Trading The Wyckoff Way

[Tannism 10]

If one were statistics-minded, he could determine the typical length of time that traders spend in a particular box or range and thereby determine how likely they are to want to look for a new value area. I suppose one might also be able to determine how far they're willing to go to find it.

 

Sounds like a P&F project.

 

Ever look at anything by Wetzel regarding time? He is mentioned in Neill.

[Paul71 10]

Good question, sulong (I was afraid the first question might be something along the lines of "Did W wear boxers or briefs?"). And I don't want to pundit the answer because I really have no idea, and there are some awfully smart people in this neighborhood.

 

It may help to keep in mind that these charts were done by hand (though they may have been provided by a service). Therefore, one would include only that information that he considered to be important, as today. Ergo the open price may not have been considered to be all that important (I know the logic here is a stretch and that there may be other possible conclusions). It may also help to keep in mind that W was not about bars but about flow, or "waves" (but you knew that). He was also about energy, and balance, and he would more likely have been interested in who won the daily contest than in what the relative positions of the players were at the beginning of the contest. Whatever follow-through there might be the following day would be told by the high and the low.

 

All this is just conjecture, though. I'll have to chew on this some more. The answer may be embarrassingly simple.

 

 

 

This may be the logic, DB. Gann (i know it's not Wyckoff), suggested that the majority of overnight orders were placed by non-professionals, the 'pros' would then take advantage of these orders after the opening depending on their view of the market.

 

Maybe part of the reason why Wyckoff dismissed openings in the main is because they were not normally professionally motivated, and also because of the reasons you yourself have given, DB.

 

?

[jasont 10]

Hey Db,

 

Thanks for your great work in the Wyckoff forum. I am currently in the middle of "The Day Traders Bible" and am curious about the use of the Tape in todays market. Obviously the volume is much higher than it was in the early 1900's, so how could one effectively apply the volume of the tape? Is it a matter of finding out the size the major players tend to trade and filter out the smaller volume with the platform we use?

 

I notice just in the ES alone there is a massive number of trades that are below 10 contracts at a time. I commonly see the turn of the market coming but my timing is off which often results in numerous attempts at the same move. I think the tape might give some clues to help avoid early entries but not sure how to apply it in todays high volume markets. Any advice from yourself in its application today?

[DbPhoenix 42]

Another look at the forest. This is two years rather than four (the first post) in order to make the TL placement more accurate.

 

If we can't move back above these TLs and hold there (in the Dow and S&P), then this was just a bear market rally after all.

 

 

 

 

It should also be noted with regard to Dow Theory that, except for a couple of truckers, the only thing holding the Transport Average up is the rails.

 

As for the sectors, financials and healthcare continue to do poorly, energy and utilities continue to do well. The rest are having problems of one sort or another.

 

 

 

 

 

Edited November 12, 2008 by DbPhoenix

[DbPhoenix 42]

Macros and micros. Macro-macros (two years) can be found in the Trends thread.

 

 

 

 

[DbPhoenix 42]

That's pretty much the subject of the entire Forum and my Blog, so a brief answer isn't easy. Whether volume is higher now than then is irrelevant. What matters is the character of the volume wave and how it relates to the price wave, both within the context of support and resistance and trend. And by "wave", I'm not being esoteric. I'm referring to the character of the flows of price and volume (call them oscillations, if you like) rather than focusing on individual bars. See post 3 in the Trend thread.

 

This can most easily be seen on a chart, though some may be able to see it in a T&S display.

[jasont 10]

Thanks Db,

 

I read the post you mentioned. From what I understood in your post, do you believe it is more beneficial/easier to read the volume in chart form rather than a T&S display? I have been looking at possibly using the T&S to help see the distribution flow during the wave peaks and troughs.

 

My concern about the volume now as opposed to early 1900 is that there seems to be a lot of orders. The T&S might show 100 orders change hands but only one might be of substantial volume say 150 contracts. The rest might be 1 to 10 contracts at a time. My possible idea for this was to use a platform filter that only shows orders that are say 100 contracts or more. The rest are ignored so I can focus on the big traders at important times. Is this a logical approach or am I missing an important element?

 

Regards,

 

Jay

[DbPhoenix 42]

Yes, I find charts much easier to use than T&S. When it comes to tape reading, particularly W's approach, one must remember that his book, first published in 1910, provides only part of the answer. Yes, if one is trading only one stock (or, today, one futures contract or one ETF or one whatever), then he can be expected to "keep all of this in his head": support, resistance, the trend, all the minor fluctuations with their accompanying volumes. But to do it for several stocks is beyond the capacity of the average trader. Charts enable him to keep track of all this for n number of whatevers, however many he can handle.

