Trading The Wyckoff Way

[forrestang 10]

A few questions related to understanding and using the TQ (TICKQ)......

 

QUESTION 1:

First, on what a TD (TickQ) Divergence is? I understand that everything must be taken in bigger picture context, and where it occurs, but for the purpose of this question, just consider not observing S/R for right now. I see that the divergence occurs in the sense when we compare say two points in price to two points in TQ. Is a divergence ever considered useful when say the TQ is going one direction and leaves price going the other?

 

This picture is from the blog, and might be an example of where the divergence doesn't just jump out at you. Where it was stated that "....this is not the best example of a tradeable TD....since there was no retest at 1106"

 

In the picture below, I guess this is two ways to see a "possible" divergence when the classic type doesn't occur when price at leasts tests the same area and makes it easier to observe. Is this a reasonable way to look at it?

 

 

QUESTION 2:

Is the 1 minute tic of any use? I only ask as my charts cannot display the TQ on a 1 tic chart, or any sub-1minute charts. Here is an example of what occured during that big trade that occured on the 21st around 1:00EST.

 

It seems there are several that occur once price got towards resistance. I realize all must be taken in context, and this is just a tool for one to gain some clarity perhaps.

 

But here is the chart is there anything of use on it with regard to the TQ?:

[DbPhoenix 42]

Thanks for the above! It's good to know that sometimes things just aren't clear.

 

With these current ranges or levels we're looking at now, would you consider either side of this current zone well defined? I'm just looking at the places in which price touches.

 

I'm sure you can find more on a different time frame, but when we don't have as many 'touches' of support, would you say that conditions aren't as clear to define S/R? And I really can't see any?

 

Maybe this chart illustrates what I'm asking? Prior to today's open there really seemed to be no place where price just respected too much. Are these levels here as they are the best that price has to offer as of right now?

 

For the novice, would it be best to just stand aside when S/R doesn't fall into place?

 

Last question first. Regardless of whether one is a novice or not, if whatever one is looking at is not clear, then, yes, he should stand aside until it becomes clear. Otherwise he's trading out of boredom, or because everybody else in the chat room appears to be trading (which is often a misperception), not according to any sort of well-thought-out -- much less consistently profitable -- strategy.

 

As for the range on which you're focusing, the limits are not defined by points but by levels. And while the levels are of course the result of points (i.e., those prices at which price reverses), it is the levels (the forest) which is more important.

 

As to whether or not it's well-defined, it is, at least as far as I'm concerned. Price has repeatedly found support at or about 55 and repeatedly found resistance at or about 66. However, it is not "filled", i.e., price does not regularly bounce back and forth between these two levels. If you "eyeball" it, you will see that there is more trading going on between 60 and 66 than there is between 60 and 55 (you've also noticed that 60 is the midpoint of this range). This means that there is more interest in the upper half of the range than in the bottom half. Does this mean that price is more likely to break out of this range to the upside than the downside? Some would say so, and since this is all hindsight by now, it would be easy to say oh yes of course it's going to breakout to the upside isn't it obvious? But there are no guarantees when it comes to whatever thousands of traders the world over are going to do at any given moment at any given price. The fact is that there are more trades in the upper half of the range than the lower. What one concludes from that is a judgement.

 

Whether or not these are the "best levels" that price has to offer as of right now, I wish you'd asked this question before the open. Since it's now all hindsight, the "oh yeah right" response is to be expected from some quarters. However, the process one goes through to evaluate the dependability of the S/R levels he located the night before is the same every day, and going into it in more detail may help you tomorrow morning, premarket.

 

You located your general area of interest, 55 to 66. But these are broad strokes, and it's up to the individual trader to fill in the blanks himself according to his style. For example, does the trader prefer reversals or breakouts? If he prefers breakouts, then breakouts from what? The high of the range? The high of the extreme, if there is one (in this case, there is: 71)? Does he prefer to buy the breakout itself, or wait for a retracement? If the latter, where does he enter the retracement? How wide a stop does he use? Is he trading trend or scalping? What's his target? And on and on.

 

But since you are interested in trading S/R and you're interested in how price "behaves" around these levels, I assume you're also interested in making more than a couple of points. So I'll make some assumptions regarding your objectives.

