Trading The Wyckoff Way

[Niko 10]

I see this thread is mainly for index traders, and I must say is a very interesting and educational thread. I trade Oil. I would like to know if posting S/R levels of CL is of any interest here?

Edited May 30, 2012 by DbPhoenix
Link added

[DbPhoenix 42]

I see this thread is mainly for index traders, and I must say is a very interesting and educational thread. I trade Oil. I would like to know if posting S/R levels of CL is of any interest here?

 

It's all the same: price/volume, supply/demand, support/resistance, trend/trading-range.

 

You might be interested in this once-upon-a-time discussion of oil (to avoid confusion, the discussion was a hindsight analysis exercise, hence the different thread; this thread is focused on foresight analysis, i.e., trade preparation).

 

Db

Edited May 25, 2012 by DbPhoenix

[Niko 10]

Thanks for the Reply DB, I will then post S/R levels for oil tomorrow before the open in case anyone is interested in the discussion.

[DbPhoenix 42]

Thanks for the Reply DB, I will then post S/R levels for oil tomorrow before the open in case anyone is interested in the discussion.

 

If you're interested in others' comments, I suggest you post this evening. Not everyone trades in the same timezone, and even those who do may not have the time to look at your post pre-mkt, much less study an analysis.

 

Db

[Niko 10]

Ok, I will then post my charts at the end of tomorrow.

 

Thanks for the advise

[Niko 10]

Ok, this are my estimates of S/R for the CL july contract.

 

[DbPhoenix 42]

Ok, this are my estimates of S/R for the CL july contract.

 

I moved your post here because I took a wrong turn way back there and most of these exchanges among you and gaelgss and me have had more to do with S/R itself than setting up trades, which is what the Trading in Foresight thread is all about. Or supposed to be. Rather than my pushing too hard, I've elected to back up and take the other fork, i.e., exploring S/R itself. Only when that's understood will one be ready to determine the strategies and tactics necessary to take advantage of it. And that means pursuing the discussion in this thread, which requires no plans and no deadlines.

 

Now looking at the daily CL chart, in what direction do you expect this morning's move to be most likely?

 

Db

Edited May 30, 2012 by DbPhoenix

[DbPhoenix 42]

Posts from 4/28/12 to 5/30/12 have been moved to the Nature of Support and Resistance thread for reasons explained here. Sorry for any confusion.

 

Db

[DbPhoenix 42]

 

Now looking at the daily CL chart, in what direction do you expect this morning's move to be most likely?

 

Db

 

Too late for now, but think about this for next time.

 

Db

[Tannism 10]

I looked more closely at the weekly after you mentioned upthrust. Recently is an uptrust of the 2011 high. I think it would take quite a drop (to dots) for the trend to change weekly.

 

Studies in Tape Reading has some on pressure. He gives an example of an operator leaving momentarily and without his holding prices down, the price floats up. When he returns, he presses it back down. That was his motivation.

 

Looking intraday, it looks like the volume picks up as it approaches the dots at the 2011 high. I am thinking if downward pressure is being exerted to keep the price down, this leans to accumulation (?). But how does one see motivation?

Edited May 30, 2012 by Tannism

[DbPhoenix 42]

I looked more closely at the weekly after you mentioned upthrust. Recently is an uptrust of the 2011 high. I think it would take quite a drop (to dots) for the trend to change weekly.

 

Studies in Tape Reading has some on pressure. He gives an example of an operator leaving momentarily and without his holding prices down, the price floats up. When he returns, he presses it back down. That was his motivation.

 

Looking intraday, it looks like the volume picks up as it approaches the dots at the 2011 high. I am thinking if downward pressure is being exerted to keep the price down, this leans to accumulation (?). But how does one see motivation?

 

I don't recall mentioning upthrusts, at least not since I resurfaced. In fact, I try to avoid using "upthrust" and "downthrust" so as to avoid confusion with the thrusts and shakeouts found in accumulative and distributive bases. In any case, since it took two months to fail, I don't know that I'd characterize it as an upthrust, except in the most general terms, i.e., to characterize the move somehow.