 

By the time he assembled his course twenty years later, P&F charting was in usage, though I don't know how common it was (it was not codified in book form until around 1933). He used a shorthand-style of P&F on whatever was handy in order to keep track of where prices were going in whatever it was he was watching, thus freeing him from having to "keep all of this in his head". If he'd had a laptop with streaming data that could be plotted on charts, I seriously doubt that he would have left it in his desk drawer.

 

As to orders, what matters is the consummated transaction. However many orders there might be is irrelevant if no deals are closed. People can "intend" to move price up or down until they turn blue, but unless price actually does move up or down, who cares?

 

As to filtering out orders of fewer than 100 contracts, you could give it a try. I can't say whether it would make any difference or not since what matters most is the behavior of price.

 

Later:

 

Those who are interested may find it useful to compare Chapter 8 from the 1910 tape reading material with a similar chapter from the 1932 tape reading course, below.

THE TAPE READING CHART.pdf

Edited May 26, 2008 by DbPhoenix

[Upthrust86 10]

Frankly, from what I see you have these boxes drawn everywhere. Famous or not, if f I were trading this I would be bouncing in and out and in and out of the market all the time. Great for sex, but not for trading. I don't get this. I don't understand how to tade this or what sense this makes at all.

[karim0028 10]

Frankly, from what I see you have these boxes drawn everywhere. Famous or not, if f I were trading this I would be bouncing in and out and in and out of the market all the time. Great for sex, but not for trading. I don't get this. I don't understand how to tade this or what sense this makes at all.

 

Hey Upthrust,

 

I was like you a couple of months (4-5) ago so i will attempt to explain...

 

Ive been following DB's writings, blogs, etc for the last 5-6 months...

 

Db, if i am mistaken anywhere please dont hesitate to correct me...

 

First off, just try and draw the boxes around areas of congestion where you see alot of trades taking place; back and forth areas.... Then find the midpoint of the range/box... You will find that the top, bottom and midpoint areas of previous trading days/ranges/boxes tend to become areas of importance later on... They will at most times be either tentative support or resistance in future days...

 

 

Do that and then (until you being to see it) just sit and watch the price action as it comes close to those areas.... When i first did that it was a moment of enlightenment... Midpoint areas really do seem to have significance... Watch as they either act as support in a strong market or act as resistance in a weak market....

 

You see alot of boxes in DB's post but you only need to pay attention to the boxes/midpoints/S/R that are in the range the price is currently in! The rest will be useful later on if price ever reaches that area in the future.... Its simply there as a reference.....

 

Now, again, dont make the mistake of thinking that bc you drew the line there that anything will necessarily happen there... As DB says again and again, simply be available (ie. pay attention to what happens).... Look again at the charts DB posted... Notice that the midpoint almost always acts as support or resistance or sort of a "stepping stone" in a climbing market and vice versa.... I have literally seen prices come within a tick of the midpoint and jump up or fly down.....

 

Trading is really nothing more than psychology.. Humans have memories, when they buy at a certain price and price goes up and they make money they are elated... If price comes down again to that area they see it as a bargain and "tend" to buy again at that area... That is why support or resistance tends to work.... Again, remember NONE of this is set in stone; after all when trading you really are just trying to understand the most unpredictable beast of all; human behavior... The key is, It just has a higher probability than pointing at any other point on the chart and buying or selling there......

 

Again, these boxes help give you context... If its a trending day then any one of those lines can act as S/R... So, look at the big picture first to see if the trend is up or down... Then decide how you wanna enter OR if you wanna enter at all....

 

You gotta understand that this method/view point is simply a way to lower your risk! Like any business there are no guarantees... For instance say you open a bar; are you guaranteed to make money? NO! But, if you do your homework; find the location with the most foot traffic, get the hottest waitresses in town and serve the best beer in town and market the living crap out of it.... You have a better shot at making money.... This is nothing more than a probabilities game... Again like any business its all about probablities... If you do your homework you tip the odds in your favor...

 

Now, all of this without a system and rules does no good... As per the above example its like running a business and not knowing how to manage your inventory... If you give away too much free food (lose too much) you go BROKE!

 

A couple of months ago i used to draw all these boxes and find the S/R and then be too afraid to pull the trigger so i would SEE that the price was bouncing off support but i would say " i will wait just a little longer till it proves itself"... By that time i would find myself in the middle of the range then freak out when i found it retraced and i would almost always get out with a loss and then it would ride back up again with out me.... I didn't understand the nature of retracments and how they worked... Read DB's post on "Riding the Wyckoff Wave".

 

My System:

 

Again this is my system and you have to see what works for you... The key is consistency... Follow your rules, ALWAYS!

