Trading The Wyckoff Way

[DbPhoenix 42]

Why? Recognize my work?

 

Hi. Db. I had some chocolate for you over Easter, but didn't know where to find you. Great to "see" you.

 

The old days...1998.

 

Ah, 1998. LTCM. Windows on Wall Street (loved that software). As for finding me, I can be googled now.

 

Good to see you again. I thought you'd be a millionaire quant by now.

 

As for INTC, here's the way I'd do it (please come up with something other than "eyeball method"; makes me think of that guy in Pirates of the Caribbean).

 

 

The problem here with this particular timeframe is that the VAP bars are thrown off by that consolidation off to the far left between 21 and 23 (yours are better). But even without the VAP bars, it's relatively easy to see where most of the action has taken place.

 

In a tighter timeframe,

 

 

you've got this. I was going to say that there was evidence of accumulation here, but that would be hindsight now that the breakout has taken place (assuming it succeeds). Do you see the accumulation as well?

 

P.S. Forgot to add the midpoint on the lower chart, but you have it.

[Tannism 10]

Db-Sorry, I don't know how to "quote".

 

Thank you so much for the charts on INTC and your clear answers.

 

I like these 3 line break charts for the look inside volume and will answer your question about my opinion of potential accumulation using a 3 line break chart.

 

Want to talk quant first? By inspection, the VAP pattern is more or less trimodal, implying 3 observable sets of occurances..so 3 boxes fit well here.

 

You asked about my view of accumulation. Looking back, there has been a change in character of the volume pattern since late January that could fit accumulation. Staying above the half way mark..low volume retest, more volume on up bars than down bars. The upper chart shows standard deviation indicating more recent decreased price volatility.

 

Now the motives come in. Is markup ready in the lower box? Will the middle boxers sell or hold into any rally?

 

Your boxes seem valuable in giving focus for what is happening at the edges. I am looking forward to studying your dailies.

 

TannisM

[DbPhoenix 42]

Db-Sorry, I don't know how to "quote".

 

Just click "quote" at the bottom of the frame.

 

You asked about my view of accumulation. Looking back, there has been a change in character of the volume pattern since late January that could fit accumulation. Staying above the half way mark..low volume retest, more volume on up bars than down bars. The upper chart shows standard deviation indicating more recent decreased price volatility.

 

Now the motives come in. Is markup ready in the lower box? Will the middle boxers sell or hold into any rally?

 

I find the effort and result on Feb 22 and Mar 4 interesting, both in how price was pushed back off the low and in what price did the day after each. And when price made an attempt to exit the range, there was no support to the moves at all, not a lot of supply since that would have increased volume, but no oomph, either.

 

I would not expect an initiation of the mark-up phase to begin with a breakout that's the result of an earnings report. Too sloppy. As of this evening, INTC can't get past the top of this box. If price is pulled back into this range, I'd watch what happens in this base very carefully.

[gassah 10]

Potential terminal shakeout on the 30m GBPUSD?

 

[BlowFish 10]

Swing points provide a form of support and resistance, yes, but it's somewhat different from the support and resistance provided by zones. The "resistance" provided by points, particularly if they are isolated, is provided primarily by the inability of the trader to find a trade (which, after all, is the business of the trader). There's nothing going on up there, or down there, so price returns back to an area where these trades can be found, which is where the "value area" comes from.

 

snip

 

Good point. Perhaps I am that trader! This is something I have meant to ask you about for a while. While rectangles may provide a much truer picture of where S/R might lie they do present more challenges to the trader looking for trades. I think you coined the term 'preliminary climax' for the push that comes before the real one. Sometimes you may get a couple if the side in control just wont give up. Now what if all these are in the zone?

 

I guess one trades them all? You mentioned elsewhere that Wyckoff would have no qualms about entering and re-entering. If you get good trade location and apply decent money management principles you should get a scratch or even take some profits on a portion if that is your preference. Is this the answer, trade management.

 

Actually lines provide a similar challenges too because if price has visited somewhere a lot (i.e. it is 'real' S/R) there is likely to be 'clusters' of them resulting in a zone anyway.

 

I guess another way of putting this is if the S/R zones are pretty wide compared to the space between them they become less useful in there job of guiding the trader to where he should be looking for trades?

 

Not sure if this is the right place for this. I was going to post in your blog or PA thread. Feel free to link off somewhere if it's straying off topic here. I have given this quite a lot of thought, maybe its the old traders malaise of looking for 'certainty' where none exist. Still I would be appreciative of any thoughts you might have on this.

 

Cheers.

