Trading The Wyckoff Way

[Head2k 10]

Regarding volume, for every buyer there is a seller.

Actually, I believe this is exactly what atto is trying to tell you. The volume here is a sign of significant buying interest. Sure, selling interest is there, too. But the fact that buyers became interested on such scale and are absorbing on such scale is worth noticing and one should watch closely what happens next.

Regarding to catching the falling knife, nobody here wrote that one should buy right now and nobody wrote that one should try to pick the exact bottom.

[Susana 10]

Actually, I believe this is exactly what atto is trying to tell you. The volume here is a sign of significant buying interest. Sure, selling interest is there, too. But the fact that buyers became interested on such scale and are absorbing on such scale is worth noticing and one should watch closely what happens next.

Regarding to catching the falling knife, nobody here wrote that one should buy right now and nobody wrote that one should try to pick the exact bottom.

 

I understand about exhaustive volume, but without subsequent price action, volume it's unreadable at this point.

[atto 20]

Exactly Head2k. I wouldn't be buying here (I don't try to catch exact tops and bottoms), but considering our hypothetical short, this is an area of note. Yes, sellers are still stronger; however, since it takes buyers (who are trading here) to form a reversal, we'll want to watch carefully.

[DbPhoenix 42]

No one is asking you to go long, Susana, nor is anyone suggesting that you short. You said that there was no buying interest. Clearly there is or volume would not be so high. It is also clear that selling pressure is greater than buying pressure or else price would not be falling.

 

And while for every buyer there may be a seller (assuming a completed transaction), buying pressure is not always equal to selling pressure. If it were, price would never move. Once you understand that, volume will no longer be "unreadable".

[Susana 10]

I understand so what's interesting about this particular situation to you guys, that volume increased dramatically and that we went from an imbalance state to a potential balanced one? Because aside from that, I can't see much. Perhaps that's all there is and for some reason I'm thinking you guys are suggesting there is something else.

[DbPhoenix 42]

I understand so what's interesting about this particular situation to you guys, that volume increased dramatically and that we went from an imbalance state to a potential balanced one? Because aside from that, I can't see much. Perhaps that's all there is and for some reason I'm thinking you guys are suggesting there is something else.

 

Nothing more than what I said in my previous post. Is there anything in particular about Wyckoff's views on volume and on buying and selling pressure that you disagree with?

[Susana 10]

Nothing more than what I said in my previous post. Is there anything in particular about Wyckoff's views on volume and on buying and selling pressure that you disagree with?

 

I'm a pure price action trader, no indicators, no volume except for what I get from using constant volume based bars and a little market profile examination.

 

Volume to me is something that sometimes makes sense, but only if we are at key areas, and other times it only makes sense after the fact. It actually affected my performance, so I simply dropped it and just use price because well, I do better just with price. I'm sure many like you, can use it to their advantage, unfortunately I never managed to find consistent gold in volume.

 

I take this opportunity to thank you for your posts, fantastic work, you deserve all the accolades, I truly mean that.

[DbPhoenix 42]

I'm a pure price action trader, no indicators, no volume except for what I get from using constant volume based bars and a little market profile examination.

 

Volume to me is something that sometimes makes sense, but only if we are at key areas, and other times it only makes sense after the fact. It actually affected my performance, so I simply dropped it and just use price because well, I do better just with price. I'm sure many like you, can use it to their advantage, unfortunately I never managed to find consistent gold in volume.

 

I take this opportunity to thank you for your posts, fantastic work, you deserve all the accolades, I truly mean that.

 

You are not alone in making sense of volume only intermittently. Many people misunderstand it. Many others don't understand it at all. But this is not surprising since so much misinformation about it is circulated here and there.

 

Volume is simply a record of transactions. It has no other meaning. It is not an indicator. It is not a predictor. It doesn't do anything. If volume is high, both selling interest and buying interest are high. If either of these is low, volume will be low. If, as you state, buying interest is "zero", there will no transactions at all and thus no volume.

 

Again, the example which prompted this arc shows that both buying interest and selling interest have recently been very high, i.e., volume is high. The fact that buying interest could not prevent the continued fall of prices shows that it is not as strong as selling interest. Some traders will find these facts regarding the relative strengths of buyers and sellers to be important. Some will not.

 

Those who are interested in pursuing the subject may find the attached pdf regarding "volume studies" informative:

W VOLUME STUDIES (14M).pdf

Edited July 1, 2009 by DbPhoenix

[Susana 10]

Thank you for the PDF file, will read it.

