Trading The Wyckoff Way

[nycdweller 10]

Hi Namstrader,

 

I hope I'm not asking for too much. Is it possible that you can post a chart illustrating your points? Thanks for the commentary.

 

Mario

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

[namstrader 10]

Here is an example.

[DbPhoenix 42]

Here is an example.

 

Not to rain on anyone's parade, but this is all veering further off the subject of this thread, and is only partly relevant to Wyckoff. Those who are interested in indicators, Fibonacci, etc. will likely have better luck elsewhere in the Technical Analysis Forum.

[DbPhoenix 42]

In 2002, Paul Desmond won the 2002 Charles H. Dow Award for his work in identifying market bottoms and new bull markets. Since this work nicely supports Wyckoff's hypotheses regarding selling climaxes, technical rallies, and "secondary reactions", or tests, I've posted Desmond's study below in pdf form. I've also excerpted several points which are particularly pertinent to Wyckoff's aforementioned hypotheses and which will act as an introduction to the study. Please note that all bolding is mine.

To spot an important market bottom, almost as it is happening, requires a close examination of the forces of

supply and demand

– the buying and selling that takes place during the decline to the market low - as well as during the subsequent reversal point. Important market bottoms are preceded by, and result from, important market declines. And, important market declines are, for the most part, a study in

the extremes of human emotion

. The intensity of their emotions can be statistically measured through their purchases and sales.

 

[P]anic selling must be measured in terms of

intensity

, rather than just activity.

 

It is essential to recognize that days of panic selling [in which Downside Volume equaled 90.0% or more of the total of Upside Volume plus Downside Volume, and Points Lost equaled 90.0% or more of the total of Points Gained plus Points Lost]

cannot, by themselves, produce a market reversal,

any more than simply lowering the sale price on a house will suddenly produce an enthusiastic buyer. As the Law of Supply and Demand would emphasize,

it takes strong Demand, not just a reduction in Supply, to cause prices to rise substantially

....These two events – panic selling (one or more 90% Downside Days) and panic buying (a 90% Upside Day...) – produce very powerful probabilities that a major trend reversal has begun….

 

Not all of these combination patterns – 90% Down and 90% Up – have occurred at major market bottoms. But, by observing the occurrence of 90% Days, investors have (1) been able

to avoid buying too soon

in a rapidly declining market, and (2) been able to identify many major turning points in their very early stages – usually

far faster than with other forms of fundamental or technical trend analysis

.

 

Impressive, big-volume “snap-back” [technical] rallies lasting from two to seven days commonly follow quickly after 90% Downside Days, and can be very advantageous for nimble traders. But, as a general rule, longerterm investors

should not be in a hurry

to buy back into a market containing multiple 90% Downside Days, and should probably view snapback rallies

as opportunities to move to a more defensive position

.

The following is of course a chart of the Nasdaq over the past few months up through yesterday and is intended as an example. The calculations are not guaranteed to be accurate. Anyone caring to verify them and point out any errors is welcome to do so. Readers are encouraged to read the study in its entirety.

 

2002DowAward.pdf

Edited October 14, 2008 by DbPhoenix

[erierambler 10]

As you probably already know Db , I follow the 90% days on the NYSE , which coincides with Desmond's work. Those down days were Sept 29th, Oct 6th and Oct 9th , with the up day on the 13th. That is 90% as in both volume and issues together.

erie

[cowseathay 10]

Very insightful, thanks for the post db. So if I'm understanding this correctly, it seems like we are at the major market bottom and the rally on Monday is not just a "snapback rally" but a rally driven by strong demand. If this is true, is it expected that there will be a (long) period of consolidation before prices start going higher?

 

Thanks.

Edited October 15, 2008 by cowseathay

[DbPhoenix 42]

We're at "a" bottom, but not necessarily "the" bottom (look at what happened in 1930). And a "snapback" or "technical" rally are both driven by strong demand. If they weren't, price wouldn't rise. What distinguishes a snapback or technical rally from a genuine rally is whether buyers intend to keep the shares or are buying them just to cover short positions and whether the "hands" doing the buying are weak or strong. If weak, the shares will be tossed back into the market at the first sign of trouble, which is what the test is all about (if none of the shares were thrown back, you'd have a "V" bottom). What both Desmond and Wyckoff counsel is to avoid buying too soon, and both provide ways (essentially the same ways) of enabling the investor to avoid doing so.

 

As for a lengthy period of consolidation, the bottom six years ago took at least six months to form. Traders looking to invest may want to focus on bargains that pay dividends so that they are at least somewhat compensated for the time they spend waiting for their stocks to begin to re-appreciate.

[DbPhoenix 42]

We're at "a" bottom, but not necessarily "the" bottom (look at what happened in 1930).

 

 

[DbPhoenix 42]

As you probably already know Db , I follow the 90% days on the NYSE , which coincides with Desmond's work.

 

Do you have data for 2002 and the first half of 2003?

[erierambler 10]

Do you have data for 2002 and the first half of 2003?

Let me look and see if I have something saved on a disk. Right now I have from Aug28th/03 and on. ( wouldn't ya know it ) I do remember sending you a copy once of my spreadsheet, by chance would you still have it?

erie

[DbPhoenix 42]

Can't find it. But I'm interested only in the "90" days. If you don't have that already, it would be a lot of work. If you do, I'll put together a chart like the one above.

[erierambler 10]

Can't find it. But I'm interested only in the "90" days. If you don't have that already, it would be a lot of work. If you do, I'll put together a chart like the one above.