 

As for "accumulation", take care. The terms "accumulation" and "distribution" have become buzzwords over the past few (or more) years, and this isn't a battle that I want to fight. But, technically, there can't be accumulation or distribution in anything that doesn't have a finite number of trading instruments, such as shares. In other words, you can't accumulate something that has an infinite supply, unless you're using "accumulation" as a synonym for "buying" or "collecting" and ignoring the dynamics of accumulation and distribution themselves.

 

That said, you might be able to detect accumulation or distribution in the SPX if you treat it as a proxy for those stocks which are largely responsible for moving the index. Look at those 5 or 8 or 10 stocks and see what's happening with them. If there's evidence of accumulation or distribution in those shares, then there ya go. If not, then the leveling out of the SPX is likely not of any particular importance.

 

As for a change in the trend, that depends on your starting point. If '11, that's pretty much done. If '09, not so much.

 

Db

 

Edit: I know I've posted this somewhere, but I forget where, so here it is again:

 

 

Incidentally, if you plot a regression channel, the bottom of it may "provide support" given the coincidental swing highs and trading range midpoints:

 

Edited May 30, 2012 by DbPhoenix
Added chart

[Niko 10]

I moved your post here because I took a wrong turn way back there and most of these exchanges among you and gaelgss and me have had more to do with S/R itself than setting up trades, which is what the Trading in Foresight thread is all about. Or supposed to be. Rather than my pushing too hard, I've elected to back up and take the other fork, i.e., exploring S/R itself. Only when that's understood will one be ready to determine the strategies and tactics necessary to take advantage of it. And that means pursuing the discussion in this thread, which requires no plans and no deadlines.

 

Now looking at the daily CL chart, in what direction do you expect this morning's move to be most likely?

 

Db

 

Db, thanks for the explanation, I appreciate very much what you have done; my extratrading activities do not allow me to meet the end of day deadlines in an easy manner (the price of fatherhood, at least in my case). I am very interested in the study of S/R. As I posted in another thread, I mainly trade intraday with a mechanical system that uses moving averages and other indicators. Although it works decently, I have been always very frustrated because I have not been able to know the WHY, and I just recently began realizing this things when I happened to find the Wyckoff courses (by chance), and your posts, that I have to thank for being so clear cut and pertinent.

What I am trying to do is to be able to enter the market, not because one line crosses over the other one, but because I identify that either buyers or sellers are in control and be able to close my position, not because my backtested TP tick target has been met, but because I find that those players who were in control are no longer the leaders in the market. I guess that is easy for some of the guys in this thread, but is a change of paradigm in my case.

I will then make the same exercise with the CL contract for an EOD chart, now that it is not required to get things published as fast as in the other Thread.

 

Thanks again.

[Niko 10]

Below I have posted my estimates for SR for the WTI Spot price in the weekly and daily chart.

 

I think the course of action suggested by these charts, is the following:

 

We are in a downtrend so one would look for support in order to define possible long entry levels if at those prices in the intraday charts one can find a successful test of support. The stop would be located under the support levels.

 

 

As the current price is 86,55, one would expect to find support at the following prices:

 

84,76 daily chart nearest support level.

83 weekly chart next support level

82 daily chart next support level

79.55 daily chart next support level

 

As we are on a down trend, one would not expect a reversal anytime soon, so I suppose one should be expecting to take profits when prices meet resistance or at least reduce one´s position and take the rest to breakeven. But as we are in a downtrend I would be more inclined to close and reverse to a short position at resistance levels.

 

One would expect to find resistance at:

 

88 weekly chart nearest resistance level

89,25 daily chart next resistance level

92,5 weekly chart next resistance level

95,38 weekly chart next resistance level

 

One could enter if those resistance levels are successfully tested with a stop above resistance and keep the trade going unchanged until a support level is reached, then I think the stop should be trailed (I am not sure if to a breakeven level as this can be easily touched depending on the circumstances of the market at that level). I think one can trail the stop to the next broken support level as this would now act as possible resistance.

 

Well, those are my conclusions (I am an amateur at this so I would appreciate your comments)

 

Weekly

 

 

Daily

 

[Tannism 10]

I am posting OTTR as a foresight trade. Chart 2

My PnF shows target of maybe 32-33.

