Trading The Wyckoff Way

[DbPhoenix 42]

An interesting day. Price popped up past R then down to yesterday's last swing low premkt, bounced, then tested your R level at 88. Here there was a TICKQ divergence (TD). Go long. Exit then off the break of the trendline or demand line (not drawn) or the multiple top at 98. Short off this when the TD appears.

 

This short is then exited at the break of the trendline or supply line (not drawn) or held for the opposite end of the range. Exit this short at the selling climax or wait for the test (which is accompanied by a TD).

 

This last trade is exited at the break of the trendline/demand line (which occurs within a point of R) or the test, which is accompanied by a TD.

 

Done in 90m.

 

 

Edited September 15, 2009 by DbPhoenix

[DbPhoenix 42]

The climax and test volumes.

 

 

[DbPhoenix 42]

For whoever might post a chart for tomorrow, here's something to think about:

 

 

[wjrusnak 10]

This is getting a little messy. Even though the 88 long worked very well yesterday, it was more of a reversal at 86 (flexibility lesson). We are clearly in an uptrend, as well as creating a range with 92 being S. Tomorrow I am looking for shorts at around 1700-1702 (permitting we stay below it over night) or of course a long off those levels (depending on the set up). In addition to that, it is possible that a long off 92 will be a nice trade (one can even expect price not to reach 92 which would all the more strengthen a long at who knows.... 93.50?).

 

[firewalker 10]

An interesting day. [...] Exit then off the break of the trendline or demand line.

[...]

This short is then exited at the break of the trendline or supply line (not drawn) or held for the opposite end of the range.

 

I agree that yesterday was interesting, and particularly nice in terms of price reacting to S/R, but you are leaving out some details which in real time make the difference between some decent profitable trades and a couple near-breakeven trades. In hindsight this day looks very easy, but in real time playing those reversals demands an aggressive approach, if you are getting all-in, all-out. Not trying to be pedantic...

 

For example, exiting completely at the break of a demandline, is the exact reason that most people get out far too early in a trending day. Obviously when price first breaks that DL you don't know whether price will get stuck in a trading range, or just hover sideways for two hours and continue on it's merry way.

 

 

The magenta dots on the chart are points that I think are realistic exits. Let's take the trade with the magenta arrow where one could enter a short. You stay in till price hits the opposite of the range and exit half there, or you stay in and draw a new supplyline (magenta). You then see price net getting passed the midpoint, so you move your stop above the midpoint and you wait to see what happens next. Price touches 1688 again on lower volume, so you scale out there, but whatever is left of your trade doesn't get a clear exit signal until price is back at 1693 (second magenta dot), which is only a point or two away from your entry.

 

The climax and test volumes.

 

The test on lower volume on what wjrusnak mentioned as support (1688) seems like a classic W-setup, so no argument there.

 

But the lower volume after the climax near 1698 doesn't mean a "get out completely"-signal imo. If you read from left to right we see price jumping to 1694 and then from 9:35 to 9:38 price creeps upwards but volume takes off: there's not much selling going on, price is pausing. At 9:40 price breaks higher to 1699 but falls back immediately and price again takes a breather and starts to move sideways on lower volume. All of this also happens above the premarket high of 1695. Again I don't see a reason to assume price is going to reverse, but we did move 10 points in little time, so some sideways consolidation is to be expected. It is only when price breaks back below the horizontal magenta line that you have a reason to scale out again (after perhaps scaling out at the demandline break).

 

 

However, if you had 1700 or thereabouts noted as potential resistance from the past (a level that has been mentioned in the chatroom several times), that climax + the reaction on lower volume meant a lot more. Otherwise you are just looking at volume in the middle of nowhere and that "multiple top" at 1698 doesn't mean much, if you consider that (1 price is still making higher lows and (2) demandlines are very often broken quickly, especially when they are that steep.

 

What I'm trying to say is that long, short, long in theory was the best thing to do, but I doubt many people would've traded like that in real time. Because once you have a profitable trade on, most of the time you rather manage it, then exit it and take a new entry which comes with new risk and new uncertainty.

