Trading The Wyckoff Way

[forrestang 10]

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.

 

Thanks for your comments.

 

I've actually got the idea of entering into a trade by putting the order in front of my trade direction on my word document of ideas.

 

If I understand what you're suggesting, your idea is that if price is heading towards support for example, and price hits what you anticipate being the bottom, to place your buy stop 2 points above where there anticipated bottom is, and to keep adjusting it down as price continues to move down correct?

 

I would use the tic chart, but I haven't figured out how to use it to actually help me enter a trade? Since the interval is literally one tic, it seems as though price is always reeady to go the opposite direction since the swings are so small?

[Head2k 10]

If I understand what you're suggesting, your idea is that if price is heading towards support for example, and price hits what you anticipate being the bottom, to place your buy stop 2 points above where there anticipated bottom is, and to keep adjusting it down as price continues to move down correct?

Correct, that's what I was suggesting, though I don't do it. But it's something you might play with. Since range of a previous 1 minute bar is somewhat arbitrary, then why not to choose an arbitrary fixed number? If you test it you might find 1.5 or 3 is better.

I would use the tic chart, but I haven't figured out how to use it to actually help me enter a trade? Since the interval is literally one tic, it seems as though price is always reeady to go the opposite direction since the swings are so small?

I was not talking about the decision to make an entry, but rather about the entry placement. Though often it is closely related. Instead of the last 1 minute bar break you could use a break of some micro congestion or W visible on a tick chart or 5s chart or even 15s chart. To show what I mean I'm attaching 2 charts displaying the number 1 and 2 reversals from your post.

 

 

 

But again, that doesn't mean I do it like this or that you should do it. I'm just showing another options which you have and which you can test.

[DbPhoenix 42]

If I may, working with a tick chart (and I assume everyone knows by now that by "tick chart" I mean a one-tick chart since to use multiple ticks would put one right back into bars) can be a big step for some, particularly if they've been brainwashed by the "anything under a 5m bar is noise" contingent. On the other hand, others can look at it and say "sure, why not?" What it comes down to is how close one wants to get to price action. And how curious he is. At some point, even those who use 15m bars may wonder what's going on inside that bar as that little notch on the right-hand side moves up and down while the volume bar gets higher and higher.

 

Bars are analogous to exercise stations. Price runs in place, maybe back and forth, maybe up and down stairs, but in place. Then, after a certain interval, it jumps to the next station and repeats this behavior. Then, after the same interval, it jumps again. If one understands this continuous movement, using a smaller interval or even a tick chart seems perfectly natural. Otherwise, it's like being tossed into a washing machine set to Heavy Duty.

 

So while I agree with Head regarding the bar and the end of the bar, there's no need to push it. Since you're doing this live, it will be much easier to develop a sense of this price movement and to pick up on its rhythm once traders have finally made up their minds and are moving with purpose one way or another.

 

As for the TICK/Q chart itself, it should not consist of bars. It should be one tick. I prefer a line, but one could also plot it as dots. But the interval on the TICK/Q chart need not be the same as the price chart. Just overlay the TICK/Q chart on the price chart as is. Not that using a tick chart of any kind is at all necessary to learning how to trade breakouts, etc. But the subject was raised and at least for now is of interest.

Edited July 30, 2009 by DbPhoenix

[smbtnt 10]

Attached is the daily chart of NQ.

 

Price approaching 50% retrace from OCT 2007 highs in conjunction with a TL from the highs. Horizontal confluence@ 1650.

 

Is the trendline of any significance?

 

Comments?

[forrestang 10]

Just some thoughts:

 

The splitting of price into bars into whatever 'bar interval' is indeed completely arbitrary. So even the 1min chart is kind of like throwing a dart at a target blindfolded. Since the entry is going to be whatever that increment gives you. The entry is going to vary depending on WHEN the activity in that area happened. Hope this makes sense what I'm trying to say?

 

I would prefer to have a more 'continuous' entry, like anticipating the end of a move in a direction wether it be short or long term, and entering on a pre-determined stop beyond where price is.

 

The tic chart, I wish I could tighten it up a little bit more.

[DbPhoenix 42]

Attached is the daily chart of NQ.

 

Price approaching 50% retrace from OCT 2007 highs in conjunction with a TL from the highs. Horizontal confluence@ 1650.

 

Is the trendline of any significance?

 

Comments?