[za_xc03 10]

Hi DB I had email to you to purchase ebook ....wish you be able to reply back ... I also eager request for an opinion of you with regard to my proposal to buy book as below .....be provided does not require or were those must added more apply am being notified :-

 

1) Study in tape reading

2) Tape reading and market tactic

3) Stock market technique 1

4) Stock market technique 2

5) When to sell, how to buy & the nature of risk - mamis,justin

 

Thank you for your help

[DbPhoenix 42]

Hi DB I had email to you to purchase ebook ....wish you be able to reply back ... I also eager request for an opinion of you with regard to my proposal to buy book as below .....be provided does not require or were those must added more apply am being notified :-

 

1) Study in tape reading

2) Tape reading and market tactic

3) Stock market technique 1

4) Stock market technique 2

5) When to sell, how to buy & the nature of risk - mamis,justin

 

Thank you for your help

 

I have responded to your email.

 

As for Studies in Tape Reading, this is available for free as an attachment to the first stickie.

 

Tape Reading and Market Tactics is also good, though not as detailed as Wyckoff's book.

 

None of the books you've listed are "required", though I strongly recommend The Nature of Risk.

 

Before spending money, however, I suggest you study the stickies to this forum as well as Volume Studies. If you do decide to spend money, Stock Speculation Classics includes Stock Market Technique #2 as well as Tape Reading and Market Tactics along with 22 other works for $23.95 plus $4 shipping.

Edited February 6, 2013 by DbPhoenix

[innovation1520887469 10]

Db,

 

I have recently been going through the PDF that you have kindly made available of W's day by day analysis of the NY Times Av in 1931 and also following the "Trading Like Wyckoff" thread.

 

It has taken me some days to move through all the material and I have several questions about W's analysis and some of his nomenclature:

 

 

When discussing initial buying opportunities after the decline to Dec 17th he talks about the Dec 29th as the point at which the Av is 'on the Spring Board':

 

"Our next buying opportunity is on December 29th when the market completes three days of lower support but the closing prices on each of these days are between 140 and 141, showing that the selling pressure is losing its force, since the net result of these three days' pulling and hauling is to leave the average almost unchanged following a considerable reaction. At the same time, lower volume on the reaction from December 18th's high, compared with the volume of the mid-December decline, confirms the inference that selling pressure is losing its force; buying power is overcoming it, as it now appears that the market has completed a typical secondary reaction (see previous Footnote) which has the effect of broadening the zone of support around the 136-140 level to sustain a proportionately more substantial advance than the first recovery, we either buy on this reaction if we missed our first opportunity, or add to our holdings; with stops on these new positions, as before, under the danger point, that is, the lows of December 17th. The average is now 'on the springboard'."

 

By stating that the Av is 'on the springboard' on the 29th is he surmising that the majority of the vol over the 3 days has occurred in a tight range ala your Caja Famosas (say 139 to 142)?

 

How is it clear that this is a successful test on the 29th? (it becomes clear the next day but couldn't the constriction have continued for another day or so?)

 

Why would the action on the 23rd not have been viewed as a test with a substantial reaction of the lows on increased vol could this not have been seen as the end of the secondary reaction? (Is it because the true test is at the bottom of a gradual 'rounding off' of the decent whereas the pivot on the 23rd is more climactic?)

 

Also is the action on the 20th another example of a 'springboard' or more specifically a 'hinge' indicating the reduction in buying pressure and increase in selling pressure? (reduced price volatility with sustained effort ~2M vol & lower close)

 

 

At the top of the ensuing rally culminating in the B.C on the 9th he writes:

 

"For the next several days, until January 9th, the market makes further progress on the bull side, recording 156½ on that day; but observe that the closing figures on the 6th, 7th, 8th, 9th and 10th are all within a range of about one point. That means the market made no upward progress as a net result of four days’ activities following the 6th. The daily volume shows a tendency to taper off, which may mean a lessening of demand at the top of the swing to January 8th. This conclusion is partly confirmed by the shortening of the upward thrusts from the 3rd to the 7th, indicating that it was hard work advancing the market from l5O to 155."

 

I don't see how the volume is tapering off, it looks to me to be oscillating either side of 2M (5th, 6th, 7th, 8th). How then do we reach the conclusion that there is a lessening of demand? (the fact price is not advancing?)

 

 

On finding the end of the subsequent swing low:

 

"On the 16th, the closing is nearly at the high point of the day -- a bullish indication which is the reverse of the bearish indication on the 9th. This is our first sign that the reaction is nearly over. (*) So here we have a new buying opportunity in expectation that the advance will be resumed. (**) Further confirmation of this comes in higher support on the 17th and in an almost complete drying-up in volume on a dip to the same low level on the 19th."

 

If closing near the high of the day is the only criterion for a bullish indication and even a buying opportunity then wouldn't two days prior (14th) be the 1st day to meet it? By buying opportunity do you think he means 'be looking out for confirmation to take long positions' as opposed to 'buy on close of the 16th'?

