Trading The Wyckoff Way

[tupapa 10]

Q: At which point you start defining the movement as a trend? Higher Highs and Higher Lows?

 

Yes, I define trend as a directional move, followed by a lower high and a Higher high (for an uptrend)

 

 

Q: When you say strong you mean, strong volume or a wide movement in price will suffice?

 

I define strong as a wide spread, this shows there is strong interest in the opposite direction. I am not including volume in the testing.

 

Q: What do you mean by struggle? Is it strong volume with no advance or even decline in price.

 

The struggle is shown by the contraction in volatility (narrow spread), and typically the bars will start arching, leading to very little material progress to the upside.

 

Q:Why wait for the low of the previous bar. I mean, if trading in RT, and imagining one has a very low Time frame for execution (10 seconds or 10 ticks), don´t you think one could enter at a better price?

 

Yes, I would like to enter at a better price, but since I have only started the testing, I don't think there is any point on testing a hole year of specific entry points on the 10 second chart, this would take months. I thought it would be best to define a more generic entry, using the 1m bar and once I have an idea of the patterns statistics, work on refining the entry using a smaller bar interval.

 

Q: How do you take into account S/R levels. Would you enter a trade irrespective of these levels?

 

I don't take S/R into account, again to simplify the testing, at this point I am already having to look through 365 1minute chart, once I have the generic stats, I will look at including S/R.

[Niko 10]

Hello everyone:

 

First of all, no abduction over here, so no need to worry.:haha:

 

Second of all, here are my levels for today:

 

725

717

707

696

673

667

663

650

635

623

 

 

 

 

You may want to dial back the lines just a teensy bit

 

Db

 

 

 

.

Edited October 22, 2012 by DbPhoenix

[Niko 10]

And for those still following oil, here is the chart.

 

The contract changed, so all the levels moved.

 

[tomerok 10]

Good morning

 

after that drop at friday price is a TR around 2668-2680

 

5760t - a major downtrend, three even length thrusts down

2880t - price starting to consolidate in a TR

720t - a clear S around 2657 price rebound back to TR highs

 

 

areas of interest

2695

2686

2680

2668

2662

2657

2651

 

 

Tomer

[DbPhoenix 42]

Well, if you really get into it and you're a completist, you probably will have to read it all. But don't be disappointed if you can't see the relevance of much of it. Keep in mind that we are talking about a time of hand-drawn charts and little to no information outside of a newspaper or broker's office. Going into what now seems like a lot of extraneous detail was a matter of survival. As for P&F, it's not difficult to see the necessity of it when there was no such thing as intraday charts.

 

I filtered out what I considered to be the essential sections into the Wyckoff Lite list. But there are those who will insist that every word is essential. Whether or not they are making a living walking this particular walk or they are making it more complicated than it needs to be so that they can make themselves -- and their goods -- crucial is another subject.

 

I agree with the maxim that The Truth Is In The Chart. Once you've read enough of the material to understand what you're looking at when you view and review a chart, then it's time to roll up your sleeves and start studying the charts. That's where whatever information you have acquired from the course will become knowledge, particularly when you begin to apply it all in real time.

 

Db

[bakrob99 11]

I have the TR you talk about on my chart, but a little tighter at 2673 - 2665.50

 

I also have a more significant (longer time spent in it) and older TR at 2645 - 2624

 

Above there is a recent TR from Friday at which we tested the midpoint of this morning 2686 - 2678. Interestingly - we hit the low of the TR fromt he same time on the ES at precisdely the same time we tested the mid.

 

Above its a long way to 2730 - 2740 area before we get back into consolidation.

[Niko 10]

I have read, and re read DBs post No 2, with the intention of giving some sort of order to my mind regarding what is written in this entries Thread. At least by me.

 

The following are my interpretations, they are not set in stone and subject to modification, upon the result of the debate, that I hope it sparks. (If it does not, I would be very disappointed and ashamed )

 

As I said before, my interest here is to minimize my waste of time when doing all the homework required to learn to trade W Style, not the long hours of useful homework time, but the weeks of testing something that has no value to begin with.

 

So here are my interpretations of Dbs post (DB, I hope I am not making a mess with what you provided in your post, If so.... I know you will let me know.).

