Trading The Wyckoff Way

[pjohnm 10]

From the 07 Nov to 15 Nov , a new supply line could be drawn to track the increasing pace of downward momentum. Given that the trend channel had been broken, it was possible to view this as an oversold condition i.e, a fall so sharp that a correction would likely follow.

 

The beginning of the correction occured on the 16.11.12, where it is notable that buyers were able to create a HH on large volume, and in conjunction with support established in July.

 

Crucially though,price is still below the new sl, so we await to see if there is any follow through.

 

21.11.12

Price has rebounded sharply from the lows and we have more evidence to support the theory that a selling climax has taken place, and that selling pressure is weakening (failure to create LL's + falling volume).

 

We are still of course in the downward trend channel so there is no reason for those who are short to exit, but should a higher low and break of trend channel be created, be aware that that would represent buying pressure overcoming supply.

NQ 16.11.12.pdf

NQ 20.11.12.pdf

[Niko 10]

Here is my analysis for WTI

 

The change in contract messes around with all the levels, but I think I have adjusted them all correctly.

 

The top of the channel was poked 2 days ago, but prices found R at 89, the volume increase in yesterday session along with a close below the MP of the day was a weakness sign that took us back once more inside the TR.

 

If this weakness confirms itself and the market can break below 86 we could expect 84 and 82 to provide S. If buyers manage to make a comeback above 86, then 88, 89 and 90 would provide R. In this second case, the channel break would be confirmed and we should be on the look out for a HL in order to define a new DL.

 

[tupapa 10]

I know most of you guys are still in the "Observing Price Movement" but have any of you moved to backtesting or forward testing?

 

I am interested not in what you are testing, but more in the process. It seems like most of us are learning the same thing, which is trading of support and resistance. Have you guys tried testing what db outlines here?

 

I think more than testing a particular pattern, we should be testing how the market responds to S/R and our management strategy don't you agree? I don't see much point on testing a pattern in isolation.

 

For instance, I trade the bund, so if I want to trade "in Foresight" of Support and resistance, I would go back to the 22-11-2011, and start testing my plan.

 

I draw my levels on the 30m chart, and use replay to find my reversal pattern, but only at the pre-defined levels right?

 

Lets assume I am only trading doble tops on the 1m chart, of S/R from the 30m chart, in this case, I move my charts back to the 21st of November, plot my levels on the 30m and I would enter at the rejection of D, that would be it for the morning.

 

Then I would move on to the 23d, and do this for the remaining 11 months of the year.

 

What do you guys think? Are you doing your forward testing in this way? I know it will take days to go through a year but it seems the only way to test this sort of thing!

 

Did you go through the same process before trading in foresight with real money Db?

 

All the best and Happy thanksgiving!

[tomerok 10]

I know most of you guys are still in the "Observing Price Movement" but have any of you moved to backtesting or forward testing?

 

Yes, I started backtesting a month ago but stopped after 6 month of data.

 

I am interested not in what you are testing, but more in the process. It seems like most of us are learning the same thing, which is trading of support and resistance. Have you guys tried testing what db outlines here?

 

I think more than testing a particular pattern, we should be testing how the market responds to S/R and our management strategy don't you agree? I don't see much point on testing a pattern in isolation.

 

I started a year back, plotted S & R just as i would have done in RT, long to short term.... S&R, so if i had to go even backwards i did that, then i looked for my defined setups near those S&R, updated the S&R if needed and moved forward.

 

For instance, I trade the bund, so if I want to trade "in Foresight" of Support and resistance, I would go back to the 22-11-2011, and start testing my plan.

 

I draw my levels on the 30m chart, and use replay to find my reversal pattern, but only at the pre-defined levels right?

 

Lets assume I am only trading doble tops on the 1m chart, of S/R from the 30m chart, in this case, I move my charts back to the 21st of November, plot my levels on the 30m and I would enter at the rejection of D, that would be it for the morning.

 

Then I would move on to the 23d, and do this for the remaining 11 months of the year.

 

What do you guys think? Are you doing your forward testing in this way? I know it will take days to go through a year but it seems the only way to test this sort of thing!

 

I chose to test my setups in 2 steps, the traditional backtest as i described above and documented the results on spreadsheet.

the 2nd stage will be replaying 2 random days each week, and taking trades "RT" on the same data (1 year back), this way i can confirm (or not) the stats..

 

i'm also trading the setups in RT and keeping record of the stats..... for further comparison

 

I once read somewhere that you should take into account 30% margin of error between backtested results and forward tested results, i dunno if it's correct, but i hope the path i chose will give me a better view or understanding on the actual expectancy of my trading plan.

