Trading The Wyckoff Way

[jasont 10]

FW over time I personally have found the speed and steepness of a trend less important as where it is halting and turning. For example the day you are showing had a big rise at the open. I know many people consider such a rise a sign of market strength but in reality people are buying and selling during that time so both sides have their reasons for doing so. If you look at the volume of the high at 9:51 you can guess the big money is selling rather than buying there as we had already moved about 10 points.

 

What can confirm your guess is how far the next attempt higher goes. You can attempt a long trade at the pullback at 10:03am but need to be aware of the resistance of the previous high. If you didn't have it prior to the open you would now have it mentally as the day progresses. Once reaching 1222 again though, like we did at 10:26am within about 10 minutes you can get a good idea we are having trouble making new highs.

 

In regards to the next day opening, Brett Steenbarger has made some good observations that the current market tends to pullback more than follow through on big days. I think it is always important to read the outside context of the market as well. What is globally occurring etc. I have made comments about the lack of being able to move much beyond the recent lows due to the short selling ban which I may be proven wrong but at this stage still believe it is quite valid.

[Flojomojo 10]

Hi DB,

 

I got a short question about using a volume by price distribution to identify congestion zones:

 

As I have no volume for currencies the distribution in my previous post was generated by counting how many times a price was crossed by bars in a given time interval. (I´m currently reviewing if this method is sufficent)

It is the time interval that gets me thinking right now. Depending on how far one looks back the distribution will look a little different. How do you judge how far you look back in time?

 

So far I only have a conjecture that a distribution created by price moving around in a range in the near past is more important than the statistics of price in the past way back (except of course if price hasn´t been in a region for a long time).

 

Best regards,

Flojo

[DbPhoenix 42]

Depends on the population you're targeting. If you're looking at where investors made their purchases, then you will likely have to go back to the last important accumulation phase. In the case of the Dow, this was 2004-5:

 

 

Of course, this may all be crap and it may all be pure coincidence that we're bobbing up and down in this area.

 

But maybe not.

 

On the other hand, if you're more interested in traders, then the more recent "congestions" may be more likely to provide opportunities.

[firewalker 10]

Do you play this as a retracement in an uptrend, or as a lower high after a reversal?

 

How do you define a reversal? The trend is still intact and the last swing low is not breached, so the way I see it there's no talk about a reversal.

 

Looking at 1502, it looks like resistance (10:10), but selling pressure subsides around 11:15 where we see tiny price bars and lesser volume. After that a breakout follows 11:30 and price pulls back to identify resistance now turned into support. This seems to be confirmed by the volume at 12:10 on the test.

 

All imho

 

[Bearbull 10]

How do you define a reversal? The trend is still intact and the last swing low is not breached, so the way I see it there's no talk about a reversal.

 

Not yet, 1502 was identified as a resistance, price broke through that and retraced, the trend is up, hence entry around 1502 is a valid setup. From then on it is all about managing the trade.

 

Some observations:

 

1. Price/vol action during lunchtime period is not very reliable for interpretation.

 

2. The wide range bar around 11.30 indicates buying pressure, however after the retracement, the half hearted price bounce suggests buyers are not that desparate, price could easily drift in a sideways range until traders return from their lunchbreak and in the meantime break the trendline after forming a lower high.

 

3. After lunch, prices could be then be driven higher or lower depending on buying and selling pressure at that time.

Edited September 10, 2009 by DbPhoenix
Chg time

[Bearbull 10]

Meant to type in 11.30 bar after breakout of 1502:)

[firewalker 10]

Not yet, 1502 was identified as a resistance, price broke through that and retraced, the trend is up, hence entry around 1502 is a valid setup. From then on it is all about managing the trade.

 

Some observations:

 

1. Price/vol action during lunchtime period is not very reliable for interpretation.

 

2. The wide range bar around 11.30 indicates buying pressure, however after the retracement, the half hearted price bounce suggests buyers are not that desparate, price could easily drift in a sideways range until traders return from their lunchbreak and in the meantime break the trendline after forming a lower high.

 

3. After lunch, prices could be then be driven higher or lower depending on buying and selling pressure at that time.

 

To be honest, I hadn't look at what time the setup presented itself. I agree that volume signals during lunch can be somewhat difficult to interpret. But from what I can see on the chart there's no reason not to take the entry. It would be interesting to see what happened next, but since the chart has no date on it, I'm not sure anyone can look it up...

Edited September 10, 2009 by DbPhoenix

[wasp 10]

1506 may present resistance but until the trendline is broken and even 1502, there is no sign of a reversal. Can't really comment on volume interpretations though.