 

I have lots more comments in the margin of my print out which I would love to get a more experienced view on but I didn't want to overwhelm with too many questions (maybe to late ), especially if they stem from a fundamental oversight on my behalf.

There is obviously a subtlety to this that is currently eluding me but I have already begun to see the benefits of understanding the dynamic of buying and selling pressure and their net result on price already.

 

Oh, last one. This one specifically relates to Bearbull's thread:

 

When dealing with a pause in the decent in Sept he writes:

 

"Volume decreases to under 1,500,000 on the 26th and 28th, but in view of the market's recent bearish action this looks more like a swing to a dead center preceding new weakness, than diminishing force of supply. "

 

What does W mean by "a dead center" in this context ? - How would you differentiate between this and a potentially successful test of the S.C low on the 21st? Is a test ruled out as the Vol on the 25th remained high whilst the low was almost matched?

I am trying to understand the nature of tests of potential support/resistance - what is potentially valid and then when to determine at the earliest point confirmation of a successful test.

 

Cheers & Happy New Year

 

Matt

[aunikstock 10]

hi,

I dont know if this is the right place to post, but this place is so good to people interested in wyckoff, I cant help myself. I am a stock trader at bangladesh stock market. Its a long way from nyse, but who cares, we are on the internet!

 

I have been trying to apply wyckoff in the market I trade, but one thing I am finding difficult is that the traditional chart whether line, candle or bar has much more information I need. I want a chart that highlights information of volume and price at as dbphoenix calls "hinges" and important support resistant points and that is not drawn based on timeframe but rather price movement.

 

I use amibroker, so I will post afl post here. But if moderators think the thread is useless, then please feel free to delete it.

[DbPhoenix 42]

Why not? So you're looking for the same type of information that you'd get from point & figure but with volume?

[omit46 10]

Why not? So you're looking for the same type of information that you'd get from point & figure but with volume?

 

yes, yes, exactly right on. I really gotta work on my communication skill :crap:

its PF chart with "celebrity" volumes, the ones/groups that stand out whether big or small at important price points although at I am not sure how to define "important" price and volume points.

[DbPhoenix 42]

As far as important price points go, the stickies should be of help. The "Cajas" and Support & Resistance threads should also be of help. As far as defining "important" volume, that will be a problem since you won't likely be able to do it on a discretionary basis (that is, judgements of "important" volume are made on a discretionary basis, but you won't be able to incorporate that into a mechanical system).

 

This pdf on volume may also be useful.

Edited September 9, 2015 by DbPhoenix

[DbPhoenix 42]

Db,

 

I have recently been going through the PDF that you have kindly made available of W's day by day analysis of the NY Times Av in 1931 and also following the "Trading Like Wyckoff" thread.

 

It has taken me some days to move through all the material and I have several questions about W's analysis and some of his nomenclature:

 

 

When discussing initial buying opportunities after the decline to Dec 17th he talks about the Dec 29th as the point at which the Av is 'on the Spring Board':

 

"Our next buying opportunity is on December 29th when the market completes three days of lower support but the closing prices on each of these days are between 140 and 141, showing that the selling pressure is losing its force, since the net result of these three days' pulling and hauling is to leave the average almost unchanged following a considerable reaction. At the same time, lower volume on the reaction from December 18th's high, compared with the volume of the mid-December decline, confirms the inference that selling pressure is losing its force; buying power is overcoming it, as it now appears that the market has completed a typical secondary reaction (see previous Footnote) which has the effect of broadening the zone of support around the 136-140 level to sustain a proportionately more substantial advance than the first recovery, we either buy on this reaction if we missed our first opportunity, or add to our holdings; with stops on these new positions, as before, under the danger point, that is, the lows of December 17th. The average is now 'on the springboard'."

 

(1)By stating that the Av is 'on the springboard' on the 29th is he surmising that the majority of the vol over the 3 days has occurred in a tight range ala your Caja Famosas (say 139 to 142)?

 

(2)How is it clear that this is a successful test on the 29th? (it becomes clear the next day but couldn't the constriction have continued for another day or so?)

 

(3)Why would the action on the 23rd not have been viewed as a test with a substantial reaction of the lows on increased vol could this not have been seen as the end of the secondary reaction? (Is it because the true test is at the bottom of a gradual 'rounding off' of the decent whereas the pivot on the 23rd is more climactic?)

 

(4)Also is the action on the 20th another example of a 'springboard' or more specifically a 'hinge' indicating the reduction in buying pressure and increase in selling pressure? (reduced price volatility with sustained effort ~2M vol & lower close)

 

Clearly you have been paying attention.

