Trading The Wyckoff Way

[TheNegotiator 13]

I think trade management (the "if-thens") pre-trade and during the trade is probably the most important factor to being successful at trading. Of course there's a lot more to take into account however, so few really pay proper (if any) attention to trade management. It's like finding a rough stone then deciding either it's just a rock or that it must be a precious gemstone or looking at the stone, working a little to try to identify it objectively, then if it does look like promising, applying appropriate techniques to turn it into a valuable cut gemstone.

 

One thing that I feel is of use and can help traders slip into better trade management more easily, is that old idea that you should trade to trade well and not to make money. Usually when this is said, lots of people come back and say this is dumb, but really it's important imho. Approaching the market from a standpoint of how it is trading relative to price, time, volume and then assessing whether your trade is still viable or not is extremely simple and a seemingly minor change. But what it will do is make a trader more aware and accepting of market behaviour rather than emotionally focused on their p/l.

[Gringo 10]

In the first post of this thread a link to the below chart game was given by atto.

 

Chartgame.com - The time-lapse stock trading game

 

I've been playing this game and it has brought out a few hidden demons in my trading behaviour. I have started to spend more and more time with it and at times you get charts with prices that are not at s/r and generally must be avoided.

 

I realized my s/r weren't working well and price was moving erratically even at extremes. On further inspection the larger time frame coupled with shorter time frame reduced this chop. I am far off from the real thing and my behaviour and feelings actually mimicked the trading behaviour I exhibited when I traded live.

 

In fact once I was forced to cut loss more than a few times and even started feeling angry that the price wasn't doing anything as it kept going no where. I kept expecting something would happen but nothing really did and price ended up more or less flat.

 

Because you can play each game within minutes it is a good way in my opinion to give one a taste of how price moves. Not knowing the stock or the year forces one to pay attention to the price and volume movement. Because the stocks are real and price movements real as well you do get a feel for how market messes with your mind with unexpected price twists.

 

Give it a try if you are interested otherwise I am sure quite a few can just use current data to sim.

 

Gringo

Edited August 17, 2012 by Gringo

[DbPhoenix 42]

I realize that no one is particularly interested in Apple at this point, but I hate leaving things unfinished, though one could argue that stocks are never "finished".

 

In our last program, we were discussing a short in Apple. I was pointing out that if following the "Wyckoff Way" one begins with a view of the market, then the sector or group, and finally the stock. I provided charts of all this and, lo and behold, Apple fell the next day. Unfortunately, the short should have been placed before the market close, but waddaya gonna do? In any event, I stated at the time that one should follow the progress of the rally carefully to see whether the more likely course was to be a resumption of the drop or the uptrend. The following charts are updates, the vertical lines representing the points at which the previous charts stopped (their "hard right edge").

 

First, the SPX. Here, what was a gradual rolling over into what might have been a sideways trading range made a slightly higher low, then a substantially higher high, resuming the uptrend. Again, one must go with what is in front of him, without bias, rather than hold onto an outdated map. Weakness had its chain yanked, and price decided instead to rise.

 

 

 

 

The Technology sector and the Computer Hardware group had been trading sideways, like Apple, and the SPX looked to be joining in. They both dropped when Apple did, and recovered more or less the same way. Again the vertical lines are drawn at the point where the previous charts ended.

 

 

 

 

 

And now Apple. As mentioned in the previous post, Apple had begun showing weakness the previous Thursday, and even greater weakness on Monday, a full day before the announcement. After that post, the bottom fell out.

 

But, again, paying careful attention to the rally would tell the trader -- particularly the trader who hadn't shorted -- what to do next.

 

Here Apple returned to the trading range it had been forming before the announcement. On Friday, it poked its head up through the top of the range (red arrow). The following Monday, it managed a genuine breakout, like the sector, the group, and even the general market (though the general market had a somewhat better showing the previous Friday). One could have traded this, but, if he didn't, he had an opportunity to trade the springboards which were formed on all the charts (the blue/white boxes).

 

 

 

 

The trader then who does not become wedded to a particular scenario but does what the market tells him to do benefits from both the short side (if he took it before the market close) and the long.

 

Db

[tupapa 10]

The trader then who does not become wedded to a particular scenario but does what the market tells him to do benefits from both the short side (if he took it before the market close) and the long.

 

If one takes the short, and assuming one is trading using daily charts, when is the right time to cover and re-evaluate? There's no supply line for guidance...

 

Apple was supported around 570 on the 25th and on the 26th and on the 27th, buyers broke resistance at 580 and price closed at the high, is this a good time to cover?

 

 

It looks so easy in hindsight....

[DbPhoenix 42]

If one takes the short, and assuming one is trading using daily charts, when is the right time to cover and re-evaluate? There's no supply line for guidance...

