Trading The Wyckoff Way

[Upthrust86 10]

And the SPX:

 

 

What is the significance of this and the NDX charts? Can you say what a Wyckoff analysis is saying here?

[zeon 10]

Doesn't it look like we had a double bottom confirmed now?

I mean, this week the NQ broke much higher, the ES is back to 1400 and the DOW almost to 13000...

 

I posted this a week ago, without little response. I take it most people probably thought I was talking rubbish, because I'm inexperienced or so.

 

Dbphoenix replied to this post with a chart showing a red down trendline. In the meantime we are above that and we are above the 200-moving-day average, the Nasdaq is close to 2000.

 

In other post dbphoenix mentioned the small caps aren't participating in this move.

 

Ok, so here's my thing -and I'm trying to be neutral here- it looks like traders on this thread or looking for elements that support their "bear case", but it's just not happening.

 

We are moving higher, the DOW Transports is almost making new highs, all major US indices have gone up significantly yesterday. And when the DOW made a test of the March low, the Transports made a Higher Low! If all of this isn't important, well than I'm screwed.

 

I have to understand why I am having so much trouble trading lately, I've been on the wrong side all of the time. Been focused on shorts heavily. When everybody is talking about how bad the economy is and how deep a recession where going to get, it's all been priced into the market. All the bad news hasn't had ANY effect on the markets lately.

 

Someone posted 'the sentiment cycle' here. I think it's clear that we are near the end, and not in the denial phase.

 

With sellers gone, the market even goes up on bad news. Rallies are labeled as ‘technical bounces’ or are written off as ‘short

covering’. Short positions add more on every bounce, confident that lower prices are around the corner. When good news trickles in, it is summarily dismissed as aberrations, subject to revision next month.

Despite all the wise and knowledgeable people out here, frankly, I'm surprised why everybody is denying to see what's staring at them in the chart. Perhaps everybody was thinking we were going to have a bear market like 2000-2002 but as far as I can see it, there was a much bigger distribution pattern than the one we had at the end of last year.

___

Edited May 2, 2008 by zeon

[gassah 10]

Zeon,

 

Do you have a strategy for when markets are in a trading range?

[Tannism 10]

Getting on the springboard. Would this be a logical place to have one develop? Now that I can pick a few, I'd like to watch one develop. Not that I am that good at spotting them. I want it to be like looking for fossils, once you know what a brachiopod looks like and have seen them in the field, they jump out at you especially the perfect ones.

 

GLW was mentioned on WREV today. The pink line is the mentioned price.

 

The month isn't over, so we can't use the last bar on the monthly, but the last monthly bar shows up in the daily in the the top right. I am looking at an area of preparation on the monthly.

 

The daily has had what Wyckoff calls "broadening support" below the change of polarity line. According to 7M, there have been 3 buyings ops.

[zeon 10]

Someone posted 'the sentiment cycle' here. I think it's clear that we are near the end, and not in the denial phase.

 

 

Correction here, I meant to say "disbelief phase".

We are now in what I believe to be the denial phase (just before a big run-up higher).

[DbPhoenix 42]

Getting on the springboard. Would this be a logical place to have one develop? Now that I can pick a few, I'd like to watch one develop. Not that I am that good at spotting them. I want it to be like looking for fossils, once you know what a brachiopod looks like and have seen them in the field, they jump out at you especially the perfect ones.

 

GLW was mentioned on WREV today. The pink line is the mentioned price.

 

The month isn't over, so we can't use the last bar on the monthly, but the last monthly bar shows up in the daily in the the top right. I am looking at an area of preparation on the monthly.

 

The daily has had what Wyckoff calls "broadening support" below the change of polarity line. According to 7M, there have been 3 buyings ops.

 

It has the shape of a hinge, but volume remained fairly high throughout, suggesting that there has been and is still a lot of supply. Moving up, therefore, may be a struggle. If I had bought this on the "breakout", I'd keep a stop just below the breakout level.