[NAVEEVIa 10]

Whats the difference between Swing points & highs/lows

An uptrend is intact if lower high is not lower than last swing pt., whats the difference between the two

A chart will help greatly

Thanks

[NAVEEVIa 10]

here is what i was trying to say

1. i use line charts to find out trend, a small dip at around 12:10 , i marked it as lower high/Lower low on same bar & was subsequently stopped out

2. Candlechart has all pts marked as red dot

can somebody explain swing pts & lows/highs on these charts

[firewalker 10]

Depends on the population you're targeting. If you're looking at where investors made their purchases, then you will likely have to go back to the last important accumulation phase. In the case of the Dow, this was 2004-5:

 

We've blown through that area faster & harder than expected...

 

So would this 'box' be the next logical stop? Price made a pretty strong recovery today (premarket) at what one could see as the midpoint of the congestion from 5 years back.

 

 

[Flojomojo 10]

Hi Firewalker,

I´ll try to answer your question. DB, please correct me or add as you please.

 

(next two paragraphs are scippable...wrong answer)

Ok, to start off something that I have to remind myself of sometimes: Price does not do anything just because there is a box drawn in that region, but price does what it does!

That´s why the question "Would this box be the next logical stop" is maybe a bit misleading.

The box is not a "logical" reversal zone, but a "potential" one. What´s important is what price does as it gets there...if it actually gets there. It´s the old "be available" story then. It depends on your system what to do. But as Livermore once said: "I go long or short as close as I can to the danger point, and if danger becomes real I close out and take a small loss."

 

Back to the picture, note also, that where you have identified a conjestion zone this is also 1/2 the upmove. Chartwise I see no reason yet to be long at the moment. Actually this might be a good danger point to go short. What might be of significance though is that if you draw supply and demand lines on top and bottom of the peaks it seems as if supply is running out of a little bit of breath. Therefore watch closely where that next possible downswing starts to run into buying pressure.

Hope this answers your question.

Cheers,

Flojo

 

ooops, I just realized that your chart is from 04 and you are actually refering to the current action! As far as I know DB doesn´t comment on current market action and I can undestand his reasons.

Coming to the current market action: Price broke hard through the midpoint of the 03-08 upmove and the mist of a potential climax run surrounds us. But to be honest I leave the going long during a daily chart climax run to the ppl with the really big balls! Also a single premarket up session does not yet make an accumulation phase. Hence I´d say the path of least resistance is still down.

[sdoma 10]

I'm sorry DB, help me out - where exactly does it say here what you are doing tomorrow in terms of actual trades? I'm really interested to follow your new area and per our discussion here, I came to the thread you referenced but my simple mind did not find where you laid out the actual trading plan for tomorrow.

 

How about you take the ideas and try to apply them yourself? Seriously, the way you're acting you should be forced to wear a diaper and drink formula.

 

Not trying to be mean, just trying to shed light on your passivity in a humorous way. Be proactive, man! This is a learning experience and one of self-discovery. If you want to see if it works, try it! You will only learn by doing. Nobody will ever be able to prove anything to you, you must prove or disprove it for yourself.

[Flojomojo 10]

How about you take the ideas and try to apply them yourself? Seriously, the way you're acting you should be forced to wear a diaper and drink formula.

 

Not trying to be mean, just trying to shed light on your passivity in a humorous way. Be proactive, man! This is a learning experience and one of self-discovery. If you want to see if it works, try it! You will only learn by doing. Nobody will ever be able to prove anything to you, you must prove or disprove it for yourself.

 

uhm...sdoma whats the point of quoting a rather insignificant line from almost 5 months ago? :hmmmm:

[DbPhoenix 42]

Flojo provided a fine answer and I have little to add other than that FW's box is drawn around the springboard that formed after the BO from the climax and various tests in 2002. Since this also coincides with the bottom of the range which I posted earlier, there may be a nice rally around here. However, I see no particular reason why we shouldn't test the long-term trendline at around 7500.

 

As far as commenting on current market action, I'm happy to do so. But the site veered off toward indicators and Forex some time ago and there's been little interest shown in "plain" trading. If anyone who's gone through the material has a question, I'll give it a shot. If anyone who has a question has not gone through the material, I suggest that as a first step.

[sdoma 10]

uhm...sdoma whats the point of quoting a rather insignificant line from almost 5 months ago? :hmmmm:

 

Sorry, it was just pent-up aggression from years reading these messageboards and seeing those kinds of posts. It always struck me as incredibly lazy and also selfish to expect people to conduct trades real time to prove to some random guy on the internet that their method works. Unless they're selling it, of course.

