Trading The Wyckoff Way

[DbPhoenix 42]

To clarify the chart I posted in #102, I said "this is what I'm looking at now on the NQ". However, it should be obvious that I don't trade off BigCharts, nor do I use the QQQQ to give me signals. What I meant was that those were the price and volume clusters I was looking at, and continue to look at. I posted the QQQQ from BigCharts because (a) this is available to everyone and (b) it's close enough, at least for the purpose of illustrating these concepts. Anyone interested in doing this for real, eventually, should get himself a real-time feed and follow his own NQ or ES or whatever charts.

[zeon 10]

To clarify the chart I posted in #102, I said "this is what I'm looking at now on the NQ". However, it should be obvious that I don't trade off BigCharts, nor do I use the QQQQ to give me signals. What I meant was that those were the price and volume clusters I was looking at, and continue to look at. I posted the QQQQ from BigCharts because (a) this is available to everyone and (b) it's close enough, at least for the purpose of illustrating these concepts. Anyone interested in doing this for real, eventually, should get himself a real-time feed and follow his own NQ or ES or whatever charts.

 

Do you mean that the charts aren't accurate? I am aware of the differences between the futures and cash market for example. I actually posted the question about the offset between both in another thread. Perhaps you could shed some light on it too.

[DbPhoenix 42]

BigCharts doesn't provide emini data. It's also delayed. I'm sure they're accurate for what they are.

[gassah 10]

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

 

The first chart is the NQ 1m from yesterday which I think is the chart under discussion. Along with a trailing stop I believe W would have drawn the channels and considered exiting at the preliminary supply and/or buying climax (BC) areas. The BC is especially attractive because:

1. Price hit a prior day's congestion
   
2. It was overbought outside an accelerating channel (position)
   
3. It reached a point and figure target
   

 

I've never tried point and figure on the 1m NQ so I don't know how well it works. Not all stocks/securities work with point and figure and each one would have to be checked historically to confirm.

Edited April 16, 2008 by gassah

[zeon 10]

Within the context of Tuesday's selling climax and re-test, I thought it might be interesting to discuss 'the big picture'. Mainly, because I seem to recognize the same concepts and as they apply on each timeframe,...

 

From what I can see:

(a) is a selling climax on huge volume, and demand overcomes supply because if you blend the bars, it's a hammer-like formation and price closes well off the lows

(b) a break of the demandline

© a higher low

(d) a re-test of the low, and on lower volume

(e) a shake-out and in effect another test, on higher volume but price closes off the lows

(f) a higher high

(g) and a higher low => confirmation of new uptrend

(h) a new (cyan) demand line can be drawn

 

Forget for a minute that everybody is saying that this is a bear trend and just look at the chart. Or for the sake of the exercise suppose that this is a intraday chart instead of a daily one, doesn't this validate taking a long position? What elements have I interpreted incorrectly?

[gassah 10]

Forget for a minute that everybody is saying that this is a bear trend and just look at the chart. Or for the sake of the exercise suppose that this is a intraday chart instead of a daily one, doesn't this validate taking a long position? What elements have I interpreted incorrectly?

 

Hi Zeon,

 

I'm a ST/IT trader and prefer this big picture. Looking at only the daily chart isn't providing the full picture from a W point of view. The weekly has to be taken into account and that trend is down. If the trend were up then making long commitments on the selling climax and subsequent tests would fit the strategy. W does provide examples of making short term long trades in bear market rallies but he didn't take on intermediate longs and didn't advocate trading short term against the longer primary trend, though it's probably fine for an advanced trader, IMO, with a proven track record of trading with the trend first.

[zeon 10]

Hi Zeon,

 

I'm a ST/IT trader and prefer this big picture. Looking at only the daily chart isn't providing the full picture from a W point of view. The weekly has to be taken into account and that trend is down. If the trend were up then making long commitments on the selling climax and subsequent tests would fit the strategy. W does provide examples of making short term long trades in bear market rallies but he didn't take on intermediate longs and didn't advocate trading short term against the longer primary trend, though it's probably fine for an advanced trader, IMO, with a proven track record of trading with the trend first.