 

…the best trades are found at the extremes…

…W used a combination of events to tell him when a wave was reaching its natural crest or trough:

 

• Selling/buying climaxes,

• The tests,

• Higher lows/lower highs…

 

…All confirmed by what the volume was doing and by the effect the volume had on price (effort and result)…

 

What auction market theory provides is the WHERE these events are taking place, providing an important clue as to whether they are culminating or merely preliminary.

 

 

My interpretations are:

• The best possible trades will then be found on the S/R levels, understanding S/R as the extremes and midpoints of the TRs identified using AMT or Cajas. (What about PDL, PDH and PDMidpoint?)

• This would mean that any entry strategy that does not involve the S/R, will always be second best if not a downright loser.

• So for setting an entry strategy, (this include selecting the pattern, doing the backtesting and the forwardtesting) it is necessary to first define S/R levels for any given market session one is going to use for testing purposes.

 

 

…Three types of strategies: breakouts, retracements, and reversals…

…Wyckoff, on the other hand, didn't like breakouts...

 

He liked to enter inside the crest or the trough after testing support or resistance.

1. His preferred entry : enter inside the crest or trough of the climax

2. Second favorite was to wait for the test and enter the same way.

3. The least favorite was to enter on the break beyond the swing point in between.

…So breakouts are more or less off the table…

 

 

 

Then I guess I started with the wrong foot, suggesting BOs as the subject of study. If W did not like them, then I will not either, at least for the time being.

 

 

The retracement after the breakout is preferred, partly because one avoids getting trapped by a fade (in case the breakout was nothing more than a thrust) and partly because the retracement gives the trader the opportunity to gauge genuine interest (if there isn't any, the "retracement" becomes a failed breakout).

 

 

Regarding my previous interpretation about the importance of S/R on entries, this means that: The retracement could only be diligently tradable, if it occurs around an S/R level. If not one should not take that risk.

 

 

The problem here is that one must often work his way down to a pretty small interval in order to find a good retracement. Otherwise, price may seem to take off without ever giving him an opportunity to jump on board (this is yet another reason why I like the 1-tick chart).

 

 

With all that was written above, this is my to do list to define an entry on a trend then:

 

1.One has defined S/R

2.The trend is set (up or down) with an DL or a SL and a TL.

3.S/R is broken, prices advance and then start to decline, the RET is about to form and one should then set his or her entry stop (stop limit). A limit order would not be advisable as it would anticipate something that is not known, that is, the end of the RET, which could anyway, become a REV.

4.The place where one chooses to place the stop entry will depend on the result of his or her testing. (Previous bar high, n ticks above the low of the RET, round numbers, ETC.)

[Gringo 10]

My interpretations are:

• The best possible trades will then be found on the S/R levels, understanding S/R as the extremes and midpoints of the TRs identified using AMT or Cajas. (What about PDL, PDH and PDMidpoint?)

 

In intra-day trading PDL, PDH, etc., seem to affect traders and as a result price so they are included in the preparation phase. Only when and if price starts to stall or behave as if there was some S/R at these levels do we give them importance, but they are there just in case.

 

• This would mean that any entry strategy that does not involve the S/R, will always be second best if not a downright loser.

 

There are multiple ways to make money in the market and quite a few don't involve S/R levels. Fundamental analysis is an example that is used for value based or growth based investing quite profitably. Arbitrage also doesn't involve S/R levels and neither does scalping. Wyckoff advocated trading at the extremes though.At the extremes you have the greatest information risk but least price risk. Using S/R levels help one stay alert to possible changes in supply/demand dynamic.

 

Wyckoff sought to minimize risk by focusing on the best trades available rather than by chasing after every marginally acceptable trade, and those trades are found at those points where there is most likely to be maximum disruption, maximum confusion, maximum fear, i.e., the extremes of TRs and the climactic endgames of trends. Granted it takes patience to resist squandering one's resources on crap trades, but that's the price of being a grown-up.

 

• So for setting an entry strategy, (this include selecting the pattern, doing the back testing and the forward testing) it is necessary to first define S/R levels for any given market session one is going to use for testing purposes.

