Trading The Wyckoff Way

[DbPhoenix 42]

Just so I don't ignite a stampede of people rushing to go long, I should point out that we are perilously close to resistance from two quarters: the channel in which the Naz finds itself and the swing high in November. Volume of advancers has also been weak. So anyone wanting to go long should consider waiting for the pullback (it's the Wyckoff thing to do:)).

 

 

 

All of this can be plotted for the other major averages as well, of course.

 

Edit: What the hell, as long as I'm at it . . .

 

 

Volume of advancers has been better for the NYSE than for the Naz, tho that doesn't necessarily apply directly to the SPX.

Edited May 4, 2009 by DbPhoenix

[DbPhoenix 42]

A more detailed explanation of how I use the TICKQ is now included in my blog.

[DbPhoenix 42]

I sometimes forget that many of those who read the occasional "new post" have not necessarily read any other posts here or even know what this forum is all about. Therefore, I should point out that even though the sectors charted above have shown considerable strength, nearly all of them have serious resistance levels to get through, and they may have considerable difficulty in doing so. A failure to do so may in fact result in another test of the March lows.

 

Don't assume, then, that long is the only way to go. Short may be the better option, but there should be volume clues before we begin a new leg down, if and when we do so.

 

Edited September 9, 2009 by DbPhoenix

[Gringo 10]

Below is a weekly and daily chart of AAPL. Due to this strengh in tech I am simply showing possible re-buying/buying opportunties after a pullback in market.

 

Volume on up moves seems to be higher than volume on down moves. Because the price has been going up demand is greater so far.

 

For shorting, try to look for a weaker group as techs are very strong so far and could cause indigestion if not handled with care.

 

For AAPL the box is like this:

 

upper limit: 190

mid point: 155

lower limit: 120

 

Percentage wise if these S/R behave then the risk/reward are quite hefty.

 

 

Edited May 6, 2009 by Gringo

[DbPhoenix 42]

Below is a weekly and daily chart of AAPL. Due to this strengh in tech I am simply showing possible re-buying/buying opportunties after a pullback in market.

 

Volume on up moves seems to be higher than volume on down moves. Because the price has been going up demand is greater so far.

 

For shorting, try to look for a weaker group as techs are very strong so far and could cause indigestion if not handled with care.

 

For AAPL the box is like this:

 

upper limit: 190

mid point: 155

lower limit: 120

 

Percentage wise if these S/R behave then the risk/reward are quite hefty.

 

Since you've reached what you've pegged as the "lower limit" of the range of interest, don't forget to check on the group of which AAPL is a part, as well as the major market of which it is a part (i.e., the Nasdaq). This is a step commonly left out by those who believe -- or who have been led to believe -- they're following the "Wyckoff Method". As a result, the wrong conclusions are drawn and the trade often ends up a loser, leading the trader to conclude that this approach "doesn't work".

 

As for the Nasdaq, assessing the strength or weakness of a major market average is a process that consists of several components. Which component one begins with is not especially important as long as they are all eventually included.

 

Determining the trend, of course, is essential, but one must remember that it's timeframe-dependent, that is, we have -- or have had -- an "uptrend" since March, but the trend over a longer timeframe is still down. If, however, we are interested in this particular time segment and this particular uptrend, we must at some point find support and resistance, and the sooner the better.

 

 

 

 

First we look for the important trading ranges. Here I've highlighted one because it is the most influential for this purpose. It finds support at the last swing low before the November low, and the top of the range which precedes the upthrust in January acts as resistance to the rally attempt in February. Finally, it is this resistance level which acts to alter the course of the March rally to a more "north-westerly" direction at the end of March/early April.

 

Now we look at this short-term trend and the channel that it forms:

 

 

 

Since the trend is up, the demand or support line is drawn first. Then a parallel line is created in order to act as an "overbought position" line, i.e., a line which shows when price has wandered too far from the trend. This can also act as a supply line (Wyckoff didn't much care what the trader called these things as long as he understood what they were and what they were for). Note that as price approaches the November swing high, trading activity increases but price doesn't make a great deal of progress. In other words, buyers are trying to push price higher, but sellers are throwing supply at them (hence the increase in trading activity, i.e., higher volume). Buyers can't absorb all of this and price rolls over, eventually falling out of the channel.

