Trading The Wyckoff Way

[firewalker 10]

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

 

I agree one would expect a more prolonged directional move, but I thought you didn't "calculate" targets nor used PnF charts to determine targets, but just went along with what the market told you... so what would be the target then?

 

Anyhow, I couldn't find the exact post that I had in mind, but it was something you talked about in March/April when the NQ broke out of the hinge it found itself in at that time, see also here.

 

Perhaps we could use that as an example where price didn't move very far (at least not in terms of size relative to the hinge itself), and only tested the bottoms of the hinge before preparing a new advance in the opposite direction.

[DbPhoenix 42]

I don't use targets. What I said was "if that were the target", i.e., if one determines targets. I see no point in them. Many people do. And they're free to do so. To me, it's just another way of cutting profits short.

[firewalker 10]

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

 

I finally found what I was looking for, turns out it wasn't in a post but it was a comment in your blog; you wrote: "the technical potential is the bottom of the hinge".

[BlowFish 10]

I don't use targets. What I said was "if that were the target", i.e., if one determines targets. I see no point in them. Many people do. And they're free to do so. To me, it's just another way of cutting profits short.

 

So i guess you monitor supply and demand as manifested in the price action (and possibly volume) through the Mark up/down? Or do you just monitor at potential S/R to see if the next phase (accumulation/distribution) might have started.

 

I think potential S/R make reasonable potential targets. Buying a test and hanging on until a potential buying climax in an area where this might be anticipated is not a bad tactic (imvho).

 

As an aside did Wycoff talk about using P&F for potential targets? I though he was the first to offer the 'classic' P&F method of counting the width of the base to project a target? Could very well be mistaken there.

 

Cheers.

 

P.S. Clearly moved away from hinges but I put this here for continuity. By all means move it if appropriate.

[DbPhoenix 42]

I finally found what I was looking for, turns out it wasn't in a post but it was a comment in your blog; you wrote: "the technical potential is the bottom of the hinge".

 

Yes, the technical potential is the bottom of the hinge, which also happens to be a swing point. Every chart pattern has a technical potential. But that doesn't make it a target at which one necessarily exits one's position.

 

Wyckoff didn't get tangled up in patterns. He focused on trends and "rests". And though he used P&F to estimate targets, I choose not to. Whether you do or not is entirely up to you.

[BlowFish 10]

Thanks DB, the P&F stuff was an aside.

 

I wonder if you have any comments on my first couple of paragraphs?

[atto 20]

Thanks for your feedback Db, your comments on how you would have traded this was exactly what I was looking for. If a hinge does fail (so no direction), at what point do you "realize" this and stop trading it? Something like a test, return, test and return in the opposite direction?

Edited January 28, 2009 by DbPhoenix
comment re deleted post

[DbPhoenix 42]

I began the thread as a result of posts made in the Trading Ranges thread regarding hinges. How I trade them or "what I'd do" is largely irrelevant. What matters is understanding why they form, i.e., what's going on with traders. If one focuses on bars, much less on what to call this bar or that bar, he's missing the point.

 

One must be able to recognize the hinge (or wedge or apex or dead center or pivot) in real time. If he can't, it is of no use to him. If he can, there are many, many different ways of entering, managing, and exiting the trade, the choice of each of which is entirely up to the trader according to his goals and objectives.

 

If those who are interested in this subject want to post charts of hinges which are in the formative stage, along with what they plan to do to play the hinge, I'm sure that everyone would benefit. Even hindsight charts, though there have already been plenty, may be of benefit.

 

But this is much more than a game of Find The Bar. One must instead, again, understand what traders are doing and why. If one can't do that, or doesn't want to, preferring instead something mechanical, then this approach will not be for him.

Edited December 29, 2012 by DbPhoenix

[Flojomojo 10]

I hope this is not too far off topic for this thread:

 

In the last days I had some thoughts on market participants:

 

When one looks at the dates of market crashes (1929, 1987, 2000, 2008) the following came to my mind:

This is the first time in history that the same people (professionals and individuals alike) are faced with/create a major bull market. The bursting of the dot.com bubble hurt many in 2000. Usually I´d say that people forget pretty fast and at the latest the next generation will have no personal reminiscences about the last crash when they start investing. One could say that every 20-40 years there is a completely new set of people tackling the market. The only way to look at past crashes is through data, books, documentaries, etc. With the memory of the last crash still in the heads of peoples´ minds:

 

- What impact does this have on their market behavior as we move towards the bottom?

- Could this reborn fear in the heads of people be responsible for the speed at which markets are dropping? (with professionals and individuals saying to themselves "I don´t want to loose my shirt like last time!")

 

What do you think?

Flojo

[minoo 11]

In this article tiltled 'Market Pattern Looks Normal' pertaining to option expiry weekly pattern in a bear market scenario & historically speaking Oct has done that before. Could this been misinterpretated as selling climax or was it as volatility was of historic proportion.

 

The author quotes from memoir of Richard Wcykoff at what happened when market tops in 1906 and at the subsequent bear market low how the manipulators used volatility to keep public on the wrong side or out at near lows

http://seekingalpha.com/article/101928-market-patterns-look-normal?source=article_lb_themes

 

 

In this article several Sentiment indicators are Overviewed including

Paul Desmond 90-90 Vs Selling Pressure

http://seekingalpha.com/article/101992-sentiment-overview-selling-pressure-still-has-the-upper-hand?source=article_lb_articles

 

Enjoy Minooo

[firewalker 10]

This looks like one to me...

