Trading The Wyckoff Way

[tupapa 10]

I have already finished the analysis for QQQ and S&P500. Contemplating whether I should wait for Tupapa to post his analysis first or just take the lead. Maybe I'll go play some ping pong to clear my head and then decide.

 

Gringo

 

Thanks for waiting Gringo

 

Here is my take on the S&P, I had a pretty heavy one last night and I have been suffering the hangover today so getting it done has been a proper challenge, and I'm sure it won't be one of my best analysis..

 

I am looking at this purely from an EOD perspective, looking for trades to hold for the long run.

 

 

On the monthly we are approaching the top of the TR, so a short at resistance is a possibility, but everyone knows this, so if you are going to make money, it is all about timing. The March 2000 highs are at 1550 and the 2007 highs are at 1576, so if we make a LH here (below 2007 highs) we would form a H&S top formation.

 

On the weekly the trend is intact and there are few signs of weakness.

 

On the daily the first signs of trouble appear:

-Firstly there is the break of the DL, which is nothing dramatic.

-Secondly and maybe more importantly, there has been a strong down-wave, after a very sluggish chop.

 

Now price is around 1515, the top of the most recent TR, which acted and support and is now resistance.

 

 

Some of my doubts are:

 

- Are we in an area that is close enough to the top of the TR to consider a short? This is a common issue with my trading, I know there is a level where I am looking for a reversal, but I don't know how close to it I should enter the trade. The fear of missing out also clouds my judgement when price gets close to S/R

 

-A part from the break of the DL on the daily and the volatile down-wave, I don't see much that would make me initiate a short from an EOD perspective.

 

Hence why I was wondering what DB was focusing on when he pointed out twice on Thursday, how good the S&P looked.

[tupapa 10]

NQ looks much clearer to me.

 

On the monthly there was a strong down-wave from 4800 to 800, that ended in 2002 and since then we've had a macro Upwave that has made a high at 2800, the exact 50% correction of the down-wave from the 2000 highs, so a down-trend continuation seems likely.

 

 

On the weekly, there is some weakness. The DL is broken and price is forming a textbook H&S pattern, I know Wyckoff isn’t about patterns, but most traders are, and they are all aware of this.

 

 

On the daily, price has spent the past weeks inside a tight Range between 2700-2753. At the start of February we pushed higher but buyers couldn't move price above 2786 and they got hammered, bears pushed price all the way to the bottom of the TR.

On Friday buyers came in again at S with strength, but they now have a lot of supply to go through at 2753, from everyone who bought into the Breakout of the TR.

 

 

If buyers can’t push prices above 2753, a short seems legit for all the reasons outlined above

[Gringo 10]

Awsome work Tupapa! Your hard work is beginning to show. I feel so happy.

 

:cheers:

 

 

Gringo

[DbPhoenix 42]

-

As for the S&P, it helps to maintain supply and demand lines. S&D lines often give notice of changes in trend and potential reversal, as in this case:

 

 

 

 

Depending on one's time zone, one may have noticed this roll-over:

 

 

 

 

In any case, if the correction continues, it may not reach 5% as expected, but 3%. If it goes past 5%, then 7% provides support, at which point price can rally and continue the uptrend.

 

 

[Gringo 10]

I'll post my understanding of the price based analysis (technical analysis). I am not of the opinion that having price targets for profit taking works very well. The only things I keep in mind are the support/resistance levels, supply/demand lines, trend, and volume.

 

Monthly:

The long term trend as determined by looking at the monthly chart is up. The red trend line is pointing up. Now this trend has survived a few bear markets in between. Keeping that in mind for trading purposes it's not the most helpful other than for identifying that a long at the lower ends of the red trend line around proper support/resistance levels has a higher probability of success. Notice the speed of drop and the duration when the prices tumble.

 

Monthly Chart:

 

 

Weekly:

The weekly chart shows the most recent trend and the breakout above the 65 area. Price was unable to continue higher and had a lower high, meaning demand was not sufficient to continue to upward trend. There's also a formation of a hinge (triangle) right above the support/resistance level. Notice also the red trend line that's still intact meaning the upward trend is still intact at least on a weekly basis.