 

Wyckoff cautions, however, to focus not just on the break of a trendline (or demand line or whatever) but also on how it is broken. Here the line is broken on unremarkable volume. Not only that, it appears to be finding tentative and possibly fragile support at the January swing high. Granted this is pretty soft, and price may have turned here for no particular reason, but noting these potentials enables one to be better prepared for whatever happens next.

 

The SPX is behaving in a similar fashion, though the trading ranges, support and resistance levels, and channel are somewhat different. For example, the SPX remains in its channel while the Naz is showing -- or appears to show -- greater weakness. It's up to you, then, to weigh the probabilities and decide which way you want to go. If you want to go long AAPL, now's the time, with a stop below the "danger point", i.e., 119. You can wait for further confirmation if you like and chase the price, but the stop remains below the danger point, and the longer you wait, the farther you are from the stop. Or, if you see weakness that you can't ignore, you're welcome to go short. Keep in mind, however, that Wyckoff counseled shorting within the apex, in this case around 130, and managing a short this far away from that apex may be problematic. Better, therefore, to wait on a short until there is a rally attempt which looks to fail, short within that apex, and set the stop above the lower danger point (above the apex of the rally attempt rather than the apex at 133.

 

Regardless of what you decide to do, continue following the major market average (Nasdaq) and major group (XLK) of which AAPL is a part. Their action, as well perhaps as the action of "sister" stocks, will help you decide on an appropriate course of action, whereas following only the stock may result in unnecessary guesswork and an outcome which is based largely on luck.

 

Note: You might also want to track the Computer Hardware Index for a group that is not as all-encompassing as XLK.

 

 

Edited September 9, 2009 by DbPhoenix

[DbPhoenix 42]

Let's bring the weeklies into this:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trend, Support and Resistance, Volume . . .

 

Edited May 16, 2009 by DbPhoenix

[Gringo 10]

Db as always does such a nice analysis that it's difficult to come up with something novel. I am attempting here to show SPX montly to indicate longer term trends.

 

790 or below means probability of going lower increase.

Above 790 (staying in box) implies could go to 1150 or upto 1500.

 

Generally, the volume changes indicate higher probability for a move downwards in my humble humble opinion.

 

This may help traders who use daily charts to align their stars and be aware of danger points.

 

[DbPhoenix 42]

Updates on the weekly charts (that is, the weekly update of the daily charts). Note that while all the demand lines were broken, none were broken decisively. In fact, one could characterize the action in the Dow and SPX as tests.

 

 

 

 

 

 

Edited September 9, 2009 by DbPhoenix

[atto 20]

I'm sure we'd all agree the parabolic price action on the close was interesting.

 

And here we find price back up to the top. $SPX, $NDX, $COMPQ, and $NYA all have similar price patterns. Volume has been declining since the range was established towards the beginning of the month. Springboard?

 

As a note, here's some recent divergences between up and down volume, and price.

[DbPhoenix 42]

As you know, I follow "up and down volume" as well (volume of advancers vs volume of decliners). However, I also separate them in order to determine if and when "something is up" (so to speak) in a sideways movement, particularly if it's a lengthy one. This splits the voume in a meaningful way which also doesn't involve any work.

 

I'll use the Naz only, just to provide an example.

 

 

 

 

Note here that as price drifts up past 1720 toward 1760, the volume of advancers trails off. When it tries to make a new high on the 7th, buyers withdraw and the volume of decliners is dramatically higher. However, selling pressure is immediately withdrawn. There's no follow-through. Only later is price allowed to drift downward, gently. Volume of advancers declines and volume of decliners increases, but both changes are gradual. There's no "panic" here. After price hits support on the 13th, buyers come back again, heavy, but as price works its way toward resistance, volume of advancers again declines, at which point the volume of decliners increases. And so on.

 

This is classic. Price is pushed towards one end and whoever is pushing backs off in order to keep price within the range. There's no follow-through on either end. Detecting this using the ordinary measure of daily trading activity charted at the top (in green) is difficult because trading activity in general is heavy throughout in all the major averages, and coloring the bars often leads to exactly the wrong conclusion (and also interrupts "the wave" or the flow). Getting past the usual "volume bar", however, enables one to see who's doing what when.