[DbPhoenix 42]

You are correct that all-in/all-out (AIAO) requires a different management approach than scaling out, each with its own rewards and its own risks. As you know, I scale out, but, given the comments about all this being so complicated, I put it in the simplest way possible and leave it up to the individual trader to decide what's best for him regarding management of the trade. What's most important is the entry, since without a successful entry, there's nothing to manage.

 

Another element has to do with focusing on what the market is telling you, judging it by its own action. Breaking a demand line, reaching a target, rejecting a price, hammering away at a price before moving away from it, doing any of these things (and more) on high volume or low volume -- the market is telling the trader something in each case, and his actions will depend largely on whether or not he's paying attention, on whether or not he understands what he sees, and on whether or not he knows what to do. But then there is also the psychological baggage that the trader brings to the table. If he is "damaged", for example, his need to show a profit may outweigh the objective goal of holding to the target. Thus exiting AO (if he trades AIAO) at a break of the demand line may be exactly what he needs. Learning how to scale out can wait, particularly if he does not yet trust AMT.

 

A third element is AMT. If one has no idea how to locate support and resistance and/or doesn't trust price to behave as AMT suggests that it should, then he will likely hold most or all of his trades too long or not long enough (which is another argument for adopting a scale-out approach to trade management). If, on the other hand, he makes certain assumptions regarding price movement within AMT without going so far as to be unyieldingly biased, then his management of the trade will differ from the trader who is operating in the dark with a penlight.

 

There is also, of course, personal preference. In the first trade, for example, the parabolic move upward suggests quick and easy profits. The experienced trader knows that these cannot hold, even though the exact turning point may be foggy. He may choose to start the day with money in the bank so that he is not entering subsequent trades with a loss, and who is to tell him that he sholdn't, or can't. It is, after all, his money. Philosophically, this is scalping, though for much more than a few ticks, and even though scalping is inconsistent with AMT, parabolic moves can be justification for taking quick profits, particularly if one is only scaling out. But even without a parabolic move, the trader may not want to wait for price to consolidate for "two hours" (or however long) before continuing or reversing. He may find that he just can't stay sharp for long while price does nothing. He may prefer instead to take his money and wait for the next hand, evaluating the next setup if and when it comes.

 

There are many ways of managing these trades, and to explore all of them would mean a very long post, and since the means by which one manages these or any other trades depends so much on his own preferences and the character of his own demons, the permutations are nearly endless.

 

But all of this defeats the goal of keeping it simple, as requested.

 

So, we go back to basics, at least as the term applies to Wyckoff. What is the market doing, and where is the trader in that market (in this case, the market is in an uptrend, and the trader is faced either with returning to the previous trading range or moving upward into a new one)? Where do support and resistance lie? What does the trader look for when price approaches those levels? How will he manage his trade once he's entered? What will the market have to do to show him that he's right? What will it have to do to show him that he's wrong? And all of this can be and must be done in advance, in preparation for the coming trading day, every day. If it isn't, then nearly all the trades will seem aggressive, unless the trader waits for confirmation at every turn, which may often mean missing the trade altogether, or having so wide a stop that he exits at the first sign of profit.

 

At the moment (an hour before opening), we're sitting dead on resistance. What is the trader going to do? What is he going to look for? If he has no idea, then he's going to remain in the hindsight world, and there's no money to be made there unless and until he translates what he learns there, if anything, into a plan for the coming day.

[wjrusnak 10]

Today was a rather disappointing day with my entries, as I was stopped break-even (+1 tick) one time and stopped out -1 point two other times (not to mention that it seems like most of the action happened after my quitting time of 11:00 am). Overall, my day ended with -1.75 NQ Points. My post is to provide insight into my pre-defined levels (shown in gold below) and how I had to flexibly adapt to keep with the market. I will use a 133 tick chart for display purposes, as well as to fit the overnight session (I use 30s or 1m during day).

 

Two levels were added prior to open: 1705, for the obvious R provided before the open and 1702 due to the R that it provided before yesterday’s close and the overnight S. Ironically 1702 acted as a midpoint (or POC for MP guys) during the AM session.

