Trading The Wyckoff Way

[Bearbull 10]

So essentially the accumulators or smart money in the derivatives markets are buying the contracts at the low prices from the dumb money.

 

What's to stop dumb money from shorting the contracts after they've sold the ones they held to smart money, further depressing the value?

 

And thanks to all who replied, much appreciated!

 

Once again leave out all this Smart and Dumb money rubbish, KEEP IT SIMPLE focus and learn to gauge Buying and Selling pressure Via Price and Volume at Key levels , there is enough info freely available in the Wyckoff forum to enable you to carry that out if the required effort is made.

 

The alternative is to carry on , on the same path, even join the VSA club where they teach you to attach meaning to every single bar, where smart money or dumb money has entered and exited, hell if you might also pinpoint where the smartest money (Professional traders and VSA Experts and their disciples) came in, afterall they are able to track the smart money.

 

Choice is yours.

[Frank 10]

you are asking a question about why the structure works. there is an arbitrage mechanism here that makes it work and the mechanism is the expiration. Without a mechanism for arbitrage, then it wouldn't correlate 99%+

 

Closed-end funds do not have an arbitrage mechanism --- and so the funds trade at big disounts/premiums to their underlying net worth -- so there is significant 'tracking error'. If closed-end funds 'expired' at a specific date-- then you could arbitrage it.

 

Exchange Traded Funds do not have an expiration so they came up with a different structure for arbitrage. They created a third-party into the mix to create or redeem the ETF shares should they trade out of line with the underlying index. These third-parties can arbitrage this with a simple computer program and do it for risk-free profits.

[lote_tree 10]

So essentially the accumulators or smart money in the derivatives markets are buying the contracts at the low prices from the dumb money. At the point at which they've bought most of that they've effectively deprived the dumb money from selling further and from selling much of anything to each other both at the psychological level and at the material level since they've bought most of the contracts that dumb money had been holding? Hence at that point the price begins to rise as the smart money withholds their inventory?

 

I see that you're confusing the futures and cash market here. Remember, the price changes in the S&P 500 futures market is 98% governed by changes in the S&P 500 Index price. Obviously the price changes in the S&P 500 Index is governed by the buying and selling of company shares listed on the Index. The buying and selling of Futures contracts in the Futures market has minimal bearing on the futures price.

 

When referring to smart money or dumb money accumulating or distributing it's the action in the cash market where the big blocks of shares being swallowed up by the smart money that's important not so much the action in the futures market. However, the smart money will start buying futures contracts in anticipation of price rises once they have cleaned everyone out with most of the shares. That's where VSA and Wycoff can help with the Volume analysis part of the equation.

 

So the dumb money can short sell as many S&P 500 futures contracts as they want during the smart money share accumaltion phase in the cash market. The price of the futures contract will only go down if the cash market will allow it. At the end of the day it will be the buyers on the otherside of the Futures trade that will be making the big bucks!

 

And btw, I am talking about FX Futures although I suppose it shouldn't really matter.

 

It doesn't matter whether it's FX or anyother instrument. The basic principal remains the same. The movement of the GBP Futures, EUR Futures or JPY Futures price is goverened by the FX cash market.

Edited September 10, 2008 by DbPhoenix

[snackly 10]

I see that you're confusing the futures and cash market here. Remember, the price changes in the S&P 500 futures market is 98% governed by changes in the S&P 500 Index price. Obviously the price changes in the S&P 500 Index is governed by the buying and selling of company shares listed on the Index. The buying and selling of Futures contracts in the Futures market has minimal bearing on the futures price.

 

When referring to smart money or dumb money accumulating or distributing it's the action in the cash market where the big blocks of shares being swallowed up by the smart money that's important not so much the action in the futures market. However, the smart money will start buying futures contracts in anticipation of price rises once they have cleaned everyone out with most of the shares. That's where VSA and Wycoff can help with the Volume analysis part of the equation.

 

So the dumb money can short sell as many S&P 500 futures contracts as they want during the smart money share accumaltion phase in the cash market. The price of the futures contract will only go down if the cash market will allow it. At the end of the day it will be the buyers on the otherside of the Futures trade that will be making the big bucks!

 

 

 

It doesn't matter whether it's FX or anyother instrument. The basic principal remains the same. The movement of the GBP Futures, EUR Futures or JPY Futures price is goverened by the FX cash market.

 

 

THx!

I think that is the most salient point. That the volume on the futures does affect the price of the futures since its derived from the underlying.

 

But you're also saying that despite that the volume of the futures is indicative of the direction of the underlying in the immediate term and therefore indicative of the value of the contract.

 

Have I gotten that right?

