Trading The Wyckoff Way

[DbPhoenix 42]

I have noticed tests are done more and more frequently on shorter intervals than 1min. This is making it tougher to get in as those who are waiting for confirmation seem not to be getting it before price goes the other way.

 

Either one's got to make a decision on the first touch of s/r or it's too late. It's here that TickQ and other volume based secondary support can give some advantage. The s/r is still working quite reliably but the setups that used to work aren't becoming available frequently (1min in my case). In a way it taxes one's patience to wait for that setup or to adapt and get a plan to deal with this touch and go price action which is prevalent now.

 

It helps to acknowledge that reversals take place at the tick level. What looks like a V reversal using 15m bars or equivalent may be a double top or bottom using a 1m bar. What looks like a V reversal with a 1m bar may be a double or triple top or bottom on a tick chart. This is not to suggest that one must abandon everything but the tick chart, but it is clearly difficult to see what one isn't looking at.

[MidKnight 12]

Beyond that, one can look at how he traded at the levels he anticipated. Even if he nailed the levels, there remain the strategies and tactics to be employed to take advantage of the preliminary work he's done. In other words, one can be dead accurate on the levels but remain flat if he doesn't know what to do with them. If you're happy with the trades you're taking at the levels you've anticipated, there's no need to go further. If you aren't, then this thread may be a resource.

 

For some time now, I have been generally content with my S/R areas but I think I'm lacking in the strategies to take advantage of them properly. I may have mentioned prior that I was hoping to gain more accuracy in my S/R areas, but perhaps it is more as you said, I need to learn more about devising strategies of how traders are trading when in the determined S/R areas.

 

If you're interested in trading price action rather than bars, then it will become necessary to follow price action rather than a summary of it, akin to watching an event take place in real time as opposed to reading a report of it in the daily paper the following day (or in a weekly newsmagazine the following week). If you want to understand the behavior of traders as they approach important levels, then you'll have to observe that behavior. One can watch the little right-hand notch on a bar of one sort or another move up and down in real time until a new bar forms, but this is no substitute for watching price move laterally, transaction by transaction, printing the little hesitations, the thrusts and shakeouts, the feints and fake-outs.

 

One chart is of course insufficient. You'll need something that shows the forest since all of this is based on accurately locating support and resistance. CVB charts and range charts are both good for providing that context. But trading this broad context will lead to a lot of false starts and missed opportunities. When it gets down to actual trading, you'll need something that has a much narrower focus, preferably with separate volume bars (since these show activity). I suggest a time bar of some sort along with a 1-tick chart. The time-bar chart will keep you focused on important swings and pullbacks and congestions as well as the overall trend and prevent you from getting distracted by what can be unimportant activity on the tick chart (unimportant being anything that isn't taking place at an important level or that isn't interfering with the trend). Whether this is 5m, 3m, 1m, or 30s is entirely up to you. The tick chart will show you, trade by trade, what traders are doing, especially and most importantly as and when they approach the levels you've anticipated.

 

Other than these three basic charts, you can add additional broad context charts. You can also add charts of other indexes. You can also add charts of various breadth measures, if you have them. But the more you have to look at, the more difficulty you'll have in reaching a decision and the more likely you'll miss the trade. Therefore, I suggest that you keep it as simple as possible.

 

Good post that makes a lot of sense. I'll do some study on the 1 tick chart over the next couple weeks. My initial fear with viewing the raw T&S stream in a non-summarized form is that I will over trade and envision too many scenarios happening. Know what I mean? Summarized data (some type of bar) helps minimize this. I do make my trade decisions intra-bar though. Maybe, after 5 years of this game I have matured and somewhat contained the overtrading beast that used to dominate me on small time frames. I'll keep you posted of this over the next couple weeks if that is true

 

With thanks,

MK

[DbPhoenix 42]

Good post that makes a lot of sense. I'll do some study on the 1 tick chart over the next couple weeks. My initial fear with viewing the raw T&S stream in a non-summarized form is that I will over trade and envision too many scenarios happening. Know what I mean? Summarized data (some type of bar) helps minimize this. I do make my trade decisions intra-bar though. Maybe, after 5 years of this game I have matured and somewhat contained the overtrading beast that used to dominate me on small time frames. I'll keep you posted of this over the next couple weeks if that is true

 

With thanks,

MK

 

One of the chief reasons for trading S/R that are determined by AMT is to eliminate -- or at least severely curtail -- overtrading. If you know, for example, that you're going to look for shorts at or near R, then you have no reason to jump into what appear to be good shorts (no pun intended) that show up ahead of R.