 

 

Trade 1 (5-second charts posted below): Short 1705 based upon very quick price action on 5s chart. I know this is very aggressive, but I find that aggressive is generally the best way to be in the first hour, especially at extremes. As noted in my figure, I moved the stop to break-even (my rules when price moves 2 points in my favor).

 

Trade 2 (5-second charts posted below): Short 1705 based upon price action again (look below). A double top even confirmed the trade, of course that was after I was in. Unfortunately this trade didn’t initially move 2 points in my favor (didn't move to break-even) and stopped me out fully, almost to the tick, before moving 7 points in my favor.

 

Trade 3 (5-second charts posted below): After this range was in place, I had to at least try the short one last time, and unfortunately sometimes you just miss all of your opportunities for the morning. At that point, the market didn’t know what to do and I can’t trade squiggly, two-point ranges for last 20 minutes (until 11:00 am).

 

 

Missed longs: You may notice my aggression to the shorts, but had I given that same attitude to the longs, I would have been black for the day. The break of 1699 at ~9:55 a.m. threw me off and I looked left to see where we would be next. I already had 1696 posted but I didn’t take into account the swing low overnight at 1697.50 (this was also confirmed by DbPhoenix in the chat). I then added it and had I been quick enough, a long at that level was completely reasonable as it provided a clear price action entry on a 5s chart (see below). This was simply personal hesitation, which I plan to iron out with experience.

 

 

Conclusion:

 

I feel that the most important point of this post is the fact that each level was in place before price had made its move. With the right buy and sell signals, one can really profit from trading these predefined levels. In addition, it really puts you into the action. You are trading price, not indicators or averages, but raw market material.

[DbPhoenix 42]

Before I begin, I want to draw attention to something wj just said:

 

I feel that the most important point of this post is the fact that each level was in place before price had made its move. With the right buy and sell signals, one can really profit from trading these predefined levels.

 

 

The purpose of this thread is, again, to plan the trades in advance, or at least determine those levels where one will look for trades. Strange things occur once the curtain rises, but that's no justification -- or even a rationalization -- for failing to plan the next day's focus.

 

For my part, the trades I highlight are those which are based on buying and selling at predetermined support and resistance with confirmations from a TICKQ divergence and, I hope, volume. Not everybody uses TQ and thus may take what for me would be more aggressive trades and more power to them. On the other hand, one should assume stops placed where Wyckoff would place them. Mine tend to be tighter, and I'm sometimes stopped out where he wouldn't be. Keep in mind, then, that this isn't about How I Trade but about the possibilities and opportunities offered by trading support and resistance (which Wyckoff, according to him, "developed").

 

So.

 

We opened above what we pegged as R. Unless one entered premkt, he would likely wait for a test of at least 1702, if not 1701 or 1700, since the upper limit of this new range had not yet been determined. However, price took off to the upside first and found higher R at 1705 (this is one of those occasions, when the upper limit has not yet been determined, that traders will create R in real time; in order to gauge the probability that R is in fact being created, one must look at the hesitations, how hard buyers push, what the volume is like, and even a falling TICKQ). With the effort at 0933 and the TD (TICKQ divergence), one can risk the short. Price then pulls the same trick it did the previous day and dips below the upper limit of the previous range to find S within it. If one keeps his wits about him, he will "look to the left" to find that level which price may be seeking, then, if he likes, look for a TD to signal a long trade.

 

Price then rises to what appears to be the top of a new, higher range. One can exit at the target, exit at a break of the demand line, or wait for a test and a possible TD. In any case, the short is taken.

 

The next trade is tricky. Price hits 1699 on climactic volume. However, this does not take place at S (apparently). Nor is there a TD. Nor is there a test after the rebound. Therefore, even if one is aggressive, finding a rationale for this trade in just a few seconds might be, for many traders, a reach. If one were quick, though, or if he had happened to draw a potential support line from that last swing high the previous afternoon (the "apparently" referred to above, the one which reached up to 1699.25, three minutes before the close), he might just go ahead and take the risk. If he had (I didn't), he'd have had a pretty decent trade to the long side, out at 1706 due to R and the TD.

