Trading The Wyckoff Way

[Gringo 10]

Although the supply has the upper hand, the demand seems to have slowed the downward progress. This is reason enough to tighten stops on the short positions. The trend is still down even if price goes as far up as the last swing low at 66.5.

 

The SL is there but could be breached today. Keep in mind though that the weakness is still present and demand is only halting the price drop but hasn't mustered enough strength to push supply back and move price upwards.

 

Demand is beginning to show itself and starting to confirm that the line on the chart may be a support level. How strong? we don't know yet.

 

The stop levels are still the same. SL break, LSL, LSH, BE, or whatever tickles your fancy.

 

 

 

Trading the Wyckoff way requires one to let the supply and demand fight it out and pick the winner. We await the result. If price goes up some may exit outright and some may choose to reduce their short positions. The aggressive ones could take a long position based on whatever plans they have. Some with longer horizons could continue to hold until more strength is shown by demand before liquidating their positions. It's all relative, and only the preferences and plans are different for different people. This is the reason we don't all trade the same way despite using the same theoretical foundation and looking at the same price.

 

Gringo

[Niko 10]

My levels for today:

 

778

766

755

729

717

705

694

683

670

663 Yest MP

657

645

633

 

If it serves any purpose to someone else using NT, I have configured the NT Fibonacci tool to draw boxes and to tell me where the levels are, as horizontal lines do not have tags.

Edited October 25, 2012 by Niko
New levels

[tomerok 10]

I will first like to discuss trend entries. I will use uptrends as an example, but it applies for downtrends as well

 

One can define a trend, at least a premilminary one as soon as one has a new HL, and a new HH. In this case one could enter in diferent places, the first place I want to bring into the discussion is the last high, which I think can be used for entries in the following ways:

 

 

1. At the BO of the last high, this can be done with a stop or an stop limit order, placed before the price had reached the last high,

 

2. After the BO, at the RET to the LH, this can be done waiting for price to go back to the last high and entering with a limit order at that level or waiting for price to go through the last high and placing a stop or a stop limit order above market price.

 

At both places I am assuming one sets the stop loss at the same place, so the money risk is the same, now the real risk I think will depend on context, and the probabilities will depend on what the testing results tell you.

 

Now, I know I have not touched the subject of S/R, but I will leave that for another post or perhaps someone else wants to touch this subject.

 

 

Niko,

it's funny but i have just decided to revise my setups and refine them, so this thread is more than appropriate for brainstorming.

 

i used to enter at the BO of HH and that is clearly wrong, you miss a big chunk of the move and your stop is clearly wider than the option # 2 (assuming the stop loss is placed couple of tick below the LHL)

 

I'm going to work on every setup separately till i will come up with solid definition for each one (i'm avoiding using the term "rules", since they are meant to be broken... )

then i can backtest and forward test them.

 

for a start, as Db pointed out there are three kind of setup's - Retracements, Reversals and BreakOut.

and since we have $ trending or ranging than the place or area to look for them are @ the extremes (with the exception for the Retracement setup)

 

Since you pointed out trend entries i'll be more than happy to start with it.

I look at a setup as the environment preceding the trade and the entry as the trigger for executing it.

 

I'll try and define what i expect to see and where, (i'm using long as an example)

 

1. price is in an uptrend (a second up wave was formed... 2 HH and 2 LL )
   
   • price is trending for some time
     
   • price broke out (and gained significant distance from a previous TR)
     
   • we can notice a DL.
     

[*]"momentum" factors are on the up side

• up thrust is equal to previous up thrust
  
• volume is the same or greater than previous thrust
  
• retracements are slower
  

[*]No visible R ahead.

 

Entry

This is where i'm changing my strategy....

1. 2nd retracement starts (after the 2nd HH)
   
2. observe the retracement, once the retracement is "legit" in terms of speed and length (slower speed, same length as the previous one)
   
3. once price starts to form bars above the previous one (you may have to drill down to a smaller interval)
   
4. place a stp, stp lmt order ahead of price (the actual distance really depends on the formation you're watching, i guess with the movements we have seen in the chat room it could be 2-4 ticks above price.)
   

 

i neglected the stop on purpose since it depends on risk tolerance, but as a rule of thumb i'm trying to exit immediately once the parameters for entry have changed and are no longer valid.

 

Tomer

[Niko 10]

Note: I've merged some posts from an old, closed thread into the beginning of the Rev, Ret, and BO thread. You'll find them at the beginning. Even though the charts won't open, you may be able to glean enough from the prose to understand the points that are being made.

 

Db

 

DB,

 

Do you mean this thread?

 

http://www.traderslaboratory.com/forums/wyckoff-forum/6459-then-there-were-three-breakouts-retracements.html

 

I could not find them.

[Niko 10]

Niko,

 

Since you pointed out trend entries i'll be more than happy to start with it.