 

Not really, no. Hope you're not disappointed. I notice that this is your first post here, and you may not know that in Wyckoff's world, the trendline is intended largely to give you some idea of what he called "stride", i.e., the muscle or the momentum behind the move. If and when price begins to leave the trendline, something is up. In this case, the something was a collapse into November. Therefore, you should follow the course of price, and when it pops back up through your line, as it did here a couple of months later, that tells you that there's a change in the wind.

 

What matters more is the swing low in March, which happens to coincide with the midpoint of the trading range that was created in September. These together suggest that a zone of 50 either side of 1700 is likely to prompt some activity.

 

Notice here that when price breaks thru the first trendline in April, this represents a change in momentum. Price moves sideways for several months. Then, when the bottom falls out, the trendlines are fanned in to track the parabolic nature of the move. The first one to fan out, the blue one, tells you that there has been a change in momentum, and you can begin looking for a bottom. All of which is hindsight, of course, but it happens again and again. That's the nature of trend and trend change.

 

 

[DbPhoenix 42]

Just some thoughts:

 

The splitting of price into bars into whatever 'bar interval' is indeed completely arbitrary. So even the 1min chart is kind of like throwing a dart at a target blindfolded. Since the entry is going to be whatever that increment gives you. The entry is going to vary depending on WHEN the activity in that area happened. Hope this makes sense what I'm trying to say?

 

Actually, yes. And while I'm not suggesting that anyone do what I do, most people look for some sort of starting point. Mine, which is no secret, is a 1m chart paired with a tick chart. The 1m chart gives me the context, but I don't use it for entry. For that I use the tick chart, which is what nearly all of my focus is on. After all, if you're going to follow the movement of price, you have to follow the movement of price.

 

I now can't remember why I was ever intimidated by the tick chart. But you've been staring at this stuff for six months now, so perhaps it's the logical thing for you to do. If it isn't, you'll know real quick.

[BlowFish 10]

The main issue with fine resolution tools is that whilst they will certainly show a turn in price quite often it is not the turn in price. Depending on how you manage things this will likely result in scratches or small profits which is fine.

 

One thing to be mindful of is staying focused on the fine resolution tool. If price bounces and moves away this tends not to be an issue (i.e. it is the turn).

 

However if price chips away at a zone, bouncing but then pushing a bit further, one can (or at least I can) find that it has essentially 'eaten through' the zone without me noticing.

 

I wonder how people deal with this or if they find it an issue? Remaining mindful of where you are and being careful not to get 'hypnotised' by the ticks is important.

 

Personally I am currently still using a 15second chart it still gives a good feel of the 'flow' but you also get an idea of where you are, I sometimes transfer lines onto it and always keep a 5 min chart along side so I remember where I am (as long as I do't get hypnotised by the fater one).

[wjrusnak 10]

Attached is the daily chart of NQ.

 

Price approaching 50% retrace from OCT 2007 highs in conjunction with a TL from the highs. Horizontal confluence@ 1650.

 

Is the trendline of any significance?

 

Comments?

 

This is what I started calling a "late" trend line, but don't seed that into your brain; it's just my new term Anyway, if you were to see a reaction here, it would seem only coincidence, seeing as it would probably be the level of R (around 1640...?) that people are reacting to.

 

If you look back through charts, you may notice the same occurrence: late trend lines end up meeting price at a point of R. This doesn't rule out that some traders may be reacting to the trend line while the rest react to the level of R. In any case, I would consider these historical trend lines as more or less an interesting occurrence, but nothing to get serious about. As I said, S&R probably has much more bearing on the outcome.

[forrestang 10]

Any other thoughts for tomorrow?

 

Right now I just have the Resistance line above, at the 30 area, the main Support @ 1600 where price recently barely penetrated and price immediately moved back above during AH on Sunday. So that seems to be a good level as price moves back towards the midpoint which is the 15 area.

 

Those boxes had midpoints that price reacted to several times on Friday.

 

I'm sure there are other areas that could be highlighted, but this is all I have on my charts for now.

[forrestang 10]

Atto mentioned what seems to be an interesting characteristic of price with regards to price reaching a level. It's not a 'button' so to speak on how to enter a trade, but it seems relevant to this section nonetheless.

 

This was Friday reaching Resistance. This just happens to be the one pointed out at the time.

