Trading The Wyckoff Way

[DbPhoenix 42]

I trade of the 5 min chart and I don’t scalp I normally try to go for 10 to 20 points on the fesx and on a trend day I will try to hold my position until I think the move is overdone or before a news event comes out. I also don’t use level 2 but just time and sales.

 

And the bid vs ask I mentioned are the real volumes being traded so those are transactions. I do see value in volume on daily chart. But on a 5 min chart I sometimes see thousands of lots being traded while price goes nowhere for minutes and then it moves on less volume, and it doesn’t always move in the same direction as the thousands of lots traded minutes before.

 

I'd have to see a chart example to give you more than a general answer, but if, for example, price is at a certain level and a lot of trading activity (volume) begins to take place and price is going more or less nowhere, then there is likely an equivalent exchange of buying pressure and selling pressure going on. In other words, sellers are unloading what they want or need to unload onto willing and eager buyers, but whatever imbalances there may be are not strong enough to move price. Price is in stasis, or a state of equilibrium. Once this exchange has taken place and the trading activity falls off, then the underlying nature of buying pressure vs selling pressure can manifest itself. If sellers are "done", then only a slight bias toward buyers can move price substantially higher on very little volume (if volume were higher, sellers would still be active). If, on the other hand, buyers are out of steam, then very little selling pressure and coincidental low volume (low trading activity) will prompt price to drop.

 

Think effort and result. Trading activity (volume) is a clear manifestation of effort. What are the results of all this effort? If zip, then buyers and sellers are probably at a standoff. But what happens then? If price rises thereafter, then sellers likely unloaded most of what they wanted to unload, but buyers are still willing to pay the premium. If the opposite occurs, buyers are out of bullets, and there's little to prevent sellers from driving price down.

 

Why sellers would want to drive price down in the first place is another matter, depending on who they are and what their motives are. But this should serve for now.

[monad 10]

Sound more like observing climactic situations at certain support or resistance levels.

If there is a substantial surge in vol at these levels followed by prices going in opposite direction on lower vol, then supply has overcome demand for the time being in rising market and vice versa. These are high vol up bars followed by sideways trading and then prices falling on low vol. It could represent lack on selling if retracement is occuring or lack of demand if reversal. This is where volume study is imperative as it represents effort and any movement in price is the result thereof.

[DbPhoenix 42]

Sound more like observing climactic situations at certain support or resistance levels.

If there is a substantial surge in vol at these levels followed by prices going in opposite direction on lower vol, then supply has overcome demand for the time being in rising market and vice versa. These are high vol up bars followed by sideways trading and then prices falling on low vol. It could represent lack on selling if retracement is occuring or lack of demand if reversal. This is where volume study is imperative as it represents effort and any movement in price is the result thereof.

 

If by "rising market" you mean price that is rising after having bounced off support, then it's actually the opposite, i.e., demand has overcome supply, or, more exactly, sellers are done and demand is allowed to move price higher without being impeded.

 

Again, it's always more helpful to have a chart. But there are plenty of examples available already. See the Volume Observation thread, for one.

[DbPhoenix 42]

I'm a bit surprised at the response to these posts. Clearly some need is being met, though I'm not sure that that need is.

 

In any case, we are in the middle of yesterday's range, with all the multiple resistance levels: 70, 60, etc. But this is where the TQ can come in handy. If one doesn't know which resistance level is going to be the one with the muscle, the behavior of the TQ can provide a clue. If, for example, we move up to 60 and there's a serious divergence, I'll try that. But if price just yawns, I'll more likely leave it alone and wait for an attempt at 70(+/-). Or, if it retreats instead, see what happens at 52.

 

Who knows? Open mind, flexibility, etc, etc.

[facc 10]

I cannot attach a chart , since my chart saves it as something called ch. But what i am talking about is imbalance. For example after unemployment report came out today around 08.30 est price went up 10 points and there was around 38000 lots traded at the bid and 11000 at the ask.

 

Or we have a lot of buyers buying at the bid or there is clearly something i am missing here.

[DbPhoenix 42]

I cannot attach a chart , since my chart saves it as something called ch. But what i am talking about is imbalance. For example after unemployment report came out today around 08.30 est price went up 10 points and there was around 38000 lots traded at the bid and 11000 at the ask.

 

Or we have a lot of buyers buying at the bid or there is clearly something i am missing here.