 

When you're getting ready for your trading day (which need not begin at 0930 NYT), you need to look at what price has been up to while you were asleep. Here you can see that price found its comfort zone between 60 and 64, and since you've already determined that 60 is the midpoint of your range and that more trades have occurred above 60 than below and that price is again bouncing between 60 and 64, this should elicit at least a Hmmm. Traders test the waters below 60 just before 0700, then above at 0730 and 0815, then test 58 again just after 0900.

 

 

 

 

But then price settles in between 59 and 60 and remains there until the open. This is your midpoint. Will price launch itself off of this level or will it drop through the floor?

 

 

 

 

And here's where you have to be sensitive to PA and forget about bars. Note that at the open, traders take price up to 61, but this immediately reverses and price drops. To what? 59. Again (if you're watching this in real time, you can see price moving and forming the bar; if you're not watching it in real time, you'll have to refer to a tick chart). At this point, one can place a sell order under 59 and a buy order above 60. If he were to do so, the sell order would never be triggered, but the buy order would, and since price never approaches 59 again, all he has to do thereafter is manage the trade.

 

As to your "Is this swing low contributing to support" question, what is it telling you? That traders looked for selling interest below and didn't find it. Instead they found buyers. That alone, in and of itself, is not extraordinarily important unless one is scalping. What is more important is that when this level is tested again just after the close, it holds, and it's never tested again.

Edited July 24, 2009 by DbPhoenix

[DbPhoenix 42]

1. If the TD is occurring somewhere other than S/R, it is, for trading purposes, meaningless. However, if there is an obvious and dramatic TD at some level other than S/R, it's a good idea to recheck one's charts real quick to see if there is actually some S or R level there that was missed during the prep.

 

2. Regarding the test of 1106 and the "tradeable TD", there was in fact a test, even though it took place only a few seconds later, i.e., price did not just touch 1106 and reverse, but bounced around there for several bars before breaking up through 1108. However, when dealing with hindsight static charts, I prefer to err on the side of safety. Yes, one could take this, but it would be an aggressive trade, and those who are new to this should at least start out on the conservative side, and that suggests a more obvious test.

 

3. As to the value of any particular summary bar, whether 1m or not, I really can't answer that question. You'd have to choose whatever you want to work with and draw your own conclusions. For me, I choose not to trade off summary bars. I miss too much of what's going on. Rather than watch price move, I'm watching it rise and fall inside a bar, like a bird whistle. That tells me nothing. Of course, if you want to use tick charts and your charting program won't let you, then you can either request this option from your provider or get a different charting program. In any case, assuming that I'm reading your chart correctly, the points you're using to judge divergence are fifteen minutes apart. I look for divergences at the point of reversal. On a tick chart, this is much more leisurely than the single doink of a 1m -- much less a 5m -- bar chart.

[forrestang 10]

My thoughts for tommorrow.

 

[DbPhoenix 42]

My thoughts for tommorrow.

 

 

I agree. Thanks for participating and for posting this in advance.

[DbPhoenix 42]

This hinge was the subject of some discussion this morning in chat.

 

 

 

 

Price reversed at 1600 as anticipated, but while most of us were waiting for price to find support at 75, price had other ideas. Rather than 75, it found support at 79, the midpoint of Friday's hinge.

 

 

 

 

Moral? Don't overlook these little suckers when doing prep for the coming day.

[forrestang 10]

I now have the ability to view sub-minute charts, as well as overlay the TICKQ on a 1tick chart.

 

So I'm looking it over, and just based on visuals, I am liking the 5sec chart better so far. Mainly because I can't tighten my 1tick chart up enough, and coupled with my other charts, I can't see much. I know the purpose is to spot divergences, but I'm just making an observation.

 

I will try to observe them both throughout the trading day.

 

[atto 20]

I have also watched the 1t chart, and often have one open, but I always fall back to the 5s. It doesn't summarize too much, in my opinion, and shows the smallest price waves. Additionally, if you have true tick data, you do run into the problem of displaying it. Zooming out as far as I can (i, the 1t chart shows roughly 2-4 minutes during high active times. This gives tends to give me tunnel vision, and shows very little TICKQ (causing it to be quite blocky).

