Trading The Wyckoff Way

[tomerok 10]

Here's my journal for today

WHITE are RT notes, YELLOW are my post analysis notes

 

Tomer.

 

[Gringo 10]

Update for RIMM. The hinge has broken to the upside. This is as close as it gets to getting a tip before the event.

 

Thank good old W for this.

 

 

Gringo

[Gringo 10]

After the 2008 selling climax study, I am attempting to raise some questions regarding the current environment. As Db, had pointed out the volume has been paltry during this price drop; what I had failed to grasp was how great the reduction in volume actually was. Using the weekly intervals allowed for an easier comparison of current volume levels with those of the past and the difference is simply put like night and day.

 

Having this broader perspective about relative condition of the volume as compared to previous intermediate term climaxes made it a bit easier for the naked eye to readily see the differences. Please keep in mind this is all hindsight analysis, hence, some liberties were taken in colour-coding the areas deemed significant which in real time would not have been so obviously clear cut. An attempt was made to make this accessible to those who may not be steeped in price/volume behaviour analysis as taught by Wyckoff.

 

The focus here mainly has been the selling climax, mainly to identify and remind ourselves the behaviour inherent in price/volume action when an intermediate term bottom is reached. So far the price has been dropping without a significantly identifiable rise in volume. This is indicating that demand hasn't bothered to halt this drop or attempted a significant resistance so far. In terms of price behaviour this would give the edge to the supply side. Now it must be borne in mind the shorter term price rises are not uncommon as even the supply needs a breather now and then.

 

Could it also be that the volume won't be giving us significant clues regarding intermediate term bottoms this time around? I believe it is possible, but as tape readers our primary focus is price and volume comes a distant second (my opinion). Nonetheless, we are still in an intermediate term down trend and volume might show up somewhere along the path.

 

Remember, as shown in the previous analysis of Oct 2008 bottom, volume might not exactly show up at the lowest price point. We need to be alert to the rise in volume throughout the down wave.

 

Previous studies done by our fallen comrade "erierambler" about volume of more than 80-90% of the average showing up regularly closer to bottoms may also be kept in mind. There are many ways to quantify the rise in volume, but for now just a significantly identifiable rise is what I am 'hoping' to see to give me a bit of a heads up.

 

 

Gringo

[DbPhoenix 42]

These charts could go in several threads, but since eyes have turned toward the eventual "bottom" in the markets, I'll put them here.

 

The first is an update to the chart I posted two weeks ago:

 

 

 

 

 

Those who don't understand basic technical analysis would most likely view all of this as a series of failures: price fell more than 50%, the support that the top of the last trading range should have provided didn't, the support that the midpoint of that TR didn't, the bottom of it didn't, the trendlines didn't. But to those who understand basic technical analysis, i.e., the relationship between demand and supply, that's the point. Supply has been in charge since the market made a lower high. Those trying to "catch the bottom" and failing to properly assess the imbalance between demand and supply would be burned again and again.

 

Most recently, price failed to reach the top of the trend channel. But so what? These are just lines. But the fact that price could not stage even so feeble a rally tells us something, again, about the imbalance between supply and demand. The fact that the decline in price has steepened tells us even more. And if by chance price rallies here and reaches the top of the trend channel after all, that will tell us something about the imbalance between demand and supply as well. (If one is new to the Forum and doesn't understand what it is that these movements are telling him, he can start with the Stickies.) If such a rally does take place, however, volume may not be as dramatic as one might expect since, so far, the dynamics have revolved around support and resistance.

 

This next chart backs off a bit to the more substantial trading range created last year. Those who understand what support and resistance are all about will recognize that this trading range is not inconsequential. But even they may have missed the fact that the midpoint of this TR represents a 20% decline.

 

 

 

 

 

 

Whether or not there will be "climactic volume" and/or a climax in price movement at this level remains to be seen. But the purpose of determining these levels, as you all know, is not to set up an automated buy but to tell one where to look for a buying opportunity.

 

Db

[Niko 10]

Here's my journal for today

WHITE are RT notes, YELLOW are my post analysis notes

 

Tomer.

 

 

Tom, great notes. Just 2 comments:

 

Did you test your setups?