 

(1) I wouldn't relate it to the boxes using a daily since only one of the bars is in a box (and keep in mind that the boxes were my attempt to tie together auction market theory with W's notions of "balancing"; they are not mentioned anywhere in W's course). However, there is a moment in any peak or trough when price is moving neither up nor down but sideways. If you were to drop down to a smaller interval, you would likely find a sideways movement long enough to constitute a box, but that's really not the point that W is trying to make here.

 

A springboard is a preparation for a substantial move, either up or down. If you've read enough to get into "cause", the springboard is building cause (though it is not the only means of doing so). Here, buyers and sellers reached equilibrium on the 23rd. When this swing low was tested again on the 25th thru 30th, sellers could not pull price down further, and the lower volume shows that they weren't even trying very hard (if they had, and buyers won the day anyway, volume would be higher). Therefore, sellers are, for the most part, done, and it's up to buyers to move price ahead. If they do.....

 

(2) .....then price advances and you've had a successful test. If they're not ready, then price continues to move sideways (and you may end up with a more box-like box). But since none of this can be known except in hindsight, that's why I suggest placing your entry above the bar and letting the market pull you in rather than just jumping in on the hope that price will rise and either getting stopped out when the market decides to test the lows once again or grinds sideways while you wait and wait and wait.

 

(3) It could. And, in other situations, has. However, note that even though buyers and sellers have reached equilibrium on this day, volume is still quite high. One cannot claim that either side is "done". Even so, price has been known to take off quickly after such a retracement or pullback or test or whatever you want to call it, and there's nothing to stop you from placing an entry above that bar.

 

However, note how anemic the volume is on the following day and that you have a junior version of the same bar. Buyers still don't have it all together, or at least not enough to provide a sustained advance. This suggests that more preparation is necessary, and that turns out to be the case. This is not to suggest that one should just bail if he happened to enter on the 24th, but he ought not to just hang around and hope for the best when price plummets the following day. Better to exit, hang around, watch, and re-enter on the better opportunity on the 30th.

 

(4) In order to make these judgements in real time, you have to know exactly what a springboard is, why it forms, what it's supposed to do, i.e., what's in traders' minds. Otherwise, it's just another triangle, another pattern, and the probabilities in playing it are not much better than flipping a coin.

 

Here, you've had a real clunk toward the bottom, then a fairly violent rally. Then, suddenly price contracts, volume contracts, and you know, because of all the activity that's been going on and that has suddenly been choked off, that something is going to happen. Yes, price could just go out for a stroll and meander sideways, acting all innocent and diverting attention away from itself, but the probabilities are that something is going to happen, and soon. That something could be a move either up or down, in this case, down, but you have to be prepared for either.

 

At the top of the ensuing rally culminating in the B.C on the 9th he writes:

 

"For the next several days, until January 9th, the market makes further progress on the bull side, recording 156½ on that day; but observe that the closing figures on the 6th, 7th, 8th, 9th and 10th are all within a range of about one point. That means the market made no upward progress as a net result of four days’ activities following the 6th. The daily volume shows a tendency to taper off, which may mean a lessening of demand at the top of the swing to January 8th. This conclusion is partly confirmed by the shortening of the upward thrusts from the 3rd to the 7th, indicating that it was hard work advancing the market from l5O to 155."

 

I don't see how the volume is tapering off, it looks to me to be oscillating either side of 2M (5th, 6th, 7th, 8th). How then do we reach the conclusion that there is a lessening of demand? (the fact price is not advancing?)

I assume he means tapering off on the advances. You'll note that volume is lighter on the advances and stronger on those days when the day closes well off the highs. In other words, sellers are allowing price to advance without putting up much resistance on the light days, but when they enter the market more aggressively, buyers don't have enough muscle to push price higher anyway. They instead retreat. Their failure on the 9th is especially clear. They were able to push price to a new high, but then got smacked down forcefully and decisively.

 

 

On finding the end of the subsequent swing low:

 

"On the 16th, the closing is nearly at the high point of the day -- a bullish indication which is the reverse of the bearish indication on the 9th. This is our first sign that the reaction is nearly over. (*) So here we have a new buying opportunity in expectation that the advance will be resumed. (**) Further confirmation of this comes in higher support on the 17th and in an almost complete drying-up in volume on a dip to the same low level on the 19th."

 

If closing near the high of the day is the only criterion for a bullish indication and even a buying opportunity then wouldn't two days prior (14th) be the 1st day to meet it? By buying opportunity do you think he means 'be looking out for confirmation to take long positions' as opposed to 'buy on close of the 16th'?

I'm not channelling W, but I agree that the 14th is certainly an indication. But, yes, he's decribing the entire downmove as an indication, not plotting a big green Buy Here arrow on the 19th. Though he has not yet gone into demand and supply lines, the supply line isn't even broken. This isn't a required precondition for entry, but it's worth thinking about if you have issues with trading countertrend.