I look at a setup as the environment preceding the trade and the entry as the trigger for executing it.

 

 

Tomer

 

Tomer, thanks for the post,

 

I was reviewing some other post regarding this issue of trend entries and I found this, that has me thinking about the efficiency of such strategy

 

 

The best entries are made off support or resistance. Entries made within a range or long after a trend has reversed are much more problematic. If one wants to take them anyway, no one can stop him. But, yes, that's outside the boundaries of this particular approach.

 

Db

 

When we already have the 2 HH we have less information risk, but the higher price risk, I don't know if entering there gives us the most efficient entry.

 

Look at this post by BLOC, it kinda makes the point.

 

http://www.traderslaboratory.com/forums/wyckoff-forum/14506-entries-wyckoff-forum-4.html#post164441

[DbPhoenix 42]

Adding to the short position is another option.

 

Db

[Niko 10]

I think this was great group therapy. Sometimes, just knowing that you are not the only one felling bad about your trading plan, helps :haha:.

 

Now lets get to work.

[DbPhoenix 42]

DB,

 

Do you mean this thread?

 

http://www.traderslaboratory.com/forums/wyckoff-forum/6459-then-there-were-three-breakouts-retracements.html

 

I could not find them.

 

They are the first nine posts.

 

Db

[tomerok 10]

Tomer, thanks for the post,

 

I was reviewing some other post regarding this issue of trend entries and I found this, that has me thinking about the efficiency of such strategy

 

 

 

When we already have the 2 HH we have less information risk, but the higher price risk, I don't know if entering there gives us the most efficient entry.

 

Look at this post by BLOC, it kinda makes the point.

 

http://www.traderslaboratory.com/forums/wyckoff-forum/14506-entries-wyckoff-forum-4.html#post164441

 

i agree, blocp analysis of the trade is great and the entry is superior, even though i thanked him for the post i never read it as thorough as i did now.

that view is exactly what led me to redo the setup and entry definition in my trading plan.

 

i now recall a conversation i had with Gringo, which ended up with the question maybe more screen time is required..... just watching price.

 

Tomer.

[DbPhoenix 42]

Before this goes too far, I want to correct something. I've developed a bad habit. Even though "retracement" has been defined somewhere (probably the RRB thread), it's been overlooked, and I've added to the problem by equating "retracement" and "pullback". They are not the same thing.

 

RETs, REVs, and BOs all depend on S&R. If S&R are not in the picture, then you aren't likely looking at RETs, REVs, or BOs. With regard to RETs in particular, a RET is an opportunity for those who missed the train to jump on later before it's gone. If traders don't feel that they've missed anything by not taking this particular move, then it's not likely to go anywhere. If traders are slapping themselves for having missed the initial move, i.e., the BO, then the RET will be successful. But if the move is inconsequential, or it's fake, the RET won't go anywhere. No one will pile on board. In fact, those already on board may jump off, and there you are, alone.

 

Therefore, a pullback in a trend is not a RET; it's just a pullback. This is not to say that one is destined to fail if he takes any subsequent pullback after the RET (the first pullback after the BO), but the price risk is higher.

 

I'll try not to be so casual with these terms in future.

 

Db

Edited October 25, 2012 by DbPhoenix
did it again

[tomerok 10]

areas of interest

 

2695

2686

2682

2677

2668

2657

2651

2646

 

 

Tomer.

[Gringo 10]

Early morning levels:

70

65

 

Other levels:

96

86

82

80

79

70

65

59

57

48

46

 

Gringo

[blocp 10]

here are my levels for today, price seems to be stair stepping lots of overlapping of price areas of interest

[DbPhoenix 42]

Five people. Not bad.

 

Db

Edited October 25, 2012 by DbPhoenix
temporal mechanics

[Gringo 10]

For some reason shorting at the onset of weakness slipped my mind. I guess I had assumed full position in the short which subconsciously prevented me from seeing someone could add to the short position as well.

 

Gringo

[tomerok 10]

back to price watching...

 

at first i narrated the 5 tick chart which i watched in RT

but then realised i will have to post 6-7 screenshots to include the whole timeframe (NT sucks with small scale 1 tick display)

instead i'm posting the 144t which is pretty similar to the 1m

 

 

Tomer

[Niko 10]

Well here is my analysis, I believe this is too much, I will work on being more concrete as days go by.

 

 

1. At the open, there was a struggle around the 70 R level that buyers had been trying to break since 4:00 AM in the morning.

2. Even under opening conditions(High volatility), buyers were unable to break the premarket high at 73, forming a DT, after which sellers managed to take the market down pretty fast towards S. Although there was some demand coming in at S around 9:34, it just stopped the decline for less than a minute, providing an opportunity to draw a SL. That supply line remained valid until 9:35 where buyers came in to stop the sellers.