 

The only question now is whether this is re-accumulation or distribution.

[DbPhoenix 42]

Notice: There ought to be 10 charts in this post. If any of them disappear, please let me know.

 

I’ve been following your advice and putting in screen time with my replays but after reading Wyckoff and then moving into real market action, I was very surprised as to how bad my analysis skills are. The books I have read make the market seem so readable (trend followed by consolidation and repeat) but real market action is just a chaotic mess and I have difficulty in deciphering price action!

 

For example the attached shows my confusion and the result is that I have neither a long or short bias – I just don’t know what to think!

 

So my question is, can you recommend any stages/steps that I can use to decipher price action in a logical way, or is simply a matter of putting in the screen time?

 

Many thanks

 

 

 

Given the lines you've drawn in an attempt to trace the "wave" movements and your comments regarding strength and weakness, you appear to be trying to apply the lessons taught in the first three stickies, and good for you: (1) assessing the continuing imbalances between supply and demand (or between buying and selling pressure, buying and selling power, buying and selling interest: whatever term you choose is immaterial), (2) judging the market by its own action (that is, its behavior, which is to say the behavior of those who are moving the price), (3) using the inherent wave structure to help you determine that strength and weakness.

 

To begin at the beginning, then, and focus only on these three essential components of the Wyckoff Way, I suggest you get rid of all the clutter: the colors, the candles, even the bars, and look at the waveform itself. I've converted the time axis to New York time to put everybody on the same page.

 

The particular line plotted in this chart is an average of the high to low in what had been each individual vertical bar. Therefore, the highs and lows of each individual bar are filtered out. One could show all those highs and lows by using a tick chart (that is, 1 tick) and avoiding the use of bars entirely, but that would mean a hell of a lot of charts, most of which would look like flies buzzing over poop rather than transactions to those who aren't used to following tick charts. But the point here is to illustrate an idea, not to provide a schematic.

 

 

 

 

The "continuity of price" can be difficult -- sometimes overwhelmingly difficult -- for anyone who's learned to read charts via bars or candles, much less with indicators attached. But it is perhaps the most important element in applying the Wyckoff approach. This may be more easily understood if one remembers that all of Wyckoff is based on tape reading, that is, the continuous, uninterrupted flow of price movement. The vertical bar chart is used only to summarize each day's activity, and one must never forget that each individual bar represents many waves of buying and selling, each wave comprised of hundreds or thousands or hundreds of thousands of transactions. To attach any particular meaning to any particular bar, then, is misdirected unless one has clearly in mind all that was done during the trading day to create the bar in the first place.

 

Backing away from bars, then, and looking at the underlying sentiment which propels the formation of the bars, I hope you can more easily see the durations and extents and angles (or "strides") of the waves. If you were to try plotting them again, you may wind up with something like this:

 

 

 

 

Perhaps you can more easily see now that each buying (or up) wave is longer than each preceding selling (or down) wave. This tells you who's got the ball. But note also that the durations of each wave are getting shorter and the strides are becoming more vertical. These aspects tell you that, while bulls are still in charge, you are rapidly approaching a level of buying exhaustion. Not parabolic perhaps, but at least a level where demand and supply will come into balance and price will move sideways for a bit before a reversal or continuation.

 

Just looking at this will not provide a revelation, but a line is a handy tool to get one back in synch with the underlying wave movement if he finds himself getting too entangled with the trees that bars can represent and the alleged "meaning" that they have. Once one feels that he grasps the idea behind the continuous line and the continuous waves, he can always put the bars back:

 

 

 

 

He can also put back the candles and the colors, but it's unlikely that he'll want to since they turn the focus back to the bar and away from the continuous wave underneath. The bar alone will likely be sufficient to tell him not only what's going on with the underlying waves but also, through the highs and lows of the bars, tell him how far buyers and sellers are pushing up and down before pulling back into the wave.

 

Now about the volume, which you don't address, but which you've plotted, and which can provide some additional and useful information to you.