 

I have lots more comments in the margin of my print out which I would love to get a more experienced view on but I didn't want to overwhelm with too many questions (maybe to late ), especially if they stem from a fundamental oversight on my behalf.

 

There is obviously a subtlety to this that is currently eluding me but I have already begun to see the benefits of understanding the dynamic of buying and selling pressure and their net result on price already.

If more people studied this stuff as energetically as you have, they'd likely have much more success with it. If you're trading intraday, you're welcome to join the chat room (see your toolbar at the top of the page). If you're trading EOD, feel free to post charts and questions to the EOD thread. It's become pretty cobwebby.

 

Oh, last one. This one specifically relates to Bearbull's thread:

 

When dealing with a pause in the decent in Sept he writes:

 

"Volume decreases to under 1,500,000 on the 26th and 28th, but in view of the market's recent bearish action this looks more like a swing to a dead center preceding new weakness, than diminishing force of supply. "

 

What does W mean by "a dead center" in this context ? - How would you differentiate between this and a potentially successful test of the S.C low on the 21st? Is a test ruled out as the Vol on the 25th remained high whilst the low was almost matched? I am trying to understand the nature of tests of potential support/resistance - what is potentially valid and then when to determine at the earliest point confirmation of a successful test.

This is one of those instances where hindsight can really mess with your head. Even if you're especially good at reading a chart from left to right, you know damn well what's coming next, even if you printed the chart blindfolded and covered it with a blank sheet of paper.

 

First, W was not hung up on jargon. Dead center, equilibrium, balance, springboard, hinge, etc all meant pretty much the same thing. What mattered most of all was context, not this bar or that bar or how it looked or what volume bar it was associated with. W is all about price and volume flow, not bars. Bars are simply the means by which price and volume flow are illustrated (he also used P&F).

 

Therefore, if one were looking only at bars and applying the "selling climax/technical rally/secondary test" scenario as a template, he could argue that the 21st was a selling climax and that the 25th was a test. However, during this interval, you've had a downward ride of 30%. This is all going to reverse in just a few days? Possible, yes. Probable, no. Even so, you can cover your bets by placing your entry above the test bar, and the entry doesn't get triggered, whereas just jumping in could result in quite a lot of pain.

 

Beyond all that, the bars throughout this bounce are quite long and volume continues to be quite high. All this indicates that buyers and sellers widely disagree on what is "value", and this is more likely to lead either to a violent trading range or a move downward that continues until both sides are satisfied. Note, for example, how much more buoyant price is during the first week of October. Whenever price appears to have an anchor chained to its ankles, you're probably too early.

 

Cheers & Happy New Year

 

Matt

Same to you. Edited February 9, 2009 by DbPhoenix

[DbPhoenix 42]

Just for grins, here's what happened afterwards. The arrow points to the endpoint of W's analysis.

 

[innovation1520887469 10]

Thank you for your prompt and comprehensive reply, lets see if I understand:

 

(1)... A springboard is a preparation for a substantial move, either up or down. If you've read enough to get into "cause", the springboard is building cause (though it is not the only means of doing so).

 

I thought I knew what a springboard was: a culmination of accumulation or distribution, an establishment of support or resistance for the ensuing move. I also understand that volume should decrease with time until the move begins.

Where could I read more? I have read your blog post on springboards.

 

When this swing low was tested again on the 25th thru 30th, sellers could not pull price down further, and the lower volume shows that they weren't even trying very hard (if they had, and buyers won the day anyway, volume would be higher).

 

If the volume had been higher with the same outcome in price would this alter the outlook? Would one assume sellers were not yet done?

 

2)...But since none of this can be known except in hindsight,

 

Glad you say that, I thought I was missing something fundamental.

 

that's why I suggest placing your entry above the bar and letting the market pull you in rather than just jumping in on the hope that price will rise and either getting stopped out when the market decides to test the lows once again or grinds sideways while you wait and wait and wait.

 

W suggests placing stops under the low of Dec 17th is it because he deems 136-140 to be a zone of support which would not be truly broken until price went below 136?. I would ordinarily opt for under the low of the 29th.

 

(3) ...

However, note how anemic the volume is on the following day and that you have a junior version of the same bar. Buyers still don't have it all together, or at least not enough to provide a sustained advance. This suggests that more preparation is necessary, and that turns out to be the case.

 

I can see this now. What sort of volume would have made you more comfortable that the move was genuine? (More than the 24th? in line with previous days ~ 2M ?). Does the relevance only become apparent at the end of the 26th when volume is higher but the end result is lower prices?