I see that you take some of your trades away from your S/R levels, perhaps that is why you are getting some false starts.

 

I am not yet into trade design but some preliminary observations make me think that as long as the trade is started near S/R the probability of success increases dramatically and the r/r ratio also improves.

[Niko 10]

My analysis for Friday.

 

 

1. The market started the day with a break below S at 23, by the open the sellers were taking a break around 22 but then they kept moving prices down all the way to 12.

2. S was expected at 14, and although a small pause was provided by buyers at that level, It was until 12 that buyers started taking control by making the first decisive upswing since the open. Prices then congested around 14, but this congestion was short lived and by 9:35 buyers managed to get catapulted from 14 on a sharp increase, although sellers came in with strength they did not manage to reach S, and that was a sign of strength on the part of the buyers. By 9:40 buyers were losing steam and the upswings were less and less decisive, after reaching the opening congestion area around 22 where sellers took a break, sellers took again things into their hands, providing a sharp decline.

3. After retaking control, sellers manage to break through S without problem, and 14 became the R that was validated by the RET at 9:44. After failing to reach S by 9:46 buyers tried to break above R, but they failed again and sellers came in with difficulty at first, but finally managed to take prices near S at 10.

4. Sellers were stopped by demand that came in at 11, but buying pressure was not enough and R could not be reached marking again a LH.

5. This time 10 did not proved to have any demand left and sellers managed to take prices all the way to 05.

6. I did not anticipated S at 05 but then price does what it has to do not what we expect it to do and we must adapt. After a small congestion, buyers took control of the market.

7. Buyers broke through R with ease, but failed to make a HH.}

8. After sellers took control around 10:00 only a small amount of S was found at 10, it can be seen how decisive sellers were by the smoothness of the downswings until 10:02 when sellers lost momentum and a new TR was defined.

9. Prices found S at 02, and a new TR was formed around 05 and 07, buyers were trying hard to keep the market up, as can be seen in the zigzaggy upswing from 10:05 to 10:11, then it can be seen that the ones with issues were the sellers who did not have it easy on the way down to 02. By 10:13 sellers had depleted their strength and did not manage to make a LL a sign of strength on the part of the buyers, who came in making smooth rallies until R was reached .

10. The rally here was paused for a brief period by R at 10, and then the rally continued but momentum diminished.

11. By 10:17 buyers were exhausted and sellers did not have a problem for taking prices down.

12. The top of the 02-07 TR provided all the demand that was needed to keep prices from falling, and after a hinge was formed, the upside BO allowed buyers to finally reach R.

13. After R was reached, the pressures were balanced as can be seen from the up and down swings.

14. After a decisive move of buyers that took prices from 11 to 17, sellers manage to keep prices from rising and after a LH was formed , the market was again in the hands of the sellers.

15. The fight was now between 14 and 10, where 10 provided S and 14 R. A TB at 10 gave in to buying pressure.

16. Buyers did not manage to reach R and lost control before 11:00 when prices were once again around S at 10.

[Niko 10]

After a Rev after 11:30 on Friday, and a HL set before the close, prices are once again headed for the top of the TR.

 

 

At the time of this analysis 6:40 price is around 48, a zone of R.

 

If prices manage to break above 48, then the next levels of interest are:

 

60

72-76

84-87

97

 

If 48 provides enough R then the down move could find S at:

 

38-33

23

12

00

[tomerok 10]

Tom, great notes. Just 2 comments:

 

Did you test your setups?

I see that you take some of your trades away from your S/R levels, perhaps that is why you are getting some false starts.

 

I am not yet into trade design but some preliminary observations make me think that as long as the trade is started near S/R the probability of success increases dramatically and the r/r ratio also improves.

 

Hi Niko

I did not back tested them yet, i'm playing with them to refine the entry points

your comment is exactly what i have realized in the past days/weeks

 

i started back testing a few setups a month ago and the stats were way too good to be true, (comparing to the RT trades taken.)

 

don't be confused by the trades taken, they are sim and taken only because i feel i learn more if i execute my thought in RT.

 

Tomer.