3. Price formed a small TR, in which Buyers and Sellers fought for control, by 9:37 there was a BO from this TR, prices fell fast, and after a pullback to the bottom of the TR, prices resumed their decline. The top of the TR also gave the opportunity to trace a new SL that would remain valid until 9:41.

4. After finding buying pressure at 61 (No precise reason noted), the market made its first up wave of importance after the open. Buyers managed to push the market near the Bottom of the TR described at 3, but failed to reach it and in the following attempt at 9:45 failed to make a HH, then the market entered into a new TR.

5. Sellers tested their chances with buyers at 9:47, but it was a failed BO.

6. Buyers took the market high without a fight, but lost control of price at the MP of the TR, from that point on, prices started marking LHs, and breaking bellow the Bottom of the range.

7. Up until 9:53, 63-65 became a small congestion area, but at 9:54 sellers managed to break below the low of that congestion taking the prices down to 60.

8. At 9:54 buyers started pressing prices to the upside, but the zigzagging was signal that the sellers were not giving up. By 9:56 price had reached the 9:43 TR, and found enough sellers to absorb the demand. Prices started falling, and down waves started to be again longer than up waves.

9. Prices started descending towards S, with small stops at 61, 60 at 58. At 10:01 prices reached S at 57, bounced and then tested successfully.

10. After a successful test of S, prices Reversed and started marking HHs and HLs until reaching the earlier zones on congestion around 64 and 67 and around 67 and 69.

11. Finally prices reached R at 70, and then after retracing more than 50% form the LSH, prices failed to make an NH around R, proving that now Sellers had control of the market.

12. After a first pullback at 10:25 prices descended rapidly through the congestion zones between 69 and 64, until reaching 60, a previous resting point during the morning.

13. At that point prices entered a hinge that was exited at 10:38, when sellers took control of the market and did not find any opposition from the sellers until they reached 59. So far the down waves have been predominantly smooth as opposed to the up waves that show more zigzagging characteristics. (Is this a signal of seller’s domain?)

14. Finally, sellers made it to S at 57, this time they did not find any significant opposition from buyers.

15. Then after a Ret to 57, which now served as R, prices kept on falling until they reached 52, where buyers started coming in.

[pjohnm 10]

I did not pick this up this morning but I should have paid attention to the drop below the bottom of the 2657 / 2682 TR overnight (24/10). This should have at least prepared one for the potential of the MP to act as R on 25/10.

 

Having been sat below the MP pre mkt, buyers propelled price higher 12 mins before the open and one could've expected a test of R (2682). Instead, sellers pulled price back to the MP 11 mins later and we were left looking at a LH at the open, with price back below the MP. Buyers arent done though and Price bounces off the MP from above but the 2nd attempt at a HH fails, and we're pulled back to the MP.

 

The question to ask here is where is the least line of resistance? Buyers have tested 72 twice and failed to make a HH. Is the MP going to hold as S? The answer is a resounding no in the form of a 2.5 pt brk of the line (see first circle), making a new low from the open in the process. Hopes of a test of R at 82 are now put to one side. Sellers hit 61 before buyers show any interest in reversing the tide, and they are able to break the SL from the opening high, but then fail to make a HH after the HL. Instead, another double top is formed.

 

Selling urgency wanes and buyers show potential in defending 63 (see second cirle), and a test of the OL is quickly repelled (db) with a strong bounce off the low. But instead of following through the break of the supply line (see third circle), selling pressure takes over and buyers are done with 63.

Sellers now have no trouble taking price to the bottom of the TR.

 

The question is, should one obsess of over the various waystations that price takes when travelling through a trading range? After all the weakness displayed from the open, buyers took less time bringing price back to the mid-point than it took sellers to reach S from the open.

[DbPhoenix 42]

Did you prepare something to use as a map before the open?

 

Db

[pjohnm 10]

I had 82R 57S and 69/70 as mid, which were the same as the previous day, but did not consider the potential of the trading range stepping down, as hinted by the ovenight break below S.

[DbPhoenix 42]

Don't know what you mean by "trading range stepping down", but re your last question in your previous post, if you're wondering whether or not to be "obsessed" over the "various waystations" on the road from S to R and back again because of the ease with which buyers took price back to the midpoint, ask yourself why buyers had so little trouble doing so.

 

Db

[pjohnm 10]

The overnight made new lows and S appeared around 48. It had occured to me post event that we may be moving away from the old trading range to a new (lower) one, and to consider that sellers may not be so ready to let old R be reached i.e, the MP has potential to become R of the next trading range.