[DbPhoenix 42]

I think I used the term "potential climax". What appears to be a potential climax and turns out not to be THE climax is considered "preliminary support". W didn't know at the time whether the selling clmaxes were in fact selling climaxes until they were tested. Rather he went with what was in front of him and stayed open.

 

But an omnibus answer to your questions may be that the best trades are found at the extremes. Therefore, you wait for the extremes. I read somewhere recently -- and can't remember where -- having to do with MP, I believe, that most experienced traders will avoid trying to catch the tops and bottoms and focus on "the middle", waiting for confirmations to enter and confirmations to exit. This is likely what they were taught to do. However, since "the middle" is by definition where most of the trading is going on and is largely non-directional, there is also a lot of whipsawing in the middle, and that generates a lot of losing trades. One can sometimes avoid this by widening the stops, but, since the market always teaches us to do what will lose the most money, this will turn out to be an unproductive tactic.

 

W used a combination of events to tell him when a wave was reaching its natural crest or trough: the selling/buying climaxes, the tests, higher lows/lower highs, and so on, all confirmed by what the volume was doing and by the effect the volume had on price (effort and result). What auction market theory provides is the WHERE these events are taking place, providing an important clue as to whether they are culminating or merely preliminary. Since W was big on extremes (climaxes), support and resistance, stride, momentum, midpoints, etc., I do not view any of this as being off-topic at all. If anything, it's just a natural extension (perhaps nic can chime in here with his opinion).

 

Dunnigan had this same issue, and it may have been for him the missing piece. TLo also had problems with this since she was (and I suppose still is) a Dunnigan fan. One can try to hit what appear at the time to be the important swings again and again and be stopped out again and again, hoping all the while that once one hits the true turning point, all the effort will turn out to have been worthwhile, and the P&L will change from red to black. But by waiting for the extremes, one avoids most or all of those losing trades, and even more important avoids trading counter-trend. These boxes -- which are simply a graphic variation of the MP distribution curve, whether skewed or not, or of the VAP pattern -- are nothing more than a means of locating those extremes. What I've found more useful about them is that they are encapsulated by time, i.e., the price and volume ranges have a beginning and an end. This enables me to see at a glance where the important S&R are, or at least are likely to be. Without them, one ends up with line after line after line until the S/R plots become a parody of themselves.

 

FYI, this is what I'm looking at now on the NQ. I drew this last night, so it doesn't include anything after 1600.

 

Edited May 24, 2009 by DbPhoenix

[BlowFish 10]

Lots to chew on there - Im not thinking too clearly today so will probably deliberate a bit. I try and trade at extremes which tends to make me prone to being early. I think being 'later' (either at the test or later still) so momentum has actually shifted and carries you along may be a more comfortable place to be. I dunno. There is psych stuff tied up here too I guess it comes from the ego wanting to 'nail the turn'. At least it no longer surprises me when you get that one last push. There is another side effect to being early and that is you are more likely to suffer from perceptional bias. probably one of the things that separates the truly great traders. I used too, if I hit a short (or two) at resistance I was less receptive to the idea that R might be breaking. I think I am dealing with that pretty well.

 

It occurs to me that a lot of trading is about compromises. So I am not really looking for a 'better' way to do things just a different set of compromises that might be better for a particular aspect of me.

 

Anyway I have rambled a bit I'm in a kind of strange mood today.

 

It was a shame Dunnigan died when he did, i'm sure he would have kept producing interesting insights. From what I recall he was prepared to be late to the party even waiting for a thrust in the new direction for confirmation.

[DbPhoenix 42]

I try and trade at extremes which tends to make me prone to being early. I think being 'later' (either at the test or later still) so momentum has actually shifted and carries you along may be a more comfortable place to be. I dunno. There is psych stuff tied up here too I guess it comes from the ego wanting to 'nail the turn'. At least it no longer surprises me when you get that one last push. There is another side effect to being early and that is you are more likely to suffer from perceptional bias. probably one of the things that separates the truly great traders. I used too, if I hit a short (or two) at resistance I was less receptive to the idea that R might be breaking. I think I am dealing with that pretty well.

 

If you're trading while you're trying to learn how to trade, you will likely continue to have these problems. You may resolve them eventually. Most people never do. But you're going to find it difficult to hear what the market is trying to tell you if you're focused on where to enter (there is abundant evidence of this problem on trading forums and it's not difficult to find; in fact, it's nearly impossible to avoid).

 

The goal is not to "nail the turn". The goal is to listen and to try to understand what's being said.

