Trading The Wyckoff Way

[Gringo 10]

Db,

I think I know the answers to at least most of them. There's too much theory in my head and perhaps, I may be trying to avoid taking responsibility or something.

 

I know I can let SL/DL control most of the exit and even take partial exit on break of SL/DL and then wait for the LSL to break before completely exiting. The potential climax just alerts to the possibility of the slowdown or end of trend and only price is the true arbiter.

 

I do have one advantage and that's the screen time I've had over so many years.

 

The problems I have are:

 

1) Don't exit when stop is hit. Especially if it's repeated exits I have taken before and just want it to work out.

 

2) Too much leverage.

 

3) Not staying inactive until the right moment.

 

All this has brought me full circle to reluctantly and begrudgingly start writing a plan and have exact entry and exit criteria. Basically I've had it with knowing all this theory and still being unable to show anything for it. I am sitting clean in cash until the plan's ready and tested (I do resent this testing part, even though I haven't even reached that stage) but I hate even more is now even sticking to my own damn unwritten plans. If I cheat on my own plan what's the point of having the plan in the first place.

 

Market is is a dual edged sword. One needs to know exactly what to do and also control emotions at the same time. The problem is that at the start emotions are controlled and then slowly the psyche gets affected one way or the other and back to the same old issues.

 

But there is a solution. Follow exactly what's written in this forum and focus on one thing at a time. The trading in 90 minute thread has put some light on the correct way of observing the flow of the price and even without knowing much about S/R it seems to be holding its own. Adding s/r to it probably adds another arrow in the quiver.

 

The hardest part is to see all this and realize it's so damn simple. I see Db's charts and SL/DL and there's nothing out of this world stuff in it. It's exactly the way it's laid out in the posts here. This time I am going to follow the plan to the ground. I have no profit objectives and eventually when I go live my only objective is to stick with the plan. Nothing fancy, just breakouts, retracements and reversals as the wise say!

 

Gringo

[DbPhoenix 42]

We could drag this out, but, as I've said elsewhere, this isn't therapy, so let's skip over all that.

 

It seems to me that your core problem is that you view an exit as a completion, i.e., once you've exited, that's it. If the trade goes on without you, you feel that you've mismanaged the whole thing, you feel cheated, you feel inadequate to the demands that the task is making. No wonder that all sorts of emotions come into play, usually at the wrong moment. You then have to struggle with them at the same time you're struggling with the market.

 

So, short-circuit all that. Controlling your emotions should not be an issue because there shouldn't be any emotions to control. If there are, then change whatever behavior is eliciting the emotions in the first place. Change your attitude toward the movement of price. Or perhaps I should say the trajectory of price.

 

First, make your exits so simple that they're simple-minded. Exit at the break of the SL or DL. Don't agonize over it or question your manhood. Just do it. Then paper-trade the same trade thereafter. If a short op presents itself, take it. On paper. If a continuation op presents itself, take it. On paper. The world, in other words, does not grind to a halt just because you've exited. It goes on, with you or without you. Make it go on with you. Take control. Eventually, when you see momentum lessening, you won't feel depressed or helpless. You will instead view this change in momentum as a phenomenon of interest. You'll focus on what traders are doing and where they're doing it and how they're doing it, and, in the process, look for either reversal or continuation ops. If either present themselves, you'll be back in the trade and will have lost nothing, except perhaps your fear.

 

As for the testing, it should not be viewed as a punishment or a penance. It ought to be fascinating, assuming you're using replay, for this is where you learn how traders behave. Once you understand that, you pretty much have it.

 

Db

[steve46 12]

"Controlling your emotions should not be an issue because there shouldn't be any emotions to control. If there are, then change whatever behavior is eliciting the emotions in the first place"...

 

Why of course, why didn't he think of that before.....should be no problem at all, to turn off the emotional responses we humans have developed over the course of the past 200,000 years.....consider it done!!!!

[40draws 10]

I used InteractiveBrokers. Never had any problems.

 

Db

 

Thank you. My first and only attempt to trade today was a long entry on TDC. As was the case yesterday, the trade was rejected by my broker ("You have $0.00 buying power.") Again a phone call pointing out that given the price of the stock (about $78.14 offer when I was submitting my market order) and the size of the trade (500 shares) the cost of this trade would be $39,070, which represented less than 65% of my available cash ... never mind margin at 2X's or day trading margin at 4X's cash!