 

Now, i learned to use the TICK to help me... If i see the price at support and tick is way negative like -500 or so (meaning the market has lots of stocks having a downtick) and the price is still hanging on i view that as strength and i go ahead and enter at support with a tight stop (perhaps 1/2 - 3/4 point) below support...

 

Same thing when im shorting... If price for instance opens up underneath resistance and we are in a recognizable down trend and the TICK is above +200-500+ (lots of stocks having an uptick) and the price just doesnt seem to budge up then i view that as weakness and take the short (again with a tight stop above resistance)...

 

I view the market as opposing forces a push/pull between the bulls and bears and the TICK as a crowd cheering/egging them on... If the crowd is cheering really hard and the bulls just dont have it in them to push up through then most likely as soon as the crowd stops cheering the bulls will get tired and let go of the rope and bears will take charge and conversely vice versa....

 

Next is trade managment:

 

Once im in a trade i do my very best to manage via trendlines and let natural retracements (wyckoff waves) take their course... I am still working on that part of my trading... It takes development/restraint to see yourself up 4-5 points on the ES and let it slip down to 3 points But, i am still developing my strategy for how to deal with that... I am working on no fear; cut your losses early and let your profits run! Cliche, i know... But, it takes time to internalize it and to disassociate yourself from your profits/losses...

 

With this method i really feel the key is not being afraid to go in at support or resistance.. If you miss it, wait for another setup... If your wrong get out early... Dont get caught in the middle (at least for me).... I have been keeping track (a log) and every time i lost money it was bc i didnt follow my own rules.. I got cocky and thought i understood it all and entered farther from support or resistance... Each and every time i got screwed!

 

Weird thing is that i tried trading with all the oscillators, stochastic's, etc.. Buy when the red line crosses the black line, sell when this falls below that, blah blah blah... I could never understand them... It was like being in class and someone giving you the answers, you never knew how to do it yourself.. You tend to become dependent; and i don't like being dependent on anything... I like understanding concepts, not just being told what to do... To me, they were all derivatives of the thing i should be watching... PRICE.... I tend to learn by internalizing concepts and after watching this for several months and reading DB's posts over and over this way just started making more sense.....

 

Again, without risk there is no reward, just find the way that works best for you and like any good business plan; work on minimizing your risk... You can never eliminate risk, but you can definitely lower it....

 

Again, i am still learning so if i made a mistake somewhere; someone (Db or anyone with more experience than I) dont hesitate to correct me..... This is simply my opinion/interpretation of Wyckoff/DB's teachings....

 

-Karim0028

[karim0028 10]

Attaching the boxes i will be watching Just to give you an example of where the significance of the midpoint/top/bottoms comes in.... You will notice that the midpoints/top/bottom end up support or resistance in the future.... Those lines are areas i will be watching if price travels down....

 

Hopefully this begins to make sense....

[jasont 10]

Db that section in the pdf you provided is great. Thank you very much for offering that as reference. In this section he mentions "after a sale at a certain price, you enter the next sale in the same column if there is blank space...". Does that mean Wyckoff combined orders at the same price or did he track individual orders? The least amount of shares traded in a transaction was 100, did that mean he didn't bother with smaller transactions or that less than 100 in a single trade wasn't done?

 

The reason I ask is that he seemed to look for the big money and where it was headed and tag along. In my opinion that is the ideal way for a smaller trader to trade. When I mentioned tracking the orders I meant ones that had been actually traded which were shown in the T&S. I have an image below from Monday 26th May.

 

It turns out to be a good example because typically the big traders won't waste their time on a half day of trading especially when the stocks are not trading. The T&S on the right only shows the transactions that have a volume of 100 or more. You can see the smaller traders get left out of the equation making the big players the ones to keep an eye on for possible weakness at wave tops or strength at wave bottoms.

 

I think this is on the right path as to what Wyckoff was talking about in tracking the volume on the tape but I have only a minor experience with it so far. Please let me know if this is not in the right direction or getting too far away from the thread topic.

 

Regards,

 

Jay

[DbPhoenix 42]

They are combined. However, it is important not to get too bogged down in "what Wyckoff did" or "what Wyckoff would do". No trader who has been in the business for decades trades the same way he did twenty or thirty years earlier, and he will not likely be trading the same way twenty or thirty years from now. Or even next week. Anything and everything written represents a point in time, and change is more likely to be a factor than not.

 

Therefore, focus on principles and concepts, not on details. Among the more important ideas here is to avoid the attempt to trade chop and to initiate trades only when it looks as though price is actually going somewhere. If you're interested in this particular approach, I suggest you pump gassah in his P&F thread.