[BlowFish 10]

It's not about learning to trade more questioning if there is a "better" way of doing things. By better I mean a different set of compromises. I have a set that work well enough for me. I am really not too bad at listening to what the market is saying though as I said, in the past I have been more susceptible to directional biases when entering multiple times. I think it is a very real danger of trading early rather than late. Mind you that is not "wrong" all the time you are in a S/R zone, unless there is clear evidence its breaking. It's less of an issue for me now. Some days are better than others of course, the good days completely in the 'flow'. The bad just not listening or, probably more accurately, choosing not to hear. The worse days are eking out a few points while swimming against the tide. This tends to happen when layers of S/R, through a zone are breaking and I am swimming the other way. It's really nothing to do with trying to nail a turn, what I said is the ego wants to nail the turn, really It was just a philosophical ramble.

 

Having said that that it is not all about poor hearing. There is no way of knowing whether a climaxe within a zone is potential or real until after the fact. There is no way of knowing whether the zone is breaking or holding until price starts moving away from it. Even when it is moving away it might be a test, what the MP boys I think would call range expansion. C'est la vie.

 

That is not to say that I do not strive to improve my listening abilities or even tighten up my identification of S/R but that is not such a big a deal as examining the compromises we choose to make.

[DbPhoenix 42]

Depends on what one means by "compromise". Yesterday, for example, one could enter at the selling climax or at the retest. The difference was less than three points. If that's too much of a compromise, one can enter at the climax and see what happens.

[zeon 10]

Depends on what one means by "compromise". Yesterday, for example, one could enter at the selling climax or at the retest. The difference was less than three points. If that's too much of a compromise, one can enter at the climax and see what happens.

 

As you mention yesterday, I might as well ask the question here. You posted that the 'Wyckoff' entry was about 25 points in the black. I take it you are refering to an entry around the open then, because 25 points was exactly the width of the move from the open till the lows.

 

Anyhow, the green line is where I had drawn support, based on the lower border of the box. Also, the day before price touched the lows several times.

 

Support was broken, and therefore - as I remember you saying before - going long on the selling climax in 'the middle of nowhere' is higher risk. So I could not see any reasons than to wait for a short on a retracement back to support. That happened later in the day and when it approached the green line from the other side volume peaked (red line). This is where I envisaged a short entry, on the basis of (a) trend continuation (b) lower volume on a retracement and © a breach of support.

 

Can't really get my head around what happened next.

[DbPhoenix 42]

I also posted that we were approaching support dating back to January, which is where the selling climax occurred (the support level you're using is only one day's worth). Since no one had any questions at the time, I didn't elaborate or follow up on it. The retest then occurred at 1145 and the trendline was broken a few minutes later to the upside. Since then, there's been no reason to sell.

 

I realize that few people who frequent these forums trade in real time. Therefore, there's no point in my posting a lot of real-time information since it will all be hindsight anyway to those who don't read it until after they get off work. Besides, I did two weeks' worth of that in the Dailies section of my Blog. Plus nic and I have posted a lot of information for those who are interested to read. Until they do, it's really just a lot of bits and pieces that are difficult to relate.

 

Incidentally, since you're using a 5m chart, it may be more difficult to determine the continuous relationship between volume and price. I suggest you look at it again using a 1m chart.

Edited April 16, 2008 by DbPhoenix

[zeon 10]

I also posted that we were approaching support dating back to January, which is where the selling climax occurred (the support level you're using is only one day's worth). Since no one had any questions at the time, I didn't elaborate or follow up on it. The retest then occurred at 1145 and the trendline was broken a few minutes later to the upside. Since then, there's been no reason to sell.

 

I believe you said yourself on occasion that posting on messageboards can be distracting when you are concentrating on the chart. Anyway, I think you know your posts are being followed, but like others have said it's not always easy to keep up. This thread is only a couple of days old but already has +100 posts. I did take notice of your posts at the time ('real-time'), I just didn't want to be the one asking the questions. You must be thinking "here he is again"... so I was kind of hoping someone else would respond to your comment but nobody did.

 

But back on topic, support dating back to January, was at least 20-25 points lower on my chart. Am I looking at something else?

[DbPhoenix 42]

See this post made to the Dailies section of my Blog ("For Mar 25"), first chart:

 

http://www.traderslaboratory.com/forums/blog.php?b=81

 

This level also acted as support on 3/31.

Edited April 16, 2008 by DbPhoenix

[DbPhoenix 42]

As a follow-on post, we've weathered the consolidation and have made a higher high into multiple zones of resistance. However, there's still no climactic action.

[DbPhoenix 42]

Now approaching what had been support prior to the 65pt plunge on the 11th. Still no buying climax.

[zeon 10]

Now approaching what had been support prior to the 65pt plunge on the 11th. Still no buying climax.

 

As a follow-on post, we've weathered the consolidation and have made a higher high into multiple zones of resistance. However, there's still no climactic action.