 

as i said in another post, i found my stats of the backtest too good to be true and decided to stop that process and refine my setups, another thing i realized is that i should minimize the number of setups and test only 3, if i choose to add to my arsenal another one later on than i would do the whole process again for each setup i add.

 

it's a tedious task but necessary.

 

Happy Holidays..

 

Tomer

[Niko 10]

 

I think more than testing a particular pattern, we should be testing how the market responds to S/R and our management strategy don't you agree? I don't see much point on testing a pattern in isolation.

 

 

Tupapa, first of all welcome back, haven't seen you in a while.

 

In the "observation mode" you are supposed to discover those patterns that precede price movement (DT and DB, LH and HL, climaxes, etc), if those patterns occur far away from your s/r levels it can be because you are not drawing the pertinent s/r levels, because the market has found S/R out of the blue ( which can happen) or because there is no significant interest but anyhow the price movement draws that particular pattern.

 

The problem is that you dont know which is which in rt and really dont have time when trading to do so, and anyway you are supposed to make a choice about buying or selling. This can drive you crazy and fill you with doubt, and finally contribute to your tuition payment.

 

So, if you focus on your s/r levels, you at least have the clarity that price had found interest at that particular level and will not bother with the ebb an flow of prices outside those levels. I guess one could take every dt or db, but the ammount of whipsaws would eat you in commisions alone, focussing on those that occur around s/r you will give you a higher probability of being shot away from the potential congestion area that ussualy forms around s/r levels and will also give you a very narrow stop loss compared against potential profit, but most important of all it will look like something that you have previously catalogued and tested hundreds of times and this will give you some degree of probabilistic certainty that will also provide the peace of mind requiered to avoid doing something stupid outside your plan.

 

Well, those are my two cents, I am not an expert just a green newbbie, but those are my thoughts and I hope they help.

 

Ps, i know you dont trade the nq, but you should definetly come back to the chatroom, that is the only place where you can combine the possibility to ask questions and the opportunity that those questions come up because you are watching the price move in rt. As i have said before i like to trade oil, but watching the nq move for 90 minutes and being able to participate and get feedback has greatly improved my ability to spot opportunities in oil as well.

[Gringo 10]

Price is approaching the top of the trend channel. The next potential resistances are around 64.5 and 65 but we simply observe where price may decide to turn if at all.

 

The upside move has been reasonable and we're close to finding out whether demand can keep this going or not. A sign of strength would be for price to go above the trend channel and stay out of it for a few days and then retrace down slowly. Price poking above for a brief time and then dropping heavily would indicate weakness. Inability of price to go above the trend channel also would indicate weakness.

 

So far the intermediate trend is still down with price having a normal reaction after a drop. We have reduced holiday trading hours today. It is in my opinion a bit easier to manipulate the markets when there is less participation.

 

Looking at the 2 hr chart it appears that price has some strength to go higher as it's resting under 64 with higher lows.

 

 

 

 

Gringo

[Gringo 10]

RIMM has been going up strongly. The demand line is intact and there hasn't been much sign of slowing down. A lot of it now is dependent on how the general market behaves. If serious weakness develops in the market then individual stocks would find it harder to hold their grounds.

 

Keep an eye on a change in momentum, by observing the the demand lines. This long position in RIMM is going against the trend and as a result is fraught with serious danger. Due to this inherent risk involved keeping stops closer and staying alert to demand fizzling is prudent.

 

While US market were closed, north of the border in the Canadian markets RIMM propelled even higher. I am expecting that would cause a gap up in the stock today when US markets open but we'll have to see.

 

In summary, keep your eyes on the demand lines and any development of weakness in the market and the stock and stay alert to exiting. Were the trend not downwards as exemplified by the downward sloping trend channel in Q's, holding onto RIMM would have been easier and reasonable considering such a base of accumulation.

 

This stock does look like a textbook Wyckoff stock with months of accumulation and leading to a markup as the market rebounded from the oversold condition. It is a bit tougher for those who have accumulated large number of shares to exit easily.

 

In case the market doesn't seriously weaken expect more rise and eventually an orderly distribution where stock may stuck in a trading range after this markup.

 

In case of the market fizzling fast there's a possibility of an outright dumping of the stock or it forming a trading range.

 

In case of the market retracing at a slower pace, the stock might drop a bit with a possibility of a subsequent rise as the market finds its footing.

 

We don't know in advance which scenario might take place or if another scenario might materialize in reality. To avoid paralysis we stick with following the price, which so far is pointing up, and staying alert to any signs of weakness in both the market and the stock as they develop in real time.