 

You've begun with the overnight, and volume is of course not what it will be when reports start coming in or the market "opens". And in real time, or in replay, you will see a very different volume pattern than you will if you log on shortly before the open and review what's been going on before you woke up.

 

Note here, for example, what the volume looks like before the reports start rolling in:

 

 

 

 

Keep in mind that volume represents transactions and that linking a particular volume "bar" with a particular price "bar" works counter to an effort to stay in synch with what's going on with the continuous movement of price. Therefore, rather than focus on the length of any particular volume bar, much less attempt to determine how much of it is "buying" and how much of it is "selling", think of it only as an increase in trading activity and focus on how that increase affects price movement. Here, for example, there are several instances of noticeable increases in trading activity. Noting what happens to price in each of these instances will tell you all you need to know about who's got the ball.

 

The other thing to be wary of with regard to volume is to get too far ahead of yourself when reviewing the market prior to the time you revved up your charting program and logged in. Here, for example, the volume on the 08:30 report is so high that it dwarfs everything that came before, giving the impression that nothing important was going on prior to 08:30. But this was not the case (as seen in the preceding chart).

 

 

 

 

And when the market opens for the regular trading day, even the significance of the volumes prior to 09:30 can be missed:

 

 

 

 

And back to that portion of the day which you originally charted:

 

 

 

 

And the "wave" for it:

 

 

 

 

And even though you are not yet looking at support and resistance, or at least you didn't in your chart, it will help as soon as you're ready to incorporate that aspect into your analysis so that you have a better idea of why price does what it does where it does it.

 

Here, for example, note the dip that price made overnight after having consolidated for several hours and where price found support after the open:

 

 

 

 

That alone, of course, is not enough. But when combined with a wave plot and an assessment of what the "volume bars" are telling you about trading activity, you will be better able to take advantage of the trading opportunity in real time, not the least of which reason will be that you'll know where to expect it, if and when it presents itself.

 

And, yes, it also takes a lot of screen time.

 

 

Edit: A couple of charts vanished into the ether and had to be reinserted. I hope this is the end of it.

 

Edited March 9, 2013 by DbPhoenix

[taks1990 10]

Thank you very much DB - your comments are really useful.

So, in terms of interpreting the first chart, do you think the bulls and bears were simply battling for control and there was no clear bias at the time?

 

Also, you make an interesting point with regard to volume - although I am trying to study volume, I often question if it is of any use - I think you mention in your ebook that as long as the price dynamic is in your favour, volume is not important (this is not a direct quote - just my understanding).

 

e.g. I'm currently doing a replay where the market is continuing to push up persistently and volume is falling all day. Just wondering what your thoughts are on this?

 

Thank you

[DbPhoenix 42]

Thank you very much DB - your comments are really useful.

So, in terms of interpreting the first chart, do you think the bulls and bears were simply battling for control and there was no clear bias at the time?

 

Also, you make an interesting point with regard to volume - although I am trying to study volume, I often question if it is of any use - I think you mention in your ebook that as long as the price dynamic is in your favour, volume is not important (this is not a direct quote - just my understanding).

 

e.g. I'm currently doing a replay where the market is continuing to push up persistently and volume is falling all day. Just wondering what your thoughts are on this?

 

Thank you

 

If you're referring to the very first chart, i.e., the "quoted" chart, then for that overall period, buyers and sellers were pushing and pulling price throughout with little progress toward one side or the other, ending in what amounts to a draw, or a state of "balance", or a state of "equilibrium".

 

But that's not how trading works. Trading is not "here's a trade from this morning" or "here's a trade from yesterday". Trading is "it's 09:46; what do I do at 09:47?" or "price is at 146.25; what do I do if it hits 146.50?" All you have when you're ready to begin is what came before. One hopes that you know where support and resistance lie. Maybe you have a support or demand line that looks dependable. But the uppermost questions in your mind are (a) what now? and (b) what do I plan to do about it? Couldawouldashoulda has its place, but the step into trading the right edge (Here There Be Dragons) is a high and often insurmountable one.