 

Similarly, using a tick chart can also help eliminate or curtail overtrading, assuming that you're very clear on what you're looking for and that you have the discipline to wait for it. You don't have to guess as to what traders are doing as you might with, say, a 5m bar. Nor do you have to wait for anything to "close".

 

For something more concrete, you may want to look at, read, study Wyckoff's Studies in Tape Reading, attached to the Introduction. Though many interpret it as a scalper's manual, it isn't. Either way, it will provide specifics of what to look for with regard to congestions, probes, breakouts, rejections, etc. (just don't get too distracted by the details of the stocks being traded -- since most no longer exist -- or how prices are being manipulated or the comments regarding bar charts vs figure charts; focus on the principles of price movement being addressed).

[MidKnight 12]

Cheers DB. I understand what you are saying with how S/R can help curtail overtrading, but when I have a zone that is say 80+ ticks wide and we end up spending a lot of time in that area (say 30-60 min), then I end up taking many shots at the decent reaction I am anticipating. In my past, small detailed summaries have led me to overtrade. This 1 tick chart will be the smallest I have tried, so I am curious to see if I am still affected by this.

 

As you say, if you have something very clear to act upon then it less of a concern. I've failed at this so far to date. Five years ago my daytrading started out exploring objective and systematic means to consistently make money from. I struggled along this objective path for several years. It wasn't until I let go of trying to be so exacting and objective that profitability started to turn around for me. So while I have failed to define clearly what I need to see to act upon, I do have loose general guidelines....I would love to get more objective because that is sort of built-in to my nature, but also appreciate that it didn't work so well for me in the past. I'm always open to re-exploring things that didn't work in the past though.

 

HSI trading today. Because you guys had a large move down today, we will probably do a large gap lower. I'm expecting that to be somewhere around the weak support zone on the chart.

[Gringo 10]

Q's are at trend line. If you notice the last two days have seen increased trading intensity as evidenced by higher volume. It appears supply did show up this time when price tried to climb up and pushed it down. Now this has happened in the past that after a day or two of sharp price declines further move downward halted and price shot up as soon as demand absorbed all this supply. Lets see what happens tomorrow.

 

Some believe that TL offers support and resistance. DbPhoenix declares it's not the case. I am still confused whether TL or MA for that matter offer support and resistance or just happen to coincide with real s/r and give the appearance of a significant area.

 

Daily chart of QQQ shows price stopping at TL. We did break below the green value area (rectangle) and are in no man's land on dailies.

 

To see closely what lies within this no man's land I zoomed in. The 60 min chart shows that we are right under s/r. Here My s/r could be somewhat off as well but I used what appeared more significant to me. These lines were drawn some time back to give me a better perspective for shorter term trading.

 

We don't know which way price will go. We only know here s/r are to buy or sell.

 

I have begun to find daily or end of day trading to be quite cumbersome and slow on my psyche. Perhaps because I watch price in 1min or shorter interval every day and can see so many things happening within minutes and hours, while EOD takes eons to reach significant levels.

 

Self discovery is one of the side effects of learning how to trade or perhaps it is the driving engine for success.

 

Sun Tzu claimed we need to know ourselves and the enemy (read market) to have success. Knowing only one of the two halves the chances of success.

 

 

Edited October 2, 2009 by Gringo

[wjrusnak 10]

Good thing we prepared for the lower levels yesterday It seems like the new range would be 1690 to 1665, although 1680 seems to be providing some decent R. A long off 65 could be very possible, but who knows where we will be at open. I would assume that we should be seeing some buyers coming in soon, but they already failed miserably at 1730, so who knows...