 

As for charts, you can copy your chart to Paint and save it as a gif, jpg, etc.

 

But as for lots "traded" at the bid or ask, transactions do not distinguish between bid and ask. How many transactions were there at 08:30 in total? If there were what you consider to be a great many, and price rose 10pts, then demand outweighed supply. It's that simple.

 

Again, there are lots of examples in the Volume Observation thread (see link above).

[facc 10]

I will have a look there, thanks.

[DbPhoenix 42]

Drove right thru all of that down to support at the 42 level. Tacking on today's activity to yesterday's chart and extending the support line, price hit it right on the money (see yesterday's chart, above, for the original):

 

 

 

 

[DbPhoenix 42]

And then we hit resistance at 60:

 

 

 

 

See how this works? Support and resistance. Basic.

 

 

.

[DbPhoenix 42]

See how this works? Support and resistance. Basic.

 

But not guaranteed. As it turns out, this trade wasn't finished. But that's the way it is with real-time trading (as opposed to Here's A Trade From Yesterday).

 

So what happened? Price dropped from 62 down to 56, then decided it didn't want to go any further. Apparently it wasn't finished with its business. But does this mean the trade should not have been taken? It was at R. And there was a divergence. So there's little justification for not taking it, unless one didn't and then tried to rationalize not taking it.

 

But those who are the least bit interested in this should understand that these divergences, at resistance, will almost always provide enough propellant to move price away from the entry price (unless one just sits there like a deer in headlights and enters way too late) and get the trader at least to a breakeven point.

 

This particular trade illustrates the fact, however, that one can't stop thinking or observing just because he's in. This isn't the end; it's only the beginning. If price doesn't do what he expects it to do, he'd better figure out why and figure it out fast.

 

So let's return to the charts and see where we are. See that little red arrow? That's where we are right now, just having hit 60.5:

 

 

 

 

Now look at the next bar. This is where we're going next:

 

 

 

 

Now what's that all about? And where is price going now? Should the trader be thinking about going long (even though the long train left the station back at 43.5; see earlier chart, above)? Or was he just early on the short? Is this another opportunity?

 

When you don't know what's going on, and price appears to be taking off for parts unknown, look left. Try to find whatever resistance level you missed that may now be providing you with that next opportunity.

 

Here. Look left. See that trading range from yesterday?

 

 

 

 

You didn't think it amounted to much, but Surprise! Now draw a line from the top of that little bitty pissant trading range forward:

 

 

 

 

Now waddaya know about that? And here's what the tick chart looks like at that point:

 

 

 

 

Now this takes a bit of flexibility. Yes, there is a divergence here, but it is a low-grade one. And, yes, it is doing all this at the R provided (maybe) by the upper limit of that trading range. What may provide the deciding factor here is not that price gets up to that level but how it does so. Note how fast it climbs. Notice how little time it spends at each level on its way up. Note how it barely prints at the top. Then note how the TQ plunges while price is still waffling around near the top, trying to decide what to do.

 

There is no one element that says Short Me. It's all of it. And even then, one is free to place a buystop above all of this and a sellstop below, then let price do whatever it pleases.

 

Wrapping this up, we see that price tested this very same level yet again later this afternoon. If you're still around and up to it, there's another short opportunity here.

 

First the context:

 

 

 

 

And the TQ, with that very same line:

 

 

 

 

Ain't resistance and support wonderful things?

 

But that should be enough. This isn't exceptionally difficult. No new jargon to memorize. Nothing to label. Not many lines to draw. Just support and resistance and how price behaves if and when it gets there. Those who are interested should play with this. Those who do are welcome to use this thread to post the results of their play.

 

 

.

 

Edited February 6, 2013 by DbPhoenix

[DbPhoenix 42]

Just a note to point out that premkt activity highlights 62 yet again as the price level to pay close attention to.

[BlowFish 10]

I'm a bit surprised at the response to these posts. Clearly some need is being met, though I'm not sure that that need is.

 

 

They are pretty compelling charts I have not had market internals on my charts for ages these make me think I should.

[DGC 10]

Hi Everyone,

 

I'm thinking of purchasing the Wyckoff Course online from the 'Wyckoff Stock Market Institute' and I was wondering if anyone had also purchased it and what they thought of it. Is it roughly the correspondence course version of the one taught by Hank Pruden in the Golden Gate University, San Francisco? Is it all written notes or are there some videos as well, and does it also cover how to create the point and figure charts needed for some of the analysis, and how easy is this aspect to grasp?