 

 

I'm sorry, but if I understood correctly you disagree with the example dbphoenix give Tuesday then?

 

How do you know this 'double bottom' isn't a change of the trend? We've failed to make a lower low and the demand is breached and we've moved up above the last swing high...

 

(Don't get me wrong, I agree this is a bear market; I'm playing devil's advocate here).

[DbPhoenix 42]

Going back to post 122 above and what I'm looking at on the NQ, I'm posting a chart of what I actually am looking at (which isn't BigCharts). This may be tangential to the discussion, but without real people making real trades in real markets off real charts, it all becomes the usual hypothetical, philosophical discussions that become interesting but irrelevant and push people toward Miracle Software ("Anybody Can Do It!").

 

 

Note that after bouncing off long-term support, price consolidated between the bottom and midpoint of the first range. It then stalled and formed a hinge at the bottom of the next range. It then consolidated again at a line which has served as both support and resistance all month. Then to the midpoint of the range created on the 8th and the bottom of the range which preceded the cascade. Overnite, we reached 1870, the top of this range. Whether we reach 1880 or not remains to be seen. If there's no buying climax, I'll be looking at pretty much what Nic posted, though I'll scale out as usual under these circumstances.

[gassah 10]

I'm sorry, but if I understood correctly you disagree with the example dbphoenix give Tuesday then?

 

How do you know this 'double bottom' isn't a change of the trend? We've failed to make a lower low and the demand is breached and we've moved up above the last swing high...

 

I'll have to go through Tuesday's posts to find out which one you are referring to. Is it the 1m NQ I already responded to?

 

I'm curious about the double bottom because McLaren, with 40 years of experience, states that double bottoms rarely end down trends. They are terrific in up trends but usually fail in down trends. The reverse is true of double tops.

[DbPhoenix 42]

 

I'm curious about the double bottom because McLaren, with 40 years of experience, states that double bottoms rarely end down trends. They are terrific in up trends but usually fail in down trends. The reverse is true of double tops.

 

And others say that neither is true, that markets reverse in rounded tops and bottoms. So I guess it depends on what you're looking at and who you're listening to.

 

Which is why it's important, as Schabacker says, to focus on the behavior creating the pattern and not on the pattern itself. You provided a good example of that in the chart you posted.

 

Whether W would be trading this at all is debatable since, technically, we aren't trending at all; we've been consolidating for three months. A hundred years ago, ranges such as these were only a few points wide. Now they're 200pts (or at least this one is), so the trips from top to bottom and back again are actually worth trading.

[DbPhoenix 42]

And others say that neither is true, that markets reverse in rounded tops and bottoms. So I guess it depends on what you're looking at and who you're listening to.

 

Which is why it's important, as Schabacker says, to focus on the behavior creating the pattern and not on the pattern itself. You provided a good example of that in the chart you posted.

 

Even though the blood is now flowing to my head, I still can't remember who said this, though it must have been somebody I pay close attention to, and there aren't many: Mamis, Schabacker, Magee, a couple of others. But I do recall now that whoever it was said that corrections end in double tops and bottoms but bull and bear markets don't, rather the latter end in rounded tops and bottoms.

 

Of course, "the exception proves the rule" blah blah. The Nasdaq ended in a peculiar sort of triple top in '00, which to me was classic Wyckoff, though others might disagree.

[gassah 10]

GBPUSD is challenging the supply line today of a falling wedge? I'm not a pattern guy.

[gassah 10]

Of more importance is the terminal shakeout (GBPUSD) and apparent follow through today that offered an intraday entry. I'll find the relevant material from the course.

[DbPhoenix 42]

W might call the area encompassed by the red lines a hinge (Schabacker would prefer that it be filled with price, i.e., the 0950 swing high should reach all the way to the top red line). A pattern person might see a rising wedge -- the area encompassed by the blue lines.

 

Either way, the result is the same, a continuation of the move down from 1870.