 

[atto 20]

Specifically, it's as though price's movement slams up against a wall. The wall, of course, is the sellers waiting (as it was Resistance). Usually two things happens: (1) momentum, which was quite high, drops off quickly; and (2) volume spikes. In this case, TICKQ also tanked.

 

If price reaches Resistance quickly (buyers pushing it up there fast), and it doesn't look like it hit a wall, sellers might be backing off. When price slams against R, but there really isn't much volume, buyers are giving sellers a chance. If sellers don't step up, start thinking about the breakout.

[forrestang 10]

Here are two entries from earlier.

 

Still somewhat shooting from the hip looking for entry.

 

 

[DbPhoenix 42]

A breakout is the continuation of a move up to and through R or down to and through S. A reversal is a move in the opposite direction of a preceding move up to R or down to S. What you have in your first chart is a reversal off S (if you back up to the 0940 to 1000 period, you'll see where the support comes from). If you call any subsequent move upward as a "breakout", then any move up beyond the high of a previous bar or the crest of a previous wave is a breakout, and the term loses its usefulness.

 

One could argue, of course, that none of these terms have any usefulness, but if you are to develop a trading strategy, you'll find that knowing what you're looking for is helpful, and having some sort of term for what you're looking for is also helpful.

 

Keep in mind also that if you trade within the range, the moves generally are smaller and the targets nearer. This creates problems with regard to stops. This is why the term "breakout" is generally reserved for a break out of the range, and "reversal" is generally reserved for tests of the upper and lower limits of the range. These tend to have the most power behind them; thus staying with the move becomes important.

 

Of course, if you're sensitive enough, you can ride these intrarange waves and SAR at just the right times, but this will mean a lot more trades, and, for most people, this practice does not bring about a relaxed trading environment.

[forrestang 10]

That sounds simple enough, price bouncing off of a level would be the reversal, and as mentioned one could call a breakout from a subtle pullback a 'breakout,' and the terms start to become dilluted. Kind of like calling a table a chair just because one can sit on it....

 

Ignore the above, rest assured I get the meaning behind the reply.

 

As far as entries are concerned, I still haven't found the 'button,' that I will initiate a trade from, if there is such a thing for most estute traders.

 

Right now it's still a collection of ideas that seem to expand a little more the more I pay attention to specific ways to enter. I.e. some sideways consolidation, or a small micro-springboard looking area, extreme increase/decrease in market breadth, double tops/bottoms, all the above around important areas on whatever chart I am using. Right now it is a 5sec chart.

 

Alllll of the above is still contingent upon one picking the useful levels to trade. And each day the extremes are the obvious, and may provide the cleanest trades, but there are always prior levels that go unoticed by me.

[DbPhoenix 42]

It's up to the individual trader to structure his trading environment. A large part of doing that is defining exactly what it is that he's looking for and determining in advance exactly what he's going to do if and when he sees it. "Picking the useful levels to trade" is part of that process. Today, price often found S at previous swings, such as 1616 at 10:23, and the TQ was particularly helpful in confirming most of the reversals. Unfortunately, it's not always that neat.

[forrestang 10]

Modified a bit. As mentioned in the other thread about entries, I seem to miss quite a bit of activity as the day starts, particularly levels where price reacts to that I didn't recognize the day prior.

 

Obviously the 00 and 30 levels created the new range we are in now. The dotted line in between is the midpoint. Price notices it and I have it there. This is denoted by the larger lines I have on my chart.

 

The two smaller blue/intermediate levels are there now. Not that I anticipate trades being taken there, but this is just to be more prepared for tomorrow. Price reacted to these areas many times, so I have them on my chart.

 

[DbPhoenix 42]

Don't ignore the midpoint of your VAP plot, which is now around 17. VAP shows you where the bulk of the trades are taking place within the upper and lower limits of the range. Incorporating this helps to avoid being surprised when price reacts to a level that is slightly above or below what you had thought was the midpoint.

[DbPhoenix 42]

Even though I stopped trading at 1015, the anticipated levels at 17 and 30 certainly served the afternoon trader well.

 

 

[forrestang 10]

Here are significant areas as I see for tomorrow. It's basically unchanged from yesterday, only that I have moved the high range from 30 to 32. So the midpoint was adjusted(dotted blue line), which is good as it reflects how price bounced off of this midpoint today. The POC as you can see will adjust dynamically throughout the day.

 

So a few questions about current S/R.