 

Any thoughts gratefully received.

 

Thanks,

 

DGC.

[Eiger 10]

Hi DGC,

 

It is a wonderful course and it is what Hank Pruden bases his course on at Golden Gate University. Most all of it is written text (no video), though the third unit (there are five all together) is audio. Lots of charts that are well-described. Point and figure charts were a fundamental staple of Wyckoff's analysis. Very odd we never see them presented here, but I couldn't tell you why that is. In any event, the course has ample instruction on how to construct and read P&F charts. Like everything in Wyckoff, P&Fs require study and experience, but all well worth it. FWIW, the person I learned Wyckoff from and who learned it in the 1970s when the latest edition of the Course was published, said that people studying the Course at that time revered it so much they used to talk about it in whispers. IMHO it still deserves that respect.

 

Hope this is helpful,

 

Eiger

[DbPhoenix 42]

Point and figure charts were a fundamental staple of Wyckoff's analysis. Very odd we never see them presented here, but I couldn't tell you why that is.

 

Not so odd. As I've noted in the forum, no one is interested in pursuing it. Anyone who wants to do so is welcome to begin at any time.

[thetatrader1520887476 10]

Dp nice charts. I use the tick a little differently. I throw 20 Bar moving average on them and I take all with trend trades with a +-250 tick avg. and I won't take any counter trend trades if over under that. ocastional I will throw a trend line on them, I don't know why some kind of six since. But when I am looking for a break in trend and see the tick is lop sided it make since. all an all the tick just keeps me out of trouble. Note I only peak at the tick (1min. nyse) 2 to 3 times a day. And note I am working not to looking at them at all. but Its like crack or something. I am like just let me peak and see what the tick is doing. not that I do crack (but did quite smoking a few years back, that was hell).

[Guest theonlyone123123]

I've been following a 'Wyckoff' type of approach, but didn't know that it had a specific name until I found this site. So I've just been eating up all the Wyckoff material...I could have saved tons of time if someone introduced him to me when I started trading. Anyways, while its easy to find out what a point and figure chart is, I would love to hear your take on it, and how Wyckoff implemented it and its usefulness in this method.

 

If you were so inclined of course. Thanks =).

[DbPhoenix 42]

I've been following a 'Wyckoff' type of approach, but didn't know that it had a specific name until I found this site. So I've just been eating up all the Wyckoff material...I could have saved tons of time if someone introduced him to me when I started trading. Anyways, while its easy to find out what a point and figure chart is, I would love to hear your take on it, and how Wyckoff implemented it and its usefulness in this method.

 

If you were so inclined of course. Thanks =).

 

deVilliers was responsible for popularizing P&F at the time when Wyckoff and Livermore were hitting their stride, but I've never read his book, so I can't tell you what sort of modifications Wyckoff and Livermore made to the work, if any. But Livermore, at least, saw it as a form of shorthand, and perhaps Wyckoff did as well, though I don't recall his actually ever having said so.

 

P&F was a solution to a problem. Traders were much more attuned to the tape back then, but keeping a record of what one was seeing was a challenge, to say the least. One could not possibly write down every trade with its volume that crossed the tape, and even if he could, making sense out of it would have been extraordinarily difficult. If one were able to get into the rhythm of the tape, though, he could see where prices were clustering, and he could detect those little pokes out of those clusters that suggested that price was about to do something.

 

P&F, as I said above, provided a shorthand way to record these clusters in order to (a) avoid having to write down every single trade and (b) detect the moves out of these clusters. Imagine, if you will, standing in front of the board with a pad of paper -- or even just the back of an envelope -- and a pencil and noting the price level of a certain stock with an x. But you ignore fractions and you don't take any other action until there is a price change of a predetermined amount. That saves a hell of a lot of record-keeping. And envelopes. Nowadays, of course, we have streaming real-time data and computerized charting. One can track anything he likes and display the information in a myriad of ways, instantly. Even so, P&F enthusiasts like this type of recording for its simplicity (particularly since it doesn't include volume) and its elegance. For them, the behavior of price is far easier to see in a P&F display than in a standard vertical bar time chart. Many Constant Volume Bar chartists see their charts the same way.