[Bern 10]

These are the levels I will be initially watching for today. I could add something if there is significant price action prior to opening of regular session:

 

2585-87

2573-74

2552-56

 

2538-40

2534

2523

2510-13

 

 

[tomerok 10]

On Friday price tested long range lows and failed

Price have cleared 2 days TR and is back in long range DL zone again

Currently price at hinge MP from 14/11 and testing medium range SL

 

Areas of interest

 

2607

2597

2584

2572

2555

2539

2534

2526

2513

 

Tomer

 

 

[boru 10]

After the open price has moved mostly higher trading through R at 2540 then using 40 as support. Price is showing good buying pressure early breaking through 2551 and approaching 60 levels i'm watching 85,70-75,58-60 above and 40,26 and 14 below.

Edited November 19, 2012 by boru

[DbPhoenix 42]

Last week, we talked about "oversold" in the context of trend channels. In that regard, the following may be of interest:

On Friday, we discussed why we might be overdue for a short term bounce. That turned out to be accurate, with a modest bounce starting later in the day. If Futures are any indication, we are going to be continuing that move further today, the start of a holiday shortened week.

 

I rarely venture into these sorts of market calls, because a) I am unconcerned with trading over the course of days and weeks; 2) no one seems to be especially good at it.

 

When I discuss these shorter term moves, it is because I am interested in potential indicia of a major change in trend. Otherwise, I try to keep my primary focus on quarters and years. Not coincidentally, that is the time horizon of our asset management clients.

 

Most of the commentary you will see today about the bounce will be Fiscal Cliff resolution related. Don’t believe it. The bounce is simply because markets became oversold enough that selling pressure temporarily exhausted itself enough to let stocks rise for a while. The old saw is no market moves in a straight line forever.

 

I find the much more interesting

meta-question

worth discussing: Why does it always seem that when markets become deeply oversold, politicians and the Fed seem to react? Are they closet technicians or is it something else?

 

Its something else: The most likely answer is that similar factors drive all these events simultaneously. Politicos note when markets are in a distressed phase; that shows up in all sorts of other psychological measures from Consumer Sentiment to Capex Spending and broad hiring trends. When markets go into freefall, politicians sit up and take notice. Even a milder correction of <10% such as we have had recently adds pressure to public officials’ decision-making behavior.

 

No, Bernanke is not watching his Bloomberg concerned about the 200 day moving average, nor is he watching the DeMark indicators nor doing MACD studies. But the same sort of pain that leads investors to capitulate and puke up stocks is also at work on decision makers. We saw that at work in March 2009, when both groups overreacted to the market collapse. And we are seeing shades of that now, with the reaction (and over reaction) to this pullback.

 

Sometimes, it is how bottoms can be formed (March 2009) or how we can set the stage for at least a short term bounce (presently).

 

No one wants to lose money, no one wants to get fired, no one wants to ruin their career or reputation. An angry Mr. Market scares the bejeebus out of lots of people — and what we get from that are poor policy decisions, and even worse trading.

 

 

Barry Ritholtz

And given that, the following may also be of interest. The midpoint of a trend channel can also provide support or resistance. It's a regression sort of thing. Note here than prices have tended to congregate in the lower half of the trend channel. This may or may not continue. But that midpoint is certainly worth keeping an eye on, given where we are.

 

Db

 

 

 

[Gringo 10]

Market is attempting a rebound. We are still in an intermediate term down trend and the trend channel is very much intact. The larger term trend that started the bull market from Mar 2009 is still up. At this juncture it's unclear whether the down move so far has been just a pull back in the larger bull market trend or a drop that signifies the initial stages of a bear market.

 

Since we have not witnessed a rise in volume or a buying climax, I am inclined to still not give credence to a full fledged bear market. More evidence is required to come to such a conclusion. Price behaviour is still operating on the higher high and higher low basis indicating the continuation of the larger term trend (see weekly chart).

 

In the mean time, we can still base our decisions on the supply and demand dynamics and continue to profit. Intermediate as stated earlier is down but price is staging a rally. The strength, depth, and sustaining power of this rally will give us some clues as to how serious the demand is in halting this drop. I keep brining demand in the analysis and not much supply because of the lower volumes in the Q's. Price dropping on low volume indicates demand not putting up a fight and supply easily pushing prices down. Had price been dropping with high volume I would have concluded that supply is overwhelming demand which isn't the case this time around, it's just the absence of conviction in demand leading to the price heading lower.