 

Apple was supported around 570 on the 25th and on the 26th and on the 27th, buyers broke resistance at 580 and price closed at the high, is this a good time to cover?

 

It looks so easy in hindsight....

 

When does the stock stop doing what the trader expected it to do? And what is the downside of exiting and re-entering?

 

As for the hindsight, that's the result of nobody following it. I provided this simply as a matter of winding things up, and because this pattern repeats so often.

 

Db

[PrymeTyme 10]

AAPL

 

The Red X shows the only sign of weakness on this chart . as it failed to make a new high on high vol. but then on the hig volume down gap , we dont break the recent low . ie. someone bought into weakness

 

and the orange rectangle (springboard) does have evidence of absorbtion.. as its on resistance level and especialy the two last bars before the breakout .. make a HL/HH/HC .. wich is typical for absorbtion

 

lets zoom in on the high vol bar ..

 

 

well this looks like a selling climax , followed by a automatic reaction and a secondary test wich confirms the SC , also note the declining vol on the retest.. , and the high vol breakout .. confirms someone bought here

[PrymeTyme 10]

If one takes the short, and assuming one is trading using daily charts, when is the right time to cover and re-evaluate? There's no supply line for guidance...

 

Apple was supported around 570 on the 25th and on the 26th and on the 27th, buyers broke resistance at 580 and price closed at the high, is this a good time to cover?

 

 

It looks so easy in hindsight....

 

hy

 

 

again this is only hindsight .. but i guess a good play would have been this way

 

 

u enter a short on the rejectet price (midpoint) again vol. is your friend here.. as the rally to mid point the vol .. was flat.. but on the rejection it was increasing.. so a short of the break of the upthrust.. with a mental SL on the high of the bar.. (to judge) and a hard SL on the prev. high..

 

then exiting on the break of teh (acc.) .. as u obviously foolow the stock where u have a position.. in,.. u will notice the buying.. as stated on prev post.. .. re entry(long)? well somewhat on the retest bar.. of the exit... probably..

Edited August 18, 2012 by PrymeTyme

[DbPhoenix 42]

I think W would approve.

 

If anyone wants practice, there's always the other four of the big five: QCOM, GOOG, ORCL, and MSFT. But these have to be followed every day. Not necessarily charted and posted, but followed. There may not be anybody paying attention, so you'll have to do it for your own benefit.

 

Db

[DbPhoenix 42]

Speaking of which, what do you think about this?

 

 

[PrymeTyme 10]

Speaking of which, what do you think about this?

 

 

 

MSFT

 

doesent looks to shabby , we where just retesting a resistance level (midpoint of a box on the left) and the level held , in the blue box we see that the up stride seems to accelerate , aswell as we can gauge the recent strenght .. as we traded above the actual midpoint aswell . could be possible that this box acts as a springboard ,

 

second pic..

just to show u that infact we are resting above a prev midpoint .. wich has been rejected before(2011) ,we now trade above it.. but has been tested several times. and almost always price traded back above the midpoint.. wich adds to strenght

[tupapa 10]

MSFT

 

doesent looks to shabby , we where just retesting a resistance level (midpoint of a box on the left) and the level held , in the blue box we see that the up stride seems to accelerate , aswell as we can gauge the recent strenght .. as we traded above the actual midpoint aswell . could be possible that this box acts as a springboard ,

 

second pic..

just to show u that infact we are resting above a prev midpoint .. wich has been rejected before(2011) ,we now trade above it.. but has been tested several times. and almost always price traded back above the midpoint.. wich adds to strenght

 

If the SPX breaks resistance at 1420, would you buy a retracement after the breakout in MS?

[PrymeTyme 10]

If the SPX breaks resistance at 1420, would you buy a retracement after the breakout in MS?

 

well msft is still weaker then the SP500, ( recent price compared to april/may highs)

 

but a retracement after a breakout seems legit to me , to buy

 

so the answer is yes ,

 

 

 

some possible scenarios for long positions within msft

 

1.) if we enter here we can watch how price acts at midpoint A

if we dont break it .. i consider this weak and get out

 

2.) if we enter here we casn watch how price acts @ B if we retrace from point

B i still can watch how price acts at point A and decide to close or hold

also plenty of room between A and B to judge the behaviour before we even come to point A

 

3.) here we can watch how price acts at C and if we retrace how it acts on B

same here i still would hold on and watch the reaction on B

 

4.) we can watch how price acts at resistance D and on a retracement to C

 

whereas each and everypoint would have its own gameplan ,, set within the hourly chart

to gauge and judge the strenght or weakness .. to hold or not to hold or even reverse..

[DbPhoenix 42]

You might also be interested in IBM and CAT. They're both forming springboards at previous levels of resistance.

 

Db

[goodoboy 10]

Hello,

 

I just started reading the The Wyckoff Trading forum and introduction.

