Trading The Wyckoff Way

[firewalker 10]

A recent report out of MIT, analyzing world oil production and consumption, also concluded that the basic fundamentals of supply and demand could not have been responsible for last year's run-up in oil prices. And Michael Masters says the U.S. Department of Energy's own statistics show that if the markets had been working properly, the price of oil should have been going down, not up.

 

http://www.cbsnews.com/stories/2009/01/08/60minutes/main4707770.shtml

 

Comments?

[tune 10]

 

Comments?

 

http://www.traderslaboratory.com/forums/blogs/dbphoenix/129-judging-the-market-by-its-own.html

 

[atto 20]

They're confusing supply and demand of the actual commodity with supply and demand of the futures. There's a difference, and they don't make a clear distinction (as it sounds better without).

 

...theoretically priced according to supply and demand doubled from $69 a barrel to nearly $150

Theoretically? Huh? No, it was actually that much. Sorry if your models didn't work.

 

[They] were the first to notice the effects a few years ago when prices seemed to disconnect from the basic fundamentals of supply and demand

Prices can't move without supply and demand, so here's the confusion. They see "less oil selling in the marketplace" (lower demand) and "refineries producing more" (more supply), but see rising prices, so "price has disconnected with supply and demand".

 

Let's examine the flip side. Without futures, companies can't hedge their risk, so have to sell at market for whatever the price is. There's debate as to what causes more volatility, so here's an article from another view, questioning if institutional, investment, and speculative funds have increased prices and volatility: http://www.ft.com/cms/s/0/70026d22-4c50-11dd-96bb-000077b07658.html?nclick_check=1 . If you're into this, look into what happened to the Onion when futures trading on it was banned.

[rick86 10]

Db or anybody else,

 

I've only been studying W's methods for a little while, trying to absorb as much as I can from all the great material here on TL. I'm wondering, has anybody here had any experience with

 

http://www.ltg-trading.com/archives.htm

 

One of the brokers there teaches a free class on W's trading method every tuesday night online. I've been checking out the charts and transcripts in his archive and it looks like it's consistent with what I've been learning here from Db and all you other experienced W traders. But before I invest a lot of time in studying his teachings, I wanna verify with you all that he's teaching "pure" W and not some bizzare modern "translation" of it.

 

All comments are appreciated.

[imahippi 10]

Db

Everytime I make a successful trade off a hinge I have to say thanks again for all I have learned through your posts.

Today I made a beautiful textbook style trade off the Q's. It was such a stress free trade I made a few emails; put some bread on the pan and just kept an eye on things.

Thanks also for steering me to theresa lo's site. I really enjoy her take on the markets.

Thank you

Jay

[BennyHey 10]

Great post otto, right on.

 

Could not have hit the nail more on the head. Lets look at the tape from the run-up in oil futures. I'll bet there were more people buying then selling

[atto 20]

Actually, the number of people buying and selling was equal.

 

That's how it works.

[BennyHey 10]

You are correct again,

 

What I said was wrong for every buyer there is a seller.

[firewalker 10]

Actually, the number of people buying and selling was equal.

 

That's how it works.

 

The number of contracts bought and sold was equal, but the number of people need not be the same. But I take it that's what you meant

[DbPhoenix 42]

Db or anybody else,

 

I've only been studying W's methods for a little while, trying to absorb as much as I can from all the great material here on TL. I'm wondering, has anybody here had any experience with

 

http://www.ltg-trading.com/archives.htm

 

One of the brokers there teaches a free class on W's trading method every tuesday night online. I've been checking out the charts and transcripts in his archive and it looks like it's consistent with what I've been learning here from Db and all you other experienced W traders. But before I invest a lot of time in studying his teachings, I wanna verify with you all that he's teaching "pure" W and not some bizzare modern "translation" of it.

 

All comments are appreciated.

 

Fullett teaches the SMI version of Wyckoff rather than the original course, so it depends on what you want. If you want simple, I suggest you stick with the original.