The weekly shows areas price has peaked. Chart 1

I have looked at both of them more closely.

The light green areas indicate what have been higher relative volume areas.

May thru June 2011 Chart 3

August-October 2009

I would like to see a spring here, for entry. I would put the stop at around 20.69.

[DbPhoenix 42]

I am posting OTTR as a foresight trade. Chart 2

My PnF shows target of maybe 32-33.

The weekly shows areas price has peaked. Chart 1

I have looked at both of them more closely.

The light green areas indicate what have been higher relative volume areas.

May thru June 2011 Chart 3

August-October 2009

I would like to see a spring here, for entry. I would put the stop at around 20.69.

 

How much is the dividend?

 

Db

[DbPhoenix 42]

Below I have posted my estimates for SR for the WTI Spot price in the weekly and daily chart.

 

I think the course of action suggested by these charts, is the following:

 

We are in a downtrend so one would look for support in order to define possible long entry levels if at those prices in the intraday charts one can find a successful test of support. The stop would be located under the support levels.

 

 

As the current price is 86,55, one would expect to find support at the following prices:

 

84,76 daily chart nearest support level.

83 weekly chart next support level

82 daily chart next support level

79.55 daily chart next support level

 

As we are on a down trend, one would not expect a reversal anytime soon, so I suppose one should be expecting to take profits when prices meet resistance or at least reduce one´s position and take the rest to breakeven. But as we are in a downtrend I would be more inclined to close and reverse to a short position at resistance levels.

 

One would expect to find resistance at:

 

88 weekly chart nearest resistance level

89,25 daily chart next resistance level

92,5 weekly chart next resistance level

95,38 weekly chart next resistance level

 

One could enter if those resistance levels are successfully tested with a stop above resistance and keep the trade going unchanged until a support level is reached, then I think the stop should be trailed (I am not sure if to a breakeven level as this can be easily touched depending on the circumstances of the market at that level). I think one can trail the stop to the next broken support level as this would now act as possible resistance.

 

Just the opposite. You're in a downtrend, so your first course is to look for short entries. Forget about long entries until you see some climactic action at or near an anticipated support level. Otherwise, you're just giving your money away.

 

As for support, your support is at 77, though traders may reverse the price before that since this is after all a speculative commodity. Therefore, be on the lookout for climactic action from this point forward, but don't pass up whatever short opportunities present themselves.

 

Db

[Tannism 10]

How much is the dividend?

 

Db

 

$1.19 a year so at this price over 5%.

[DbPhoenix 42]

$1.19 a year so at this price over 5%.

 

Not bad. If by "spring" you mean shakeout (there are no "springs" in Wyckoff), that's unlikely. This stock has been pretty much dead in the water for three years. Ordinarily I'd suggest waiting for a breakout above this trading range, but with the dividend, you can be paid for waiting. Consider then buying at support with a relatively tight stop. You may grow old and withered before anything happens, but at least your money will be working for you.

 

You might also want to look at MRK.

 

Db

[Niko 10]

Just the opposite. You're in a downtrend, so your first course is to look for short entries. Forget about long entries until you see some climactic action at or near an anticipated support level. Otherwise, you're just giving your money away.

 

As for support, your support is at 77, though traders may reverse the price before that since this is after all a speculative commodity. Therefore, be on the lookout for climactic action from this point forward, but don't pass up whatever short opportunities present themselves.

 

Db

 

Db, Thank you for your comments. One of the things that I found most fascinating about Wyckoff, trading method was the ability to buy in the lows of an ending downtrend and sell on the highs of an uptrend. Of course that fascinates me and intrigues me, because I have not been able to grasp how does Wyckoff tells a good entry in this kind of conditions from a wrong one, as the ones I have had in the past.... hehe.

 

By what you wrote, I understand that I must forget about catching bottoms and tops unless there is a climatic action at the S/R level. And then the question that arises is how to define the proper S/R levels, as can be seen from my charts I got carried away with a lot of levels. Assuming one has VP tools, as those shown in the charts, should one only focus on the extremes of the volume distribution and on the middle, or what can be an appropriate criteria?