 

It depends on the kind of set-up you are testing. For a BO from a TR you'll need S/R level for context but not for executing the entry as it will be based on the top and bottom of the TR itself. Same with a BO from a hinge etc. For reversals and BO from S/R level you'll of course need the S/R levels. The importance of S/R levels in RT trading cannot be over stated as they give you context of how far one is from potential areas where price behaviour might change.

 

Somewhere I posted that in order for a breakout to be a breakout it has to break out of something. A bar that's just higher than the previous bar ain't a breakout. And the harder it is for price to break out of something, the more likely the result will be satisfactory.

 

The main problem with breakouts is that everybody sees the setup, and is waiting for it, and many are waiting to fade it and screw those who are playing it. That's why the RET after the BO is the acid test. Was it for real or not? Are buyers really willing to put out or are they just crapping around? If they're serious, the RET will take off. If they're not, you've got a failed BO. Which is why W preferred taking the RETs.

 

Then I guess I started with the wrong foot, suggesting BOs as the subject of study. If W did not like them, then I will not either, at least for the time being.

 

Even TR have BO and RET but to identify a smaller bar interval or tick is a lot more helpful for intra-day trading. TR BO are a bit trickier at the start but not impossible to handle. In due course you can add more setups as you gain familiarity and understanding.

 

Regarding my previous interpretation about the importance of S/R on entries, this means that: The retracement could only be diligently tradable, if it occurs around an S/R level. If not one should not take that risk.

 

More or less yes. Now if you are in an area where price has not been before or hasn't come there in years then you'll need to use price behaviour itself to determine where possible S/R may develop in RT. This takes skill and something you're honing in this forum.

 

With all that was written above, this is my to do list to define an entry on a trend then:

 

1.One has defined S/R

2.The trend is set (up or down) with an DL or a SL and a TL.

3.S/R is broken, prices advance and then start to decline, the RET is about to form and one should then set his or her entry stop (stop limit). A limit order would not be advisable as it would anticipate something that is not known, that is, the end of the RET, which could anyway, become a REV.

4.The place where one chooses to place the stop entry will depend on the result of his or her testing. (Previous bar high, n ticks above the low of the RET, round numbers, ETC.)

 

1,2, seem ok for the BO and RET setup your post is focused on.

 

3.For stops losses you might want to include in addition to risk tolerance the price behaviour itself for an exit. This could involve price stalling after a RET and waiting instead of moving in the intended direction. This would help you exit before your stop loss is hit reducing your risk and losses. You may be faced with the question of missing the price run if discretionary exits are taken but your testing will determine what is acceptable and palatable for you.

 

4. Yes

 

Take care not to confuse "trend" with "trading range". They're not the same thing. S/R applies most directly to TRs. Trends don't have the same type of S/R; they often end climactically, though sometimes they just run out of steam. Whatever S&R they may run into along the way may have to do with previous TRs that are outside themselves. But the movement within a TR from one end to the other isn't really a trend; it's a roundtrip ticket from one end to the other. Only when price breaks out of one side or the other, for real, do you have the beginnings of a real trend.

 

For example, last Friday I said that the NQ was likely to hit 2660. We've been in a downtrend since the end of September, and even though there've been little TRs here and there, we haven't been in a major one since the 7th. So the movement from there has been a trend, not a trading range, and price stopped not because of a trading range that surrounded it, but from the top of a trading range from last July. At that time, price found R at 56, 58, 58, and 58. Yesterday it found S at 57. I'll take it.

 

Please note, I am not an expert and am only giving my opinion hoping some of which you may find helpful.

 

Gringo

 

Good job, Gringo. Impressive.

 

Db

Edited October 23, 2012 by DbPhoenix

[Niko 10]

 

Please note, I am not an expert and am only giving my opinion hoping some of which you may find helpful.

 

Gringo

 

Gringo,

 

Thank you very much for all your comments and insights.

[Niko 10]

hi niko, sorry I should have made my post clearer, I was more interested in looking at and showing how I might manage the trade if long, as oppose to where I got into the trade.

 

I am only sim trading at the moment and still trying to create setups to go into my plan, so I don't really know how important it is to show entry's as they might not carry enough emotion, it is perhaps more interesting to show how I would attempt to get the most out of the trade if long.