 

As for how Wyckoff implemented it, there is an excerpt from Wyckoff's "Forms of Charts" chapter in the original course in the first post of the P&F thread. There is also quite a lot of information on his use of it in his Studies in Tape Reading, or Day Trader's Bible (he also provides a tape reading course along with his more comprehensive course, but I find Studies in Tape Reading to be an easier read). I don't use it, and I'm hardly an expert on it, but, as I've said several times over the past year, I've been hoping that someone who does use it and can provide at least informed knowledge if not expertise would pick up the P&F ball and run with it, but so far there have been no takers.

 

Is it useful? For me, no. But that doesn't mean that it may not be absolutely essential for somebody else, and the fact that I don't use it should not discourage anyone.

[mjackson 10]

To use mental stops one has to be disciplined and confident...

[Mickey Caine 10]

To use mental stops one has to be disciplined and confident...

 

And also may I say. AS MAD AS A BOX OF FROGS.

[atto 20]

To use mental stops one has to be disciplined and confident...

Stops are used for several reasons, and all the confidence and discipline in the world won't afford the protection stops provide. In fact, it has little to do with discipline and confidence.

 

Wyckoff advised placing stops at logical places (below S, or above R) to protect oneself from an adverse move. Trading without stops leaves you wide open to market action past "danger points". In addition, stops give protection from unplanned predicaments, such as loss of internet connection or data feed. Even if you plan on manually exiting losing trades, you should also have a stop order in place.

 

Unplanned dangers aside, mental stops also breed perilous behavior, such as adding to a losing position, or rationalizing the loss ("I'll make this a long term play now", "It's only a loss on paper"). When the market stops you out, it is telling you something.

[Guest theonlyone123123]

Awesome, thanks.

 

So it was used as a shorthand chart for Livermore/Wyckoff, but they were also following the tape very closely and couldn't record volume. However, they mentally made note of the tape, so they didn't really need volume.

 

Just from my limited take on it, since nowadays the tape moves so fast and computers calculate volume with charts easily, this seems like an obsolete technique because of how essential volume is.

 

Anyways, interesting stuff I'll try to find out more about it.

[motorway 10]

All Charts are a form of short hand

 

Wyckoff said you were better of not to use one

IF you had a memory that could hold every transaction in every stock

in relation to each other ( Impossible )

 

The tape unfolds in continuous time

 

How to condense this over whelming coast line of prices

So we can measure and utilize it

 

Most charts uses time

cut the tape into equal intervals of time

open ( start ) close ( end )

 

P&F does not condense the tape with equal amounts of time

It uses something else that makes it very different

 

P&F retains the structure of continuous time

It is always the same coastline

 

The way up is the same as the way down

 

( This is lost as time is used to condense the tape )

 

P&F is a method of looking at prices which has a nature similar to the time/distance equivalence in Einstein's physics.

 

Time on a P&F chart is the speed of the postings ( same as the speed of the flow of transactions on the tape ).

 

Time on a P&F chart contracts and expands so as to keep the structure of the tape/continuous time.

( This is so regardless of the degree of condensation . The tape does the same thing as it speeds up and slows down)

 

The way up is always the same as the way down on a P&F chart

because always it is full cycles of up and down that are condensed

equally.

 

( With time this is not so .The more the chart is condensed the more distortion . It is no longer the same coastline ---> This as ramifications

trend illusions appear )

 

Wyckoff said you will do better with a P&F chart as you operate on larger swings ..

 

De villiers was a close associate of Wyckoff

 

De villiers P&F is like the VSA of Wyckoff P&F

 

De villiers split with Wyckoff and tried to make it more mechanical and pattern based ---> The Fulcrum

 

 

P&F is not out of date

 

It is just not understood and often seen to be like a deformed bar chart.

 

But as you condense continuous time into clock time

It is the bar chart that is deformed

and is deforming

 

What is deformed ?---> Time --> Intrinsic (continuous) Time..

What happens, when you measure distance with a clock instead of a ruler.

 

Time is Space (---> movement through space )

Postion---> The rate of change of postion

 

motorway

 

First post on the forum

So hello to everybody.

[atto 20]

Welcome to TL. Sounds like you have a good understanding of Wyckoff. I'd personally love more Wyckoff P&F discussion around here, but there hasn't been a lot of interest. You might be able to share some of your observations or trades.

[DbPhoenix 42]

Harkening back to post 96, I did a quick and dirty on recent action here.