 

This is not to suggest that one should just bail if he happened to enter on the 24th, but he ought not to just hang around and hope for the best when price plummets the following day. Better to exit, hang around, watch, and re-enter on the better opportunity on the 30th.

 

I would probably have thought that the prospects of a move up had dissipated and moved on to something else.:doh:

 

(4) In order to make these judgements in real time, you have to know exactly what a springboard is, why it forms, what it's supposed to do, i.e., what's in traders' minds. Otherwise, it's just another triangle, another pattern, and the probabilities in playing it are not much better than flipping a coin.

 

By this do you mean that volume has to confirm the price pattern? otherwise it is a coincidental pattern in price?

 

Here, you've had a real clunk toward the bottom, then a fairly violent rally. Then, suddenly price contracts, volume contracts, and you know, because of all the activity that's been going on and that has suddenly been choked off, that something is going to happen. Yes, price could just go out for a stroll and meander sideways, acting all innocent and diverting attention away from itself, but the probabilities are that something is going to happen, and soon. That something could be a move either up or down, in this case, down, but you have to be prepared for either.

 

I agree a move was imminent, I would have been prepared for a down move (I would know where to place my stop) but would not know a logical place to limit my risk on an up move (146 would be a convenient but not reasoned place to put a stop). btw are you agreeing that this is an example of a 'hinge'?

 

I assume he means tapering off on the advances. You'll note that volume is lighter on the advances and stronger on those days when the day closes well off the highs. In other words, sellers are allowing price to advance without putting up much resistance on the light days, but when they enter the market more aggressively, buyers don't have enough muscle to push price higher anyway. They instead retreat. Their failure on the 9th is especially clear. They were able to push price to a new high, but then got smacked down forcefully and decisively.

 

This makes sense & on second reading is particularly illuminating, thank you. Would the same apply to charts where the interval is more arbitrary(610 tick, 25 seconds etc...), where the open and close have virtually no significance? As the volume might get obfuscated by the chosen bar interval/ I suppose you would have to watch the price action in real time to see where the volume occurred and what happened to price as a result.

 

Does the action on the 9th differ from a test of demand in a period of accumulation by its high volume? does this also mean that the period of the 3rd to the 12th is a period of distribution, or am I over egging it?

 

 

... Though he has not yet gone into demand and supply lines, the supply line isn't even broken. This isn't a required precondition for entry, but it's worth thinking about if you have issues with trading countertrend.

 

Do you have this part of his course? Are supply lines trend lines joining pivot highs & demand lines trend lines joining pivot lows or is there more subjectivity involved in their use?

 

If more people studied this stuff as energetically as you have, they'd likely have much more success with it. If you're trading intraday, you're welcome to join the chat room (see your toolbar at the top of the page). If you're trading EOD, feel free to post charts and questions to the EOD thread. It's become pretty cobwebby.

 

I am spurred on by the fact that sometimes things seem very clear to me as a result of looking at the market this way. Unfortunately the times when it is hard to make sense of or produce contradicting views of the price and volume information still out number the moments of clarity . I am becoming more aware that I need to know when to have more patience and wait for confirmation of tentative indications and when to act straight away, still very hard to distinguish between.

 

I mostly trade e-minis intraday but usually only catch lunchtime onwards by the time I get home from work here in the UK. I will check out the chat room, thanks.

 

... Beyond all that, the bars throughout this bounce are quite long and volume continues to be quite high. All this indicates that buyers and sellers widely disagree on what is "value", and this is more likely to lead either to a violent trading range or a move downward that continues until both sides are satisfied. Note, for example, how much more buoyant price is during the first week of October. Whenever price appears to have an anchor chained to its ankles, you're probably too early.

 

By "an anchor chained to its ankles" do you mean the revisit of the lows happened in too short a space of time?

 

If the volume on the 28th had been higher I would have thought that a move down was odds on but the reduction suggested to me that the sellers were done. I suppose (on 4th look!) that the low close indicates that buyers are not ready and there fore the prevailing direction will win out.

 

Would there be any interest in any more of my queries on W's walk through being discussed? (I don't want to monopolise your time and you may have no desire to carry on if it is only for my benefit).

 

Thank you for your time.

 

Matt

[DbPhoenix 42]

I thought I knew what a springboard was: a culmination of accumulation or distribution, an establishment of support or resistance for the ensuing move. I also understand that volume should decrease with time until the move begins.

Where could I read more? I have read your blog post on springboards.

 

Springboards are discussed in Section 7, which you're working on now, as well as Section 14, Volume Studies, though they are mentioned here and there throughout the course.

 

If the volume had been higher with the same outcome in price would this alter the outlook? Would one assume sellers were not yet done?

One could assume that sellers were not yet done. But one could also not help but be impressed by the determination of buyers. For them to hold their positions in the face of even greater pressure would be even more positive for longs.