 

I spent the rest of the day requesting that cash be returned to me in the form of a check, and opening an account with Interactive Brokers LLC. By the time I receive the check, and the funds clear, and I send a check to Interactive Brokers and then those funds clear for trading, it will likely be two weeks or more before my next trade.

 

I will use the next two weeks to continue to follow the stock market as time allows. I will continue to add stocks to my list of trading candidates.

[DbPhoenix 42]

You might also consider paper-trading just to keep your hand in and maintain your rhythm. It's a little soon to be taking that kind of time off.

 

Db

[DbPhoenix 42]

"Controlling your emotions should not be an issue because there shouldn't be any emotions to control. If there are, then change whatever behavior is eliciting the emotions in the first place"...

 

Why of course, why didn't he think of that before.....should be no problem at all, to turn off the emotional responses we humans have developed over the course of the past 200,000 years.....consider it done!!!!

 

None of this concerns you, Steve. I haven't made any comments on your threads. Please extend me the same courtesy.

 

Db

[Gringo 10]

Hi Db,

 

I have set up the Ninja Trader for its replay feature. This way I could go through the day again and again until the brain can follow the plan without much hassle.

Plan needs to be completed though. Soon.

 

Thanks for help.

 

Gringo

 

p.s I had deduced from your post that the exits should be made so simple as to remove any semblance of uncertainty, hence, removing the emotional aspect altogether.

[DbPhoenix 42]

Hi Db,

 

I have set up the Ninja Trader for its replay feature. This way I could go through the day again and again until the brain can follow the plan without much hassle.

Plan needs to be completed though. Soon.

 

Thanks for help.

 

Gringo

 

p.s I had deduced from your post that the exits should be made so simple as to remove any semblance of uncertainty, hence, removing the emotional aspect altogether.

 

If you find it necessary to go through the same day several times until you've got through the negative vibe, go right ahead. There's a five-dollar word for this, but no need to go into that. However, once those feelings have been defanged, move on to another day. Then another.

 

As for the exits, though, yes, they should be that simple. I suggest a break of the SL or DL line. (see the charts at the beginning of the Trading By Price thread). Then go through the process I suggested earlier.

 

BTW, you needn't replay in real time. If it feels like it's taking forever, double or triple the speed. See how it goes. If that's still too slow, we'll talk.

 

Db

[Gringo 10]

Db,

 

Why is the exit delayed until the successful test? I had expected exit to be the break of SL. Please see attached amended chart.

 

 

Is this area being a mid and not the S/R the reason that normal course of action requiring simply exiting break of SL not followed?

 

Gringo

 

p.s. I added the black SL. My photoshop skills need some honing.

p.s.s I'll go through the thread, maybe this question has already been addressed.

[DbPhoenix 42]

There are several things going on here, which is why I went back and explained that these are neither plans nor templates. But all that aside, the first thing to remember is that RT is not the same as hindsight. There are behavior patterns that can be evident when watching the trades take place that are not always evident in hindsight (though they should be evident in replay). OTOH, if one has "issues", there are rules to be followed, without exception. Once those issues are put in perspective, there can be more flexibility.

 

In this case, you're right. Someone having exit issues and/or stop issues would exit. I didn't because the selling waves were still longer than the buying waves and because S had been tested only once (hence I had no way of knowing whether it was in fact S). When S was tested again and traders huddled around that level, it seemed prudent to bail at the break and reverse.

 

I should also point out or remind that exiting at a break of the SL is only one option. One might also wait for a violation of the last swing high, which would suggest that the buying waves might be becoming longer than the selling waves. But this is primarily an option for someone who thoroughly understands trading by price, which is practically nobody. It's also for someone who isn't going to freak when price retreats to that extent, which is also practically nobody, at least anybody who's a relative beginner. And by exercising such an option, the trader is practically daring those old emotions to grab hold again. This is not wise. What, after all, is the downside of exiting a little early? What's the old axiom? Buy too late and sell too soon? And more options are available to those who are trading more than one contract. But that can come later. Not to be insulting, but these are baby steps.

 

Db

[DbPhoenix 42]

Here's an example of what I'm referring to, from this morning.

 

The best entry of course was the open (S is from pre-market), but it's unlikely that you would have tried it or that you would have been filled if you had tried. But it doesn't matter. There's plenty for everybody.