 

Done in 90m.

 

 

 

 

 

To repeat, anyone who wants to post a chart of the coming day's trading plan is welcome to do so. He may then do a post-game review of his trades in order to lend a little reality to the anticipated vs the realized. In this way, what seems to be complicated may turn out to be unexpectedly simple.

[R/R 10]

When in the chat room today, I saw what I thought was a tick divergence on the NQ move down to 1699 at around 10:25 EST. Others said they didn't see a TD at that point. DbPhoenix also mentioned there was no TD at this time in his post this evening on the "Trading in Foresight" thread.

 

My 1 tick chart is posted below. Comparing the NQ swing lows marked in green and red to the corresponding points on the TickQ above sure looks like a divergence to me.

 

Perhaps I am misinterpreting or there are data discrepancies... Comments appreciated.

 

[DbPhoenix 42]

What DbPhoenix says cannot always be taken to the bank, and these divergences are not always easy to call. As it turns out, a decision on your part to go long at 1699 would have been the right thing to do.

 

However, notice that while the TQ drops decisively at your green line, it prints a higher low a minute and a half later. The next trip down, your red line, is a lower low, so whether or not there is a divergence depends on what you're comparing to what.

 

I find that when the divergence is not clear, the entry is generally not as clean. In this case, it was. But the decisions that one makes at leisure, long after the opportunity is past, are a lot easier to reach than those one must make in real time, when they count. The more important question, perhaps, is whether or not what you see is worth the risk you'd have to accept in taking the trade. If you're truly willing to accept the risk, then go ahead and take it. And if it doesn't work out, that is sometimes the way of it. If you already have a couple of winning trades by that time, you might be more willing to take the risk than if you're in the red. There is no right answer, and nobody's going to point and laugh if you choose door number 1 vs door number 2.

[wjrusnak 10]

Things to watch for tomorrow:

 

 

• It seems obvious that the range presented is 1730 to 1713. With that in mind, a break of either should produce a lot of energy from traders. On the other hand, a reversal at each is very likely, which is what I like to trade.
  
• 1725 presents itself as a possible short, in which the trader would be looking for the next reaction to occur at 1713.
  
• 1713 presents itself as a good long, in which the trader would be mindful of 1725 and 1730 as possible exits.
  
• If we get below 1713, it seems that we should "get choppy" between 1705 and 1700
  

[Gringo 10]

Hi,

Q's have been going up for over 6 months now! I have posted normal/standard support/resistance boxes (value areas) but have also tried to measure strength in upthrusts.

 

Please note the % change in upthrusts. I haven just chosen the closest whole numbers to keep calculations simpler.

 

Note: It may look like Elliott Wave to some but keep in mind I haven't really read much about Elliott Analysis and similarities are coincidental. From what little I recall Elliott proposed last upmove to be greatest in magnitude (frenzy)? I am uncertain about it so forgive my misunderstanding.

 

DbPheonix: In case this doesn't qualify as Wyckoff analysis then move it to perhaps Chat Junkies.

 

[DbPhoenix 42]

DbPhoenix: In case this doesn't qualify as Wyckoff analysis then move it to perhaps Chat Junkies.

 

On the contrary, it's very relevant: "By studying the relationships between these upward and downward waves, their duration, speed and extent, and comparing them with each other, we are able to judge the relative strength of the bulls and the bears as the price movement progresses." Thank you for bringing this to everyone's attention.

 

As for Elliott, his view on waves was somewhat different, but the "waves" are all formed as the result of traders' psychological impulses, and if one gets all mechanical about it, he may miss what the waves are trying to tell him. I wrote the following awhile back with regard to Elliott:

Put simply and in the context of investor psychology, there are "waves" of buying and selling that are governed largely by fear and greed (outside those that are the result of manipulation). In an uptrend, the greed is stronger than the fear, which is why these waves look the way they do, ie, "two steps forward and one step back".