 

If I'm correct, price opened at resistance and hovered a long time below 1825 while the volume steadily declined. Is this absorption? From my point of view, one would be looking to the short side given the market rallied after news premarket up to resistance where it stalled. Also, the ES was going up while the NQ was on a standstill. 45 minutes after the open we broke higher on huge volume.

 

I take it this would be the entry signal for some, but as has been mentioned in this thread Wyckoff himself wasn't particularly fond of this type of trades. Perhaps, in the context of this thread, it would be interesting to point out which other entries were possible today. Personally, I can see none... I can understand there's no reason to exit longs, but that's assuming one is in nice and early.

[DbPhoenix 42]

If I'm correct, price opened at resistance and hovered a long time below 1825 while the volume steadily declined. Is this absorption? From my point of view, one would be looking to the short side given the market rallied after news premarket up to resistance where it stalled. Also, the ES was going up while the NQ was on a standstill. 45 minutes after the open we broke higher on huge volume.

 

I take it this would be the entry signal for some, but as has been mentioned in this thread Wyckoff himself wasn't particularly fond of this type of trades. Perhaps, in the context of this thread, it would be interesting to point out which other entries were possible today. Personally, I can see none... I can understand there's no reason to exit longs, but that's assuming one is in nice and early.

 

As to absorption, possibly. You'll note that that was the bottom of the range for the 9th. As to looking to the short side, there's no reason to do so as there was no buying climax.

 

As for W, I assume he would have entered off yesterday's selling climax, though he might pyramid off the "stall" that you refer to. You'll notice that it forms a hinge, a type of springboard.

 

Incidentally, W would most likely move his stop up below 1840. Nic?

[treadstone 10]

I notice there was over 3000 contracts traded up at 1854 with no upwards progress, Db. (1min bar)

 

Would you call that a buying climax?

[zeon 10]

As to absorption, possibly. You'll note that that was the bottom of the range for the 9th. As to looking to the short side, there's no reason to do so as there was no buying climax.

 

Yes, the 9th is basically the reason why I had that level as resistance. Also in part because of the action on the 25th and 26th of March.

 

Incidentally, W would likely move his stop to below 1840. Nic?

I take it he moves his stop up below the last swing low in an uptrend and vice versa in a downtrend.

 

As for W, I assume he would have entered off yesterday's selling climax, though he might pyramid off the "stall" that you refer to. You'll notice that it forms a hinge, a type of springboard.

 

Allright, but let's assume he's not holding overnight. So he can't be long from yesterday. I remember reading this in the day traders' bible: "A pure tape reading day trader does not care to carry over night. The tape is then silent, and he only knows what to do when it tells him. Something may occur at midnight which may crumple up his diagram of the next day's market. He leaves nothing to chance; hence he prefers a clean sheet when the market gong strikes."- Wyckoff

 

So if you are not long on the break of 1825, there's not much to do except for stand aside and wait another day?

[DbPhoenix 42]

If you're not long on the break of the hinge at 1825, I'd say there's not much for you to do except wait for a buying climax.

[DbPhoenix 42]

I notice there was over 3000 contracts traded up at 1854 with no upwards progress, Db. (1min bar)

 

Would you call that a buying climax?

 

Personally, no. But waves don't always crest with a bang. They sometimes end with a whimper. Therefore, one has to have something else to look at in addition to climactic volume, which is why I incorporate demand/support lines, trendlines, and swing highs/lows. If price violates all of that, regardless of what's happening with volume, then you're very likely done.

[zeon 10]

If you're not long on the break of the hinge at 1825, I'd say there's not much for you to do except wait for a buying climax.

 

Thanks, at least my bias was right to be looking for long entries. I justed wanted to know if the reason I couldn't find any was my lack of knowledge or the fact that there just weren't any high probability entries.

[zeon 10]

Personally, no. But waves don't always crest with a bang. They sometimes end with a whimper. Therefore, one has to have something else to look at in addition to climactic volume, which is why I incorporate demand/support lines, trendlines, and swing highs/lows. If price violates all of that, regardless of what's happening with volume, then you're very likely done.

 

In the absence of demand and trendlines, what else would Wyckoff consider an exit signal? I mean, I can't see much of a demandline other than one drawn after the break of the hinge, but that one is very steep. So would Wyckoff wait for a breach of the last swing low? Price is at 1855 meanwhile, so would he wait to see his stop taken out (now around 1840 like you said) or have some other means of determining to exit?

[DbPhoenix 42]

I can't speak for Wyckoff, but absent a buying climax, I assume he'd just hold for his stop.

 

Edit: Post RTH, price up to 1865.

Edited April 16, 2008 by DbPhoenix