 

So, you might enter at the first op. If so, you'd be stopped out almost immediately. But if you didn't enter, there might not be another op. So you take it, understanding and accepting the risk so that you don't get thrown by it. When you do get stopped out (and I say "stopped out" bec in this case you might not have time to exit, so it's okay to place a tight stop just in case; you're not relinquishing responsibility for the trade to the market, you're actively managing it), you keep watching to see what traders have in mind. Here, the RET is relatively trivial, so you decide to re-enter on this RET. Or, you're not sure, so you wait for the next one, knowing and understanding and accepting that there might not be another one. But those are the risks inherent in waiting. Remember price risk vs information risk?

 

Assuming that you're in by now, one way or another, you can draw your demand line. Notice that it's "broken" at around 2808. If you want to be rigid about your exits, take it. Otherwise, note how price "hugs" the line (this says more about the trader's drawing than it does about the price movement, which is why some flexibility in judgement is called for). However, around 2812, the break is more definite and more decisive, making an exit more justifiable. And even if you notice that the RET is hardly noticeable, the change in activity is much more noticeable, or would be if you were watching this in RT. Trading in fact practically comes to a standstill, a strong indication of changes in the offing. By the time price gets to about 2814, momentum and stride are clearly changing, and, if you had re-entered, you would have picked up only a couple extra points anyway.

 

So you figure out how many points you would have made if you had bought late and sold early. Then decide whether or not it was all worth it.

 

Db

 

 

 

[goodoboy 10]

 

The hardest part is to see all this and realize it's so damn simple. I have no profit objectives and eventually when I go live my only objective is to stick with the plan. Nothing fancy, just breakouts, retracements and reversals as the wise say!

 

Gringo

 

You sound exactly like me. Your thoughts are my thoughts exactly. Nothing fancy

[Gringo 10]

Thanks Db,

 

In this same chart, the long you took was based on price behaviour. The price behaviour indicated a long and you took it after the successful test. The strange thing is that price doesn't "touch" the S but stays a bit above it and you don't wait for price to come to S first and have an exact test or rebound there. You still take the long when it is presented. Does that mean being close enough to S/R is good enough to stay alert rather than having an exact contact with the line or level?

 

This also leads to a second question. In this case the long was taken above the S with a stop independent of S but rather based on the swing point. What if the price was below the S/R level and the behaved exactly the same way as it did when you took the long. Would being below the S/R and having that overhead R change your decision to take the long in that case even though the behaviour is now indicating another long after the test?

 

It seems to me that I have always considered S/R to be the ultimate/primary and the test and other price behaviour to be secondary and expected something to happen almost precisely at S/R. If you would have taken the longs in both cases where price is above and where it is below the S/R level then it would mean the price is the primary/ultimate determinant and S/R are secondary. Now that would be a serious shift in my thinking and approach.

 

Gringo

Edited September 6, 2012 by Gringo

[DbPhoenix 42]

Before I get into your questions, are we talking about the same thing? The second test is lower than the first, and the third is lower than both. Correct?

 

Db

[Gringo 10]

I have added some more comments on the chart for clarification.

 

 

Gringo

[goodoboy 10]

Did I draw the demand lines correctly? Thanks

[DbPhoenix 42]

Okay, I think I understand what you're confused about, and you may want to re-read the S/R thread.

 

Determining S/R in advance is only a guess on the trader's part. As I explain in the S/R thread, S/R can be a line or a point or a zone. But S/R is not what the trader says it is; it's what the market says it is. If buyers come rushing in ahead of wherever the trader has pegged S, then he needs to re-assess his S levels PDQ. That's one of the reasons why trading in RT is so different from "trading" in hindsight.

 

What matters here is not the level of S that's been drawn in advance but the violent reaction of buyers when price gets anywhere near it. Note how far they can propel price after that first approach. That "test" carries more information for the trader than whether or not price touches a level that may not even be accurate. Price reverses at what the trader has pegged as S or R only occasionally, and rarely to the tick. But it does happen. Unfortunately, while those occasions are great fodder for message board boasting, they are only coincidental to the trade. Watch what traders do as S or R are approached. Watch the level of activity. Watch whether they move price with confidence or they "jitter". If you're watching volume, see how violent these value disagreements are, if at all. And when the second or perhaps third tests come along, watch how sharply buyers recoil from those levels. This is a far better indication of a reversal than whether or not the trader's S line has been touched.

 

But when all is said and done, it doesn't matter. One can wait for the next op a couple of points higher. He'd be in the clear, and everybody else would be pushing him along. As long as he's "available", there should be no problem in determining just who's in charge here.