 

[dla133 10]

I have been trading Funds for over 5 years and have learned a great lesson from Bill ONeil. He advises bying a solid common growth fund and then sit and wait, don't think just sit. I did this right through the bear market and put more money in as the market went down. As the market collapsed I remained positive and kept telling myself that this IS the time to invest and NOT run away scared. Over the last 12 months I am now up 15%. This is where 95% of my trading capital is. I have tried to use the CANSLIM method of investing and so far have failed. I always seem to get stopped out. My opinion is that IBD is great for helping you find good strong fundermentals on companies however the technical side for me is a little too bit like a dummies guide. I read a book on Jessie Livermore and was intrigued by his pivot point theory, however I can't seem to find too much on exactly how he did this. I then came to hear of Wyckoff and have started reading about his trading style. I feel that what he had to say about the markets makes sense, as does CANSLIM when it comes to the fundermentals. So my conclusion is I should use IBD to find companies with strong fundermentals and use Wyckoff to trade this stocks. I am just wondering if anybody else out there does this? DbPhoenix and gassah please keep up the great work you are doing on this forum as well as all you other posters out there too many to mention.

While I am learning this method which I know will take years and not months I have decided to invest in ETF's rather than individual stocks so I can still benefit over the next few years from this severe bear market. Do you think ETF's could be traded using Wyckoff or am I better to take the buy and hold approach like my Funds?

 

Thanks for reading this post and hopefully when I get more experienced and start to show some individual trading success I will be able to guide other inexperienced traders like myself in the future.

 

Cheers

Lee

[bakrob99 11]

By the way, you can find out the method behind Jesse Livermore's Pivot Point theories in the appendix of his book "How I Trade Stocks". I rented it from the library and enjoyed reading it. Quite fascinating how he went to great extremes to keep other people from influencing him with his trade decisions. He located his office away from Wall Street and hired some big bodyguards to keep everyone out of his office.

[DbPhoenix 42]

I have been trading Funds for over 5 years and have learned a great lesson from Bill ONeil. He advises bying a solid common growth fund and then sit and wait, don't think just sit. I did this right through the bear market and put more money in as the market went down. As the market collapsed I remained positive and kept telling myself that this IS the time to invest and NOT run away scared. Over the last 12 months I am now up 15%. This is where 95% of my trading capital is. I have tried to use the CANSLIM method of investing and so far have failed. I always seem to get stopped out. My opinion is that IBD is great for helping you find good strong fundermentals on companies however the technical side for me is a little too bit like a dummies guide. I read a book on Jessie Livermore and was intrigued by his pivot point theory, however I can't seem to find too much on exactly how he did this. I then came to hear of Wyckoff and have started reading about his trading style. I feel that what he had to say about the markets makes sense, as does CANSLIM when it comes to the fundermentals. So my conclusion is I should use IBD to find companies with strong fundermentals and use Wyckoff to trade this stocks. I am just wondering if anybody else out there does this? DbPhoenix and gassah please keep up the great work you are doing on this forum as well as all you other posters out there too many to mention.

 

While I am learning this method which I know will take years and not months I have decided to invest in ETF's rather than individual stocks so I can still benefit over the next few years from this severe bear market. Do you think ETF's could be traded using Wyckoff or am I better to take the buy and hold approach like my Funds?

 

Thanks for reading this post and hopefully when I get more experienced and start to show some individual trading success I will be able to guide other inexperienced traders like myself in the future.

 

Cheers

Lee

 

Funny you should ask, since I was a big CSer from the late 80s. But when we got to '00, it was clear to me that CS left a lot to be desired, at least by that point. Many reasons, most of which are irrelevant to this forum. Suffice it to say that if you have been less than successful with CS, it most likely is not your fault.

 

Your biggest hurdle may be resolving the conflict between long-term B&H and short-term trading. If you've already done that, then understand that Wyckoff has absolutely nothing to do with fundamentals. It is purely technical. If you want to trade stocks and use CS as a preliminary filter, there's no particular conflict there. You may find, however, that the stocks with those great fundamentals are difficult to buy from a technical viewpoint once you've found them. ETFs may be far more appropriate to your style and your goals. If you are at all unsure of what your goals are, that should be addressed before going further.

 

As to whether it takes you months or years to learn this depends partly on how much time you're willing to devote to it and how much you have to unlearn. If you don't "know" much that is actually untrue, then you may learn this approach without much trouble at all. Since you are oriented toward fundamentals, one of your biggest hurdles may be breaking the habit of asking "why" price is doing this or that. While discussing the why can make for interesting chat, it has nothing to do with the trading decision that must be made.