 

After I posted I realized it was old but at that point I figured what the hell.

Edited October 8, 2008 by sdoma

[brownsfan019 17]

Sorry, it was just pent-up aggression from years reading these messageboards and seeing those kinds of posts. It always struck me as incredibly lazy and also selfish to expect people to conduct trades real time to prove to some random guy on the internet that their method works. Unless they're selling it, of course.

 

After I posted I realized it was old but at that point I figured what the hell.

 

And who the hell are you? 23 posts and think you are king sh*t around here already?

 

Instead of finding posts that are MONTHS old to show your pent up aggression, go out, get a drink and get laid. Much more productive use of your time vs. finding posts of mine that are so old.

 

And maybe think before speaking too there new guy.

 

This conversation feels eerily familiar to another poster that is now banned here...

[sdoma 10]

And who the hell are you? 23 posts and think you are king sh*t around here already?

 

Instead of finding posts that are MONTHS old to show your pent up aggression, go out, get a drink and get laid. Much more productive use of your time vs. finding posts of mine that are so old.

 

And maybe think before speaking too there new guy.

 

This conversation feels eerily familiar to another poster that is now banned here...

 

Oh, you're a passive aggressive one, aren't you? I didn't check the date before I responded, shoot me.

[firewalker 10]

As far as commenting on current market action, I'm happy to do so. But the site veered off toward indicators and Forex some time ago and there's been little interest shown in "plain" trading. If anyone who's gone through the material has a question, I'll give it a shot. If anyone who has a question has not gone through the material, I suggest that as a first step.

 

I do have a couple of questions, but they might not be as specific as you want them... Here's a daily chart of the NQ:

 

 

I know you trade that market primarily, but that's not the main reason I chose it. There's something about it that seems to set it aside from the ES or DOW.

 

The bear seemed asleep during July and also the second (?) bear leg was less steep and went not as deep as the first one.

 

By the first week of August we broke out of the congestion and reached higher. It as a rally that lasted a good +150 points but after that it faltered and quickly broke the swing lows that we made on the way up. Volume was quiet and relatively low during July. The lows of that ranging area were also 100 points higher than the February lows. At that time both ES and DOW made lower lows in July and looked a lot more bearish than the NQ.

 

Now if a trader were to focus solely on the NQ, wouldn't he have been inclined to think things were starting to look better?

 

After all:

(a) the decline that started on June 6 was slower and less steep then the previous one that ended in the February lows

(b) there was no lower low in July

© the congestion (springboard potentially?) that lasted throughout July could've been interpreted as accumulation

(d) volume was low (reportedly 5-year low) during that month

(e) we broke out of the range in August and so basically we made a higher low

 

The worst 'damage' is done in the least amount of time in the final leg of the bear market but this market has already lost 40% since the high of last year... my second question is: I remember that you said last year there wasn't thàt much indications of distribution, yet that doesn't seem necessary to mark prices down fast & hard? Would it be wrong to conclude that, based on these observations, a new phase of mark-up would require a lot longer accumulation period?

[DbPhoenix 42]

I do have a couple of questions, but they might not be as specific as you want them... Here's a daily chart of the NQ:

 

I know you trade that market primarily, but that's not the main reason I chose it. There's something about it that seems to set it aside from the ES or DOW.

 

The bear seemed asleep during July and also the second (?) bear leg was less steep and went not as deep as the first one.

 

By the first week of August we broke out of the congestion and reached higher. It as a rally that lasted a good +150 points but after that it faltered and quickly broke the swing lows that we made on the way up. Volume was quiet and relatively low during July. The lows of that ranging area were also 100 points higher than the February lows. At that time both ES and DOW made lower lows in July and looked a lot more bearish than the NQ.

 

Now if a trader were to focus solely on the NQ, wouldn't he have been inclined to think things were starting to look better?

 

After all:

(a) the decline that started on June 6 was slower and less steep then the previous one that ended in the February lows

(b) there was no lower low in July

© the congestion (springboard potentially?) that lasted throughout July could've been interpreted as accumulation

(d) volume was low (reportedly 5-year low) during that month

(e) we broke out of the range in August and so basically we made a higher low

 

The worst 'damage' is done in the least amount of time in the final leg of the bear market but this market has already lost 40% since the high of last year... my second question is: I remember that you said last year there wasn't thàt much indications of distribution, yet that doesn't seem necessary to mark prices down fast & hard? Would it be wrong to conclude that, based on these observations, a new phase of mark-up would require a lot longer accumulation period?

