In other words, these are not just random points on a display; they're traders trading. Even if you never know why they're doing what they're doing, it's important that you see *what* they're doing.

 

Db

[DbPhoenix 42]

After this, price drifts for a while and eventually breakouts but It would be good to read other traders views on this.

 

Don't be discouraged if no one responds. That's the nature of these forums; few people want to go out on a limb (which is why you see so much hindsight analysis). Doing these analyses is like exercising a muscle: do enough of it and when the time comes to make a decision in real time, you'll be ready to do so. And writing it out is always beneficial, particularly when it comes to clarifying your thoughts and the thought process.

 

Db

[DbPhoenix 42]

It is not my intention to provide a running commentary on the market or to make "calls". If I were to do that, eventually people would start asking about my newsletter (I don't have one) or my dvd (I don't have one) or my next webinar (this is it).

 

But the point of this thread [Edit: this arc was originally in the Trading in Foresight thread] is to encourage the trader, budding or otherwise, to think -- and hopefully plan -- ahead, rather than continue to peer fixedly into the rearview mirror.

 

Two weeks ago, I posted this chart:

 

 

Then a few days ago, I posted this one:

 

 

Given that the NDX and NQ numbers are not identical, they're close enough for S/R work. In any case, it is clear that price did not rally off what had been support, so there was no long trade. Was there a short trade? That's up to the individual trader, but not for me. Since we had entered an old trading range, odds were that we'd waffle around in this area until traders started looking for a different value. Which is what they did. Took a week to exit this range, and it turned out to be to the downside. This part, of course, is hindsight. I didn't know we were going to wander around this old trading range. We could just as easily have plunged.

 

I would like to point out, however, that once we did exit that range, we returned to our course, and the "foresight" chart I posted was back in play:

 

 

See where price found R yesterday? Exactly. Hindsight? No. This was posted over two weeks ago.

 

So stay ahead of it. Plot these zones and levels. And be patient. In order to act effectively, you have to know when and where to do it. Otherwise you end up acting impulsively and emotionally.

 

Db

Edited June 1, 2012 by DbPhoenix

[Tannism 10]

I don't talk much, but I have been following your example from 4/28 on SPX, which goes back to 2011. For me, these boxes help focus attention appropriately.

[DbPhoenix 42]

Hey, Tannis, how ya been? Funny that you should post this chart with the annotations you've added because I've been chewing on that "trend channel" we may or may not be in. If one reads the chart from left to right, which of course he should, the supply line is first drawn from 1422 to 1390. When price makes a new swing point at 1393, it can be rotated up to there. And, technically, it can subsequently be rotated up to 1415, as you have done, when that swing point is completed. And as a supply line, that's perfectly okay.

 

But as a trendline, I'm not so sure. If you copy it and paste it as a parallel line below, as a tentative lower trendline, you end up with a hell of a lot of empty space, and I tend to be suspicious of trend channels that contain a lot of empty space.

 

As an alternative, consider leaving the supply line at 1422/1393 and view the burst up to 1415 as an "overbought" condition. If you copy that line and paste it underneath 1357, you have a tentative trend channel which slides just under 1292. Not suggesting it provides support; that's more likely provided by that long box from Feb to Aug '11. But it does provide a better idea of where demand and supply are floating as they wend their way down. And this channel has far more price activity than one drawn under the third-to-the-last swing low before the peak.

 

All of which may be pure fancy, but it's worth considering, even if the consideration is set aside to be picked up later, if necessary.

 

Db

[Tannism 10]

Thank you. I realized I had log settings and I have had my do-over using your reasoned comments.

[DbPhoenix 42]

"Reasoned comments". I like that .

 

And those traders who want the simplest possible trend plot can just draw a regression line/channel. They always help the trader stay out of the weeds.