 

thanks

 

bloc

 

Bloc,

 

This is why I started the entries thread. It is just the way I see things, I just can start thinking about how to manage if i have not defined where to enter, I guess this is not necesarily the best way to do it but i am already hardwired to think like that :crap:.

[Niko 10]

I just found this interesting, and thought it might add value here:

 

 

Here's an example from this morning. As noted on Forrest's chart posted in the Foresight Trading thread, 1590 was and is a support level to pay attention to. And, as discussed in chat, 92 was a minor support level provided premkt (my chart is off by a minute; I neglected to correct it before the open).

 

 

 

 

Price bounced off 88 and back up thru 90 fairly easily, then thru 92, the latter taking a little more effort, but the result was a break thru R. This tells you to look for an entry. The tick chart shows a brief retracement after the reversal and the subsequent break thru 92. This retracement is your entry, if your strategy calls for entering on retracements (if it instead focuses on reversals, your entry might be earlier).

 

 

 

 

This can't be seen, of course, on even the 1m chart, much less a 5m chart. But there's your retracement.

 

 

 

[Gringo 10]

One thing that I had not noticed before is the gapping nature of this index that has regular trading hours. Futures trade continuously more or less so there are not many gaps associated with them so one can easily enter and exit as desired.

 

The futures market is showing the price to be lower today after overnight trading so there might be a gap down at the open on this chart. Those who could have easily re-entered in the futures market their short positions at the onset of weakness may not find a suitable opportunity to do so here. In a way those who held their shorts will probably be rewarded and those who were nimble and exited their positions when price showed some strength may be penalized for not holding on.

 

These are the behaviours and aspects that testing one's plan reveals. I guess my posting regularly on daily charts has alerted me to this characteristic which although was somewhere at the back of my mind but has now been forced to the fore. Keep in mind that this is an increase in price risk (I think) as the reverse could have easily taken place with a gap up. The holders would have been penalized while the nimble rewarded for their nimbleness in that case.

 

 

 

 

Note again that I am not predicting the future, but rather using the available information to position myself for a possibility of a favourable outcome.

 

Gringo

Edited October 23, 2012 by Gringo

[blocp 10]

this is the wrong thread sorry

Edited October 23, 2012 by blocp
wrong thread

[blocp 10]

here are my levels for today, I keep doing the 10 minute analysis but I am starting to question it's usefulness, but for now |I think I will carry on with it.

[tomerok 10]

Good Morning

 

5760t - almost 40 pt drop in pre-session, a wider TR to consider than previous day

 

areas of interest

 

2950

2686

2677 - mp

2668

2664 - minor

2662 - minor

2657

 

Tomer

[blocp 10]

here is my analysis of the 1 minute chart from yesterday, it seems clutered so I hope t is readable

[DbPhoenix 42]

Another interesting day for the S&R follower, this one with a surprise in the middle. Price found S at 57, as several times in the last three days, then rallied to R at 70. When it came back to earth, it formed a downwave of equal length to the upwave, then rallied to a point which matched a rally before the upwave. Pattern people would recognize this as a potential "head and shoulders". Wyckoff, however, hated patterns. Instead he would have noted the fact that price made a lower high at exactly the same level as the pre-peak rally high. This made it a legit short.

 

As for the target, it's typical H&S. Whether it occurs for cosmic reasons or due to a self-fulfilling prophecy, one can justify the downside target, even though it penetrates S by several points (in any case, there's no reason to exit since no SL is broken). Here, price hits the downside target within ticks, at which point a rally ensues.

 

Trading is so complicated.

 

Db

 

 

 

[tupapa 10]

Tomorrows Bund levels, today we found R at 47, so my plan is to look for a reversal at either of the levels on the 15m.

 

If we happen to break above 140.47, I will wait for a retracement, there is little to stop price from rising to 140.79, which is a recent value area and a reasonable target.

 

If we stay inside the range, I will use the same S/R levels as targets.

[Gringo 10]

Tupapa,

 

What other trading vehicle options do you have other than the bund?