 

You're over-complicating it. You're also forgetting the fact that those who are trading are doing so in the midst of historic events. But even if one were to ignore events, this is really pretty simple if one focuses on concepts.

 

The bear seemed asleep during July and also the second (?) bear leg was less steep and went not as deep as the first one.

 

A, it's not unusual for volume to be low during the summer. B, it's not a bear leg but a rally off what had been an important hinge. But the rally couldn't even make a higher high. It came to rest, again, at the level of the hinge, emphasizing its importance. How quickly it got there, or not, is not particularly important in hindsight.

 

By the first week of August we broke out of the congestion and reached higher.

 

There was, however, nothing unusual about the volume. It wasn't even higher than it had been the previous two weeks. Price rose because there was little selling pressure. Buying pressure alone could have made a new high. But it didn't. That's all that matters. Even if one had interpreted the "box" in July as accumulation, he would have found nothing in the "breakout" to confirm his interpretation. If nothing else, the failure to make a new high would have negated such an interpretation.

 

The worst 'damage' is done in the least amount of time in the final leg of the bear market but this market has already lost 40% since the high of last year... my second question is: I remember that you said last year there wasn't thàt much indications of distribution, yet that doesn't seem necessary to mark prices down fast & hard? Would it be wrong to conclude that, based on these observations, a new phase of mark-up would require a lot longer accumulation period?

 

How much the market has lost up to now isn't important. The Nasdaq lost 85% of its value in 2000. There must be evidence that serious buying is coming in, and there was some the third week of September, but it wasn't enough. Perhaps those who bought realized their error and threw their shares back onto the market. That with the changes in short-selling rules may have exacerbated the decline. Again, it doesn't matter. Anyone who saw that as a climax and waited for the test would not have been caught up in it. The fact that price can be marked down "fast & hard" serves to highlight the difference between distribution and selling. Distribution is quiet. This selling has been anything but.

 

As for a new mark-up phase, yes, that will require a lengthy accumulation period. The one we went through at the beginning of all this took a year. But we aren't anywhere near there yet.

[NAVEEVIa 10]

DB

i am confused regarding swing pts & low/highs, since these are an important part of trend( mainly that uptrend is intact even if lower low is there but Last swing point is not violated), Can you please explain these points in one of your charts i have attched where you touched on this subject.

 

[nycdweller 10]

Hi DbPhoenix,

 

In one of the threads someone stated that you use a method of trading with a 5 second chart and watching the volume to determine when the market might turn. Where can I find your illustration of this concept? i tried the search feature but it didn't return anything. Thanks for your help.

 

Mario aka NYC Dweller

[DbPhoenix 42]

The following may be of help. Once you have the concept, you can apply it to any bar/line interval for any instrument.

SwingsPt1.pdf

SwingsPt2.pdf

[DbPhoenix 42]

I watch the volume on several bar intervals. Whether it's 5s or 1m or daily or weekly doesn't matter. The concept is the same.

 

I don't keep track of what charts I post where, so I can't tell you where the 5s charts are, if any. If I've posted any, they'll be found here in this forum or in my blog. I suggest you start with the Trend thread since volume is generally meaningless unless support or resistance is being tested.

[namstrader 10]

Db,

 

I want to thank you for suggesting the 5 second chart. I laughed at first and then I began to follow the 5 sec chart several weeks ago. I watch it regularly and I am amazed how the 50-61.8% fibonacci level is hit as pullbacks and then resumption of the directional trend occurs. Then I will also watch for the longer wave that makes up the smaller waves (primary trend wave), and when for instance the smaller wave's 50-61.8% fibonacci level is broken, for a possible contract being sold or an exit signal, I have observed often that price pulls back to the longer primary trend wave's 50-61.8% fib level and here is again a possible re-enter setup.

 

My thoughts are that information at any lower time frame is not noise, but can be useful if interpreted correctly after many observations. I then also use several moving averages with the 5 second chart and feel a little more informed than confused. With your suggestion of the 5 second chart and being open minded, I discovered another view of the market that fits me and not others.

 

Also your suggestion of the 5 second chart led me to become more aware of the 50-61.8% fibonacci level at this micro-level, and consequently I now watch them on the longer term charts with greater attention.

 

I guess my comments are to impress upon others to be open minded and formless in our thinking and perhaps a silly path (prior assumptions) taken, can be quite fruitful, in a build-out that started from plain old curiosity.

 

Thanks again Db