 

Weekly Chart:

 

 

Daily:

We go closer still into the dailies to see what's happening at the daily level. Price appears to be weaker as it wasn't able to make a higher high after its trip to 70.5. Price only managed to come back to around 69. Nonetheless, price is holding above the 65 long term trend support/resistance level and at the same time forming a hinge. What this means is that the demand and supply are eyeing each other and one side may choose to push price either above or below the hinge. By that what I mean is a decisive breakout above or below the hinge level and after some retracement continuing it's course. One does need to know how a typical hinge behaves to take advantage of an opportunity like this.

 

Daily Chart:

 

 

What to do as a trader:

A breakout to the downside will probably break the red trend line on the weekly and also make this stock a likely candidate for further downward movement. A break to the upside although positive may still have limited potential due to the overbought area being in proximity. Reasonable area to stay extra vigilant would be the upper trend channels of the weekly or monthly charts. This stock does move quite in tandem with the overall market and any strength or weakness in the market will have a high probability of affecting its movement directly.

 

Gringo

Edited February 25, 2013 by Gringo

[tupapa 10]

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As for the S&P, it helps to maintain supply and demand lines. S&D lines often give notice of changes in trend and potential reversal, as in this case...

 

Db, in terms of anticipating a reversal of the daily up-trend, at what time do you start planning for this?

 

S&P all-time highs are at 1576 so would you say we are withing tolerance of Resistance, represented by the top of the monthly TR?

 

S/R are a zone, not a fixed price level so I often struggle with determining at what point price has is testing or rejecting, and at what point I should start looking for signs of rejection.

[DbPhoenix 42]

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I don't plan for anything; I just watch. The SPX has been in an uptrend since it extricated itself from its last trading range in Jan '12. After that, it's a matter of monitoring the waves and the trend channel. If the channel lines aren't parallel, that's an early signal that the trend has an expiration date.

 

 

[DbPhoenix 42]

An additional note: overlaying the above with the percentage pullback chart I posted last night, A 10% correction (+/-) would take us back to the last swing low.

[tupapa 10]

NQ looks much clearer to me.

 

......

 

 

If buyers can’t push prices above 2753, a short seems legit for all the reasons outlined above

 

 

This was posted yesterday morning and today the hypothesis was confirmed. Buyers just didn't have it in them to push prices above resistance and the down-wave that followed was notable.

 

Next port of call is 2703, if buyers don't hold this level there isn't much to stop price from falling to the MP of the most recent range.

 

 

 

Btw, Gringo, what happened with your S&P and NQ analysis?? I was looking forward to reading them!!

[tupapa 10]

The question here is whether we are at a level where going long seems appropriate. It is my view that perhaps it's better to wait a little bit until the SL is broken and price proves that the down trend is over. Yes, there is an old support around 150 but it must prove itself before we believe it's still there.

 

I find trading these commodities to be tougher. Their propensity to change direction on a whim is a sight to behold. If you notice on the daily, the gaps are too frequent and maybe trading the futures may be better than these gap prone ETFs.

 

In any case here's some analysis:

 

 

 

Focusing on price behaviour around 150 seems appropriate at this time. I am looking for a break of SL and then some test or show of some kind of strength before considering this a buying opportunity. There are those who may choose to enter at the first sign of climax but I've had my share of scares with that kind of an attitude, hence, caution on my part.

 

Gringo

 

p.s. Db, your campaign against the Fx is going to get intresting . Perhaps I'll write something about it later on.

 

Going back to gold Gringo, today we broke the SL decisively, so are you still looking at entering long on a test, like you suggested last week?

 

Does this confirm the preceding price action was a climax, and we can now anticipate a potential secondary reaction?

 

Are we within tolerance of support to consider a reversal?

Just some questions, feel free to share any that I might be in your mind

[goodoboy 10]

Hello DbPhoneix.

 

Its been awhile since we talked. I am still in ES trading (learning, making mistakes, modifying plan, etc.)

 

There was thread I read about trading Box price action. Can you point me to that tread?

 

My brain went dead lock on ES price action dismorning. I wasn't sure rather to short the top of trading or break below trading range, so I want to read on that subject. But now that I think of it, shorting bottom of range after breakout is the less risk.

 

Thank you,

[DbPhoenix 42]

The thread is here.

 

The discussion of it is here.

 

There isn't much discussion of ES.

[Perrin 10]

-

I don't plan for anything; I just watch. The SPX has been in an uptrend since it extricated itself from its last trading range in Jan '12. After that, it's a matter of monitoring the waves and the trend channel. If the channel lines aren't parallel, that's an early signal that the trend has an expiration date.