 

There are many trading opportunities here that are more easily seen if one backs up and focuses on the movement as it occurs rather than view an entire day or so as a lump. For example, let's back up a bit from my first chart, all the way back to the previous day's close:

 

 

 

 

Here you have a shot of trading activity right at the close, propelling price all the way to 909. But then what? Most people are getting ready for Happy Hour. But others are continuing to trade, or are just getting ready to. What's available for them? Let's look first at the shaded area:

 

 

 

 

Notice first that there seems to be no volume at all after the close. Everybody's locked up, turned off the lights and gone home. But if you hang around and get past the fireworks, you find this:

 

 

 

 

Price has been in a one-point-wide consolidation for four hours, a long wait. But eventually it drops out of that for a test of demand. At 21:00, trading activity increases beyond the norm and preliminary support seems to be provided (price moves sideways for 15m as trading activity declines sharply, i.e., selling is withdrawn). Then price drops further and trading activity increases again. Here trading activity declines sharply again, and price moves sideways for another 15+m. Then trading activity increases again, not to the extent that it did 20m earlier, but price is propelled to 906.25. The behavior of price tells you that the increase in trading activity was an increase in demand, or buying pressure. Price drops back a bit, but it doesn't see 905 again. This is a shake-out and a buying opportunity.

 

Price then works its way back to that consolidation zone from 907 to 908 and subsequently drops below its demand line, finding support at 907, the bottom of the range:

 

 

 

 

When price tests this level again a little over an hour later and there's nothing urgent about the trading activity, you have another long opportunity. (Granted these point moves are not huge, but not everybody seeks huge point moves.)

 

The point is that looking back from the opening bell or later on the 19th, it appears that there's nothing going on here, and there is actually quite a lot going on here. And those on the other side of the world who trade during these hours can profit from applying the very same principles as those who trade during New York hours.

 

And if the bars begin to screw around with your head, plot your line chart again:

 

 

 

 

And if you refer back to the charts I posted earlier, you'll see that price tested 907 yet again at 03:30, providing yet another long opportunity, this one good for up to 8pts (though realistically probably a point or two less than that). And where does price land when that 08:30 report is issued? Right back at that same consolidation zone. You then have a shake-out during that 09:50 dip below support, and price takes off for 914.

 

And these are only a few of the trading opportunities that present themselves on both the long and short side. To look back and conclude that bulls and bears seem pretty evenly matched and that price is for the most part drifting sideways is to overlook these profit ops. In order to detect them, one must become at least acquainted with the principles, then back up and move forward, bar by bar. He will find that "right-edge" trading is a very different world.

 

As for volume (or trading activity), I addressed this at length in another thread, but I'll quote part of it here for convenience:

 

Until price reaches an area where a trading opportunity is most likely to occur, there's no reason to obsess over the minor ebbs and flows in volume. However, once trading opportunities are on the horizon, what might be considered directionless activity elsewhere suddenly becomes important.

 

Here, for example, when price comes back to 1966 the second time, the fact of the test is interesting enough. That it cannot make a lower low even with all the volume is even more interesting. The bullish boost at 1329-30 becomes more important because of what has come before, as does the volume recession when price pulls back to 1975. When another bullish boost occurs, beginning at 1352, it is significant, again, because of what has come before. And when price makes an attempt at a higher high at 1401 and volume isn't there, that again becomes significant because of what has become before and provides the "classic" double-top price-volume divergence setup for the short. Without the context, none of this matters, and volume is little more than traders going about their business. With the context, it becomes a high-probability short trade.

 

Hope all of this (a) makes sense and, if so, (b) is helpful.

Edited March 11, 2013 by DbPhoenix

[innovation1520887469 10]

...

This is classic. Price is pushed towards one end and whoever is pushing backs off in order to keep price within the range. There's no follow-through on either end. Detecting this using the ordinary measure of daily trading activity charted at the top (in green) is difficult because trading activity in general is heavy throughout in all the major averages, and coloring the bars often leads to exactly the wrong conclusion (and also interrupts "the wave" or the flow). Getting past the usual "volume bar", however, enables one to see who's doing what when.

 

The only question now is whether this is re-accumulation or distribution.

 

What value is this if it doesn't give you an idea of likely outcome? What insights does it give that are useful in preparing to trade the culmination of the range?