 

I don't plan on 'doing anything' with it, because I am already in a position (long from 1178). But if it were to break to the downside, I would exit my position.

 

What traders are doing, imho, is coming to an agreement on price. There was a reaction off support around 1175, and another one off 1207. So on both levels a lot of traders could be find (we had a volume peak at 1207 as well as 1175). Here in the middle, trading is risky and has slowed down.

 

If we break this hinge, I think it could lead to a break of the nearest S or R level because by then enough energy could've been stored in the time price spent converging.

[firewalker 10]

If we break this hinge, I think it could lead to a break of the nearest S or R level because by then enough energy could've been stored in the time price spent converging.

 

And eventually, although it took some time, we did went up, so I'm still in.

But not after a come-back to the midpoint (I didn't change my lines).

 

I think those who entered on the breakout would've easily been stopped out, so again it pays to re-enter...

[firewalker 10]

and again... late in the day:

[BlowFish 10]

 

One must be able to recognize the hinge (or wedge or apex or dead center or pivot) in real time. If he can't, it is of no use to him. If he can, there are many, many different ways of entering, managing, and exiting the trade, the choice of each of which is entirely up to the trader according to his goals and objectives.

 

 

Certainly....I kind of anticipated this answer having 'estalked' you on and off for many years it can be said that you are pretty consistent in how you reply to questions.

 

Imo it is pretty straight forward to spot a hinge in real time (i prefer triangle), I'd even perhaps go as far as saying its trivial. You can also feel the pace declining. Occasionally you might be wrong footed as conditions change (but thats another story).

 

Where people face difficulties is precisely in entering managing and exiting trades exactly because there are so many ways of doing it. Of course having clear objectives helps (but again thats another story).

 

Here is an after the fact chart. Its of USD/JPY, funnily enough I have never traded currencies before this week. Its an hourly chart but monitoring the PA on a 2min showed the break quite clearly and the rejection of price to the upside too.

[erierambler 10]

On the NYSE , Oct 13th was a 90% up day , but today wasn't. Data to be confirmed tommorrow.

erie

[Head2k 10]

Today's hinge on NQ, 1 minute chart. The white line is not exactly in a middle of the hinge, but it represents an old significant support level (10/19-10/21). I entered (on a sim) at the lowest short red line, at a breakout of swing high breaching the supply line. Soon price stopped advancing, started drifting lower and took out my stop at BE. (Perhaps I rushed too much with moving my stop to BE. Anyway, I am in a phase of developing a methodology for trading hinges). I think the second red line was a chance to re-enter. Unfortunatelly I didnt take it. Notice how volume is building up when price approaches both lower red lines.

[DbPhoenix 42]

Soon price stopped advancing, started drifting lower and took out my stop at BE.

 

Where did price stop in relation to previous price action?

[Head2k 10]

Where did price stop in relation to previous price action?

I guess I should answer that it made a higher swing high

[DbPhoenix 42]

I guess I should answer that it made a higher swing high

 

No, it stopped at the congestion zone that formed just before the breakout. If you had noticed that at the time, what would you have (a) surmised and (b) done differently?

[Head2k 10]

No, it stopped at the congestion zone that formed just before the breakout. If you had noticed that at the time, what would you have (a) surmised and (b) done differently?

(a) I would recognize that those who bought in that congestion zone are not throwing it back, instead they hold and might be even adding to position. Those who sold in that congestion are taking a chance to get out even. In other words, price is being supported there as there is still sufficient demand.

(b) That would tell me to hold.

[DbPhoenix 42]

(a) I would recognize that those who bought in that congestion zone are not throwing it back, instead they hold and might be even adding to position. Those who sold in that congestion are taking a chance to get out even. In other words, price is being supported there as there is still sufficient demand.

(b) That would tell me to hold.

 

Those who sold in "that congestion" are already out. Perhaps you mean "those who sold [at the test, i.e., the retracement]".

 

But all that aside, what is volume telling you, and how can that message help you reach a decision in real time?

[Head2k 10]

Those who sold in "that congestion" are already out. Perhaps you mean "those who sold [at the test, i.e., the retracement]".

 

But all that aside, what is volume telling you, and how can that message help you reach a decision in real time?

By those who sold I meant those who sold short during the congestion.

Volume is very low during the test, that means there is no serious selling interest as price declines and approaches the previous congestion zone. Those who bought during the congestion are confident and they dont want to sell as price approaches their buy price.

That might tell me to hold, or if I had already sold, to re-enter during the test itself, or the breakout of the next red line if I wanted more confirmation. Or it might tell me not to buy the breakout of the first red line and make the test my primary entry.

 

Thank you very much for these inputs Db. I guess it will help me a lot in what to look for and which alternatives to incorporate to testing.

[DbPhoenix 42]

And what is volume doing on the advances?

[Head2k 10]

And what is volume doing on the advances?

Something like this?

 

I guess there was a lot of hints...

[DbPhoenix 42]

Don't get too caught up in bars. Note here, for example, after the "breakout", that price and volume rise together. Then when price makes a higher high, volume doesn't go along. This suggests a lessening of buying pressure. When volume rises again, so does price, a renewal of buying pressure. Then again, and then again. Volume is the effort. What happens to price is the result. And the effort is pushing price higher in each wave.

 

Edited October 29, 2008 by DbPhoenix
Incorrect volume plot