 

 

 

Gringo

[abc163 11]

Price is approaching the top of the trend channel....

 

Gringo

 

Gringo,

 

What tools did you use to draw those comments with multiple arrows? I can use Libreoffice but the effect is not so good as yours and not that convenient.

 

abc

[Gringo 10]

I use stockcharts and it's a standard feature. CTRL +

Mouse click.

 

Gringo

[abc163 11]

I use stockcharts and it's a standard feature. CTRL +

Mouse click.

 

Gringo

 

Thank you very much!

 

abc

[Gringo 10]

I would like to point out the benefits of doing one's own analysis after having done it for some time consistently. Although, some may find my analysis helpful, it is me who is the real beneficiary of all this effort. Just the mere act of using a set of time tested principles over and over again seems to be solidifying the concepts in my mind. Perhaps it is true that we are what we repeatedly do.

 

Sitting back and passively learning the material has its value, but there comes a time when one needs to make a decision. Without a decision there cannot be any trading or speculating. What better way to solidify correct thinking and subsequent decision making than to daily subject one’s analysis for scrutiny.

 

There is going to be no hiding and the ego is going to resent receiving critical blows; but it is these blows that will eventually lead to improvement in analysis, and in leveling of the ego, for a smoother and less bumpy ride down the road.

 

The analysis of a situation and a proper entry/exit criteria are two separate things. Both require individual attention and methodical training and testing. The analysis identifies the available possibilities, whereas the entry/exit criteria determines how to take advantage of these possibilities while limiting the risk.

 

Below is the analysis of XLF and the comments are in the charts.

 

 

 

Our efforts and money might be better served by avoiding this sector for now. If someone has differing views I would be more than happy to hear them.

 

Gringo

Edited November 25, 2012 by Gringo

[PrymeTyme 10]

I would like to point out the benefits of doing one's own analysis after having done it for some time consistently. Although, some may find my analysis helpful, it is me who is the real beneficiary of all this effort. Just the mere act of using a set of time tested principles over and over again seems to be solidifying the concepts in my mind............

 

Gringo

 

 

very good !

 

i like the intro to your post ..

 

ok.. now lets take into consdieration my POV .. and some volume..

 

start with the daily TF .. we can see that i drew in some boxes and a PPZ and with PPZ i mean pivotale price zone .. wich actually means a level where resistance and support kinda flipp flopped arround.. ie. this level acted as res. and supp. several times..

we notice that we make some HH and HL torwards the psychological level of 16..

ie torwards a pot. res..

 

i for myself have whitnessed such scenarios manny times and its acting looks like

a springboard behaviour.. where supply gets absorbed torwards resistance,,,

 

we also notice that we droped below a support level (box) and traded back above it..

within a small interval... wich could indictate a temp. shakeout...

 

sofar the bullish symptoms are intact.. and strenghtended.. on the daily TF

 

however a reaction on the MP of the box.. could be considered weak.. if we break support again..

 

OTOH a reaction (bounce) of the support level could be considered strong...

and may be the first clue of absorbtion @ resistance....

 

on the weekly TF .. we take into consdideration volume...

we have the evedince of a small seling climax. wich refuses to trade below a MP and formes a pot. HL ... the following rallie bar.. occures on small vol. indicating a lack of supply .. (effort vs. result) .. wich is an indicator of supply was absorbed within the SC at the time beeing.. ..

 

thusfar.. this instrument shows signs of strenght.. and this at a critical level..

we may whitness a springboard scenario...

 

but taking action here on the longside.. would only be justified after a retest of the last MP of the box.. or even the res. of that box..

 

but i wouldnt think of shorting this.. atm.... as the signs of strenght are still in play...

[tupapa 10]

Good to read both your analysis, I have a slightly different view on how to play this.

 

Starting with the macro: There was a strong down-wave from 2007 to 2009, which accounted for a 32 point drop, this was considerable. Price then climaxed around 6 and spent 3 years trying to rally. A normal correction would've taken us to 22, however, sellers are coming in repetitively at 16.

 

This to me shows strong weakness and is a reason to look for shorts and a test of the 2009 lows.

 

On the 2 year chart, the Tl is intact but price is clearly struggling, as the Oct high was only marginally higher than the April high, and lower than the Feb 2011 High.

 

Finally, on the daily price made a triple top around 16.25, broke the Dl and made a LH and a LL. My preferred entry (for a short) would've been the double top in early November, after the break of the Sl (shown by the grey dot on the chart).