 

It is only reasonable that the first wave of buying be tentative. After all, these people are still grappling with the fear. And when the reaction to this first wave winds up being relatively trivial, it is only reasonable to expect that buyers will be a bit (or considerably) bolder in the next wave. The inevitable reaction to that will stem partly from prudence, partly from remembrance of past mistakes, partly from fear. But, again, it's understandable.

 

The next wave, if there is one, can be aborted for various reasons, or it can result in a genuine panic to buy that sends it into the stratosphere, and this is one to be very careful of.

 

Waves on the corrective side are dominated by fear, and the first reaction gives those who were unable or unwilling to exit at the break to do so at the earliest possible opportunity, and this feeds the next wave down (along with those who thought it was only a dip and are trapped by the turn). If the selling pressure is over, that's where it stops, one of the characteristics which separates a correction from something worse (remember in

The Abyss

where the rig is dragged toward the edge by its own crane?). If something worse is in the cards, the ensuing "rally" will become yet another wave down.

 

Therefore, counting and measuring isn't so important as understanding what's in people's heads and empathizing with their fear and greed, unless one believes that his entry and price targets should be determined by these counts and measurements. It is essentially this dynamic which creates H&S patterns, Ws, Ms, triple tops and bottoms, etc.

 

[DbPhoenix 42]

The volume pattern also shows a range from 13 to 30, with a "midpoint" of 24 (the arithmetic midpoint is 22, which is where we are as of this posting).

 

It's worth noting that, the last couple of days, buyers have charged into the market just ahead of support. Support, then, was slightly higher than plotted. This action provided clues as to the strength of the bulls and the eventual direction, up, and a possible justification for entering "late". Whether momentum has slowed to the point where this kind of behavior can be relied upon remains to be seen, but I suggest that if one has been cautious that he remain so.

[wjrusnak 10]

As noted above , the range for today was 30 to 13 for today. This turned out to be one of those ideal support and resistance trading periods. I initially shorted 29 and was stopped out, but 30 was still the level to be short as you can see below. Then I waited for 13 and found a great entry at 15.50, in which I moved to break-even a little later. Unfortunately for the trade, I had to go to a job interview, so I set my target at 29.00 (DBPhoenix suggested 30, so I played it a little safer ) and humorously, it was hit.

 

Now that I review, my realistic exit for that trade was somewhere between 25 and 23.50, had I been trailing it as I normally do (the short, red lines are my usual stops). The true signal to get out would have been the triple top at 25 (remember from my earlier post that I was looking for a possible short at that level). In any case, it was a very nice trade that adhered completely to two levels for the day.

 

Last, if you look at the far right of my chart, you'll notice that shorting 30 again would have put the trader further in the black. Some days it just seems that easy.

 

[DbPhoenix 42]

Yes, today was both easy and simple: an immediate rejection of R with a TD, followed by a move down to S and a bounce with a TD, including a higher low if extra time was needed, then back up to R and another rejection. No TD that time, but a double top. The midpoint at 24 created some problems, but AMT won out, and the most difficult task was to do nothing.

 

Make sure you check that your protective stop was cancelled.

[wjrusnak 10]

Make sure you check that your protective stop was cancelled.

 

Did as soon as I got home, but what do you have against selling at support?

[DbPhoenix 42]

Did as soon as I got home, but what do you have against selling at support?

 

Breakout trading in absentia? Whoa!

 

[wjrusnak 10]

This is getting messy! As you can see there may exist more areas of S/R, but I am going to stick to the extremes tomorrow. So, for the game plan: No different than friday, short 30 long 13, but I'm guessing it may not be that easy this time. Depending on the strength of the bulls or bears, one might have to enter earlier then 30 or 13 to get the trade this time. On a different note, it could be a hell of a break out day.

 

[wjrusnak 10]

Really, it was that obvious again...sort of. I ended up throwing two failed shorts on at 20 (one stop and one break-even) in addition to a mess up (my fault) with chart trader, which cost me and extra -1. My long at the 13 level was also stopped for -1.5, which sadly could have been the best trade all day. Looking back, 20 was important, but may not have been that important. I considered it an extreme as compared to 6-7, but in the end it was shorting the middle of 13-30.