 

An additional note: overlaying the above with the percentage pullback chart I posted last night, A 10% correction (+/-) would take us back to the last swing low.

 

(I'm currently trading UK stocks but I want to start looking into futures, so here I go.)

 

My thoughts on what you said are as follows:

 

Is it that the channel lines start creeping closer together because there are less traders coming in who are willing to buy stock at the higher prices, so price is starting to struggle to get higher on successive upswings. This is indicating that a change of direction may be coming.

 

Generally at this point most people who wanted to buy have bought, and if there are no more buyers coming in to the market, then the likely direction is back down. If the price is just drifting sideways for example, perhaps at some point those holding stock may get spooked and start selling (which could start as a small amount then more and more as the new (perhaps temporary) downtrend snowballs).

 

I guess that if price does start to fall then it may gather momentum until a point is reached where less people are selling (or more buying comes in) and that's when the price falls will slow / stop / reverse and price might go back up again.

 

I don't suppose this is very hard to explain if a trader is really good at it, or has years of experience. I'm not very good at explaining what I'm thinking/seeing. Also one of my problems that I know of is getting in too soon (I sometimes find myself buying too early on the expectation of a trend change). So I am thinking “short” but perhaps I should be thinking “uptrend” until proven otherwise.

 

Sorry if the above didn't make that much sense but please tell me if you think I'm wrong (although that's what the market is for, I suppose). I guess we should look at the 1460, but more likely the 1400 level to see what happens there (price should go back up if the uptrend is still strong?) If it goes below 1400 then that certainly should indicate something might be amiss. The 1350ish level (the 10% retracement) may also be support but if price gets there then the channel is broken and that might be a sign that less people have been willing to buy at those prices which also indicates weakness.

 

I have huge respect for people like Db and those who are good at this who can explain it and break it down to a level that people understand. This has taken me hours. It is really complex, but Db (for example) is incredible at simplifying things that seem complicated. I'm not even sure I'm right, and it's scary to post stuff when I'm not totally sure what I'm talking about. (Come on Perrin, grow up, focus. Post this. If you're wrong you get better just by trying.)

 

A thought... what if price comes back to the 1460 level, rallies one last time (hard) up, breaks the uptrending line on the upside, spikes past the current high (a last push upwards), and then falls back & starts going into a downtrend. Is that a possibility?

 

Hang on... Just thinking about that... How many different things could happen?! How am I supposed to put everything that I think could happen into a post? What if price just kept rallying off 1450 for example, up, up, all the way up to the dotted trendline that Db has indicated on his chart? That would create an even bigger, longer term channel then, possibly indicating more strength longer term?

 

I started writing this today at lunchtime (I just checked the clock, it's gone midnight so in fact it was yesterday) I continued trying to refine it in the evening (and found myself adding more to it - I removed some references to places where I would buy & sell as maybe I shouldn't be thinking too much of buying & selling until I know how price will move at given moments. If I somehow manage to get the theory right then the buying & selling places will come naturally (hopefully))

[Guest Muir]

-

I don't plan for anything; I just watch.

 

 

 

:missy:

 

Excellent my good Sir, excellent.

[Guest Muir]

$INDU/GLD ($DOW/GLD) or, if you prefer, $SPX/GLD had it's biggest bar spike down since JUNE 2011 today.

 

Form 10:30ish on, all hell broke lose, you could feel in it the futures.

 

Last 3 days you could just sense it overnight and daily on the futures.

 

Fortunately, I was looking at volume and reaction.

If I had been using Market Profile (been hanging around there for a little while) I'd have had my ass handed to me at 3 standard deviations away from from the volume side of the profile.

 

Thank goodness of "Studies in tape Reading."

 

On a 2 year chart, it certainly seems that we are bouncing off to the range pointed out above.

 

I'd though we'd hit 1540-1545 but hey, 1554 on the 20th good enough.

 

I trade MGC futures, but GLD analysis is same. (YM:GC shows where the real trend is as they rotate between gold and spx/indu/nas)

 

I thought the move up should stall close to 1605-1607 (1596 as I type)

But gold is reacting very nicely to incessant talk of sequestration, furloughs etc. as it should.

 

This move looks for real.

[Niko 10]

In the case of oil, both. You're not likely to be able to "sit" on a trade for very long while you're in a giant hinge.

 

Got it.