 

One of things that kind of confusing me when looking for trade (I mainly look for trades in the morning) is this trading with the trend thinking.

 

For instance, lately the trend of the market is upwards, so my mind thinking is "I have to go long at a support". But after I review the charts at night, I see that finding a short was better.

 

I have it stuck it my head that I must trade with the direction of the trend. I am hoping after some reading of Wyckoff I can determine how to determine price action and take shorts.

[DbPhoenix 42]

Yes, you should trade in the direction of the trend. But there may be many trends depending on your timeframe. If your timeframe is several years or several months/weeks/days, then you'll be trading different trends.

 

If you're daytrading, though, the trend is largely irrelevant until enough trades have taken place to create one. What are more important are the levels of support and resistance and the character of the buying and selling waves. See Sections 5 and 7 of Part 1 of the course and however much of Part 2 as is of interest to you.

 

Db

[tupapa 10]

Plan for tomorrows Eurostoxx futures.

 

On the daily, we can see we are in an uptrend, the demand line has been respected so far.

 

I will look for Longs:

 

Test of Midpoint of yesterdays range (15 min chart) at 2466

Test of 2451-53

Test of 2441

Test of 2440

 

Shorts

 

Rejection of 2492

Rejection bottom of yesetrdays range (15 min chart) at 2461

Rejection of 2452

Rejection of 2440, looking at the midpoint of yesterdays range as a potential target (2420)

Rejection of 2400

 

Comments/Ideas are welcome

[franko 10]

Would you take a look at this chart and comment on whether i agrees with your first ones

franko

[40draws 10]

This seems as good a place as any to hide.

 

Here is a 1 minute chart of my only trade today. The lines are my poor attempt to try and show what I thought I was witnessing at the time. I trade and chart from a smart phone, and I so I could not draw these lines in real time even if I wanted to. Also, I cannot get a one minute chart on my phone, so what I was actually watching was a five minute chart. The one minute chart in hindsight certainly makes the "Hinge" more clearly defined than it appears on a five minute chart. But when the market was open and price was moving, you could still "see" the "Hinge" unfold on the five minute chart.

 

The stock opened higher than it closed on Friday, and there was a good amount of activity in the opening minutes. Then price got choppy, and again, I am assuming that it formed what I take from the examples I've seen here to be what participants in the Wyckoff forum call a "Hinge." I may very well be wrong.

 

Price was choppy, but the activity fell considerably, as you can see what I understand Wyckoff to be referring to when he speaks of a "volume dry up."

 

I suppose I should have bought closer to the bottom than I did. The low was 28.53, but I entered when price crossed above 28.63, which was the halfway point between the low and the high of the session at that point. I entered at the market, and my order was filled at 28.66.

 

A rally commenced as price traded above the "Hinge," and all was well until I noticed that price was still heading higher, but volume and the pace of the trades was starting to fall off. Not in and of itself a big deal, I suppose, but then price hit what turned out to be its high for today at 28.98, and boy did the trading get active as price dropped from 28.98 to 28.88 in just a few miunutes with lots of volume. The next rally lasted all of three minutes on quiet turnover and then suddenly again there was lots of activity and volume picked up and at first price seemed to be resuming its upward movement when it suddenly and quickly slipped back, giving up all but a few cents of the three minute bounce. I exited at the market and my order was filled at 28.91.

 

Price went sideways in a narrow 2 cent range after my exit and volume and activity seemed to cease, before a long slow drift lower set in. When I bought it I had hoped it would trend higher all day and I'd go along for the ride, but it was not to be, and after my exit, it drifted lower most of the day, trading down to 28.54 (one cent above the low of the hinge), and then bouncing a while to close at 28.67 (one cent above where I had bought it).

 

I hope it is ok that I posted this here and that it fits in with the topic of this discussion.

 

[DbPhoenix 42]

Your chart is posted too small for me to see the prices, and the volume bars seem to be cut off at the bottom. What stock is this?

 

Db

[40draws 10]

Sorry about the chart, I try to get a better size next time. I didn't realize I had cut off the volume bars and also the symbol. This is TWM, an ETF that tracks the Russell 2000. This stock goes up when the Russel 2000 goes down.

[MadMarketScientist 11]

Would you take a look at this chart and comment on whether i agrees with your first ones

franko

 

You seem to have missed the chart ...

 

MMS

[DbPhoenix 42]

OK, I pulled up a larger chart.

 

I don't know the details of your plan, but, for the most part, you're doing the right things: you're doing what you say you're going to do and you're not letting your ego get in the way of managing the trade, therefore, no fear.

 

I suppose I should have bought closer to the bottom than I did. The low was 28.53, but I entered when price crossed above 28.63, which was the halfway point between the low and the high of the session at that point. I entered at the market, and my order was filled at 28.66.