 

It is then fair to say that informed traders are moving volumes of contracts based on their professional and informed views of what the underlying is doing?

Edited September 10, 2008 by DbPhoenix

[snackly 10]

Once again leave out all this Smart and Dumb money rubbish, KEEP IT SIMPLE focus and learn to gauge Buying and Selling pressure Via Price and Volume at Key levels , there is enough info freely available in the Wyckoff forum to enable you to carry that out if the required effort is made.

 

The alternative is to carry on , on the same path, even join the VSA club where they teach you to attach meaning to every single bar, where smart money or dumb money has entered and exited, hell if you might also pinpoint where the smartest money (Professional traders and VSA Experts and their disciples) came in, afterall they are able to track the smart money.

 

Choice is yours.

 

Sorry I guess I didn't realize the term "smart money" was not a Wyckoff term. I think that's a bit odd since he refers to the composite man, or the professionals. I mean is there that much difference? It would seem at least that term of general meaning is transferrable between Wyckoff and VSA, but what do I know.

 

As I said I am new and absorbing tons of info from both camps and it can bleed together. Thx.

Edited September 10, 2008 by DbPhoenix

[snackly 10]

Snackly

 

Can I kindly suggest to read up and study Wyckoff a little more? I don't mean it in a harsh way, but the questions you are asking about Wyckoff doesn't sound like you had read up on it yet. If you did, my apologies for my assumption, and I would suggest that you read the material again. Wyckoff is not just about reading time and sales.

 

Also, the question about if data speed is important, is not relevant to just Wyckoff. This is relevant to the time frame you are trading. If you are trading off daily bars, the datafeed speed is irrelevant. If you do scalping off 1 second bars, then it probably is. However, your question is not really a Wyckoff question, it is a time frame question.

 

You make great points. Sorry for cluttering this section with this question.

 

It seems I may have misjudged the technique. I have been reading the book Wyckoff wrote about being a tape reader, and I also have a book called Charting the Markets, the Wyckoff Way, or whatever.

 

Can you suggest what might be the canonical reference for this method? Is tape reading alone with the purpose of finding supply/demand point not enough to constitute the full method? Guess I better do some more research.

[lote_tree 10]

I think that is the most salient point. That the volume on the futures does affect the price of the futures since its derived from the underlying.

 

Like I said it's the supply and demand dynamic within the underlying that affects the price of the futures market. As I stated in my earlier post, you can say that the volume in the Futures market is affected by the smart money's willingness to buy or sell futures contracts based on their activities in the underlying market.

 

But you're also saying that despite that the volume of the futures is indicative of the direction of the underlying in the immediate term and therefore indicative of the value of the contract.

 

I'm saying that the the majority of the time it's the underlyingthat is indicative of the direction of the futures market. Trying to detect whether the Futures market is becoming a leading indicator of short term prices is futile in my opinion. It's much simpler to go with what happens the majority of the time.

 

It is then fair to say that informed traders are moving volumes of contracts based on their professional and informed views of what the underlying is doing?

 

It's logical to assume that yes.

 

Lastly, I sincerly hope you're not trading in futures yet because before you take that step you must have a thorough understanding of how these markets operate. You have no business being in the futures game if you're just beginning to increase your knowledge base. I would hope that you dive into stocks first for a couple of years before getting into futures. That's just some friendly advice mate

Edited September 10, 2008 by DbPhoenix

[snackly 10]

Thanks for the feedback and don't worry about me. I am here asking endless questions because I would not trade any instrument without understanding it to the fullest. If you read my posts in the other threads about FX ecns you'll see I've added some useful color to those discussions based on my 2 months of rigorous research. I intend to do the same with futures.

 

In any case trading stocks would not he'll me as I have no intention of trading equities futures.

 

I am interested in FX only, spot, futures and options.

 

Many thanks, and btw my prior post contained a typo, using does instead of doesn't. You made it clear that volume doesn't drive price of futures. I got that, many many thanks for taking the time.

[kuky969 10]

Please is here anybody who has some experiences with recognize accumulation /distribution proces in bases in intraday E-mini SP500 trading ( short TF 3, 5, 10 min.).????

I would like ask for some sources where I could learn more about it . I red that Wyckoff use Point and Figure charts but I can not find more specific informations.

Thank you a lot

[DbPhoenix 42]

Please is here anybody who has some experiences with recognize accumulation /distribution proces in bases in intraday E-mini SP500 trading ( short TF 3, 5, 10 min.).????

I would like ask for some sources where I could learn more about it . I red that Wyckoff use Point and Figure charts but I can not find more specific informations.