 

The point here is that 13 and 30 remained the range with exception of the "pokes" at 6-7 and 34. I know that three of us in chat went long around 13, yet only one of us had an exit at 30 for profit (congrats firewalker). That occurrence is very significant and can display that one may know where price is going, but his/her entry/exit system can be the final determinant in whether he/she profits or not (this is definitely a recurring theme).

 

To avoid turning this into my personal journal, please add input, criticism, or your levels, especially if they differ (fellow S/R traders).

 

[firewalker 10]

Really, it was that obvious again...sort of. I ended up throwing two failed shorts on at 20 (one stop and one break-even) in addition to a mess up (my fault) with chart trader, which cost me and extra -1.

 

Well, from what I can see you made two shorts which were not part of the plan. Did you compare this to what you posted this morning? Quote: "So, for the game plan: No different than friday, short 30 long 13."

 

My long at the 13 level was also stopped for -1.5, which sadly could have been the best trade all day.

 

Hmm, it looks as if you got stopped out at the exact low. Which makes me wonder when exactly you entered. TOG and myself entered at 14, which was not the best entry possible, but we entered when price bounced off the level. Unless I'm mistaken, it seems as if you entered when price was still falling. Can you confirm? I've attached a 5sec chart, with the blue dot marking where I think you went long, the first black one my entry and the second black one where I think was the entry with clear confirmation as buyers stepped in (not that visible on the 1 minute).

 

 

After that price went up to 1719 and did come back as low as 1714.50. Basically 0.50 made the difference there between a decent profitable trade and a zero on the screen...

 

The point here is that 13 and 30 remained the range with exception of the "pokes" at 6-7 and 34. I know that three of us in chat went long around 13, yet only one of us had an exit at 30 for profit (congrats firewalker).

 

Actually, I had only contract left when price hit 1730. So I can only take half credit, because there was no clear exit signal yet at 1730, although price cleary confirmed resistance, buyers still managed to push a few points ahead. Technically, I think staying until price broke the trendline, and fell back below the last swing at 1728.50, was the correct thing to do.

 

That occurrence is very significant and can display that one may know where price is going, but his/her entry/exit system can be the final determinant in whether he/she profits or not (this is definitely a recurring theme).

 

Moving or not moving my stop to breakeven, has been a huge determinant in my P/L...

 

To avoid turning this into my personal journal, please add input, criticism, or your levels, especially if they differ (fellow S/R traders).

 

I've added my chart from today, left all the lines on there that I drew during the day, so you can see what I was thinking at that time. The orange lines make up for the hinge, and although at the blue dot I had a scale-out signal according to my strategy, I stayed in because volume was light on that break and I thought price might re-test the midpoint of the hinge. After it continued to 1722.75 and make a higher high, I drew a trendline with a flatter slope. Had price returned all the way to my entry point I'd probably ended up with little more than breakeven.

 

 

Looking back at the trade, I still think I got a bit lucky with price retesting 1714.50 and not lower. Most days however, I'm not that lucky...

[wjrusnak 10]

Please do not forget that "this morning" was actually last night at 1:00 am est. At 9:00 am est, when I make my "adjustments" I noted that 20 would seemed like an extreme (as compared to 6-7). With that break down overnight, the market looked weak to me, so a short at 20, after moving nearly 15 points from the over night lows, was not at all against my plan. I actually noted this in chat. DbPhoenix then clarified that the move down to 6-7 looked nothing more than a "poke". In any case, and we did not know until later in the day that I was actually shorting the middle of 13 and 30. Had it went to retest the overnight lows, my short was completely justified. The second short was a retest of the first, which again seemed reasonable to me.

 

The long was on the other hand, was not at an "extreme" in my opinion as it did not even make a run to test the overnight lows. With the previous strength, as indicated by the bullishness of the mornings move, I anticipated the buyers and with good reason. Notice the line marked a little above 14. Friday, overnight, and this morning proved that ~14 was very important. This was the reason I was in before you and TOG. Notice the congestion right before the dip. Those tests were my signal and I had a tight stop.