 

I am asking as I am obviously missing the point not trying to be facetious:)

Edited June 3, 2009 by innovation
format

[DbPhoenix 42]

What value is this if it doesn't give you an idea of likely outcome? What insights does it give that are useful in preparing to trade the culmination of the range?

 

I am asking as I am obviously missing the point not trying to be facetious:)

 

The value lies in understanding that there is a purpose behind the movements within the range and not just an aimless drift. Therefore, one can expect the movement out of the range to be purposeful, and not just the result of bored traders looking for something to do. Atto suggested, above, that this might constitute a springboard, and anyone familiar with Wyckoff would be thinking the same thing. However, what seems obvious does not always turn out that way, and the Wyckoff trader would also be prepared -- as would Wyckoff -- for a sudden drop out of the consolidation, which would most certainly freak the longs and likely make for a nice short trade.

[wjrusnak 10]

A case for DOW 9000. This analysis is very narrow, as I'm focusing only on the DOW, but similar setups are emerging in the other indexes as well.

 

 

A couple things that I notice:

 

On June 1st, the DOW officially broke the bear channel set in place for the past couple of months, which one can deduce as a sign of strength and with that I placed a new demand line. In addition to that, it broke the midpoint of the congestion of the October lows. The next swing is set at 9000. The peculiar thing about this last push up is the seemingly weak break of the springboard and the decreasing volume of this entire move. Even so, it held the top of the springboard, which again is a sign of strength. With the weak volume (lacking buyers and sellers) it may be difficult to get past 9000.

 

The latest play would have been a long at 8600 (in some stock or the future) and looking to take some off at 9000. This is what lead me to the observation of that price point. In any case, I feel that we should see some excitement near that range, especially if it turns out to be a "top". And of course if that is the situation...we may expect an overshot of buying panic, which will "screw up" these lovely levels entirely.

 

Input and discussion is welcomed.

 

-- Bill

[DbPhoenix 42]

A suggestion. The trading ranges need not encompass every single bar. The purpose of locating the ranges is to find those zones where the bulk of the trades have taken place. This may seem like a duh, but it's easy sometimes to overlook. Therefore, when you have, for example, a shakeout, as here, you needn't feel compelled to include it. It's an anomaly of sorts, and since no other trades took place there while the range was forming, it can be ignored, at least in terms of the box.

 

 

 

 

Doing so raises your midpoint to a level that is on a par with yesterday's close. This in itself is not particularly meaningful since whether we have moved past the midpoint or only reached it is only one component to be considered. Other components, as you mention, include the behavior of the other major market averages. There is also the behavior of the trannies, the volume of advancers (which has been, for the most part, crap), the behavior of the sectors and so on.

 

On other other hand, you must also in this particular case consider the reshuffling in the Dow. Replacing AIG and GM with CSCO and TRV will likely provide at least a temporary boost to the Dow if for no other reason than that the replacements have been doing so much better than what they're replacing. Given how close we are to 9000, that alone may be enough to put us there, and one should be wary of attaching any particular significance to a bump up to that level.

[DbPhoenix 42]

Though I've looked at the 1930-31 analysis more times than I can remember and eyeballed the trendlines and support and resistance and so forth, I've never actually annotated the charts. MLB's suggestion yesterday -- and a lot of time on my hands -- and a comment I read about all of this being so "out of date" -- prompted me to go ahead and do it, at least for the first two charts in the triptych:

 

 

 

 

Trading ranges, support, resistance, midpoints, swing points, trend: it's all the same now as it ever was. And it really doesn't even require language.

 

 

 

 

 

 

Edited June 6, 2009 by DbPhoenix

[gassah 10]

 

On June 1st, the DOW officially broke the bear channel set in place for the past couple of months, which one can deduce as a sign of strength and with that I placed a new demand line.

 

-- Bill

 

Hi Bill,

 

I wouldn't count that as a break of the channel yet because the "how" it was broken isn't impressive, that is with low volume and a lack of follow through.

 

Rob

[gassah 10]

It is bad practice to buy a stock simply because it has penetrated an established supply line or broken out of an extended congestion area; or to sell it merely because it has violated a line of support or broken through the bottom of a trading zone, and for no other reason. Do not forget: The breaking of a trend line, by itself, is neither a conclusive nor an all-inclusive symptom. The significant thing is HOW the line is broken; the conditions under which the change of stride occurs. The behavior preceding such an indication must also be taken fully into account.