 

I've noticed each day that even after defining major S/R, it might be useful to look closer at the intraday trading, and notice areas where price touches many times each day.

 

Example would be the 00-32 range is obvious. And in between, there are places where price has touched several times. That 23 level I have up now, I got that from noticing what price did in that area, denoted by the green circles. Today however,the 25 level seeemd to be more significant, denoted by the red circles. This is only 2 NQ points and might wind up not effecting trading much, but it's just a point of clarification...... so would it make more sense to highlight the 23 or 25 area?

 

Second question, price noticed the midpoint today (red rectangle), and the midpoint is generally the middle with the most activity, most whipsawing? Would it be prudent to look to initiate trades near the midpoint, i.e. just flat out looking at it as a valid support level as it sits now? I understand one could consider it a range within a range.

 

[DbPhoenix 42]

Keep in mind first that support and resistance are created by price, not by the trader. Price really couldn't care less about the lines the trader draws. It is up to him, rather, to take his cues from price. Midpoints, for example, are not the low of the range plus the high of the range divided by two. There can be considerable flexibility in placing them, but, again, one has to take one's cues from price. Yesterday, for example, I pointed out that VAP --which is created directly by price without any interference from the trader -- pointed to 17 as the midpoint, which was slightly higher than the calculated level (the accuracy of which depends on how accurately the low and high of the range are pegged).

 

Next, it is important not to get too wrapped up in the drama of the extremes. This is easy to do since the extremes are easy to find. But what matters more is where the bulk of the trades are taking place. It should be clear, for example, that price is being turned back far more often at 28 than it is at 32 or even 30. Therefore, if one waits around for price to hit 30/32, he may find himself immobilized and wondering WTF when price instead reverses at 28. If it does in fact reach 30 or 32, as it did yesterday, this makes for a very high probability reversal. One can see price being stretched and snapping back in real time.

 

Third, if the midpoint is tested repeatedly and if price repeatedly finds support or resistance there, then it is likely that traders are creating a new trading range. As I've pointed out, the trading ranges have been shifting higher, like stacking shoeboxes. The VAP helps to confirm this, and it should not be overlooked. If traders are -- and they are -- shifting the trading range higher, the bottom becomes 17 and the high becomes 28, the midpoint of which -- arithmetically -- is 22-23. The midpoint of VAP is 20-21. The trader, therefore, must be open to reversals anwhere in that area. This means watching how traders behave as they approach these levels.

[forrestang 10]

I have something written down for this type of entry, but it is rather vague.

 

Hopefully I'll keep taking pictures of these, and it will be obvious what the entry is.

 

[DbPhoenix 42]

So where did we end up?

 

You pegged the range as 1600 to 1632. Price dropped at the open from 1631.25.

 

It then fell to today's VAP midpoint of 20, then to the low of yesterday's range at 17, then tested 20 from the underside, and continued its descent, eventually reaching 1602.5. This was 2.5pts from anticipated S, but it coincided with Friday's opening swing low (see inset). Whether this coincidence is anything more than that remains to be seen, but it's interesting.

 

Price then recovers to the "midpoint zone" between 17 (Monday's VAP midpoint) and 20, or 18.75.

 

 

 

 

Not bad.

 

 

 

[forrestang 10]

Here is an example of a trade that I didn't take, although it is in the "entries" portion of my criteria.

 

By this point in the day, I had been trying to play the bottom of that range all day, and didn't think anything would come out of it. My Support I had sketched out in this area wasn't too solid, so I watched it happen and go on without me. But I still think it's a good addition to this thread!

 

[DbPhoenix 42]

Remember that a trade is made up of several elements. I don't recall when I mentioned (in chat) the swing low after the open on the 31st, but I did point out that when price drops below the anticipated S, you need to back up into older charts to find new S. You can keep the bar interval the same, but expand the timeframe. In this case, you'd have had to expand it to four days.

 

Along with that, you have price taking two plunges down, like a ball bouncing down stairs: the first to 4 and the second to 2.5. That along with the climactic volume and the lighter volume on the test (even though it was less than a minute later), the relatively quick rejection of 2.5, and the TD together give you your trade.

 

This is a lot to think about in real time, but there's nothing wrong with writing it down. These are, in fact, the elements that will make up the tactics you'll use to make these entries. If you don't know what to look for, you won't see it, and if you don't see it, you can't trade it.