 

I think we may have different ideas of the "extremes" in this case and mine is probably the one that is unconventional. Never the less, I have improvements to make. The problem with S/R seems to be the approximations made by traders (13...14.. ish?) and it's obvious that price will many times push the limit to "shake out" those tight riders such as myself.

 

[firewalker 10]

Please do not forget that "this morning" was actually last night at 1:00 am est. At 9:00 am est, when I make my "adjustments" I noted that 20 would seemed like an extreme (as compared to 6-7). With that break down overnight, the market looked weak to me, so a short at 20, after moving nearly 15 points from the over night lows, was not at all against my plan. I actually noted this in chat. DbPhoenix then clarified that the move down to 6-7 looked nothing more than a "poke". In any case, and we did not know until later in the day that I was actually shorting the middle of 13 and 30. Had it went to retest the overnight lows, my short was completely justified. The second short was a retest of the first, which again seemed reasonable to me.

 

The long was on the other hand, was not at an "extreme" in my opinion as it did not even make a run to test the overnight lows. With the previous strength, as indicated by the bullishness of the mornings move, I anticipated the buyers and with good reason. Notice the line marked a little above 14. Friday, overnight, and this morning proved that ~14 was very important. This was the reason I was in before you and TOG. Notice the congestion right before the dip. Those tests were my signal and I had a tight stop.

 

I think we may have different ideas of the "extremes" in this case and mine is probably the one that is unconventional. Never the less, I have improvements to make. The problem with S/R seems to be the approximations made by traders (13...14.. ish?) and it's obvious that price will many times push the limit to "shake out" those tight riders such as myself.

 

Like I mentioned in the chatroom, much depends on how you view the market of the last couple of days. For me it was obvious that price broke support at 1713 (this morning in my timezone). When it fell down further it stopped not at the next support level at 1700, but in the middle at 1706-1707. A similar thing happened last week.

 

The people missing the breakdown would then anticipate shorting when price retests previous support, turning it into resistance. (and in fact I took such a short earlier today, but it got stopped out breakeven). As you can see by the premarket action one hour before the open, price failed several times to get above 1713-1714. However, on the open we rose almost ten points from there, after slowly drifting higher. This brought us back into the highest range, therefore negating any shorts. At least for me.

 

When price falls out of a range, fails to attract traders, and gets back in the range with relative easy, it very often goes to test the other extreme. Obviously this is no rule of thumb, but considering the uptrend, and considering the fact that something similar happened last week, I think it was warranted to consider long trades as having the bigger potential.

 

As for the congestion, I can't really comment on that since your entry signals are probably a bit different than mine, but I thought you used volume as a confirmation signal. So I wonder if there was a sign in that congestion we were going to reverse that perhaps I missed because I wasn't look at the 5 second all of the time. What surprises me actually is that you seem to enter how or at least "when" I did in the past, rather early, which often leads to a very sharp entry and quick break-even.

 

In this I think waiting for the suppyline to be broken (see chart), gave more confirmation for taking a long entry. But you could also argue that if you wait for that to happen, you're already a step behind. Which is true, because many times I've seen you guys mention the TICKQ divergence before any S/D lines are breached...

 

 

The rest of the day doesn't exactly make it much clearer for tomorrow.

[DbPhoenix 42]

Today was an excellent illustration of the difference between the opportunities which the market provides and the readiness/willingness of the trader to take advantage of them. It is important to consider these two aspects separately, because a failure on the part of the trader to profit from an opportunity should not be rationalized into an assertion that the opportunity never really existed.

 

You were correct that the range stretched from 13 to 30. But as everyone who has read the material on S&R should know by now, S&R are found in zones, not in specific numbers. To say that S is at 13, then, means that support will be found somewhere in the area of 13, though probably within a point of it. This proved to be true last week, when buying pressure turned price a point ahead of where one expected to find support, and unless one anticipated those pre-emptive turns and understood what they meant, he'd be sitting there watching price leave without him.