 

 

If this is explained somewhere else in the site and I have skipped it please excuse me for asking stuff that has already been mentioned.

[DbPhoenix 42]

Db, Thank you for your comments. One of the things that I found most fascinating about Wyckoff, trading method was the ability to buy in the lows of an ending downtrend and sell on the highs of an uptrend. Of course that fascinates me and intrigues me, because I have not been able to grasp how does Wyckoff tells a good entry in this kind of conditions from a wrong one, as the ones I have had in the past.... hehe.

 

By what you wrote, I understand that I must forget about catching bottoms and tops unless there is a climatic action at the S/R level. And then the question that arises is how to define the proper S/R levels, as can be seen from my charts I got carried away with a lot of levels. Assuming one has VP tools, as those shown in the charts, should one only focus on the extremes of the volume distribution and on the middle, or what can be an appropriate criteria?

 

 

If this is explained somewhere else in the site and I have skipped it please excuse me for asking stuff that has already been mentioned.

 

Your levels are fine, as far as they go. But it is not difficult through either color or line width to separate those which are more important from those which are less so for a quick visual review.

 

As for those which are more important, yes, the tops and bottoms and middles of trading ranges are the best starting point, but the behavior of price trumps everything. It is how price behaves as it approaches a given level that will tell you whether you should be on alert or not, and so far price continues to be in freefall (which may change by the end of the day). Support is not support until it acts like it. It did so briefly over the past few days at the top of your range at 90, but support didn't hold. And volume wasn't indicative anyway. Regardless, if one had placed a buystop above that congestion, it would never have been filled. A sellstop (a short) below would have been. And, yes, this is hindsight, but it's standard strategy and tactics in this application.

 

For more, see the Volume thread. I have 15 posts there, but there is much of value from other contributors as well. See also And Then There Were Three and Trend.

 

Db

 

[DbPhoenix 42]

There is one other aspect of this chart that I find interesting, and I may as well put it all here. Notice that price sails right through the midpoint of the more recent trading range (blue). When it reaches the bottom of that range, it comes to a screeching halt and kicks the dirt for five days before resuming its decline. It then drops all the way to the top of the next range (the red one), where it sits for four days before again resuming its decline (if you had chosen these as support levels, this behavior tells you whether you were right or wrong in doing so).

 

These rest stops in and of themselves are clues that something is changing. The fact that they relate to tentative support levels increases the importance of the clues. And note that the angle of decline changes dramatically after the first pause, as price works its way down to the next support level, the top of the red trading range. And these changes, anything out of the ordinary, are what should attract your attention and keep you on the alert.

 

Db

 

[Niko 10]

T

 

These rest stops in and of themselves are clues that something is changing. The fact that they relate to tentative support levels increases the importance of the clues. And note that the angle of decline changes dramatically after the first pause, as price works its way down to the next support level, the top of the red trading range. And these changes, anything out of the ordinary, are what should attract your attention and keep you on the alert.

 

Db

 

 

Db, thanks great explaination, now, regarding entry strategies, do these resting stops serve any predictive value according to your experience regarding Wickoff trading system. I mean If one just entered long at 90 some weeks ago (assuming that was a valid resistance level, and of course ignoring the strong downtrend) and got stopped at 88/89, would It be prudent in Wycoff methodology to trun the position from long to short, perhaps with a stop entry that got activated as the long position is closed? Or even if one was neutral, would it have been a good entry to short at 88/89 with a stop order on the breakout of that 4 day range.

[Niko 10]

Now taking this a step further, after yesterday trading it can be seen how the midpoint of the aug-nov range held the market above 83, on what appears to me as a climatic day.

 

Now, we can either expect the market to:

 

• Keep going lower on high volume and reach 77 by tuesday or wednesday.
  
• Stop for a few days and keep going lower trying to reach 77 within 2 weeks.
  
• Have a technichal rally trying to reach 90, establishing a new congestion zone.
  

 

Anyhow, I think it would be a good idea to go long 1 dollar or less above the low of friday with a stop under the low and keeping an eye on price when resistance is reached.

 

Any comments?