 

 

It´s a chop minefield, :haha:

[DbPhoenix 42]

(I'm currently trading UK stocks but I want to start looking into futures, so here I go.)

 

My thoughts on what you said are as follows:

 

[and so on]

 

Two things to remember for now.

 

One is that the more what if scenarios you create in advance the better, as long as they are If:Then, i.e., if this happens, then I will do whatever. Creating scenarios in the midst of your trading will only confuse and probably paralyze you.

 

Second is that this is not follow the bouncing ball. These are traders trading, and through their trading they move price. Wondering about why is fun and interesting, but you never can be sure why people are doing what they're doing, largely because they don't know either. Therefore, from a trading perspective, the what becomes more important than the why.

 

Take this chart, for example, which is a repeat of the "channel" drawn above with space to the right:

 

 

 

 

Since so many of the "professionals" are expecting a 7% correction, it will most likely reverse short of that or plummet right through. One must therefore be prepared for anything. On the other hand, price may reverse at the demand line, and, if the angle of the sell wave is the same as the previous two, it will reach that line sometime around the beginning of April, which happens to be, ta-da, 7%.

 

However, the more people to whom this is obvious, the less likely it is to happen. Which is why one must "be available" to as many scenarios as possible.

[Gringo 10]

Going back to gold Gringo, today we broke the SL decisively, so are you still looking at entering long on a test, like you suggested last week?

 

It's a possibility. The test will determine what needs to be done. Also, note that just because I am doing the analysis doesn't mean I am also trading the instrument. I have my eyes on silver as well which had a stronger upside move today.

 

Does this confirm the preceding price action was a climax, and we can now anticipate a potential secondary reaction?

 

No. The break of SL doesn't confirm the preceding price action was a climax. Price goes up many times during a downtrend but that doesn't mean the previous low was a climax. Knowing whether it was a climax is something we realize in hindsight. As an example if the test is successful and price moves up after the test then we would start to think that perhaps it was a climax. And what if price goes up a bit after the test and in a few days drops and makes a lower low? In that case we may consider it a part of the climactic activity but not the lowest point in terms of price. It's the lowest point, the turning point, we are after to time our entries.

 

Are we within tolerance of support to consider a reversal?

 

Yes. I would stay alert here. If price fails after test we're so close to danger point that we could exit quickly. This minimizes risk. At times price needs to consolidate after such a steep drop before going up. It's not a guarantee that the rise is imminent.

 

Gringo

 

p.s. Fx is giving me headaches. I am not sure why whatever I am used to doing isn't working. The respect for S/R is a bit lower and the price gyrations a bit extreme. Maybe a bit more time to get acclimated to currencies might help. Db's warning is at the back of my mind.

 

Edit: For futures and stocks there was a procedure I followed, starting from just observing the price and then taking it one step at a time to Analysis -> Setup -> Entry/Exit. I haven't gone through that process for Fx and perhaps it's the reason I feel like floating in sea without any reference to the land.

Edited February 26, 2013 by Gringo

[Gringo 10]

Here's a quick analysis of silver (AGQ). The overall condition doesn't seem very positive and that is quite strange. I was expecting a somewhat positive disposition but looking at longer term it's more like weakness overall.

 

There is evidence (fanning) of a slowdown in downward price movement coupled with price not going below the 36-43 range. Other than that it's a tough call. This doesn't mean price can't go up, but it does mean it's harder to declare this move as a great opportunity to go long after a test. The larger interval price behaviour is negative to neutral, or could be in the early stages of turning to positive, but the clarity of strength is not there so far in my opinion. I was looking forward to a long in AGQ after a test but now have changed my mind.

 

Weekly:

 

Daily:

 

Gringo

[Perrin 10]

A couple of thoughts -

 

1) If I hadn't have thought what I did and wrote what I did, then you couldn't have responded as you did, and I would still be the same trader as I was yesterday (I still might be if I don't think about what you said and learn from it).

 

2) I'm trading against people like you in the stockmarket. That thought alone should make me run for the hills and hang up my trading boots I can't do that though, this is too interesting (I'm reluctant to use the word fun... but... well, it is kinda fun)

[tupapa 10]

I agree with you that silver doesn't seem that strong, however, the Rally isn't over and price could carry on higher from here.

 

As for Gold, it is looking as if buyers have something to say as today they kept bidding for higher prices, showing some strength.