 

Is the rally going to be based on supply just easing off and taking profits or demand asserting itself? As of now we don't know. I generally don't pay too much attention on volume but once in a while it does help to have some idea regarding the intensity behind the supply/demand dynamic.

 

Lets keep an eye on 63 and 64 areas for potential resistance to this price rise. I have also widened the lower TL line to keep price within the channel and for visual ease. SL has been left unchanged. It's the break of TL that would show the possibility of a change in trend and so far the TL is very much intact.

 

 

 

 

 

Gringo

Edited November 19, 2012 by Gringo

[DbPhoenix 42]

I have also widened the lower TL line to keep price within the channel and for visual ease.

 

Take care with this. You don't want to lose the OB/OS clues.

 

Db

[Gringo 10]

The price was drooping so much below the downward sloping DL that I wasn't sure whether it was the price so weak or the DL not at the right place. Will go back to the tightly hugging line in the next update.

 

Gringo

[Niko 10]

My notes for the day:

 

 

1. At the open the market was in an Uptrend that started at 7:30 and around the 60 S/R area, after the open prices held above S and finally managed to break to the upside at 9:35.

2. Prices rose with only minor opposition until reaching 64, but sellers withdrew fast and buyers managed to reach R at 68. Sellers took prices again towards the 64-62 area, but were rejected by buyers at 9:42. The decisiveness of buyers is evidenced in the change of character of the swings. Price rose again, small R was provided by sellers at 68 and after being turned into S at 9:48, buyers kept on climbing until reaching 72.

3. At 72 sellers were waiting to dump their contracts, buyers hardly managed to reach the level and then a LH evidenced their lack of strength.

4. After sellers took control of the market, buyers tried to scare them at 10:00 when prices reached 68 again, but sellers did not allow a HH and in their next attempt broke through S without much problem, turning 68 into R in the next RET.

5. 68 provided strong R and prices managed to reach the 62 congestion area, where S was formed (no line traced as it was not a level identified premarket.)

6. After failing to reach 60, buyers came in strong and broke 68 without to many sellers on the way.

7. Buying interest run out at 72, and sellers took control again taking prices to 68.

8. Buyers and sellers were willing to give a good fight for control of the market here, both managed to move freely in the TR, but by 10:30, it looked as if buyers were the ones with the upper hand as evidenced by HLs.

9. 72 provided little R and rapidly turned into a S, prices were propelled to the 76 R area, were sellers one again tried to stop buyers advance. This was the point where I pointed out a potential buying climax in the 1 min (chart not included)

10. After making a LH sellers looked like they had control of the market. But after 11 they did not manage to reach S at 72, activity was way too dull.

[tomerok 10]

Here's my journal for today

was a short session for me

WHITE are RT notes, YELLOW are my post analysis notes

 

Tomer

 

[DbPhoenix 42]

Whether it "hugs" or not is not necessarily the most important consideration.

 

You may have noticed that I draw my trendlines differently. That's because I want them to track behavior rather than conform to TL dogma. If they track behavior, then they'll tell me when that behavior has changed, which is what they're supposed to do.

 

I begin the top trendline at the lower high, since the lower high suggests the trend change, either sideways or down. If and when a lower low is made, the trend change, down, is confirmed, so a parallel line is drawn from the first lower low. Thereafter, any moves outside these lines presents an overbought or oversold condition, cause for a move back toward the mean, as today.

 

This is most recently illustrated by the chart I posted this morning.

 

Db

[Niko 10]

Prices are again at the top of the channel. Price is below the 594 R area, above the MP of the May Jul TR and still within a downtrend. If price manages to break above R it would also be making a HH today. Its next pause would be expected at 643, although sellers can run out of steam before reaching that mark. Perhaps as G noticed some post ago, RIMM was the tipping wizard with the pointy hat and the market will reverse or we might just enjoy another downswing and blame the fiscal cliff.

 

[Gringo 10]

Following Db's suggestion I have gone back to the trend channel drawn earlier. This time around I have attempted to draw the trend channel based on how he draws it. His method has less vagueness to and I like it this way.