 

Since you haven't posted here for almost a year, I don't know how much time you've spent with the material. If you've read the stickies, then you may want to move straight to the application. If you haven't read the stickies, then start there.

[dla133 10]

Thanks for the replies guys. I want my trading to take a longer term view point if that is possible for the following reason. I want to make sensible investments with strong long term probability of success. Can Wyckoff help me identify the major moves? For example the financial sector as we all know has seen a tremendous sell off. Can Wyckoff help determine the time to make a trade once the long term trend has shifted? With ETF's I can move from sector to sector within the market when the odds of success in each sector turn to my favour. I suppose I am looking for a tool to help me identify when this is.

 

DB you mention in your post "Your biggest hurdle may be resolving the conflict between long-term B&H and short-term trading. "

 

I don't want to be a pure buy and hold trader, however at this moment I don't feel I have the skill to move my money in and out of the market better than buy and hold. For example if I had left my money in the fund for the entire 5 years then I would have returned another 100% on my capital. Would Wyckoff help me with this?

 

Maybe what I should be asking is do you think successfull Wyckoff students could do better than buy and hold?

 

Cheers

Lee

[Gringo 10]

Hello dla133,

 

To me it appears you don't want to be hopping in and out of market and want to have longer time objectives for your buying and selling.

 

Wyckoff is quite time independent and his methods can be used for longer time frames. The problem is once you get used to his way of thinking I am not certain if you'll be able to look at the market the same way, especially buy and hold.

 

I have tried IBD and CANSLIM and on paper it's not bad and possibly better than a lot of other investment philosophies out there. I have gone through Livermore, Darvas, Loeb, Graham, Schwagger, Murphy, Magee, Pring, Bulkowski, Nison, Lynch, Elder, Tharp, Richards (Turtles) and too many others to name. The end result after all this wandering in the desert by chance led to Wyckoff. Perhaps it was going through all the above that helped me recognize genius. The genius in simplicity and independence. I know this is my promised land.

 

There is not an obsession with cup with handle, double bottom, head and shoulders, flat bases, high tight flags, saucer bases, or 3 week tight formations and the like. You'll more likely see the flow of prices as it is rather than judge things based on what formation is possibly in the making. Most formations look perfect only in hindsight as you may discover if you are lucky.

 

It's not the sword but the master that matters as the saying goes. But having the right sword can still be helpful. For me Wckoff is that sword.

Market on the other hand is the ultimate master, and this master will find your investing and psychological weakness and strike where it hurts the most and repeat the process until you change or go broke.

 

If you are up to the task and willing to undertake these risk you'll find many who'll guide you here. In the end it's your journey and only you can chose to take that first step.

 

If you are enamored with my experience and knowledge, take heed; for I am still a humble student trying to find my footing, and still struggling for consistent gains.

 

Some questions for you to consider:

 

1) How much time are you willing to spend on learning and unlearning?

2) How much time are you willing to devote on daily or weekly analysis?

3) Do you really want to be dealing with markets or would you feel better off giving your money to a professional?

4) How long do you think it will take you to figure this all out?

Edited October 3, 2009 by Gringo

[MidKnight 12]

I was wrong about the magnitude of yesterdays gap down open. It ended up being a massive 650 pts lower, making new lows for the decline since mid SEPT. The move up going into the SEPT high does have small congestions (not shown on my chart), but it was such a fierce up move, that nothing obvious really stands out to me. Because of that, I haven't been using any of those areas during this decline. On this attached chart, I have labeled a 'weak zone' more of as a lower value area type of thing. I don't see anything extremely obvious other than what is marked on the chart....

 

On a side note. I have been studying the 1 tick chart and was able to study it in real-time yesterday. Good news is that I didn't over trade I also found it added a new 'feel' component because the pace and the spread could be felt better.

 

Have a good weekend guys. Here's my chart going into Monday.

[dla133 10]

Hi Gringo,

 

Thanks for the response and guidence.

 

1) How much time are you willing to spend on learning and unlearning?

However long it takes is the simple answer. I have a quote printed out which sits above my computer screen on the wall by Winston Churchill.

 

Never, Never, Never give up.

 

The way I see it is that I have found several ways so far that didn't work for one reason or another, and I am one step closer to finding out what does work.

 

2) How much time are you willing to devote on daily or weekly analysis?