 

[gassah 10]

The Terminal Shakeout (TSO) - Wyckoff

 

"A Terminal Shakeout is a rapid or precipitous downward movement, occurring at or near the end of a period of preparation for an advance. In the case of deliberate manipulation, the purpose of the terminal shakeout is to scare holders of stock into selling out; to catch stops which may have been placed on long positions below the previous line of supports in the accumulation zone, in other words, mop up as much cheap stock as possible; and to encourage short selling around the bottom on the part of the public. After the bag has thus been held for the weak holders and amateur shorts, the strings are pulled to lock in these shorts and to shut out the sold out bulls. This may be done either by a gradual or by a rapid recovery in the price.

 

It makes no practical difference whether a shakeout is due to manipulation or panicky selling on the part of distressed longs. In either case, the selling that forces the sharp downward acceleration of the price movement is due to supply of poor quality. And the ensuing recovery is caused by the superior quality of the demand which is taking advantage of frightened sellers."

 

They come in a variety of shapes and sizes. I see GBPUSD on the 60m as one.

 

 

[zeon 10]

As for the talk about the buying climax recently...

 

I was wondering what the enormous volume peak yesterday near the close could mean. I had actually closed my papertrade long 1 minute before the sudden jump that moved us from 1847 to 1867 and higher :doh:

 

Could this be a buying climax or has this more to do with news or the fact that people are closing their position near the end of the day?

 

The chart is from BigCharts, but my data feed gives me a similar volume rise, which is in the context of intraday trading really extraordinary...

[habi 10]

As for the talk about the buying climax recently...

 

I was wondering what the enormous volume peak yesterday near the close could mean. I had actually closed my papertrade long 1 minute before the sudden jump that moved us from 1847 to 1867 and higher :doh:

 

Could this be a buying climax or has this more to do with news or the fact that people are closing their position near the end of the day?

 

The chart is from BigCharts, but my data feed gives me a similar volume rise, which is in the context of intraday trading really extraordinary...

 

The volume peak was one minute after the close, when Google news were released.

Wednesday we had a strong up-move too, but it looks different comparing the volume. The volume peak on Wednesday was in the high area, yesterday we went up on the first bar with the highest volume. Thats maybe the reason, why we can stay up for now.

[habi 10]

As for the talk about the buying climax recently...

 

I was wondering what the enormous volume peak yesterday near the close could mean. I had actually closed my papertrade long 1 minute before the sudden jump that moved us from 1847 to 1867 and higher :doh:

 

Could this be a buying climax or has this more to do with news or the fact that people are closing their position near the end of the day?

 

The chart is from BigCharts, but my data feed gives me a similar volume rise, which is in the context of intraday trading really extraordinary...

 

The volume peak was one minute after the close, when Google news were released.

Wednesday we had a strong up-move too, but it looks different comparing the volume. The volume peak on Wednesday was in the high area, yesterday we went up on the first bar with the highest volume. Thats maybe the reason, why we can stay up for now.

[treadstone 10]

 

I thought I'd upload this volume by price chart of the NQ. I've seen Db comment on the extremes of these bell curve volume distributions being potentially good areas to trade from.

 

I'm not an expert by any means however, so I'll leave further commentary to Db or gassah.

[DbPhoenix 42]

I don't know that any comment is necessary, treadstone. A picture's worth etc etc.

 

I should caution those who are new to this, however, that the VAP distribution is current. Before drawing any conclusions regarding trades prior to, say, the 16th, a new chart would have to be drawn that does not include the 16th or 17th or today. In this case, it might not matter. In most cases, however, the VAP distribution will be considerably different. Not that one can trade the past anyway, but if one is backtesting this, he can test only the right edge, and the data must end there (as opposed to just scrolling back).

[DbPhoenix 42]

Regarding the above, I hope that those who are playing with these charts are making the connection between the volume and the swing points. Otherwise, there's no point in doing it:

 

[Tannism 10]

Hi. I am working my way through your blog. Where shall I post a chart?

 

Tannis

[DbPhoenix 42]

Hi. I am working my way through your blog. Where shall I post a chart?

 

Tannis

 

That's not an option in blog comments. The closest thread is probably this one:

 

Real Time Price Action

[Guest SmartMoney]

Not on topic but anyone know anything about traderpoll.com? free service that compiles traders opinions on market direction and gives back poll results during the trading day?

[DbPhoenix 42]

So. Anybody detect the buypoint in the NQ today?