 

I found an old spreadsheet from Aug2/2001 to 2004 with the breadth data on disk. So you just need the dates of the 90% days? Could you tell me the timeframe, I assume 2002 to 2003?

erie

[DbPhoenix 42]

The selling climax appears to have come in July '02 and the market broke out of its range in June '03, so let's say July '02 to July '03.

[erierambler 10]

The selling climax appears to have come in July '02 and the market broke out of its range in June '03, so let's say July '02 to July '03.

 

Ok.

Down volume days were:

July 02/02

Sept03/02

Mar 10/03

Mar 24/03

Up volume days were:

July 05/02

July 29th/02

Jan 02/03

Mar 17th/03

 

erie

[erierambler 10]

I may mention that July 18th, 19th, 22, and 23rd of 2002 was 4 days of 80% down days in a row. And there were numerous back to back 80% days.

Aug 02/02 and Aug 05/02 back to back down

Oct 4th and 7th/02 back to back down

Jan 24th and 27th /03 back to back down

Oct 10 and 11th/02 were back to back up

[DbPhoenix 42]

Which goes to show that even with a selling climax and two successful tests (or preliminary support, a climax, and one successful test), it can take a while.

 

[kuky969 10]

DB

what do you think

Points Lost and Points Gained are advancing and declining issues from Market diary ?? ( see picture please from wall street journal)

[BlowFish 10]

I am rying to make sure I understand this correctly. At the bottom page 1 column 2, he talks about upside and downside days (no mention of volume). A 90% day is a day when the points gained vs the points lost is 90%. So I am reading it as open to close is 90% of the days range. Does this sound correct?

 

Then how does one get from an upside/downside day to upside/downside volume day? Multiply total volume by the % as you would with an OBV calculation?

 

For the remaining discussion he talks about upside days (not upside volume days). The way I am reading this article, from the point of view of the analysis presented volume data is not actually required?

 

Incidentally the candlestick boys have a similar pattern 'three white soldiers" and its companion 'three black crows'.

 

I'm probably being dense here, but like to make sure I have clarity on the basics.

[zkreso 10]

BlowFish,

 

I'm not sure how upside/downside volume is calculated either, but you can find these figures on sites like this:

 

http://finance.yahoo.com/advances

 

Also, these are the tickers on stockcharts.com

 

$NYUPV - NYSE up volume

$NYDNV - NYSE down volume

$NYTV - NYSE total volume

[Bearbull 10]

Db, To keep the Wyckoff forum alive,

Nice hinge formation on Nasdaq on Friday, and a profitable breakout

 

I prefer the breakout of the hinge on increasing vol. If you traded, what are your thoughts/comments on entry and trade management.

[firewalker 10]

Db, To keep the Wyckoff forum alive,

Nice hinge formation on Nasdaq on Friday, and a profitable breakout

 

I prefer the breakout of the hinge on increasing vol. If you traded, what are your thoughts/comments on entry and trade management.

 

Your chart has no timeframe on it, but am I right to conclude that you've drawn the hinge from the day before, leaving out the overnight and this is a 2 or 3-min chart?

 

If you don't mind me saying, the volume on the breakout doesn't seem spectacular imo... in fact it's hardly higher than two bars before.

 

There was a nice hinge on the ES earlier this week, and this one led to a meaningful move in the opposite direction (see attached charts one is a 5-min, the other a 1-min chart).

 

Your hinge is a continuation pattern, and although I can't say I have done enough study on this to make it conclusive, it does look as like those are more common. Any thoughts about that?

[minoo 11]

Article 'NYSE Bullish Percent Index Unbelievably Bullish' @ tradersnarrative site

shows the NYSE BPI below every other crisis low from bear year of 1987 onwards; Interesting Chart.

 

http://www.tradersnarrative.com/nyse-bullish-percent-index-unbelievably-bullish-1965.html

 

+-----------------------------------+

 

This article discusses more bear bottoms wisdom

'Secular Or Cyclical Bottom… Or None At All?'

The below two paras make sensible read

-Volatilitius Maximus

-Smart Money vs. Dumb Money

 

http://www.tradersnarrative.com/secular-or-cyclical-bottom-or-none-at-all-1971.html

 

+------------------------------------+

 

Its worth noting here though ( )

Never in the history of the free financial world we had seen such unprecendented 'action' from Governments during bear-market.

This time the 'reactionary' bottom surely will have the official hand underneath it.

In such circumstances, I wonder if one should interpret the characteristics of previously, politically unadulterated bear-markets, in the same way ? ?

 

-Enjoy Minoo

[nycdweller 10]

Firewalker, what exactly do you look for when watching volume? Thank you.

 

Your chart has no timeframe on it, but am I right to conclude that you've drawn the hinge from the day before, leaving out the overnight and this is a 2 or 3-min chart?

 

If you don't mind me saying, the volume on the breakout doesn't seem spectacular imo... in fact it's hardly higher than two bars before.

 

There was a nice hinge on the ES earlier this week, and this one led to a meaningful move in the opposite direction (see attached charts one is a 5-min, the other a 1-min chart).

 

Your hinge is a continuation pattern, and although I can't say I have done enough study on this to make it conclusive, it does look as like those are more common. Any thoughts about that?

[DbPhoenix 42]

Exits from hinges are not always dramatic and they're not always easy to recognize in real time, much less trade in real time. Most often, one has to take the breakout on faith that it will be successful, and if he's read it correctly, it likely will be.

 

However, price often comes back to the midpoint or apex, as it does here. Therefore, if one is going to maintain a tight stop, he has to be ready to re-enter if price retraces then resumes the advance.

Edited October 18, 2008 by DbPhoenix

[thrunner 10]

not relevant to topic.

Edited October 18, 2008 by thrunner
not relevant to topic.