 

If you can visit the chat room here during the day, you're welcome to ask whatever questions you want, and if they relate to what's happening real-time, that's more likely to be of benefit than more hindsight analysis (of which there is plenty in this forum and my blog, at least).

 

[Note: I should also mention that reading those ltg chats in that form could very well lead to blindness and a short temper ]

Edited January 14, 2009 by DbPhoenix

[DbPhoenix 42]

Hey guys,

 

I've been reading a lot of the VSA theories, as well as Wyckoff's theories, and noticed most of the posts here pertain to trades with longer duration than say a day trader would be used to. I understand that the principles work in any time frame, but I'm having a bit of trouble applying them to such quick volatile movements such as today's last hour. Check out my chart of the YM.

 

Problems with my analysis (I played observer today):

 

1. If I were to go short in that session, I would have sold at ~8400 with the double top on the stochastics (first top marked #1) and granted I would have snatched a really quick, small profit. I can't, by reading volume, understand any way to predict the following upthrust and how to know when to short that (the second top marked #1). On that bar, it hit a resistance line set in place at 12:54pm est. Now if I were to trade that, I would have definitely covered at the next bottom, five bars later and then definitely had gotten shaken out to missed the big drop. Not to mention that stoch were crossing back over.

 

2. This bottom seems straight forward. It hits a previous support, the volume decreased getting there, and the stoch were oversold. Again, though, I would have been shaken out with a small profit after the next five bars.

 

3. How do you predict/play this waterfall of bars?

 

Some insight into what I'm doing here: I do like the stochastic to be on my side, but it seems that by doing so I can miss moves such as #3, especially when I try to keep 5 min on my side. It generally takes too long and I miss a lot. Since I am live, I can watch when volume spikes and which way price moves as it happens: does anyone have any advice on what to look for (hope that doesn't sound too entertaining)? I also have the trading matrix beside my charts.

 

Sorry, this post was longer than I anticipated.

 

Thanks for any insight. -- Bill

 

 

To begin with, W doesn't use indicators, nor does he try to predict, so none of this may be helpful at all. Second, though many daytraders who use W's principles apply the same principles intraday as they would interday, W used P&F in his daytrading, largely because he was geared toward scalping in that situation (and he was geared toward scalping because there was little other choice at the time, no WiFi streaming data into a sophisticated charting program).

 

However, since your question has primarily to do with how to trade this via Wyckoff but does not ask about P&F per se, I'll take the shortest and I hope simplest route.

 

First, your resistance line is in the wrong place.

 

 

 

Whether or not one drew a hinge at the beginning of the day, he would have seen by lunch that he had a clear trading range in place, along with its midpoint. This midpoint acts as your resistance, though you have to see this in real time as the lower or upper band could also have acted as resistance. That the midpoint is true resistance is suggested by the volume it takes to try to penetrate it. You can short that bar, or you can short the test five bars later. If neither works out for you for whatever reason, you can take the final test five bars after that (ten bars after the buying climax). Once you've done that, you can scalp a few ticks if you like, but there's no particular reason to exit until you reach your "2" (which tests your 1427 low).

 

I could go on, but it likely would not be pertinent to what you want. If you're interested in Wyckoff per se, I suggest you study the stickies at the beginning of the forum and Trading the Wyckoff Way. If you're interested in the P&F aspect, there is a thread here for that, which may also be helpful with regard to scalping (though no one is particularly interested in it at the moment and the thread is inactive). There is also W's book on daytrading, which is attached to the first stickie. If you want to scalp intraday using Wyckoff but don't want to use P&F, I suggest you spend some time in the chat room here and ask your questions real time.

 

Edit: Wj's chart seems to have evaporated. This is more or less what it looked like, only without the stochastic window. The original post and my reply may make a little more sense with this chart.