 

If you like the idea of seeing ticks instead of bounding price to time, you might like a 10t chart. You end up with around 7000 bars in the day on the NQ.

 

The purpose of the "fast" chart is to pay attention to price (the ebb and flow), not bars. How you prefer to do that is up to you.

[DbPhoenix 42]

I used the 5s chart for quite some time, but eventually moved on to the 1t because the whole point was to track price, and the 5s and 10t, small as they may be, are bars. Granted the 1t doesn't provide much context, but that's what the accompanying charts are for.

 

It takes some getting used to, but once one has, the idea of waiting around for a bar to "close" makes less and less sense.

[forrestang 10]

I thought I'd start a conversation on this topic, I'm expecting there to be no simple answer to this question, or even if there is one.

 

So, if there are 3 basic types of strategies or entries one might use to enter the market, is it fair to assume that each is suited for a specific purpose, or is it personality dependant? If the former: then it could be the difference between expecting to trade the initial breakout of a rectangle for example vs. waiting for a pullback after a breakout? If the latter, maybe it is based on ones risk tolerance for entering early vs. taking on a bigger stop?

 

The next issue is how should one enter? I understand this is a relatively vague question:roll eyes:

 

Let's assume the focus of your trading activity is centered around areas of potential for price movement, S/R. So you know the areas you want to trade. You also have some idea of the direction in which you want to place that trade. But then, what is it that actually makes one click the 'transmit' button?

 

For example, the NQ has been making new highs almost everyday. And price really hasn't "flipped" any areas of Support. It prettey much has just been stopping and pausing before going up. So your options if one wants to play the edges has been pretty much either been:

• -A reversal of some sort at that edge, anticipating price to bounce (but when do you enter)
  
• -A breakout above or below a newly established range (these scare me)
  
• -Or a retracement of some sort after one of the two listed above occurs(I feel late to the party, and what if retracement doesn't occur till your back in the middle?)
  
• -And possibly heaven forbid some type of entry in the middle of a range?
  

 

Trading is not mechanical. This is obvious to me now. But can entries be? Or is this something that one has to use intuitivenes to gauge the best possible entries? Or is this simply a matter of preference for the individual?

 

Hopefully the explanation above makes sense, as I had a plan for this chart, but I can't remember what it was, and since I spent time creating it I am posting it!:rofl:

[DbPhoenix 42]

I had to laugh when I saw this thread title. Teresa Lo said way back when that there were three types of strategies: breakouts, retracements, and reversals. Her credo was simplicity, and this was about as simple as it gets.

 

Wyckoff, on the other hand, didn't like breakouts. He liked to enter inside the crest or the trough after testing support or resistance. His preferred entry -- though the most aggressive -- was to enter inside the crest or trough of the climax. Second favorite was to wait for the test and enter the same way. The least favorite was to enter on the break beyond the swing point inbetween.

 

But there's nothing particularly intuitive about it. And it's a matter of preference only if the preference yields a profit. That is, one may "prefer" breakouts, but if he hasn't thought through the general strategy and the specific tactics, his preference is irrelevant.

 

So breakouts are more or less off the table. The retracement after the breakout is preferred, partly because one avoids getting trapped by a fade (in case the breakout was nothing more than a thrust) and partly because the retracement gives the trader the opportunity to gauge genuine interest (if there isn't any, the "retracement" becomes a failed breakout). The problem here is that one must often work his way down to a pretty small interval in order to find a good retracement. Otherwise, price may seem to take off without ever giving him an opportunity to jump on board (this is yet another reason why I like the 1-tick chart).

 

As for reversals, the best are most likely to take place at S or R, but we've been through that ad nauseum. One isn't always dead on when it comes to plotting S/R, but that's just a matter of practice and experience. Entry, on the other hand, is very flexible depending on how much risk the trader is willing to assume, and he needs to think about the three types of risk (information, price, and opportunity) very early on. If he doesn't, his stops are going to be in the wrong place and he's going to end up either with big losses or a lot of little stopouts that precede continuations that he'll miss because he got stopped out.