 

This morning, price appeared to be finding S at 14, and there was a TD at 14, all entirely consistent with the thesis that price would once again turn ahead of anticipated support and reverse to the upside. But price wasn't ready to do that. Instead it resumed its decline, double-bottomed at 12 with another TD, then reversed to the upside, all the way back to the opposite end of the range, to 30, just like AMT suggests it should.

 

So why wasn't 12 taken? It was a point below S rather than a point above (assuming that one had nailed 13 as S with laser-like precision), but so what? Support is support, and all the signs were there, including climactic volume. I suggest that 12 was not taken by those who had taken 14 because those who had taken 14 had done all they were supposed to do and it didn't work out. This not only diminished their confidence in taking a long off 12, but the failure of 14 may also have put them slightly in the hole, which is generally not a position of strength for taking what suddenly seems to be another aggressive and risky trade.

 

But what if there had been no TD at 14? What if it had not been taken? What if there were then no failed trade going into the continuation to 12 and no loss? What would 12 have looked like then, the poke below 13, the TD, the climactic volume? Would it have seemed under those conditions a no-brainer and an easy long trade to the opposite side of the range?

 

The market provides the opportunity. The trader must know what to look for and where to look for it. But he also must be ready to take the trade and willing to take the trade. If he isn't ready, or willing, or both, he then has a subject for his "post-game" analysis which is more likely to be more to the point, or close to it, than a complete overhaul and re-analysis from the bottom up of his entire approach to the trading day. He may, in other words, be far closer to consistently winning trades than he thinks he is.

 

Consider, for example, the climactic volume that occured at turning points last week: 1026 on Wednesday, for example, or 1247 on Thursday (which, perhaps not coincidentally, occurred at 1712.5). These volumes do not occur at every turning point like a flashing red light. But they do provide information to the trader who is ready to receive it. Perhaps a trader who had not just taken a loss off a too-early long off 14 would have interpreted the activity at 12 differently. But a step up for the trader who did try that long and did take a loss would be to evaluate the activity at 12 without allowing the fact of the failed trade and the subsequent loss to influence his assessment.

Edited September 22, 2009 by DbPhoenix

[DbPhoenix 42]

Like I mentioned in the chatroom, much depends on how you view the market of the last couple of days. For me it was obvious that price broke support at 1713 (this morning in my timezone). When it fell down further it stopped not at the next support level at 1700, but in the middle at 1706-1707. A similar thing happened last week.

 

The people missing the breakdown would then anticipate shorting when price retests previous support, turning it into resistance. (and in fact I took such a short earlier today, but it got stopped out breakeven). As you can see by the premarket action one hour before the open, price failed several times to get above 1713-1714. However, on the open we rose almost ten points from there, after slowly drifting higher. This brought us back into the highest range, therefore negating any shorts. At least for me.

 

When price falls out of a range, fails to attract traders, and gets back in the range with relative easy, it very often goes to test the other extreme. Obviously this is no rule of thumb, but considering the uptrend, and considering the fact that something similar happened last week, I think it was warranted to consider long trades as having the bigger potential.

 

As for the congestion, I can't really comment on that since your entry signals are probably a bit different than mine, but I thought you used volume as a confirmation signal. So I wonder if there was a sign in that congestion we were going to reverse that perhaps I missed because I wasn't look at the 5 second all of the time. What surprises me actually is that you seem to enter how or at least "when" I did in the past, rather early, which often leads to a very sharp entry and quick break-even.

 

In this I think waiting for the suppyline to be broken (see chart), gave more confirmation for taking a long entry. But you could also argue that if you wait for that to happen, you're already a step behind. Which is true, because many times I've seen you guys mention the TICKQ divergence before any S/D lines are breached...

 

While distinctions among the threads may seem artificial at times, the purpose of this particular thread is to encourage participants to post their plans for the upcoming day, then, if they wish, to review the day in order to compare what they did with what they thought they were going to do. In this way, hindsight analysis has a different function than the usual CouldaWouldaShoulda (which has its own thread).

 

Therefore, it would help those who follow this thread if you were to post your charts in advance of the coming day and explain what you're looking for and what you plan to do if and when you see it. In this way, you and wj and whoever else is interested in participating can discuss the various options ahead of time rather than after the fact.