 

Edited January 14, 2009 by DbPhoenix

[atto 20]

Damn, get corrected correcting someone

[BlowFish 10]

The number of contracts bought and sold was equal, but the number of people need not be the same. But I take it that's what you meant

 

And of course lets not forget buying to open, buying to close and selling to open, selling to close.

[HAKUNA 10]

Db,

 

Have questions regarding congestions, bar ranges and agreement/disagreement amongst traders:

 

1. Hinge: in the beginning there are wide range bars with high vol, the bars then get smaller and vol dwindles. how does this translate into agreement or disagreement.

 

2. Prices are falling sharply then hit a support level, prices get into congestion once again with wide range bars both up and down on high vol. , a range builds and the bars gradually get smaller in range and vol. decreases, once again how do we read where there is agreement and disagreemnt.

 

3. Then when prices rise on wide range bars with vol, can I take it there is more agreement amongst traders.

[Head2k 10]

My 2 cents:

First you need to define what do you mean by agreement. If you mean same bias then then yes, the greatest agreement is on the rise, but with low volume. If almost everybody has bullish bias there will be only little supply, so price will rise easily on low volume.

 

But I think that it is more usefull to define agreement as agreement on value rather than bias. This way the agreement represents balance. Hinges or ranges may start with a tug-of-war, but eventually they come to a point where there is no more traders willing to make a trade in that particular price zone, for the time being. This is basically what auction theory says.

[HAKUNA 10]

Head2k,

I am not a novice, you are still in learning process and paper trading. wish you would stop jumping in everytime I pose a question.

I understand both VSA and Wyckoff, and yes also have Dalton's book on auction theory etc, i.e have been around the block

 

am just trying to get some clarification from Db.

Have just had just about enough of people telling me to read a book, go this thread or the other, define what I mean by this or that.

Just looking for simple straight forward answer to straight forward question.

 

If one part is correct say yes, if the other is not correct, point out that statement which you or anybody thinks is not correct and most importantly Why do you think it is not correct.

 

certainly not looking for broad, general sweeping statements which sound profound upfront but is basically full of hot air.

Edited January 15, 2009 by HAKUNA

[DbPhoenix 42]

I agree with Head. The "agreement" in a hinge has to do with value, not with direction. The hinge is created because traders are looking for value, or "equilibrium". Whether price will then rise or fall is generally unknowable, though beginners devote a great deal of time trying to figure out how to predict direction. They have an extraordinarily low tolerance for uncertainty, and the idea of being prepared for all contingencies is for some reason unacceptable.

 

If the hinge takes place at a support level, it can signify a reversal, but it can also signify a continuation. And though you won't have any trouble finding people who will provide all sorts of hindsight examples of how obvious it all is, or was, recognizing this in real time -- much less acting on it -- is a different kettle of fish. If someone is willing to point these things out in real time, and they're also successful at it, fine. Otherwise, it's all just more guruspeak.

 

So how do you know what to do? You don't. You never do. But you can learn to assess the probabilities and prepare a set of decisions based on whatever contingencies you can conjure up. Then, no matter what happens, you'll be on the right side of the trade.

 

As for three, the wider the bar, the more disagreement there is. But if price is rising, there's more buying pressure than selling pressure. If by "with volume" you mean that volume is also high, that's not particularly relevant. High volume simply means that there's a lot of trading activity. But it's the change in price that yields profits, not the level of volume. You'll read that "big volume" is a benefit on price moves, but this is not the case. Price can move to a considerable extent on very little volume. Big volume -- that is, an expansion of trading activity -- is more likely to be a factor when price gets into trouble, such as at support or resistance (that is, genuine support or resistance, where prior levels of trading have been heavy).

[DbPhoenix 42]

Head2k,

I am not a novice, you are still in learning process and paper trading. wish you would stop jumping in everytime I pose a question.

I understand both VSA and Wyckoff, and yes also have Dalton's book on auction theory etc, i.e have been around the block

 

am just trying to get some clarification from Db.

