Trading The Wyckoff Way

[DbPhoenix 42]

Sorry, but how does the bullish percent index relate to Wyckoff's notion of selling climaxes?

[atto 20]

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.

When you say breakout, are you referring to the breakout of the two lines that form a hinge (the "wedge" area), or of a previous swing high?

 

I've found that breakouts of swing highs can be a more reliable entry, because often, a possible developing hinge can turn into a springboard for a longer congestion area (which is easy to see in retrospect, but harder real time). That said, a breakout entry here obviously does give up some price movement. If the hinge is small enough (often on a much faster timeframe), I frequently can place stops below the midpoint to allow for a re-test. For most other hinges, I do see myself re-entering often due to that midpoint retest. I've also noticed a false breakout in the opposite direction of the eventual movement is fairly common.

[minoo 11]

Dont know DB honestly, I was speaking more in general terms, where extreme action of one kind is followed by some professional reaction

Historic events, I dont know how wyckoff would have interpreted this bear market.

One may ask, Did Wyckoff had the chance to live through such interference from uncle Sam and Eurocrats hand in the market ? I Guess not

 

Minoo

[firewalker 10]

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

 

Preferably a slow and gradual dry-up, after which volume "explodes" and price reacts. It doesn't always work out that nice, as dbphoenix mentioned and Bearbull illustrated, but I prefer to wait for something clear-cut.

[Bearbull 10]

Am afraid, nothing is going to "WORK" out nice all the time, it is a question of managing the trade.

The move out of hinge does not have to be on dramatic vol, in the case illustrated, the price was rising on increasing vol i.e demand was overtaking supply, this allowed an entry and facilitated to a move of the stop to breakeven quickly and as Db said, it could come back into the hinge and stop out the trade, then have to prepared to reenter and that could be tough mentally:)

 

BTW Db did you trade this hinge on Nasdaq on Friday 17th Oct, the chart posted is a 5min chart. If so could you comment on your entry and trade management.

[disperados-x 10]

Hello guys! This is selling climax?

[disperados-x 10]

Much bottoms to similars Selling climax on picture. If after each will get up in long position, possible destroy the deposit. That to find output?

P.s.: Sorry, I am bad speak in english.

Edited October 19, 2008 by disperados-x

[DbPhoenix 42]

Sorry, I didn't trade on Friday.

[Bearbull 10]

Trading Wisdom of Vadym Graifer: Although he talks about stocks , it is equally applicable to all markets.

 

IDENTIFICATION OF TRADING OPPORTUNITIES

 

The first stage is identifying the basket of stocks to watch. Two major criteria should be applied: (1) Activity and (2) Setup. You want to go where activity is, and this leads you to watching pre-market gaps and volume. Next step is to identify the type of action. This is very important because the action might be such that you never see any familiar setup that would give you a reasonable trade. There are plenty of movements that we can't utilize to any "trading" extent as opposed to "gambling" extent. In other words, if you put on the trade because you see the setup, you are trading. But if you just go for the action without seeing a setup, you are gambling. You might lose on "trading" trade and you might win on "gambling" trade, but in the long run you will lose if you go for pure action without any attempts to identify the setup. When the trade shows a familiar situation, that's where you get probabilities on your side. You will often sit and wait in spite of the fact that there are plenty of hot movers around. But you have to ignore everything that moves in a way that doesn’t allow you to read the movement within your system. (A bit more complicated is trying to find a situation which might create an opportunity but the activity isn't there yet. Doing this you have to determine your stop point in advance, in case the action never occurs or the stock does the opposite to what the setup prescribes.)

 

After (1) spotting the activity and (2) identifying the type of activity comes (3) defining scenarios in terms of IF - THEN. You see, for instance, a stock approaching the higher limit of the range and your setup is buying the breakout because you identified the trend of the stock as an uptrend and are going to buy the high, going with the trend.

 

Your set of scenarios: (these are just examples, not a description of the strategy)

 

Buying at 20 - I buy

 

IF pullback to 19 5/8 THEN I get stopped out because 11/16 was the support on last pullback.