[DbPhoenix 42]

To add to Karim's post above with regard to this morning's activity, note that price opened in the NQ at the midpoint of the range established between the afternoon of the 21st and the EOD of the 22nd. Whether one considers this to be the "POC" of a prior trading range or the resistance level of the range established on Friday and Monday is not as important as that this gives the trader a place to look. (The boxes drawn on the underlying chart are the same as what I posted yesterday; however, given the position of price before the open, I adjusted the top of the last box upward slightly on my current chart to incorporate the morning's swing high on the 23rd since price action prior to the open showed this to be more important than I anticipated.)

 

 

Note that the "initial balance" is determined by 0937 (see the inset). One can then sell this or buy it. Whichever he does is entirely up to him. But, again, this gives him a place to look whereas he might otherwise be nibbling on his toast and surfing message boards.

[karim0028 10]

Thanks DB! Your charts and input are as always greatly appreciated! I am growing more and more influenced/cognicent of the midpoints.... In the chart posted below (todays chart up until ~12:30 PST), i just wanted to show another example of how "I" percieve that price seems to be sensitive to midpoints of previous ranges....

 

Interesting thing about this is that this is in pre-market movement... Usually, i never paid attention to premarket... I would usually remove it from the chart and not look at it....

 

Db, Curious, do you pay much attention to pre-market?

[DbPhoenix 42]

I don't ordinarily pay a great deal of attention to premkt, but this morning was unusual, at least in the NQ. It tested 69 twice, then 65.25, then back up to 68.5 twice, then back to 65.25, then up again. This kind of precision is not usual and drew my attention.

[jasont 10]

Thanks for the great advice Db. I can see what you mean about avoiding the chop and only trade the decent sized moves.

[DbPhoenix 42]

Here a midpoint, there a midpoint.....

 

Price finds support at the midpoint of the upmove on the 23rd.

 

Price then finds resistance at the midpoint of the previous trading range.

 

Price then finds support at the midpoint of the upmove beginning on the 23rd and ending yesterday (which, while stretching credulity, does coincide with the midpoint of the trading range which occupied the first week of the month).

 

Price then stalls at the midpoint of the trading range from the 20th and 21st.

 

[erierambler 10]

Since my chart stays about the same , the only thing I could add is that looking for support around 1380 this morning.

erie

[Susana 10]

Db,

 

First of all, thank you for all your efforts. They do not go unnoticed.

 

Quick question, do you pay more attention to the mid point of the boxes than to the high/low points ?

 

Thank you.

 

Susana

[DbPhoenix 42]

Like Market Profile, it depends on how the trading ranges relate to each other. For example, if you refer to the chart I posted at #34, above, and look to the range formed on the 20th, you'll see that price dropped out of that trading range and fell to 1957-58. If price had returned to that range and stalled around the midpoint, I would have thought that it was a return to the "value area" and that the midpoint was most likely just a midpoint, or POC.

 

But price instead stayed where it was and formed a new trading range, beginning with the afternoon of the 21st. When price dropped out of that one on the 23rd, the next trading range was just below it yet also a part of it. Its upper level coincided with the midpoint of that previous range. Thus when price moved to the upper level of the range formed on the 23rd, it was also approaching the midpoint of the previous range. This made that midpoint something else, possibly just a midpoint, but possibly resistance. If the latter, watching for a break of it as an opportunity to go long made sense. And, as explained in post #34, that opportunity presented itself.

 

Currently, it appears that we are forming another trading range since today's low corresponded to yesterday morning's swing high, and since today's high corresponds to the high of the trading range for the 20th and 21st, that may be important tomorrow as well.

[DbPhoenix 42]

Ever look at anything by Wetzel regarding time? He is mentioned in Neill.

 

No, I haven't. But Donald Mack resurrected his "Course in Trading" from the dead. It's out of print again, but available used on Amazon.

[firewalker 10]

Currently, it appears that we are forming another trading range since today's low corresponded to yesterday morning's swing high, and since today's high corresponds to the high of the trading range for the 20th and 21st, that may be important tomorrow as well.

 

Do you make anything of the fact that those highs do not correspond to the highs of the trading range on the 21th on the ES and the YM, but to the lows of the 21st and 22nd? Or does it just mean that the NQ is the strongest market (which seems to be the case for some time now).

[DbPhoenix 42]

Not really. Over the years, I've been unable to find a correlation among the indices that's high enough to rely on except in a most general way, even with EOD trading. The Nasdaq tends to be independent, which is why I like to trade it. But that's also the very reason why many people prefer not to.

[smwinc 20]

DBPhonenix, have you read any of Joe Ross's material? Your boxes appear similar to his congestion boxes. Nice thread.