[DbPhoenix 42]

Correction here, I meant to say "disbelief phase".

We are now in what I believe to be the denial phase (just before a big run-up higher).

 

What you or anyone else "believes" is irrelevant. All that matters is the data.

 

In any case, if you "believe" in the long side so fervently, why do you continue to trade short? Were you long yesterday? If not, why not?

[zeon 10]

What you or anyone else "believes" is irrelevant. All that matters is the data.

 

With the DOW up another 100 points, I think the data backs up what I was saying.

 

In any case, if you "believe" in the long side so fervently, why do you continue to trade short? Were you long yesterday? If not, why not?

 

Believe it or not, I went long two days ago at the close of the markets. It's only on an ETF, but I don't care much. At least I know I'm trading on the right side of the market again and all this bias towards the downside from most people on this forum was clearly unjustified. Manby was spot on, he called it a selling climax Wednesday after the Fed.

[DbPhoenix 42]

Believe it or not, I went long two days ago at the close of the markets. It's only on an ETF, but I don't care much. At least I know I'm trading on the right side of the market again and all this bias towards the downside from most people on this forum was clearly unjustified. Manby was spot on, he called it a selling climax Wednesday after the Fed.

 

What you view as a "downside bias" is simply data. New highs in stocks are keeping up with new highs in the averages in the indexes or they aren't. Volume is heavier on the upside -- or downside -- or it isn't. X sectors are participating, Y sectors are not. As to the selling climax, why didn't you see it yourself rather than rely on someone else to point it out to you?

 

What you do with all of this information is entirely up to you, but what you believe is irrelevant.

[zeon 10]

What you view as a "downside bias" is simply data. New highs in stocks are keeping up with new highs in the averages in the indexes or they aren't. Volume is heavier on the upside -- or downside -- or it isn't. X sectors are participating, Y sectors are not. As to the selling climax, why didn't you see it yourself rather than rely on someone else to point it out to you?

 

What you do with all of this information is entirely up to you, but what you believe is irrelevant.

 

All I noticed where posts that emphasized that the upmove may not be real. That means the member who posts these comments is looking for these things. Otherwise, why did nobody else (except for my post) say anything about (a) the double bottom, (b) the lower volume on the re-test in March © the higher low in March on the Transports, (d) the break of the downtrend line, (e) the almost new highs in the Transports, (f) the continuing higher highs and higher lows as price traveled higher towards 13000?

 

Sorry, but I couldn't find any references to those elements. All I noticed were posts about the downside potential.

 

And Manby posted the SC couple of hours after the markets closed. By that time I was already long, but it was nice to see some confirmation though.

[DbPhoenix 42]

All I noticed where posts that emphasized that the upmove may not be real. That means the member who posts these comments is looking for these things. Otherwise, why did nobody else (except for my post) say anything about (a) the double bottom, (b) the lower volume on the re-test in March © the higher low in March on the Transports, (d) the break of the downtrend line, (e) the almost new highs in the Transports, (f) the continuing higher highs and higher lows as price traveled higher towards 13000?

 

Sorry, but I couldn't find any references to those elements. All I noticed were posts about the downside potential.

 

Since the thread wasn't initiated until three weeks ago, there's no particular reason to rehash March events that were thoroughly covered in other threads. As for higher highs and higher lows, all of that has been addressed as well (that is, after all, what creates a trend channel). If you haven't been able to find references to any of that, perhaps your own biases have prevented you from finding them.

 

If you have finally found your niche in EOD trading, I couldn't be happier. Given that brownsfan has offered to mentor you at the Candlestick Corner, I suggest you take him up on it

[zeon 10]

Since the thread wasn't initiated until three weeks ago, there's no particular reason to rehash March events that were thoroughly covered in other threads. As for higher highs and higher lows, all of that has been addressed as well (that is, after all, what creates a trend channel). If you haven't been able to find references to any of that, perhaps your own biases have prevented you from finding them.

Perhaps I should have said I couldn't find any references to that "in this thread", or "in your posts".