 

As things stand I see no reason to consider longs, I would now wait to see how the current rally develops, anticipating a LH, which could be a great place to add or initiate a short position.

Edited November 26, 2012 by tupapa

[Niko 10]

We have finally broken the down trend decisively and are outside of the channel. Price is has found some R around the 640 area.

 

 

Given the fact that there has not been any major RET during the rise, one would expect some correction during this week so that a HL will make possible to draw a DL.

 

If 643 is crossed then we should expect R at:

 

• 690
  
• 737
  
• 762
  
• 786
  

 

If 643 holds and send prices down again then S should be expected at:

 

• 593
  
• 578
  
• 514
  

[Gringo 10]

Tupapa,

 

You are right. There is weakness in XLF and if price turns down from here it might be a profitable short opportunity.

 

The reasons for me in choosing to avoid this ETF altogether are below:

 

Reasons for avoiding a short:

1) XLF is in the early stages of it's weakness and has recently broken the DL. If you notice though the red trend channel is still up owning to the HL and HH that's been going on. You are right it could be the early stages of a short due to a break in DL but the longer term due to the upward trend channel is not in alignment leading to a conflicting picture.

 

2) The drop from 16.4 to 15 represents a 8.5% drop. Although it is a reasonable drop the Q's in the same period dropped from 70.5 to 61.3 for a 13% drop. Therefore, in terms of weakness XLF is not the weakest hence the reason of me choosing to avoid it as a short.

 

Reasons for avoiding a long:

1) 16 has provided serious resistance to the upward movement. We are very close to the same 16 level and the upside potential from here is limited. If the 16 level is decisively broken I might come back to re-asses the possibilities on the long side but until that happens longs are a no go.

 

Time frame:

1999 to 2012 is over a decade long period. Although this could provide an opportunity to make money to the downside, my trade horizon is days to week but not years. Waiting for that long while there may be better vehicles out there isn't my style.

 

 

Notice also that price never went down for a test and after Jul 2011 to Oct 2011 lows started to make HH and HL showing if not strength but at least a modicum of lack of weakness. This time I am not comparing XLF to other ETFs to see whether it went up slower than others. What I am pointing out is its own price behaviour refusing to continue downward when it had the momentum. This lack of downward progress shows lack of weakness hence another conflicting signal against initiating a short. (The red uptrend channel tells essentially the same story).

 

It doesn't mean money can't be made by shorting it. Certainly someone with your trading skill set can find opportunities to short and even go long afterwards and still make money both ways.

 

The risk for my personality is greater than what I am comfortable with, especially in the presence of other opportunities. Therefore, in the presence of conflicting signals and greater than desired risk I chose to avoid XLF altogether.

 

Gringo

 

p.s. Another point of interest is that XLF appears to be in a trading range between 12 and 16 for the past few years. It's not a very well defined range but may be of some interest for those who looking for trending environments for trades instead of range bound.

[Niko 10]

Right now prices are moving around the 30-25 S/R level within the context of the uptrend that started on the 16th.

 

 

If Prices manage to break below 25 then S would be expected at::

 

• 16
  
• 07
  
• 97
  
• 87-84
  

 

If the TL holds and the trend keeps on going up, then a break above 30 would men potential R at:

 

• 37
  
• 45-49
  
• 60 MP of the oct Nov TR
  
• 67
  

 

Note: The channel was traced from the 16 but I have trimmed off parts of the chart so that only the areas of interest appear visible.

[boru 10]

price is currently trading in a TR ( 15 min) 23.75-26 to 31. if price breaks out to upside there is R at 38-40 and to the downside a break of support could see a drop to 07.

[PrymeTyme 10]

Good to read both your analysis, I have a slightly different view on how to play this.

 

Starting with the macro: There was a strong down-wave from 2007 to 2009, which accounted for ...........

 

 

 

 

Aggree that the actual rallie doesent look strong per se, and i would agree that it would look weak ,.but only when we would trade into new high grounds on a uptrend.... and we have a lack off buying interrest to the upside.. hence the weak upside progress...

 

 

but what i take into consideration here is that we trade torwards Res.(location) but we make higher highs (slightly) and higher lows.. yes the vol. is dimishing.. but i wouldnt consider that weak at a pot. resistance level... the bears need to show there hands.. now..

 

and thus far .. a springboard is in the making.. i also would only consider a long at a break out + retest to the upside..

 

look how price is preparing itselff for the next move.. and i still say the symptoms are strong..

 

 

as the first HL is off a former support of a big consolidation...

and teh actual HL( if it holds ofcourse) would be on the MP off that conso.

 

thats actually all signs of a springboard in the making. we dont react that hard off resistance.. and price has a rather low effort to rallie...