 

BTW, the chart is gorgeous. When you remember what it's supposed to be about, let us know.

[forrestang 10]

My chart feels naked, like there should be more... but this might be all that is needed?

 

Thoughts for tomorrow:

Edited July 29, 2009 by forrestang

[BlowFish 10]

A DAX chart that I hope is self explanatory. The range was 'confirmed' Monday (price could not make new highs or lows) though I drew the lines yesterday (Ive been on holiday). Pretty nice break/ out pull back for those that trade such things though I missed it as I don't usually trade the first hour 'pre market' (DAX opens an hour before the rest of Europe and usually not much happens).

 

It will be interesting to see where support is found.

[BlowFish 10]

A quick update if anyone is intrested. I had anticipated lower(and got stopped out shorting round yesterdays close)...that'll teach me to think. Not really much to add except that despite being short again I am mindful of a BO to the upside.

[DbPhoenix 42]

My chart feels naked, like there should be more... but this might be all that is needed?

 

You'll notice that the bulk of the trades over the last couple of days have been in the upper part of the range, and the range appears to be moving higher.

 

 

 

 

The exploratory pokes above and below this range have not been inconsequential, but price does continue to return to this range. Being aware of this changes your midpoint to 95 (we mentioned this yesterday in chat).

 

The more important levels of support and resistance become, then, 1590 and 1600, with the backup levels being 1582 and 1604 (+/-).

 

Again, the levels in and of themselves are not signals to enter. What matters is how traders behave as they approach these levels.

[Gringo 10]

From what I believe, major S/R are independent of time frame. This may mean getting s/r on larger bar interval and zooming in to say 1min bar to see what's happening. This zooming in doesn't change where S/R really is just shows you faster action at the same price range or level.

 

With the current market it's tougher to find proper s/r which is causing some problem in picking the right spots (atleast in my case). I perfer 60min/Daily s/r and then zoom in to 1min or shorter for entry at the s/r determined by larger interval.

 

I'll talk to you guys in a week. This is vacation time for me.

Edited July 29, 2009 by DbPhoenix
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[DbPhoenix 42]

From what I believe, major S/R are independent of time frame.

 

Not independent of time frame but of bar interval. Otherwise, you're correct. Once the S & R have been determined, the bar interval is irrelevant, and there's no need to consult more than the entry chart.

Edited July 29, 2009 by DbPhoenix

[Gringo 10]

Not independent of time frame but of bar interval. Otherwise, you're correct. Once the S & R have been determined, the bar interval is irrelevant, and there's no need to consult more than the entry chart.

 

Yes, you're right Db. I realized this while shaving, ran back and you had me nailed .

[DbPhoenix 42]

Here's an example from this morning. As noted on Forrest's chart posted in the Foresight Trading thread, 1590 was and is a support level to pay attention to. And, as discussed in chat, 92 was a minor support level provided premkt (my chart is off by a minute; I neglected to correct it before the open).

 

 

 

 

Price bounced off 88 and back up thru 90 fairly easily, then thru 92, the latter taking a little more effort, but the result was a break thru R. This tells you to look for an entry. The tick chart shows a brief retracement after the reversal and the subsequent break thru 92. This retracement is your entry, if your strategy calls for entering on retracements (if it instead focuses on reversals, your entry might be earlier).

 

 

 

 

This can't be seen, of course, on even the 1m chart, much less a 5m chart. But there's your retracement.

 

 

 

Edited September 22, 2015 by DbPhoenix

[BlowFish 10]

What is the difference between time frame and bar interval?

 

Bar interval is absolute be it 5 tick 5 minute 5 range 5 contracts or whatever. It is the 'sampling frequency' if you like. A bunch of trades make up a bar but as most would agree that is rigorously defined.

 

Time frame is less absolute (you could even say vague) but it is altogether larger, a collection of bars if you like. One way of thinking about time frame is the whole sample, though most people don't. So for example if you had 3 days of 5 minute bars the time frame might be 3 days. Most people simply use time frame as a vague measure of a larger period of time than the bars on the chart.