 

[DbPhoenix 42]

Db, thanks great explaination, now, regarding entry strategies, do these resting stops serve any predictive value according to your experience regarding Wickoff trading system. I mean If one just entered long at 90 some weeks ago (assuming that was a valid resistance level, and of course ignoring the strong downtrend) and got stopped at 88/89, would It be prudent in Wycoff methodology to trun the position from long to short, perhaps with a stop entry that got activated as the long position is closed? Or even if one was neutral, would it have been a good entry to short at 88/89 with a stop order on the breakout of that 4 day range.

 

First, forget about prediction. It's a waste of time, screws up your focus, triggers all sorts of emotional responses at exactly the wrong time, and makes you feel either unnecessarily bad or deceptively proud (and one should avoid self-deception at every turn).

 

Second, there was no reason to go long before the bottom fell out. But if one did so anyway, there is no automatic SAR in Wyckoff. Nor is there anything mechanical, whether SAR or not. If you had had good reasons to take the trade and it turned out to be wrong, you would have had to exit the trade without tears, without banging the desk, without swearing, without throwing yourself on the floor. Oh, I was wrong. Okay. Now what? Let's see. At which point you re-examine what's in front of you without getting into what you did that you shouldn't have done or vice-versa. That comes later. Just look at what's in front of you. New trade. New data. What is the most appropriate course of action? Go long again? Go short? Do nothing until the picture becomes clearer? Granted, this all has to be done in minutes if you're daytrading, but you can't do it at all if you're getting all emotional about getting it wrong. And going mechanical isn't going to make it any easier, other than inserting an imaginary accounability buffer (it wasn't me; it was my system).

 

The "methodology", then, would have you stop, forget about everything that just happened, examine what is happening now, then decide upon an appropriate course of action without any sort of drama.

 

Third, as to whether or not a short below 90 on a breakout of that range would have been a good idea, we enter the land of hindsight trading, in which traders, beginning and otherwise, wander aimlessly, sometimes for years, usually on message boards/trading forums, but often in the clutches of some guru who couldn't trade in real time if his life depended on it. Unless you are learning the ins and outs of some new technique, it is a terrible place to be and can screw you up for far longer than you'd believe possible. Don't go there.

 

However, trading ranges are everywhere, as are potential breakout scenarios. Analyzing what makes some work and others not is perfectly legitimate, something very different from the "here's a trade I took this morning" nonsense.

 

So, let's analyze this, and you tell me whether or not this would have made a good short and why. Look at the behavior of price (i.e., buyers and sellers) and how it relates to volume each step of the way. Where are the clues that tell you that this might be a good short trade, or at least a not-so-good long one?

 

Start with April 23rd. And make sure you read the chart left to right. If you have to cover prices with a sheet of paper and reveal only one day at a time to yourself, do so. This will help you to avoid nonsense.

 

Db

 

[DbPhoenix 42]

Now taking this a step further, after yesterday trading it can be seen how the midpoint of the aug-nov range held the market above 83, on what appears to me as a climatic day.

 

Now, we can either expect the market to:

 

• Keep going lower on high volume and reach 77 by tuesday or wednesday.
  
• Stop for a few days and keep going lower trying to reach 77 within 2 weeks.
  
• Have a technichal rally trying to reach 90, establishing a new congestion zone.
  

 

Anyhow, I think it would be a good idea to go long 1 dollar or less above the low of friday with a stop under the low and keeping an eye on price when resistance is reached.

 

Any comments?

 

 

You have to decide whether you want to trade or you want to make money. "I think it would be a good idea" doesn't even begin to approach a well-reasoned analysis for taking a trade. Stop. Think. Forget about trying to catch the bottom. The bottom will tell you when it's ready to be caught. But you won't hear it if you're not paying attention. Or if you don't understand its language. Which is why I suggested the exercise in my previous post. Learn the language and you'll understand what the chart is trying to tell you.

 

Db

 

Edit: BTW, you don't have a great deal of time to complete the exercise I've suggested above. You may get your climactic bottom in just a few days, and your being able to recognize it when you see it will enable you to plan how to take advantage of it.

Edited June 2, 2012 by DbPhoenix