 

In short, the quality of the buying or the selling at and around the point of penetration determines whether the violation of an established stride may be regarded as evidence of a further movement in the direction of the breakthrough, or whether it means only temporary change. This admonition applies equally to the violation of former tops and bottoms and old levels of resistance and support.

 

Wyckoff (Section 15M, p3)

[DbPhoenix 42]

There seems to be quite a bit of angst pervading TL lately. I'm Confused. I'm Frustrated. How Long Before I Make Any Money At This? How Long Before I Become Successful? Was This Short OK? What Am I Doing Wrong? There are threads that encourage beginners to post their profits and losses (without necessarily explaining how those profits and losses occurred), to post their losing trades (the Misery Loves Company approach), to post their winning trades (sometimes with the reasoning behind them, sometimes not).

 

But what about the couldawouldashoulda trades? There is as much if not more to learn from the winning trades we didn't take as there is from the winning trades we did, much less the losing trades we shouldn't have taken but took anyway.

 

Post, therefore, the trades you should have taken because..., would have taken if only..., could have taken but.... It is not so much for What Was I Thinking? but Why Did I Miss That? It is not for the closet flagellant who wants to beat himself up but rather for the intellectually curious who is on a self-improvement arc, who wants to figure out and understand what he could have done better, assuming as he does that this exercise will enable him to do better the next time.

 

Posts will, of course, include an annotated chart of the couldawouldashoulda trade along with the poster's assessment of the situation, preferably with some sort of plan of what he intends to do the next time to avoid the CWS. This will theoretically hone the trader's understanding and appreciation of the setup so that the probabilities of his actually taking it next time will be increased. Or maybe not. But it sure beats banging one's head against the wall.

 

Since this is the Wyckoff Forum, setups and charts will of course reflect that. In other words, no pretty pictures of bowties and butterflies and so forth, no indicators, no pivot points, no Fib, no candlespeak, no colored price or volume bars. Just straightforward, plain ol' price bars (or a 1-tick chart, if trading PA has perverted you to that extent, or a line chart, if you're trying to see price movement without the bar structure) and, if you like, volume bars (though these are not strictly necessary).

Edited December 29, 2012 by DbPhoenix

[Head2k 10]

Nice thread, exactly for me. Recently I make a very few trades, because my primary goal now is to stop behaving like an ******* . With this new goal I moved from overtrading to the other extreme. So I miss a lot of entries, even if they are valid according to my plan. I pass them when I am not sure of what's happening in wider context. And I often think of what I CouldaWouldaShoulda done then.

 

Enough for the introduction, here is my passed trade, or actually two of them, from today's NQ cash open:

 

First what I was looking at in my prep on larger scale (5000 CVB chart):

NQ formed a range on 6/1 - 6/4. That range was broken up on 6/5, but price was rejected above and returned. After the rejection support was found in the midpoint of the range around 1477. This midpoint also supported price on 6/4, before the break. And in the morning today price was supported at that level again.

 

Now lets look at 5m chart to observe Sunday, overnight and premarket:

There are several things to notice.

Price is not rejected much on the support. A narrow range or a base developes instead. This base is broken to the upside then, a few minutes before open.

The dark green line marks lows of Sunday's range, and it also marks an upper edge of a large bulk of trades in the 6/1 - 6/4 range. So I acknowledged the dark green line as potential resistance.

 

On 1m chart, I marked actual demand line and swing points, and I also noticed that the dark green line acted as resistance just few minutes before open.

 

So what to do now? Price found S in midpoint which already acted as S. Price wasn't rejected quickly, but formed a narrow range. Doesn't scream strength. But it doesn't look like price was hammering support either. Tests are quite fast. And then the range was broken up. The break was slow, nothing violent.

In such cases I look for buying a test of midpoint of the range.

But the R is so close. What if price doesn't get past it and a stair-step on larger scale develops instead (see 5m)? That would mean returning fully into the 6/1 - 6/4 range.

 

Here I am posting a 5sec chart.