 

IF movement over 20 THEN I move my stop to 19 3/4 because stock shouldn't drop that far if it's really strong.

 

IF stock moves to 20 3/8 THEN I move my stop to breakeven.

 

IF stock moves over 20 5/8 THEN I sell half and move stop to 20 1/4 on remaining half.

 

IF stock moves up too fast on big volume THEN I sell entire position.

 

Note that the scenarios are built in such a way that any kind of market action triggers one of your reactions. It goes in accordance with our general approach: let the market tell you what to do.

 

After your set of scenarios is done, you have pretty much "programmed" your behavior and they become your psychological support. You have already predetermined your stop level and assumed the risk, so if the stock acts nasty, you’re not caught off guard; it's merely one of your scenarios. Knowing that you were not trying to predict anything, you take it calmly. If the stock goes in your favor, you know what to do next and there is no room for overexcitement and all those "Go ABCD!!!" which show unprofessionalism. Rather, another set of scenarios kicks in, moving your stop up and selling of half of your shares as you secure your profit, or selling it in full if you are a scalper or if the trade was intended as a scalp from the very beginning. After the trade is closed, you get back to monitoring and looking for activity. A full cycle is completed and now it's time for a new cycle.

 

As a daytrader, you spend much more time on the sidelines, waiting for the right opportunity to present itself. You are filtering out everything that:

 

1. Doesn't fit your risk criteria.

 

2. Moves in a way that doesn't allow you to identify a familiar setup.

 

3. Sets up but still doesn't trigger the trade. This means that, for example, AMZN goes to 32 1/2 where it should be a short but selling never hits this level. Therefore, the trade is not triggered. Either we see the setup or we let it go. Trading outside of a setup is gambling.

 

This programming of your action is very important as it brings structure to what would otherwise be chaos. You structure your own behavior putting some kind of algorithm in it. Eventually, that is what disciplines you and creates a favorable environment for getting rid of emotional imbalances. When you act within predetermined scenarios, you don't let actions trigger your ego. Ego raises its head when you expect the stock to do something, and it does the opposite. If you don't expect anything but are ready for any turn of events, nothing wakes the ego.

 

Attempts to jump on everything that moves leads to inevitable frustration as stocks act randomly for a trader doing this. They can't act any different because he looks at them randomly, so he takes the trades randomly. As soon as the trader has formed a system of setups and scenarios, where the setup is the trigger for the action and the scenario is the algorithm of the action, his behavior ceases to be chaotic and moves from gambling to trading.

 

The "setup", in other words, is not manufactured by some guru, nor does it have a cute name, unless you choose to give it one. The setup is rather a set of circumstances which you define which triggers an entry. It's up to you to impose order on the data stream; to -- in the context of this thread -- find those markers of buying and selling interest, buying and selling pressure, buying and selling exhaustion; test them to determine whether they show a higher probability of trading success than a random entry; decide exactly what it is you want to see before entering a trade. That's your "setup".

Edited October 24, 2008 by DbPhoenix
Added link to Vad's book

[Tannism 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

 

Me too, Rambler, but now I use Stockcharts instead of my spreadsheets. Although I loved those spreadsheets with the pressure bulls eyes, I am liking the time to study the stocks and Wyckoff and others materials even more.

 

These fractions on the right axis are equivalent to their respective percentages. I drew blue lines on 90%.

 

I think I can set up volume and issues on the same spreadsheet. Later when I have more time, I'll post them together. I'd appreciate your opinion on what you think of stockcharts data.

 

Thanks,

Tannis

[Tannism 10]

DB-

If you ever think the charts I posted to Rambler have any value, I can go back to Feb of 99 on volume with defined increments on Stockcharts.

Tannis

[erierambler 10]

Hello Tannis

Glad to see you are still interested in trading

I enter data from stockcharts daily into my spreadsheet. I have found that on occasion they correct previous data two days after, but when you are entering your data daily one just looks back and can see if it changes. Like the day before yesterday there was a big change in the breadth data. So you have to keep an eye on it. I like the spreadsheet better because you can chart the data together , just like Wyckoff suggests one on top of the other But naturally to each their own.

erie

 

Me too, Rambler, but now I use Stockcharts instead of my spreadsheets. Although I loved those spreadsheets with the pressure bulls eyes, I am liking the time to study the stocks and Wyckoff and others materials even more.