You don't say what time you enter at 28.63, but since you say that it was halfway between the low and the high of the session at that point, you must have entered quite late. This is fine if you have reasons for doing so, but it can create problems when you're buying something that is in a downtrend and that gaps up. If you bought at bar 18 on a 1m chart, that's a nice buy, but risky since you have no way of knowing that the opportunity will present itself and you've already let three ops go by. Price could well have just taken off without you.

 

You have at least one strike against you in that the instrument is in a downtrend, and has been for months. This accounts for the less-than-impressive performance to the upside after the gap (I'll assume the reverse pattern occurs in its long-side counterpart). This is not necessarily a criterion for not taking the trade at all. You never know what gaps will achieve. But you do have to be aware of all that can go wrong, just as you have to be aware of everything around you when you drive.

 

Therefore, if you're going to play gaps, you'll have to be aggressive. You can't wait around for multiple confirmations. In this case, consider an entry on the fourth bar (1m chart). You have enough bars after the gap to form a resistance level, a springboard if you will. By placing a buystop above these bars, or above each successive bar if they're declining, you're in if and when the inst. comes back in your direction. If you use a buystoplimit, you're guaranteed the price you want. This avoids slippage. A potential downside of entering this early is that you must understand that the open will be tested, and you have to decide in advance what you're going to do about it so that you don't freak. When and where are you going to exit? Or are you going to let price fall all the way back to the bottom of the gap? Can you stay calm and re-enter? What will be the criteria for re-entry? The fear that most beginners feel has to do with fear of losing money, fear of being wrong, fear of not knowing what to do because they have no plan. You can avoid all of that.

 

The next op comes at the RET (retracement), the 9th bar, entering on the 10th. However, this can be quite late, and unless price is really aggressive, this can reverse on you almost immediately.

 

The next op after that comes on the test, the 16th bar, entering on the 17th. But this is so late that you're not even buying the gap anymore. Then there's the RET of that, the 24th bar, entering on the 25th. But by this point, the other traders have settled into a routine, and you no longer have the advantage of benefiting from their confusion and their emotional responses. Then there's the exit from the hinge, the break above the last swing high, and so on.

 

A rally commenced as price traded above the "Hinge," and all was well until I noticed that price was still heading higher, but volume and the pace of the trades was starting to fall off. Not in and of itself a big deal, I suppose, but then price hit what turned out to be its high for today at 28.98, and boy did the trading get active as price dropped from 28.98 to 28.88 in just a few miunutes with lots of volume. The next rally lasted all of three minutes on quiet turnover and then suddenly again there was lots of activity and volume picked up and at first price seemed to be resuming its upward movement when it suddenly and quickly slipped back, giving up all but a few cents of the three minute bounce. I exited at the market and my order was filled at 28.91.

And, yes, it is a hinge, which is a type of springboard, which you ought to read up on as well, particularly considering the strategy you've adopted: gaps are especially prone to provide springboards.

 

And, no, the volume is not a big deal unless you're at an inflection point of some sort: S, R, an exit from congestion, a climax of some sort. When you put the gas to a car, you don't keep it there without relief. Once you've achieved the velocity you want, you ease up and let kinetics take over. When price changes course, however, particularly when volume begins to pick up, you want to do something about that. I suggest, for beginners at least, that you use a demand or supply line to trigger an exit. If an op comes up later for re-entry, fine. But, in the meantime, you're out, and usually with the maximum profit, at which point, if you like, you can exit the game. Such a line here would get you out at around 10:27 or 28 EST, at around the price you got. At this point or shortly thereafter, you could consider a short, but that's not part of your plan, and shouldn't be until you're easy with what you've got going at this stage. For now, congratulations for getting out without a lot of unnecessary hand-wringing.

 

I hope it is ok that I posted this here and that it fits in with the topic of this discussion.

Definitely. This hinge doesn't last long, but it does what it's supposed to do. Gaps and hinges are supposed to release a force (effort and result). If they don't, then there's something wrong and you need to get out. You can worry about what it is that's wrong later.

 

There are also other threads which will be of interest to you, such as the springboard thread. I suggest that you also Ctrl+F the course for references to springboards. You'll be using these a lot.

[tupapa 10]

Today we poked above resistance and didn't hold, but trendlines remain intact and as long as 2468 holds, I will be looking for longs.

 

My levels for tomorrow, using a 1 min chart since yesterdays levels were to far a part and most of them weren't tested.

[DbPhoenix 42]

Why did you not go long at 66 or short at 92?

 

Db

[tupapa 10]

I did both, the first trade I waited for the breakout, bought the retracement and got stopped out, to see price leave without me.

 

The rejection of 92 worked well but overall a very quiet day, spent most of it ranging

 

Tomorrow:

 

Long after a test of 2468, if this holds, we could have another retest of the high around 92s.

 

Short if we breakdown 2468, we could go back to the last range between 2400 and 2450.