Thank you a lot

 

As to accumulation and distribution, I answered this question for you in post 52, but that apparently was not satisfactory. Perhaps someone else would like to give it a try.*

 

As to Wyckoff's use of P&F for intraday trading, see the DayTrader's Bible posted to the Introduction (as a pdf).

 

*Note that you are far more likely to be successful applying Wyckoff's concept of the springboard to futures than you are his approach to accumulation and distribution since futures have no float. If you don't know what a springboard is, do a search using my name or see my blog.

Edited September 9, 2008 by DbPhoenix

[kuky969 10]

As to accumulation and distribution, I answered this question for you in post 52, but that apparently was not satisfactory. Perhaps someone else would like to give it a try.*

 

DB Thank you. Of course I am satisfied with your answer very well but sometimes it take time for me to understand ( english is not my native lang.but I promise I will improve:) ) I just want know if somebody use wyckoff principles in distinguish acumulation or distribution in bases in intraday emini SP500 short time frames and if it is much less possible use in future trading. Simply my problem is distinguish in advance in which direction price break from base.

I esteem your work highly and your willingnes to answer to my (sometime no logical) questions. Your book and your work in this side absolutely change my style of trading and I AM VERY GLAD. THANK YOU.

[DbPhoenix 42]

If your objective is to balance the probabilities of price moving one way or the other out of a base in an instrument such as a futures contract, then, as I said earlier, fretting about accumulation and distribution isn't going to do you much good because there's no float, and the bar interval -- 5m, 15m, whatever -- is largely irrelevant. You can, however, accomplish much the same thing by detecting and correctly interpreting the springboard activity, if any.

 

Without charts, though, this is all not much more than babble. There must have been at least a few charts that prompted you to ask these questions. Post them and point out those features which interested you. Perhaps the best course is not to worry so much about predicting the direction of the move but to wait for it, then act in whatever way will enable you to take advantage of the move.

[kuky969 10]

DB

Of course I agree I like trade better break from base and retrace to the base but I like if I know with big probability which way break will be in advance .

 

For example yesterdays ES U8

 

5 min chart shows base in red lines and green ellipse is for me revers bars on resistence . Important for me is bigger volume on second bar as first bar .

 

I use 1 min chart too and situation is on second chart

In 1 min chart is same base as 5 min chart.

Area num.1 –-descend volume

Area 2 –- rising volume ...in this moment I thought that would break UP

Area 3 –- again uncertainty

Area 4 – price didnt make higher high

Area 5 – break TL on higher volume , almost certainty and I expect break from base down

 

I use 500 V chart too and this break of TL is on very short time (green rectangle on 3rd chart) and this is important to me.

I would like ask you for your opinion about my thinking about market please.

 

I think it was relatively simply situation and not always are the same simply situation. I will find some situation with example of typical springboard (as you explainded in book) and I will post some chart.

Thank for your time and patience.

[DbPhoenix 42]

Clearly, you have put a great deal of thought into this. It shows. And as for the "relatively simple situation", there's nothing wrong with waiting for the relatively simple situation. Would you rather make money the easy way, or try to make it the hard way and coincidentally increase your chances of losing it instead?

 

So, taking this step by step, beginning with the first chart,

 

1. What does the lack of trading activity on the attempt at 12:15 to break out the range tell you?

 

2. What does the immediate and indisputable failure on the next bar tell you?

 

3.What does the continuing lack of trading activity on that bar tell you?

 

4. What does the increase in trading activity (which is greater than any trading activity up to that point) on the way down toward the 12:30 bar tell you?

 

And you don't need all the lines and indicators to see any of this. In fact, they may prevent you from seeing what might otherwise be plain.

[rsi 10]

I have a question.

 

In case of some stocks, downtrend persists for very long period (may be for years altogether). In such cases, there may not be weak holders at the end of such prolonged period. It may be impossible to see a "selling climax". I mean to say large volume wide range down bars as such. In some cases it may even move up even without witnessing any accumulation phase. I am attaching charts herebelow to show what I mean. Of course, this stock has not move up yet.

 

First chart is weekly.

 

 

http://img127.imageshack.us/my.php?image=weeklyra4.png

 

Note the prolonged downturn from 275 to nearabout 40 over such a long period.

 

Now the daily (of couse some may argue that we are witnessing accumulation right now)

 

Daily chart

 

 

http://img398.imageshack.us/my.php?image=dailyra7.png

 

See another chart

 

 

http://img398.imageshack.us/my.php?image=weekly2kw6.png

 

Here stock moved from around 170 to 27 in between April 2006 to May 2007. We did not see any accumulation phase at all. Selling climax is also not visible.