Have just had just about enough of people telling me to read a book, go this thread or the other, define what I mean by this or that.

Just looking for simple straight forward answer to straight forward question.

 

If one part is correct say yes, if the other is not correct, point out that statement which you or anybody thinks is not correct and most importantly Why do you think it is not correct.

 

certainly not looking for broad, general sweeping statements which sound profound upfront but is basically full of hot air.

 

A completely unnecessary post and an apology is in order. Head sought just the sort of clarification that was necessary since your question was unclear as to the meaning of "agreement". Second, you may not be a novice, but you ask the same questions that a novice would ask. If you don't like the answers, you're welcome to continue searching for someone who will tell you what you want to hear. That's how gurus stay in business. But if you "understood Wyckoff", you'd know that he isn't going to tell you how to predict price movement (as for VSA, I can't say since I don't know what VSA is doing these days).

 

If you're trying to reconcile VSA and Wyckoff, I can understand whatever frustration you may feel since the two are essentially incompatible. But don't take out that frustration on those who are trying to help you.

[HAKUNA 10]

I think Db, by this time everybody and his brother is aware of your strong views on VSA, I personally am not too enamoured with TG marketing etc, but it is time to chill out somewhat.

 

I will try to keep as civil as possible

 

1. I have posed few questions before and they have been directed to you, and same happened.

 

2. To you the post appears as if the questions are from a novice, how do you come to that conclusion.

 

3. Where in the post 155 do you read that I am attempting to reconcile VSA and Wyckoff, VSA is not even mentioned there.

 

4. Which part leads you to say that I am looking for predicting the price or which way a hinge is going to break out.

 

Think you are reading far more into some very simple straightforward questions than is necessary.

 

5. I have read somewhere on the wyckoff forum regarding agreement etc, don't really want to pull up the exact posts and start a debate on that.

thanks for whatever explanation you have given

[cowseathay 10]

So it's been a month since I posted my last boxes chart. Here is an update. As you can see, there was practically no change in the S&R levels provided by the boxes from my previous chart posted a month ago. Price reacted very strongly to just about every single level that was defined.

Edited January 15, 2009 by cowseathay

[DbPhoenix 42]

So it's been a month since I posted my last boxes chart. Here is an update. As you can see, there was practically no change in the S&R levels provided by the boxes from my previous chart posted a month ago. Price reacted very strongly to just about every single level that was defined.

 

Yes, this has been a particularly good period for the boxes, particularly re 1200, 1170, and 1150.

[jonbig04 10]

Any takers? I'm having a mental blank during the holiday season.

 

Nothing happened to my levels after rollover. They stayed the same.

[cowseathay 10]

I just also wanted to point out that someone new to this might look at my chart and be confused by all the lines or may think there are too many. The reason I have so many lines is because I like to track even minor support and resistances, even if I am not looking to trade at these points, I would like to know whether these minor zones hold up price or cause a pause. Essentially, I like to know why price is doing what it's doing, even at a very small scale. However, there is no need to plot every single S&R line or box. It is perfectly acceptable to just plot the major S&R lines and trade using just those without worrying about the little wiggles that happen in between. This way, the chart is clean and you focus only on the points that really matter (i.e., in a large scale). I think this is how Db trades. Either way, just do whatever fits with your personality.

Edited January 17, 2009 by cowseathay

[DbPhoenix 42]

Not exactly. I maintain multiple charts dating back to a year or more. But I only bring up those charts with whatever levels of S/R price is likely to hit that day. Friday, for example, it wasn't necessary to go back more than a week. For Thursday, I had to go back to the beginning of December. This provides much less clutter, though all the charts are available in case some mysterious level of S/R materializes that appears to have no antecedent.

[cowseathay 10]

Gotcha Db. I was just trying to point out that you don't need to focus on every single minor support or resistance if you don't want to, you can wait for price to get to the major levels and trade only those if you'd like.