 

W suggests placing stops under the low of Dec 17th is it because he deems 136-140 to be a zone of support which would not be truly broken until price went below 136?. I would ordinarily opt for under the low of the 29th.

The low of 12/17 is the "danger point", i.e., that's where buyers were able to turn the tide, at least for the time being, and the force they were able to bring to bear for the reversal was considerable. Placing a stop under the lows of the 29th may make the trader feel better, but that has nothing to do with what the market has in mind or with what it may or may not do. Buyers could choke there and price continue to drop all the way back to what appears to be the climax low (one can't know except in hindsight). Buyers aren't going to panic if price drops below the low the 29th, particularly those who participated in the reversal. But if price were to drop below the climax low, you'd have a lot of nervous longs on your hands, particularly if they begin to suspect that that wasn't a climax low after all but might be instead just an indication of preliminary support.

 

This is not to say that a protective stop should not be placed under the 29th. Otherwise, you run the risk of allowing hope to govern your trading decisions. However, if stopped out there, you must also be prepared to re-enter if price does test the climax low at a lower level and stages a better rally.

 

I can see this now. What sort of volume would have made you more comfortable that the move was genuine? (More than the 24th? in line with previous days ~ 2M ?). Does the relevance only become apparent at the end of the 26th when volume is higher but the end result is lower prices?

Volume wouldn't have had much to do with it since volume frequently fails to lead price. I would have taken the trade anyway and gotten out quickly if it didn't succeed, then re-entered on the later, more substantial test (the 26th and following).

 

By this do you mean that volume has to confirm the price pattern? otherwise it is a coincidental pattern in price?

Yes, though the meaning of that would have to be explained in real time.

 

btw are you agreeing that this is an example of a 'hinge'?

Yes. But I'm not the last word.

 

This makes sense & on second reading is particularly illuminating, thank you. Would the same apply to charts where the interval is more arbitrary(610 tick, 25 seconds etc...), where the open and close have virtually no significance? As the volume might get obfuscated by the chosen bar interval/ I suppose you would have to watch the price action in real time to see where the volume occurred and what happened to price as a result.

All intervals are arbitrary unless trading literally halts, as is generally the case with stocks at the market close. Coming up with some bizarre interval hoping that secrets might be unlocked is rather pointless except insofar as the activity demonstrates the pointlessness of itself. Price moves by ticks, and you're completely justified in bundling them in some way in order to avoid zooming out over and over again in order to see what's going on. However, price doesn't know what you're doing and wouldn't care if it did. It moves up and down independent of however you choose to illustrate the movement.

 

One way to move away from an overemphasis on bars, whatever kind of bars (or candles) they may be, is to plot price and volume as continuous lines. In this way, one can see literal waves rather than the series of snapshots which bars more closely represent.

 

Does the action on the 9th differ from a test of demand in a period of accumulation by its high volume? does this also mean that the period of the 3rd to the 12th is a period of distribution, or am I over egging it?

Both are thrusts, i.e., tests of buying interest. The buying interest doesn't materialize, so that's that. Absent the buying interest, the drop should come as no great surprise. Whether one characterizes it as distribution or not is up to the trader, but I wouldn't, considering where this is in relation to what had been happening with price at the end of 1930. And price does stage an awfully nice rally subsequent to this.

 

As to over-egging it, probably. All you really need to know is that a periscope went up to check on buying interest and there wasn't any. What you call any of this is unimportant.

 

Do you have this part of his course? Are supply lines trend lines joining pivot highs & demand lines trend lines joining pivot lows or is there more subjectivity involved in their use?

I have the entire course, though I haven't restored all of it. The job of the trendline is to show trend. The jobs of demand and supply lines are to show where demand and supply are entering the market. D&S lines can coincide with trendlines, depending on how micro one wants to get with his trendlines, but they are better used to detect changes in momentum which may lead to changes in trend.

 

You can see here that a number of supply and demand lines can be drawn within a trend, whether it forms a channel or not.

 

 

And, again, these lines can show the trader changes in momentum and provide an early warning that there might be trouble:

 

 

In this case, there appears to have been a successul test of the last swing low since this chart was created, but what was notable at the time was the failure to reach what was shaping up to be a new trendline but what was at the time just a supply line.

 

By "an anchor chained to its ankles" do you mean the revisit of the lows happened in too short a space of time?

 

If the volume on the 28th had been higher I would have thought that a move down was odds on but the reduction suggested to me that the sellers were done. I suppose (on 4th look!) that the low close indicates that buyers are not ready and there fore the prevailing direction will win out.