 

Cantana posted this in #49: AVERSION TO DENIAL

 

Sustained directional trending action to the upside begins between the Aversion phase and the Denial phase. As the market slowly creeps up (April), the shorts start to sweat while those who don’t own a piece of the action vow to themselves that they will get in on the next dip that they believe is sure to come. The market continues higher and does not let them in.

More and more bids materialize as buyers show up again while shorts begin to cover. Since there are not many sellers overhead, the move up can be big and fast, and on low volume (volume is low). If it keeps going, eventually those left behind in the dust have to get in again, and the loop continues.

 

If you have finally found your niche in EOD trading, I couldn't be happier. Given that brownsfan has offered to mentor you at the Candlestick Corner, I suggest you take him up on it

 

This isn't about me, it's about what's been discussed in this thread: Mamis, the bias towards the downside and the use of the concept of selling climaxes, re-tests, etc etc. I don't see why you perpetually confront me with my own trading, while I am just trying to offer a different perspective here. Especially since your reply to my earlier question was nothing more than a chart with a red down trendline, I can only conclude you still believed it wasn't going to break that.

[DbPhoenix 42]

Perhaps I should have said I couldn't find any references to that "in this thread", or "in your posts".

 

Again, if you couldn't find any such references, that is no one's problem but your own.

 

Clearly this thread is not for you. I reiterate my suggestion that you take brownsfan up on his offer of free mentoring. If you refuse that as well, then perhaps you should return to the VSA thread.

[zeon 10]

Again, if you couldn't find any such references, that is no one's problem but your own.

 

Clearly this thread is not for you. I reiterate my suggestion that you take brownsfan up on his offer of free mentoring. If you refuse that as well, then perhaps you should return to the VSA thread.

 

 

So by offering an opposing view, you're saying I'm not welcome here anymore?

All I did was try my best at offering another way of looking at things, backup up by ample evidence.

 

Perhaps everyone should be silent and nod when you are speaking then. :hmpf:

[DbPhoenix 42]

So by offering an opposing view, you're saying I'm not welcome here anymore?

 

Your opposing views are not the issue. You make a continuing series of inappropriate short trades, then look for reasons for your lack of success outside yourself, i.e., rather than seek to solve the problem, you elect to rationalize. You ignore most of the questions put to you and shrug off all offers of help while making no effort whatsoever to help yourself. You've done this across several threads, this one being just the most recent.

 

No one here is going to tell you what to trade or when or how. Those who frequent the VSA thread may be willing to do so. Again, brownsfan has offered to mentor you in his forum. I suggest that you seek help where help will be forthcoming.

 

The Seven Habits of Ineffective Traders

Edited May 2, 2008 by DbPhoenix

[DbPhoenix 42]

For some reason, this chart got deleted yesterday. Since the editing window has closed, I can't make a correction to the original post. Therefore, this morning's activity is included.

 

 

Whether or not one takes the short, of course, has to do with his strategy, his timeframe, and how comfortable he is with trading channels.

[DbPhoenix 42]

An interesting "interior" channel on the daily ES.

 

There are several uses for trendlines and demand/support and supply/resistance lines. The most obvious is to tell you in which direction you're going, up or down. And how fast. And sometimes a trendline can provide a trend "channel". This is determined by first drawing the trendline, then copying it and placing it parallel to the original line in a location where it coincides with what may be the opposite side of a channel. Oftentimes, this doesn't work. There's just no pattern. But sometimes it does, and this can provide clues as to effort, momentum, less obvious S&R, and potential trouble.

 

Here you have a channel that has been unusually predictable (though not at the beginning, of course). Note that after the channel became established, it found resistance at previous swing points, first at the outer edge of the wider channel, then at the outer edge of what has become an inner channel. Whether the channel lines themselves provide support or resistance is less important than their use in monitoring when and where demand and supply kick in.