 

Demand has been pushing the price up. We don't know whether it is new buying, short covering or any the many other reasons. What we do know and care about is that demand has been pushing the price up. Demand asserted itself around 61.4 area which is close to the support/resistance area as shown on the chart. Coupled with this area being a potential support level the price was also oversold (because of supply pushing price down even below the trend channel low).

 

Being below the trend channel low doesn't mean price is automatically supposed to go up. What it means is that the probability of price rise has become higher as supply 'might' be approaching a temporary exhaustion point. When supply is exhausted it is naturally easier for demand to take over leading to a rise in price.

 

Note also the delay in the rise. Price was below the trend channel for few days before supply was overwhelmed by demand. The down move and the subsequent reversal could be a potential climax, but it can only be confirmed in hindsight. Volume has been higher recently but not so high as to clearly be identified as being climactic.

 

Those who attempted to just take the price falling below the trend channel as a signal to go long without waiting for strength to develop had to deal with a nasty drop two days ago before price reversed to the upside. In real time this would have caused a serious heartache for those holding onto losing positions. Some may have dumped and bolted with losses, and others held in hopes of getting a rebound. The rebound did end up coming that day but it may not have - leading to even more losses and heartache. This is where a plan comes in handy for a person to know in advance under what conditions to enter, hold and exit.

 

Our focus now is on whether the demand is sufficient to materially take price above the top of the trend channel. A paltry poke above and then return into the channel would give a different signal than a decisive break above it with some holding power. Supply reasserting itself and taking price down again would also give information regarding the relative strength and weakness of supply and demand.

 

We have not resorted to news, or government planning, or what the world economy is experiencing so far. It certainly has not been a long enough span to convince the most ardent follower of news, but it has been long enough to at least give a glimpse into the possibility of trading without resorting to news.

 

I hope everyone is learning as much as I am from this daily analysis.

 

All the best.

 

 

 

 

Gringo

Edited November 20, 2012 by Gringo

[Niko 10]

The market has had a very steep upward run on relatively low volume, the upswing needed 600k contracts vs the downswing from the same price level that needed 1,7 million contracts to occur. This might mean that sellers are waiting before trying to take control again and are leaving the buyers alone to see where they can take this before the next plunge.

 

 

 

As for immediate action, price is still on the uptrend that started on Friday but that has been losing momentum, evidenced in the inability to reach the top of the trend channel, a recent poke below the TL is also a warning to be on the look.

 

Right now it looks as if the market was making a LH but appearances can be deceiving, so it is not prudent to imagine things just yet.

 

 

Levels in case the trend holds:

 

597

607

616

625

 

Levels in case the LH holds and the market breaks below 84:

 

676-72

60

48

38

[boru 10]

80-82 must hold to keep small uptrend intact. Larger downtrend is still in effect. There is a small TR at 82-90. If price breaks above 90 i'm watching 2607,2625 and 2656. If price breaks below 2580 (which is the mp of a large TR on daily chart) my levels below would be 76,70,61,50 and 39. Looks like air below 80 and most of these levels had reactions on or near them on 11/14.

[tomerok 10]

Price is back in long range down trend channel, almost near it's long range SL

Since we had so much selling pressure in the long term I'm not sure if we should anticipate price testing DL back again

Past days TL holds nicely

Overall game plan is buy up to DL area, and be on the lookout for R if price continue rising

If price show weakness , wait for TL break and LL to verify short direction

 

Areas of interest

2625

2618

2608

2597

2584-80

 

 

Tomer

 

 

 

[Niko 10]

Today was a particularly dull day, people have better things to do than trade, so I guess I will follow the herd for the rest of the week.

 

 

Of my premarket levels only 84 was touched (1), there was a Rev that came out of that level and managed to take prices to yesterdays high (3).

 

An interesting thing during the session was the hinge (2) that turned into a very boring trading range, I guess that without a very strict set of rules for entry one can easily end up losing a lot of money in this kind of market.

[tomerok 10]

Here's my journal for today

luckily i realized early it's not a very "nice" day and hold my horses.

 

WHITE are RT notes, YELLOW are my post analysis notes

 

Tomer