Effort and result. Buyers made a huge effort on the 21st and could only finish in the middle of the range. When they let up the next day, price deflated. When they put everything they had into reaching the top of the wave on the next day, it all fell apart immediately the day after that. Badly. When they put their backs into it again on thd 25th, they can't hold it much past the midpoint of the wave, much less the top.

 

Would there be any interest in any more of my queries on W's walk through being discussed? (I don't want to monopolise your time and you may have no desire to carry on if it is only for my benefit).

I'm sure there would be, but I'd rather give those who are still working on this, like you, to give it a shot (you know who you are). If anybody contributes anything that's too far off the mark, I'll toss in my 2 cents.

[Gringo 10]

(2) .....then price advances and you've had a successful test. If they're not ready, then price continues to move sideways (and you may end up with a more box-like box). But since none of this can be known except in hindsight, that's why I suggest placing your entry above the bar and letting the market pull you in rather than just jumping in on the hope that price will rise and either getting stopped out when the market decides to test the lows once again or grinds sideways while you wait and wait and wait.

 

Hi Db,

 

I wanted to check if my thinking is reasonable below:

 

i) Those who believed on Dec 27th that it was a good test could put high of bar on Dec 27th as entry price using your above (pretty nice!) idea? (NOTE: Line in the above quote was bolded by me)

 

ii) On 29th the buy point could be moved to the high of 29th which is lower than the high of 27th as probability of prices going lower is further reduced due to reduction in supply (since prices again couldn't go much lower)?

 

iii) Those who are more risk averse could leave buy entry at the high of 27th and get more assurance of demand but have greater price risk? (Mamis?)

 

Thank you.

[DbPhoenix 42]

Hi Db,

 

I wanted to check if my thinking is reasonable below:

 

i) Those who believed on Dec 27th that it was a good test could put high of bar on Dec 27th as entry price using your above (pretty nice!) idea? (NOTE: Line in the above quote was bolded by me)

 

ii) On 29th the buy point could be moved to the high of 29th which is lower than the high of 27th as probability of prices going lower is further reduced due to reduction in supply (since prices again couldn't go much lower)?

 

iii) Those who are more risk averse could leave buy entry at the high of 27th and get more assurance of demand but have greater price risk? (Mamis?)

 

Thank you.

 

Putting it above the high of the 29th is what I'm suggesting, but it's not my idea. I got it from Teresa Lo*, who got it from Dunnigan (from the 50s). Putting it above the high of the 27th is not more risk averse. The trader is merely assuming more of one kind of risk and less of another.

 

*A little follow-up note, five days later. By mentioning Teresa Lo, it was not my intention that anyone should sign up for anything or buy anything. I have no idea what Teresa is in to these days (this was nine or ten years ago), and things change. My point in bringing it up is that these are "classic" ideas, and if one wants to pursue them, he should investigate the classics: Dow, Hamilton, Wyckoff, Schabacker, Dunnigan, Magee, Cole, de Villiers et al. The "horse's mouth", as it were. Though these books are not cheap, they are far less expensive than the thousands that people spend on CDs and DVDs and courses and so forth that are little more than warmed over concepts originated by the above.

Edited January 9, 2009 by DbPhoenix

[DbPhoenix 42]

I don't know exactly where to put this, but since understanding it is key to trading "the Wyckoff Way", here is as good a place as any.

 

Looking at the markets of yesterday, today, and projecting that look into the future, it is evident that markets themselves do only three things after taking into account their basic buying and selling functions. Their products rise in price, they fall in price, or they move sideways in price. If these are the only three things that they do, then in a nutshell we have the answer to what to concentrate on in market analysis. We dissect and study every price, volume, and time action using whatever knowledge we have to analyze each price rise, each price decline, and each sideways movement. This gives us the most meaningful direction to follow in our analytical efforts and takes us to the highest levels (again a personal opinion) of Technical Analysis. We will also find that behind a great deal of classical writing is this same focus, analyzing physical aspect after aspect of every rise and every fall.

 

When we take a close look at the classical period that began with William Hamilton's The Stock Market Barometer in 1922 and ended with William Dunnigan's One-Way Formula for Trading in Stocks and Commodities in 1957, there is one common thread that links just about every technical work produced in that period. That single thread was that their analytical methodology dealt directly with the reality of physical price, volume, and time. For better or for worse (and this writer says "for worse"), the emphasis on reality of past years has given rise to a great deal of emphasis on fantasy today. Price, volume, and time are physical realities to deal with directly; moving averages, oscillators, momentum indicators, and the like have no physical existence on the charts—they are mathematically formulated lines or fantasy lines that have no reality. We find that Divergent/Convergent lines have a basis and often work beautifully, but on the whole fantasy lines should be seen for what they are. That most fantasy lines of today were known to the great market masters and generally ignored by them speaks volumes.

 

--Donald Mack

[za_xc03 10]

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