 

To more closely monitor this, W also drew interim lines, such as the dotted lines drawn here. These provided an early warning if, for example, supply came in prior to price's reaching what had been the supply line. If price could not breach this line, this indicated slowing momentum and a possible turning point, particularly if other indications manifested themselves (such as longer-term resistance levels).

 

In this case, one can angle a demand line upward and a supply line downward into what pattern people might call a "rising wedge" (W wasn't into patterns). When price violates one of these, and it will, the fact of the violation won't matter as much as the manner in which the violation occurs, e.g., with high or low volume. In any event, any one of these lines can provide clues as to levels of support and resistance that might not be otherwise obvious.

 

[erierambler 10]

Db,

attached chart with context, meaning trendline down and break, price rises to previous area. 1406 potential support, now tested. Then circle area price collapses. Could this be considered a potential capitulation as far as just price is concerned (reading price action by itself )?

erie

 

[DbPhoenix 42]

I don't know that I'd call it capitulation. Price is travelling from the extreme back toward a search for a "value area". There's one potential support area in yesterday afternoon's consolidation, which in turn sits on top of EOD consolidations during the previous two days, all of which means that there's loads of support between 1400 and 1410. This is not to say that price can't cut through all of this like a hot knife through butter all the way back to 1385, but that's not likely to happen today. And it may not happen at all.

 

In the meantime, I manage this as I've suggested before: begin scaling out at potential support, then the trendline break, then the breach of the last swing high. However, price held at the last swing high in both ES and NQ, so there's no reason to bail. Yet. And EOD traders needn't bail at all.

[erierambler 10]

I don't know that I'd call it capitulation. Price is travelling from the extreme back toward a search for a "value area". There's one potential support area in yesterday afternoon's consolidation, which in turn sits on top of EOD consolidations during the previous two days, all of which means that there's loads of support between 1400 and 1410.

 

Thanks, I don't see this type of action very often, but I try to see if one can identify action which may repeat. ( and find trades there ) I know how good you observe Point taken.

erie

[DbPhoenix 42]

Thanks, I don't see this type of action very often, but I try to see if one can identify action which may repeat. ( and find trades there ) I know how good you observe Point taken.

erie

 

Actually it's common on trend days. Price will drop till lunch time, then waffle around, then continue on in the afternoon. The last swing point provides the boundary of the waffling. Therefore one should not be too concerned about the trendline break.

[erierambler 10]

I don't know that I'd call it capitulation. .

 

Yes , after going back through some of my similar charts, I realise that the wording should have been , TOB ( test of bottom/support ). Capitulation was wrong.

erie

[namstrader 10]

Db, or anyone else, I came across Hank Pruden's Wyckoff website and I would like to know what you think about this guy and perhaps you have read his book "The Three Skills of Top Trading" (there is a 16 page pdf that highlights it of sorts at his site).

[gassah 10]

Db, or anyone else, I came across Hank Pruden's Wyckoff website and I would like to know what you think about this guy and perhaps you have read his book "The Three Skills of Top Trading" (there is a 16 page pdf that highlights it of sorts at his site).

 

Pruden has been teaching the SMI/Wyckoff course for many years. I believe he instructs mostly on Unit 1 of the course which is mostly SMI's modifications to the original Wyckoff material. It's hard to evaluate his book because I know the SMI course pretty well and the book is a brief summary.

 

Disclosure: I'm working with Pruden on organizing a Best of Wyckoff conference.

[Bearbull 10]

Pruden has been teaching the SMI/Wyckoff course for many years. I believe he instructs mostly on Unit 1 of the course which is mostly SMI's modifications to the original Wyckoff material. It's hard to evaluate his book because I know the SMI course pretty well and the book is a brief summary.

 

Disclosure: I'm working with Pruden on organizing a Best of Wyckoff conference.

 

As I have not read the SMI course, what do you reckon are the main modifications to the original Wyckoff. Gary Fuller at ltg-trading , I presume employs the former as there are numerous references in his archived charts to

"COB - change of behavior", "Jumping over the Creek", "Break of Ice", terms which Wyckoff never used.