The arrows mark possible entries according to my plan, only if I was sure which direction to take. At open I was ready to take the long but didn't pull the trigger. Then I gave up and just watched. The potential short I marked in hindsight, because in RT I was too occupied by thinking whether I should or shouldn't have taken the long.

 

Conclusion:

 

There are two aspects to think of. The first is whether I could have prefered the short. This is a question of analysis. And in hindsight I can of course say I could have. After the breakout of 6/1 - 6/4 range price returned, found S in midpoint and bulls tried up again. But they failed. They didn't get over 1500. And now they are in the midpoint again. Why should it act as support? After that failure to go up off that last midpoint test I shoud expected full rotation down.

 

The other aspect is what to do in such situations when I am not sure of direction (or larger context). This is a question of trading. One option would be just do nothing, like I did today. But then I would need to accept the fact and stop wondering what I should or shoudn't have done.

The other option would be enter the long and in advance acknowledge the need of SAR'ing in case that the dark green line acts as R. So that would mean taking both of the trades.

What I did today was very different. I was ready for the long but I feared the near R. Hadn't I feared it as an obstacle but accepted it as a possible level for short if the long doesn't go, I could have ended with 1 BE and 1 winner.

[DbPhoenix 42]

A few things to think about.

 

Even though the larger context may give us the strong S/R represented by the limits of the trading range, price will often find S or R closer in as we work our way towards show time. In this case, it was 1478 to 1482 (the 5m chart). Price had already rejected the larger range topped at 1500+/-, after which it had repeated difficulties getting past 1492. You will hear or read that the more you test something, the more likely you are to break thru it. Forget that. It is just as likely that traders will say the hell with it and explore the other direction. Stay unbiased and flexible. Here they were testing 1485 as well, and eventually decided that the ops there may be juicier. Which brings us again to 1478 to 1482.

 

Now for the chart below. Seven minutes before the open, traders decide to test 85 again, and it fails. This is not necessarily a go for a short, but if you like it, you could always work on making a setup out of it. You can also just sit on your hands and observe. Traders settle on 83. They jerk up a few times, but basically just lie there on 83. The market then opens, and we have another effort to get thru 85, a violent one. That doesn't work. So we get the same sort of effort to the downside. That appears not to work either. Traders appear not to want to go back to that 78 to 82 range. So they settle into 83 to 84. They poke out of it on both sides, each poke becoming progressively longer. Finally they bust out and try for 85 again, which again fails. This pretty much says Short Me, but you don't have to. Not quite yet. Largely because you know you have a downside test coming up.

 

Now you see what happens when you work your way toward 82. You can short that and risk being stopped out. Or you can wait for a retracement that may never come. Or you can do both: short the break below 82 with a tight stop (a very tight stop), then take the retracement as well, since the retracement doesn't even make it to 83. Then just ride the short until you get your exit signal.

 

 

 

 

Edited December 29, 2012 by DbPhoenix

[wjrusnak 10]

Here is my CWS for the day. I didn't get to my computer screen until about 12:15 p.m. EST (after Organic Chem Lab).

 

 

I noticed this set up on the YM happening around the last swing low on the 60 min chart, so I continued to focus on the setup and drew up my supply lines from earlier in the morning (on a 1m chart). I saw the weak break below the low of the session and was anticipating a set up at 8627. Even though this trade was counter-trend, it was appealing because of that weakness.

 

My entry would have been 8629-8631 with a stop of just below the low of the day at 8624-8625. The entry would have had to be quick (as seen in the 3 tick chart). I realize that the market rallied later in the day, but a true realistic exit for myself would have been after the second failure around ~8660 at about 1:30 p.m. EST. Even then, this would have been a terribly long trade.

 

So why didn't I take this? Prior to the test of the supply line around 12:30 p.m. EST I decided to get some lunch. I came back about 6 minutes later and price was already jetting toward the supply line. Now it becomes a CWS.

 

-- Bill

[DbPhoenix 42]

 

So why didn't I take this? Prior to the test of the supply line around 12:30 p.m. EST I decided to get some lunch. I came back about 6 minutes later and price was already jetting toward the supply line. Now it becomes a CWS.

 

-- Bill

 

So was the lunch worth it?