[DbPhoenix 42]

Depends on how you look at it. When I reviewed the chart this morning, I saw a downdraft from 95 to 48, a rally to 82, then a sideways move which eventually became a TR between 58 and 82, more or less, with a midpoint of 70 (keeping in mind that these numbers and lines are exact for the sake of efficiency in posting and discussion but are actually somewhat flexible). When the downdraft continued to 48, this was a "matching move" to the move from 95 to the TR. The midpoint of the complete downmove and the midpoint of the TR within are therefore the same: 70 (this was also the mp of the hinge from Tuesday).

 

That, then is what you have to work with. There is a decline from 95 to 48. Price may hit the top of that decline and fall or it may hit the bottom of it and rally. Or it may move within the TR between 58 and 82, finding R at 82 or S at 58.

 

By the time the market opened, however, price was still futzing around the midpoint. I said in chat that bounces off midpoints from the extremes are generally more successful than trades that start there, partly because the midpoint represents a 50% pullback from either extreme and partly because failure to get through it has more effect than failure to get through any other level besides the extremes. However, given the fact that buyers were trying so hard and having so little success in moving price past the midpoint, one could, if he understood and was willing to assume the risk, short that second effort. This would have taken him to S at 58, a decent trade.

 

Note, however, that the result of a short off the second attempt to get through the midpoint at 1022 makes the earlier move from 72 to 58 look downright pitiful. This is not to say that one could predict the extent of this later move down (though the midpoint of the next TR down is 2590), but the effect of the failure to cross the midpoint when coming from the S extreme of the TR is considerably greater, carrying you at least to the bottom of that original downmove at 48, before plunging further.

 

The macro TR, then, acts as your frame, and you will trade much more calmly if you work within that frame. There may be little consolidations and congestions and feeble efforts at rallies and corrections along the way, but the S and R and MP remain until they are decisively violated, and even then they may re-exert their influence. Note, for example, how price finds R at 58 after it's dropped through, then eventually makes its way to 48. Once there, if there's no selling climax, you have a new ballgame and must improvise.

 

Db

[pjohnm 10]

Don't know what you mean by "trading range stepping down", but re your last question in your previous post, if you're wondering whether or not to be "obsessed" over the "various waystations" on the road from S to R and back again because of the ease with which buyers took price back to the midpoint, ask yourself why buyers had so little trouble doing so.

 

Db

 

Given we are in a TR, I suppose it is perfectly reasonable to expect the majority of trades to happen around the MP and that I should not be surprised by quick changes in direction at the extremes. Or maybe sellers had exhausted themselves on the way down, and buyers now had little in their way. Looking at the upwave differently, maybe its an upward sloping hinge (shortening uphrusts), ready for the next stage in the decline.

[pjohnm 10]

Depends on how you look at it. When I reviewed the chart this morning, I saw a downdraft from 95 to 48, a rally to 82, then a sideways move which eventually became a TR between 58 and 82, more or less, with a midpoint of 70 (keeping in mind that these numbers and lines are exact for the sake of efficiency in posting and discussion but are actually somewhat flexible). When the downdraft continued to 48, this was a "matching move" to the move from 95 to the TR. The midpoint of the complete downmove and the midpoint of the TR within are therefore the same: 70 (this was also the mp of the hinge from Tuesday).

 

That, then is what you have to work with. There is a decline from 95 to 48. Price may hit the top of that decline and fall or it may hit the bottom of it and rally. Or it may move within the TR between 58 and 82, finding R at 82 or S at 58.

 

By the time the market opened, however, price was still futzing around the midpoint. I said in chat that bounces off midpoints from the extremes are generally more successful than trades that start there, partly because the midpoint represents a 50% pullback from either extreme and partly because failure to get through it has more effect than failure to get through any other level besides the extremes. However, given the fact that buyers were trying so hard and having so little success in moving price past the midpoint, one could, if he understood and was willing to assume the risk, short that second effort. This would have taken him to S at 58, a decent trade.

 

Note, however, that the result of a short off the second attempt to get through the midpoint at 1022 makes the earlier move from 72 to 58 look downright pitiful. This is not to say that one could predict the extent of this later move down (though the midpoint of the next TR down is 2590), but the effect of the failure to cross the midpoint when coming from the S extreme of the TR is considerably greater, carrying you at least to the bottom of that original downmove at 48, before plunging further.

 

The macro TR, then, acts as your frame, and you will trade much more calmly if you work within that frame. There may be little consolidations and congestions and feeble efforts at rallies and corrections along the way, but the S and R and MP remain until they are decisively violated, and even then they may re-exert their influence. Note, for example, how price finds R at 58 after it's dropped through, then eventually makes its way to 48. Once there, if there's no selling climax, you have a new ballgame and must improvise.

 

Db

 

Thank you for taking the time to explain this in such detail. I mentioned yesterday that putting the market into context before the open is where I feel the need to focus. Looking at where price has come from is not something I have even considered. I find it hard to believe that even after reading so much of this forum that something so basic has passed me by.