 

So my question is how can we detect end of downtrend (or may be markup phase) in such cases?

Twisting the question slightly, how can we see the end of uptrend in the absence of buying climax and distribution?

Thanks in advance and regards

Edited September 15, 2008 by mister ed
Fix image uploading

[rsi 10]

Here is the first chart mentioned in my last post

 

 

 

 

Hope chart appears at least this post

[rsi 10]

Sorry. I donot know why charts are not appearing inspite of uploading them to imageshack and pasting the link using "insert image" option

 

Please see the charts from the imageshack itself, links of which I have given in my original post

 

Sorry for the inconvenience and trouble caused by me.

[NAVEEVIa 10]

DB,

when looking at a PV relation in a base to find out whether accumulation or distribution is taking place, why do we look for high volume on upsides or when at upper limit of base & low volume for downside in Accumulation & vice versa for distribution.

 

Please refer the rectangle in chart attached from 10:35to 13:20

[DbPhoenix 42]

I have a question.

 

In case of some stocks, downtrend persists for very long period (may be for years altogether). In such cases, there may not be weak holders at the end of such prolonged period. It may be impossible to see a "selling climax". I mean to say large volume wide range down bars as such. In some cases it may even move up even without witnessing any accumulation phase. I am attaching charts herebelow to show what I mean. Of course, this stock has not move up yet.

 

First chart is weekly.

 

http://img127.imageshack.us/my.php?image=weeklyra4.png

 

Note the prolonged downturn from 275 to nearabout 40 over such a long period.

 

Now the daily (of couse some may argue that we are witnessing accumulation right now)

 

Daily chart

 

http://img398.imageshack.us/my.php?image=dailyra7.png

 

See another chart

 

http://img398.imageshack.us/my.php?image=weekly2kw6.png

 

Here stock moved from around 170 to 27 in between April 2006 to May 2007. We did not see any accumulation phase at all. Selling climax is also not visible.

 

So my question is how can we detect end of downtrend (or may be markup phase) in such cases?

Twisting the question slightly, how can we see the end of uptrend in the absence of buying climax and distribution?

Thanks in advance and regards

 

You make a number of statements but ask only one question, and the answer-- without considering trendlines -- is that there is a selling climax, a technical rally, a test, and a rally above the last swing high. Reverse for a downtrend. I can't apply this to your charts because it's next to impossible for me to see the volume on them, plus they're too scrunched. However, there does appear to be a selling climax on your third chart in March '07.

[DbPhoenix 42]

DB,

when looking at a PV relation in a base to find out whether accumulation or distribution is taking place, why do we look for high volume on upsides or when at upper limit of base & low volume for downside in Accumulation & vice versa for distribution.

 

What did you read that left this with you?

[NAVEEVIa 10]

Another help is to draw a line parallel to the bottom of your price-and-volume graph so that only the busiest days show above your line. Note what happens on the busier days.Is the price up or down? What about the slower days? Again, price up or down? If the price rises on heavier volume days (though not enough to break out of the base) and falls on lighter volume days, the stock is most likely being accumulated. Or vice-versa if it's

being distributed

 

I read this in Whats a Chart file

[DbPhoenix 42]

When you said "why do we look for high volume on upsides or when at upper limit of base & low volume for downside in Accumulation", I thought you meant "downside 'and when at lower limit'", which is not necessarily the case.

 

In any case, if price is rising, this suggests that demand is greater than supply. If volume is also rising, this suggests that increasing demand is being met by increasing supply. If price then chokes at the upper limit of the range, this suggests that the increase in supply was intended to bring price back down, or at least prevent it from exiting the range. If both price and volume subsequently fall, this suggests that the tactic was successful.

 

I don't know what you're trying to show me with your chart, but focus less on bars and more on what traders appear to be doing and why. That will be reflected in the price movement if you're correct.

[NAVEEVIa 10]

 

OK here the chart with a few annotations, as u said a number of times i have stopped focussing on individual bar

Trend: Down as we have LRH & LRL with no no successful attempts for making a HRL, subsequently we have trendlessness .Now my question is since trend has changed from down to lateral & we are holding our shorts . How do we make sure that base is not accumulative.

 

Naveen

[DbPhoenix 42]

Whatever is is a product of what has been. What is "suzlon"? What had been happening in this prior to the left edge? Did it drop from 850? Rise from 20?

[NAVEEVIa 10]

]

here is a 3 day , 5min chart of SUZLON( a wind energy company)

 

Please comment on the trendlines also , are they correctly drawn, how to draw trendline after breakdown below 224 level

 

Edited September 14, 2008 by NAVEEVIa