 

As you mentioned in your previous post, if there is a test, and it is successful, we could start thinking that the most recent down wave was a selling climax.

 

Look forward to sharing further developments with you, I think the best way to learn this is by doing it in real time.

 

[Perrin 10]

26th February 2013

 

Thinking about cycles.

 

(This is just me thinking today in my lunchtime journal rambling. I wasn't sure where to put it so I've put it here. I thought I'd post it to see if anyone had any ideas if my thinking is on the right track, or where it falls down).

 

Imagine a man was running a little business and everything was going well, he'd built up the business, work was steady, the economy was buoyant. It was hard work, but nothing that he couldn't handle. He tried to avoid debt as much as possible. Things seemed to be on the up, so he started looking at investing in the business more - perhaps to buy some machinery or take on some staff.

 

Perhaps that is a time to be extra careful because that's the time when he might let his guard down. Normally he is very conservative with his money - after all he's worked damn hard to get it. But everything looks rosy and all around him people are doing well, or even better than he is. It seems almost too easy for other people to make money - he finds himself feeling jealous when he sees many other people driving brand new cars and having lots of holidays, but perhaps he's not that bothered about what other people do so he doesn't follow them quite that much. Maybe he buys the shiny new machinery and takes on extra staff. Perhaps he might then get more work and be sitting there pleased with himself (perhaps he might take on some debt - but the repayments might be small in comparison to income, so nothing to worry about...).

 

But perhaps some time after, some of his customers get over-extended and banks (for example) start calling in loans that are never going to be repaid... that starts having a knock on effect and then things start to wobble... Then they steady, and things look ok (back to normal phase?)...

 

"Whew that was close, our amount of work dropped but then it picked up again. Things seem ok now." Perhaps even more work comes in. But some businesses have been burnt already by a few bad customers and are starting to wake up and think and understand that perhaps the work that they do may not be paid for. So they start introducing new terms & conditions that they didn't do during the boom times (e.g. they used to offer 30 days payment terms, now it's pre-payment).

 

Also competitors start to factor more into the equation. Competitors start dropping prices, chasing a decreasing volume of work. More work is required to produce the same amount of income.

 

Interesting where this all leads and how one thing has "unexpected" effects on others.

 

How can cycles be unexpected to everyone (or even to anyone?) Are they really unexpected? I'm an average person, there must be a lot of people more intelligent than I am who already know all this stuff (assuming I'm right with my thinking)? I think my thinking is right... I'm not sure. More thinking needed! Where does everything lead to? And everything is cycles within cycles isn't it? How can anyone ever hope to understand everything? Imagine understanding everything, wouldn't that be really cool?

[Gringo 10]

I am enticed by this NOC short. The danger is there so beware of a reversal here so close to S/R.

 

Stop could be placed around 67 for EOD traders. Those with more time could exit earlier or as soon as price shows lack of downward progress and refuses to stay below 65 and returns back into the hinge.

 

 

Gringo

[DbPhoenix 42]

How can cycles be unexpected to everyone (or even to anyone?) Are they really unexpected? I'm an average person, there must be a lot of people more intelligent than I am who already know all this stuff (assuming I'm right with my thinking)? I think my thinking is right... I'm not sure. More thinking needed! Where does everything lead to? And everything is cycles within cycles isn't it? How can anyone ever hope to understand everything? Imagine understanding everything, wouldn't that be really cool?

 

They aren't.

 

No.

 

Probably.

 

Death.

 

Yes.

 

That happens only after you've jumped out the window.

 

Possibly, but you'd be difficult to live with. Look at all the young and inexperienced traders on message boards who (a) know everything and (b) are forever spouting profundities they read somewhere.

 

But when it comes to cycles, they used to be regular and predictable. Then came Alan Greenspan along with his extraordinary interference in the markets, a tradition followed by Bernanke. With that, the cycles have been disrupted in the extreme. This is in large part one of the reasons why so many businesses lease nowadays rather than buy and focus on part-timers rather than full-time contract employees (in addition to avoiding healthcare benefits and pensions).

 

But for the trader as opposed to the B&Her, it doesn't really matter. If one understands the mechanics of tops and bottoms and trend, he can simply weave himself in and out of whatever cycles he may still discover.

[Niko 10]

G, what are you testing in FX? EUR USD is W friendly, I have not ever touched the other pairs so I could not tell. As for instrument you can always use 6E and save yourself the trouble with the bucket shops.