 

also notice that volume.. increase on the Lows but the important levels hold thusfar..

 

[pjohnm 10]

Support somewhat easier than R to identify this morning. The downtrend was broken on Friday, albeit on light volume due to the holiday.

 

The uptrend has since passed the mid point of the downtrend (2588) and 2630/1 looks important for the open.

 

S at 2623, 05 / 00 & 2595

 

R at 2630/31

 

Above that, price could halt pretty much anywhere all the way to 93

NDX 23.11.12.pdf

[DbPhoenix 42]

There are basic Wyckoff principles that should not be overlooked when evaluating charts such as these.

 

1. Has there been a selling climax? Has it been accompanied by or preceded by a volume climax?

 

2. Has there been a test?

 

3. Is whatever it is on the springboard for an advance?

 

If the answers to these questions are "yes", then there is no short. One must be careful, though, to define "springboard". If one is defining it in terms of geologic time, then there is a springboard here. However, one must also consider Mamis's three types of risk, one of which is time risk. If one attempts to trade this instrument, is he tying up his money in something sluggish when his capital could be put to better use in something that actually moves, i.e., opportunity cost?

 

Db

[Gringo 10]

Does the rising of price above a downward sloping trend channel take it into an 'overbought' territory? or is the term 'overbought' reserved for the price going above the upward sloping trend channel?

 

I am reading about this in W course but have not finished the whole trend section. I am sure the answer is somewhere.

 

Gringo

[Niko 10]

Today was a low volume, but interesting day, as one has a chance to test the W way in a very harsh environment (choppiness).

 

 

1. The day started above the 30 S level that was identified in the premarket, after holding during the open, lower tops gave a bad signal for longs, as sellers were managing to keep buyers at bay.

 

2 Around 9:36 sellers managed to break below 30, but then their advance was marked by increased interference from buyers, until prices reached 26.

 

3. At 26 buyers came in strong and managed to take prices again above R at 30. See the speed of the movement and how there was no pullback until price reached 31, then buyers entered again with strength until 35 was reached and from then on the advance was more difficult until buyers finally reached 37.

 

4. Sellers first attempt to take prices down was confirmed at the DT at 9:55, but it was short lived and buyers came in again with strength at 36.

 

5. At 39, buyers lost their impulse and sellers started to take the market down, at 10:00 the first LH was indicative of sellers control of the market, by 10:04 the third LH was sending signals that buyers had given up. After S at 37 was broken and had become R prices started to go down with difficulty, but this behavior changed around 10:10 when sellers started to move with ease to the downside in each new down wave.

 

6. At the 30 S area buyers came in fast making a V reversal that managed to take prices towards R at 37 very fast.

 

7. At 37 buyers were not able to make a HH and a DT gave signal that something was wrong with the bull side, then sellers came in very strong, in fact stronger than in the previous occasions and took prices to S at 30 after 11:00

[40draws 10]

This thread sure has developed since I was last here - I went searching for where I left off and I can't believe how many posts I had to go back through to find me!

 

I've been working at working and working at trading. I am now a few weeks away from the big change. While I had originally planned to retire from my business completely and to rely upon trading as my sole means of support, it looks like the best I'll be able to do, at least for the first six months of 2013, is to "flip" the two activities in terms of time and priority. Right now, I work full-time and trade part-time as my my work schedule allows. Starting in January, my main prioirty will be trading, and I will gradually decrease the time committed to my current trade until I can phase it out more or less completely. This is due to my desire to preserve my good relationships with my past customers than financial considerations. I enjoy my trade, and if I can reduce it to a hobby status, albeit a paid hobby, that would suit me fine.

 

Good to see you Db - your book has been a real eye-opener - Thank You!

[Gringo 10]

Good to see you back buddy. It's always a pleasure to see a comrade return back to the nest. Seems like you're very close to achieving your goal. I haven't seen anyone become proficient in such short a time. It is seriously quite impressive.

 

Take care,

 

Gringo

[Gringo 10]

UUP the US Dollar Index looks weak. It broke the demand line and was unable to go up much and started to weaken. Weakening dollar might have implications for overall currency markets.

 

I have included the EUR/USD from the forex to show the weakening dollar and subsequent rise in EUR/USD pair and a drop in USD/CHF.

 

It's a weekly analysis so keep in mind the time horizon from weeks to months.

In case conditions change I would attempt to bring this up again.

 

I am practicing my skills on the foreign exchange markets and don't have much experience with them.

 

 

 

 

 

Gringo

Edited November 27, 2012 by Gringo