 

Personally I tend to use time frame to describe the magnitude (in time...which dictates price range to a degree) of the swings that are my interest (or focus). So for example I might trade a 'daily time frame' and try to catch the main swing of the day. To do this a variety of 'bar intervals' might be useful and 'daily time frame' S/R might prove useful.

Edited July 29, 2009 by DbPhoenix
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[Gringo 10]

 

Price bounced off 88 and back up thru 90 fairly easily, then thru 92, the latter taking a little more effort, but the result was a break thru R. This tells you to look for an entry. The tick chart shows a brief retracement after the reversal and the subsequent break thru 92. This retracement is your entry, if your strategy calls for entering on retracements (if it instead focuses on reversals, your entry might be earlier).

 

[/center]

 

Hi Db,

Doesn't the falling of price below 92 nullify retracement? I thought retracement is falling backward towards s/r but not really undercut it in case of a long. I understand your example has only tick showing retracement and may require some screen time to figure out what behaviour is tradeable or normal.

[DbPhoenix 42]

Hi Db,

Doesn't the falling of price below 92 nullify retracement? I thought retracement is falling backward towards s/r but not really undercut it in case of a long. I understand your example has only tick showing retracement and may require some screen time to figure out what behaviour is tradeable or normal.

 

That's the difference between analyzing charts in hindsight and trading them in real time.

 

It is important to distinguish what is under the influence of the trader and what is outside his control. The line at 92 is applied. Though price hits this level again and again, the line is not drawn by price. It comes from the mind and hand of the trader. The price action, on the other hand, is entirely independent of the trader. It will do what it will do whether he is there or not.

 

For whatever reason, the trader chooses to focus on 92 (and if he didn't collect overnite data, he wouldn't even notice it). And when price begins to drop below 92, he looks at the volume. He sees that, except for the first bar at 0936, there's nothing remarkable about any of it. No plunges accompanied by price spikes.

 

But then he sees an immediate bounce at 88 (again, if one is watching the bars form, particularly the price and volume bars forming together, the bounce is obvious; in hindsight, it's just bars). Volume increases slightly, and in the next bar, when price gets back to 92, volume is relatively low. Since price has moved up rather quickly, this tells him that sellers aren't particularly interested in this and buyers have what amounts to a free ride (if sellers were interested in impeding this, much less halting it, volume would be much higher). When price breaks through 92, volume expands, and buyers, in spite of sellers' activity, are able to push price even higher (yet again, one has to see the bars being formed in real time). Within this context, whether the retracement stops at 92 or 91.5 or 91 is not especially important. What is important is the push higher, which after all began at 88.

 

The purpose of the post was not to provide a lesson in how to trade this. To try to do so with a static chart would be a waste of time. It must be done with a live chart, in real time. Rather the purpose of the post was to show that there are in fact retracements that can be used to enter what look like attractive long positions, if only one is looking at a small enough bar interval, or, smaller still, a tick chart.

[forrestang 10]

I've got something to add to this conversation. After the original post I figured I needed to write something down. The word document I've created is really just a collection of ideas, not rules, and one section is about possible methods to develop a consistant logic to enter trades once price reaches the places I want to trade it.

 

But, none of this is concrete, and it's just a collection of ideas. And the crux of this is still initiating trades on the eges, or at least in an area where price might move. This is not about how to manage a trade after entry or where to place stops, as there are obviously a million ways to work that aspect of the trade and that's for another post. I've pretty much been winging entries, as I've really just been staring at charts for a while, without much structure.

 

So this is dealing mainly with REVERSALS, although retracements on a flipped level, many of these concepts may still apply. Breakouts, I just don't feel comfortable trading them, and have never been good at it.

 

So the charts:

My anchor is the 10K CVB chart. This is mainly for picking S/R the night prior. The actual day of trading might be served better looking at a slightly smaller CVB chart, only because the swings to and from S/R will be more obvious.

 

I am also using a 1min chart to enter the actual trade. This just gives me the price at which I am going to place the entry stop, NOTHING ELSE. I was simply trying to pick a small enough time frame as a compromise between jumping the gun and getting in too late with a big stop. Price is continuous, so the splitting of the bars really mean nothing, the market doesn't care what time frame I'm using. but this is just a technique that I'm exploring. They'll be more on this later.