 

Gringo

[Gringo 10]

Db,

 

Somewhere in the forum you had written, could be a few years old, that there are three kinds of risk: information, price, and opportunity.

 

Where's this opportunity risk coming from? Does it mean we could have traded something else altogether (like another stock/index/future) instead of the current set-up?

 

Gringo

Edited October 23, 2012 by Gringo

[tupapa 10]

Tupapa,

 

What other trading vehicle options do you have other than the bund?

 

Gringo

 

Well, I trade mainly the european morning, so the Dax and eurostoxx are 2 other options. I chose the Bund because it seems like a nice balance between the daxs high volatility and the stoxxs low volatility.

 

Why, what are ur thoughts on the bund??

 

the thing is, Id rather not jump from one market to another, I'm not sure if it will be good for my development, now that I started with the Bund, I feel like I should stick with it.. you know what I mean?

[Gringo 10]

Tupapa,

 

You are in the learning phase so your objective is to learn the principles and use whatever means and vehicles that help you learn these principles. I see a bit of jumpy behaviour in the bund, which in effect may make it difficult for you to become comfortable with the correct principles. The more you're stopped out because of erratic behaviour of the trading vehicle you are using the more likely it is that you'll develop habits that may be detrimental to your growth.

 

Again, I would encourage your to explore other options, or consult other opinions. There is no deadline to becoming proficient and perhaps simply questioning the not so obvious that's right under your nose may prove to be fruitful and possibly faster.

 

Gringo

[DbPhoenix 42]

Yes. It all comes from Mamis. Opportunity risk is what you assume by electing to put your money into this rather than that, or this group of whatever rather than that group of whatever. One could also call it Greener Grass Risk.

 

Db

[Bern 10]

Well, if you really get into it and you're a completist, you probably will have to read it all. But don't be disappointed if you can't see the relevance of much of it. Keep in mind that we are talking about a time of hand-drawn charts and little to no information outside of a newspaper or broker's office. Going into what now seems like a lot of extraneous detail was a matter of survival. As for P&F, it's not difficult to see the necessity of it when there was no such thing as intraday charts.

 

I filtered out what I considered to be the essential sections into the Wyckoff Lite list. But there are those who will insist that every word is essential. Whether or not they are making a living walking this particular walk or they are making it more complicated than it needs to be so that they can make themselves -- and their goods -- crucial is another subject.

 

I agree with the maxim that The Truth Is In The Chart. Once you've read enough of the material to understand what you're looking at when you view and review a chart, then it's time to roll up your sleeves and start studying the charts. That's where whatever information you have acquired from the course will become knowledge, particularly when you begin to apply it all in real time.

 

Db

 

Thanks for your answer. I have thought about it and I have realized that, given the stage where I am, it will be more valuable, and also more pleasant, for me to focus on Wyckoff Lite, the pertinent sections of your ebook, this forum (and that includes participating and not only lurking ) and, of course, the study of charts and the market in real time.

 

There is enough for the moment to keep me entertained !

 

Bern

[Niko 10]

Its a mess trying to quote from a tablet, so i will do it the old fashioned way.

 

From Dbs previous post:

 

"Take care not to confuse "trend" with "trading range". They're not the same thing. S/R applies most directly to TRs. Trends don't have the same type of S/R; they often end climactically, though sometimes they just run out of steam. Whatever S&R they may run into along the way may have to do with previous TRs that are outside themselves. But the movement within a TR from one end to the other isn't really a trend; it's a roundtrip ticket from one end to the other. Only when price breaks out of one side or the other, for real, do you have the beginnings of a real trend."

 

Db, this was my aha moment of the day, and i understood where my problem was. When trading with indicators, I use two MAs and an army of indicators to confirm my entries, this makes me enter usually in the middle or the end of the trend, giving me the posibility of just a few ticks of profit and very little time in the market. When formulating my entry setup some posts above I ended up falling in the same trap. I was trying to enter in the middle of the trend, but gringo's comments as well as yours made me realize that I was trying to turn a circle into a square.

 

In W we need to focus on the best posible entries, that are:

 

Rev: On trading ranges or at the end of trends as in DB or DTs

Ret: after the BOs or at climaxes after the test.

 

I will work more into this entries and will post my journal in the journal thread.