 

Db

[DbPhoenix 42]

Did I draw the demand lines correctly? Thanks

 

Given the parabolic open, I'd wait for the trend to establish itself, at the first RET. Regardless, you'd still enter at the same place, 1417, and exit at 1428/27. Unless you wanted to hang around for another two hours for an extra couple of points.

 

Db

 

 

 

[TradeRunner 10]

Excellent question Gringo and excellent answer Db. I have been thorough the S&R threads many times and hadn't pick up on this.

 

Interesting that this is the second question about this chart. You would think that days like the one in post #18 would be more contentious as there were so many more decision points.

 

Do you think that "beginners" should forget about reversals and initially focus on retracement based entries?

 

TradeRunner

[DbPhoenix 42]

It depends partly on whether or not the beginner can tell up from down (there are people who've been struggling for years and still can't tell up from down) and partly on whether or not the beginner is willing to forego trading for studying price action.

 

If the beginner cannot tell up from down, he will not likely trade RETs profitably since he won't know how to tell the difference between a RET and a REV.

 

If the beginner will not forego trading in order to study price action as a subject in itself, he will be focusing on setups and not the behaviors of other traders, thus getting it wrong most of the time, or settling for small profits when he could be aiming much higher.

 

If the trader spends some time studying price action without obsessing over how he can profit from it, then it probably doesn't matter whether he trades RETs or REVs. If he doesn't, he will probably give up before it makes any difference, or run out of money.

 

Db

[tupapa 10]

I am sharing some observations I made during todays Bund session on price, volume and the climactic sequence as I am currently focusing and testing this set-up.

 

The same sort of reversal occurred yesterday in the Dax and I perceived it in a very similar manner. It is something I am working on and eventually I hope to develop a set of rules to enter exit re enter, scale in, scale out effectively.

 

 

The charts shows annotations I made as the sequence happened but it basically consisted of:

 

1- We are in a downtrend, reach support and there is climactic buying.

2- The test ends up failing and we make a new low, I draw a new SL and a parallel DL forming a channel, to judge the strength of Sellers vs Buyers.

3- We have again climactic buying and again the rally is poor and the test doesn't hold, we make a new low.

4- However, at this point I notice the selling waves are getting shorter and the trend channel serves its purpose, indicating buyers are entering more aggressively.

5- There is a third round of climactic buying, this time it is for real, and there is a genuine rally that is worth a few points.

 

 

So my thoughts after witnessing this sequence today and yesterday are:

 

1- Each and everyone of this "climactic sequences" could've been potential entries since we don't know which one of them is going to lead to a genuine rally (if any).

 

2- It is up to the trader, to the decide how and when he is going to enter and how and when he is going to exit or scale out or move stop to Breakeven if the trade doesn't meet his expectations .

 

3- A trader cannot make these decissions in real time, he must test all options and decide what works for him, one can enter on the climax, or on the retest or on the break of the climactic rally but it is the "rules of managing the trade" that will eventualy "work" for that trader.

 

4-The set of rules must ensure winners are allowed to run and loosers are exited with the smallest possible loss.

 

Hopefuly my deliberations will be of use to other traders, and if not they should help me in my journey.

 

IF the sheriff doesn't deem the post appropriate for this thread let me know as I'd be more than happy to move it to a journal I'll be posting soon

[DbPhoenix 42]

Nothing like monitoring the leaders for clues as to market direction.

 

Db

[olivehawk1 10]

DbPhoenix or gassah,

I am looking for some practice examples or examples of P & F Charts. Is there any practice material on this forum? I am using the Wyckoff examples in his "Method of tape reading". Buit would like more to practice with.

Thanks,

olivehawk1

[40draws 10]

You might also consider paper-trading just to keep your hand in and maintain your rhythm. It's a little soon to be taking that kind of time off.

 

Db

 

Thanks for that ... I agree, and toward that end I sent a check to Interactivebrokers today and I'll replace that money with the check from the old broker. It looks like Interactivebrokers will still put a seven day hold on the funds, so I'll be in paper trade mode until then.

 

Funny thing today - with nearly every stock I follow gapping higher at the open, I found myself unable to decide which I would trade. Usually I may have ten or so candidates at the open, and several of those quickly fade away. It is easier to decide which to trade when faced with 3-5 choices rather than 38!

[DbPhoenix 42]

There's an entire thread on it, but it's not used much.

 

Db