 

These fractions on the right axis are equivalent to their respective percentages. I drew blue lines on 90%.

 

I think I can set up volume and issues on the same spreadsheet. Later when I have more time, I'll post them together. I'd appreciate your opinion on what you think of stockcharts data.

 

Thanks,

Tannis

[erierambler 10]

Tannis

Should add that I do not depend on stockcharts for highs and lows. The data for some reason does not follow with my calculation from a program.

Also in calculating the 90% days, I just take the adv and decl and add those two togther to get total (volume and issues ) on the spreadsheet and take % from there , and ignore unchanged data all together. Therefore I don't use the data from stockcharts for the total volume/ issues.

erie

 

Hello Tannis

Glad to see you are still interested in trading

I enter data from stockcharts daily into my spreadsheet. I have found that on occasion they correct previous data two days after, but when you are entering your data daily one just looks back and can see if it changes. Like the day before yesterday there was a big change in the breadth data. So you have to keep an eye on it. I like the spreadsheet better because you can chart the data together , just like Wyckoff suggests one on top of the other But naturally to each their own.

erie

[firewalker 10]

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?

 

I've also noticed a false breakout in the opposite direction of the eventual movement is fairly common.

 

Atto, what's your experience in terms of reversal or continuation patterns?

 

Perhaps interesting to add:

 

"Edwards and Magee suggest that roughly 75% of symmetrical triangles are continuation patterns and the rest mark reversals. The reversal patterns can be especially difficult to analyze and often have false breakouts. Even so, we should not anticipate the direction of the breakout, but rather wait for it to happen. Further analysis should be applied to the breakout by looking for gaps, accelerated price movements, and volume for confirmation. Confirmation is especially important for upside breakouts."

[DbPhoenix 42]

Sinces hinges are springboards but are not boxes, the hinge discussion is technically off topic. In order to avoid confusion, I've created a separate thread for hinges. Please divert the discussion of hinges to that thread.

[DbPhoenix 42]

In all fairness to Vad, the last paragraph in the post above is me, not he, from something I posted four years ago. Funny how these things resurface.

[Bearbull 10]

In all fairness to Vad, the last paragraph in the post above is me, not he, from something I posted four years ago. Funny how these things resurface.

 

I received the quote from a trading colleague, so could not tell which part was yours.

 

Still it is very pertinent and hope newcomers will take it on board

[atto 20]

Since hinges are very easy to spot real time, and they occur rather frequently, I wanted to examine some "failed" hinges, and how we can protect ourselves.

Here's an example. The market and timeframe don't matter (assume this encompasses a larger sized move). This hinge occurred in a longer term downtrend. I mark midpoints for hinges, because they frequently are tested again and can act later as supply or demand areas. As you see, price broke out of the hinge to the upside and went higher than the past two bull traverses. However, bullish interest soon died, and price returned back down, broke the midpoint, and continued down.

 

I've noticed that this occurs somewhat often. In this case, I was stopped twice (entered on the break, stopped soon; entered on midpoint test where it momentarily bounced; stopped) before the break down below the midpoint (I prefer rather small stops, and don't mind re-entering). It must be noted, however, that the pattern did indicate a large market movement.

 

How do you handle these? Was these a warning sign here? At what point is a hinge "invalid"?

Edited September 8, 2015 by DbPhoenix

[DbPhoenix 42]

This is not a "failed" hinge. A failed hinge is one beyond which there is no directed move, i.e., one that trails off into a patternless sideways nonmove to nowhere. In your example, you had a poke to test for buying interest. There wasn't any. Therefore, it is not surprising that the sellside would take over (if it didn't, then you'd have a patternless sideways nonmove).

 

As for a warning, I have Teresa Lo's admonition imprinted on my brain: "if it doesn't move, you don't want to be there". In this case, the move was aborted immediately, Therefore, you don't hang around and hope for the best.