 

And finally the 15sec chart looking at the breadth of the market. This is mainly a nudge, confirmation, or a way to rule out trades when I might be on the fence. This could also prove to simply cloud decisions. But paying attention to it this way today seemed to be useful. And some of the examples shown might make it seem to be not useful, but remember this is a small sample size.

 

I had initially planned on doing examples for every time we had a move to an area, but it was taking quite a long time to do this so I just picked the first 7 or so instances that occured on that day. These were the observations I made during the trading day, and hopefully it's not just considered to be hindsight garbage.

 

CHARTS:

So first is the 1Min and explain the entries. The 1Min chart is just the entry chart. And that entry is one tic beyond the last bar toward the trade. So falling into Support, enter on 1st bar that makes a HH, and vice versa for Resistance. Obviously sometimes this will have me entering a trade with too large of a stop, and maybe one would just pass the trade.

 

I was just trying to avoid being faked out too much, and finding a way to let price work it's way towards a level, and enter the trade, because levels seldom seem to be EXACT. NOthing is 100%, but notice the chart below, when price apporaches the levels, even if there is an overshoot, or undershoot of a level, price does usually come back when entering this way.

 

Here is the 1min and 10K CVB chart. The CVB chart just has the S/R levels we discussed in the 'Trading in Foresight' Thread. A smaller increment would have been better to explain this, but the point is just to show that price went to the levels.

 

And finally the 15sec charts. I'm just trying to mainly show the TD that occurs here. Not all are classical, but the point is that if I am interested in trading the reversal, and looking for confirmation, and TQ takes off, and more importantly seperates from price, then maybe it makes the trades easier to take. Sometimes this happens prior to entry, sometimes right after, as you can see, sometimes not at all. But the point is that it's just another tool.

 

#1 - As seen on the 1min, price heads right below Resistance, and TQ takes off, so this could be a possible entry, maybe a stop out depending on the stop and trade management.

 

#2 - If not entered, or stopped, this looks like a possible re-entry, with still TQ that is strong. This one has an entry with a small bar for small stop.

 

#3 - Stairstepping down on 1min towards support, with good TQ, possible entry.

 

#4 - Same drill with immediate and strong TQ to help give confidence to take the trade.

 

#5 - This one was ok, but TQ wasn't overwhelming, but good R:R with small stop.

 

#6 - This would need a big stop, TQ wasn't overwhelming either.

 

#7 - A cluster here, TQ doesn't really fall off for a while.

 

Again, this is just a collection of ideas right now, and there is a lot of subjectivity here. There are obviously a dozen ways to manage each trade, depending on stop placement and when one takes profits.

[DbPhoenix 42]

Point of clarification, which I bring up again because the term "timeframe" is so often used to apply to more than just the timeframe. The timeframe extends from a given point in time to a later point in time. A year is a timeframe. A month is a timeframe. You've chosen to make a day your timeframe (except for one chart which sticks its butt into the previous day). Within that timeframe, you use three bar intervals: the 10K CVB, the 1m and the 15s (if you used a tick chart, there would be no bar, just a tick, but the same principle applies).

 

And using just a day is fine, as long as we're stuck in this range (which began last week). But eventually we will exit this range and either return to one of the lower ranges or create a new range above. If the former, you would do well to expand your timeframe to include at least the two ranges below, just so you don't wind up having to find potential levels of S/R in the middle of the trading day. This would mean including June. Having done that, you can again narrow your focus until we approach the June highs (if we ever do so).

 

Aside from all that, a very good beginning.

[Head2k 10]

Just a few remarks:

 

Since TICKQ moves continuosly and by plotting it as a line you plot its snapshots with frequency of bar interval, you might be missing some information when using this display with larger bar interval charts. So you might want to either lower your bar interval or plot the TICKQ as bars.

 

You acknowledge that price moves continuously and not in bars, but you use a break of a bar to get you in a trade. Why so? You could as well use a fixed amount, say 2 points in your direction, to trigger your entry. Or you could enter on a break of some micro congestion visible on 5 sec or tick chart.