 

As for a midpoint bounce, I don't see one. Perhaps you're placing your buystop in the wrong place.

[firewalker 10]

Like the "Cajas Famosas", hinges are a type of springboard. But they by definition are not boxes. Rather than diffuse the focus of the boxes thread, I've created this thread to address hinges per se.

 

I believe you said somewhere that the target of the breakout would be the extreme point of the hinge. So in case the low, since we broke to the downside. Despite the $INDU chart on StockCharts showing differently (and the one on Bigcharts too), we opened yesterday with a spike down below 8000.

 

So if I understand correctly, the target would (more or less) already be reached?

[DbPhoenix 42]

I believe you said somewhere that the target of the breakout would be the extreme point of the hinge.

 

I don't recall saying that. If that were the target, the trade would hardly be worth taking.

[Eiger 10]

Since hinges are very easy to spot real time, and they occur rather frequently, I wanted to examine some "failed" hinges, and how we can protect ourselves.

Here's an example. The market and timeframe don't matter (assume this encompasses a larger sized move). This hinge occurred in a longer term downtrend. I mark midpoints for hinges, because they frequently are tested again and can act later as supply or demand areas. As you see, price broke out of the hinge to the upside and went higher than the past two bull traverses. However, bullish interest soon died, and price returned back down, broke the midpoint, and continued down.

 

I've noticed that this occurs somewhat often. In this case, I was stopped twice (entered on the break, stopped soon; entered on midpoint test where it momentarily bounced; stopped) before the break down below the midpoint (I prefer rather small stops, and don't mind re-entering). It must be noted, however, that the pattern did indicate a large market movement.

 

How do you handle these? Was these a warning sign here? At what point is a hinge "invalid"?

 

Hi Atto,

 

The 'warning sign' was the UpThrust followed by a lack of demand/No Demand. These are highlighted on your chart (attached). It becomes clearer when the mid-point line is removed.

 

I'm not sure what you are using for an indicator on this chart. One that is quite effective in identifying apexes is the 14-period ADX. Most traders think of the ADX as a tool to identify trends, and it does that well when it is rising and giving readings above 25 or 30. It also identifies consolidation and, especially apexes or hinges, when readings are very low. Look for the ADX to be falling and drop into the range of 10 to 12. At the low level, the odds favor a breaout of some sort.

 

Hope this is helpful,

 

Eiger

[DbPhoenix 42]

 

I'm not sure what you are using for an indicator on this chart.

 

Indicators aren't used in the Wyckoff approach, much less the ADX. If and when one understands how to interpret the price action, indicators aren't necessary.

[jaygo 10]

So how would one manage this trade then DB? (looking at attos chart) If price fails to break north i would just get stopped out and move onto the next setup. I always assumed that what i was looking at just wasnt a hinge. If this were to happen would the most logical entry be on the break of the mid point or perhaps the demand line? Even if i didnt trade the hinge the failure to break north gives a pretty good clue to where price is heading which is always helpful.imo

[DbPhoenix 42]

So how would one manage this trade then DB? (looking at attos chart) If price fails to break north i would just get stopped out and move onto the next setup. I always assumed that what i was looking at just wasnt a hinge. If this were to happen would the most logical entry be on the break of the mid point or perhaps the demand line? Even if i didnt trade the hinge the failure to break north gives a pretty good clue to where price is heading which is always helpful.imo

 

Genuine hinges share common characteristics and can therefore be traded in much the same way. If buying what appears in real time to be an upside breakout through the supply line, keep a tight stop. If it doesn't go, you're out at breakeven. If price returns to the midpoint, one can place a buystop above this activity so that one can be stopped in on a second attempt at an advance. Otherwise, one can as you suggest sell a break of the demand line, again with a tight stop. If he is again stopped out but the return to the midpoint turns out to be a test, he can place a sellstop below this test and be stopped in on a second attempt at a decline.

 

I don't know what bar interval was used in this case, but using a smaller one may tell you whether or not your trade is going to succeed without having to wait for a "bar" to "close".

Edited April 4, 2013 by DbPhoenix