 

I normally spend around 2 hours a day when I get home from work in the week and approx 6 - 8 hours at wekends.

 

3) Do you really want to be dealing with markets or would you feel better off giving your money to a professional?

 

This is the whole reason for me wanting to learn to trade my own funds intelligently. I know people who have used professionals who have then lost money. The only thing they learned was that the professional had a bad run. They learned nouthing about the market. I want to learn from my mistakes and take responsibility for my own financial future.

 

4) How long do you think it will take you to figure this all out?

 

I don't think I will ever figure this out completely, does anybody? I just want to see improvements with consistancy over 1 year to the next.

[Gringo 10]

Hi MidKnight,

 

Do you have access to other markets that are not so gap prone? A significant part of market movement seems to have already taken place at open and you're left to fend for the remaining scraps. A Ferrari is hardest to drive on a road with gaps in it.

[MidKnight 12]

Hi MidKnight,

 

Do you have access to other markets that are not so gap prone? A significant part of market movement seems to have already taken place at open and you're left to fend for the remaining scraps. A Ferrari is hardest to drive on a road with gaps in it.

 

Hi Gringo,

 

Of course anyone can get access to any markets in the world but it comes down to some quality of life. I live in an Asian time zone. In my first couple years of trading, I tried very very hard to only trade Europe or USA markets. This meant working the graveyard shift - there is a reason they call it that. My health deteriorated, my motivation and alertness disappeared. I was like a zombie when I was awake. My relationships were tested, some were destroyed because of this. It just wasn't worth it.

 

Yeah these Asian markets will gap, but I don't think that means they are harder to trade. The gaps will back and fill a lot (at least in the Hang Seng) and make for decent S/R going forward.

 

With kind regards,

MK

[ziebarf 10]

Looks like I have the same levels as wrusjnack. I am having trouble determining the current range, I guess only time will tell.

[DbPhoenix 42]

Looks like I have the same levels as wrusjnack. I am having trouble determining the current range, I guess only time will tell.

 

You may find it easier to judge the relative strengths of one line vs another if you locate the trading ranges (see post #1) rather than rely on swing points.

 

 

[wjrusnak 10]

I found that the push to 1650 that occurred on Friday was met with increased buying pressure at the midpoint of older range, which is boxed in red on the far left of the chart below. More recently, one can see that 1675 was met with selling pressure at the mid point of another range, which is boxed in red on the right of the chart below. Judging by this action, it seems unclear of the specific range, as ziebarf had mentioned. What we do know is the fact that traders are liking 1667 and have held a range about it for the majority of Friday and tonight. With that knowledge one could find the above extremes to be 1675, 1680, or back to 1690, while the lower extremes would be 1660 and 1650. If say the tough selling continued tomorrow morning, we would be looking to 1630.

 

[jfw215 11]

This thread is awesome and really goes well with my trading style. Attached is my NQ anchor for tomorrow. We all know the 75 is our most immediate resistance level. 60 and 50 are the 2 support levels down. I am planning on buying pullback if 75 gets taken out on good volume and short 60 if that gets taken out to the downside. However, we are in a mini downtrend and could also get a reversal at 75 to 80 area so I must becareful and watch out for reversal if I do go long above the 75 area. The 50 area may offer good long opportunity, but I'd better see some strong tick/vol divergence if I am going to take a stab at buying it since it could easily range extend lower.

 

In the AH session, NQ bounced off 60 support and haven't yet reached 75 area. ES was able to reach Friday's high and was rejected. Something tells me that a short around the 75-80 area would probably play out best (based on both ES and NQ) but I can't point out the exact reason why.

 

DB, just curious, do you have a minimum target for your trades? For the NQ trades I described for tomorrow, I have 10 point minimum targets that I want to achieve. I try to keep all my trades with 5x+ RR.

 

Thanks

 

JW

 

[DbPhoenix 42]

Lest one become too mesmerized by the trees, keep in mind that the trading range we've approached is substantial and represents a lot of buyers. This will affect all trading at these levels.

 

We are also at the midpoint of the August leg.

 

 

 

 

 

DB, just curious, do you have a minimum target for your trades?

 

The opposite side of whatever range is in play for that day. I don't work toward point-targets. If the limit of the range is unclear, I abide by the procedure I described here.

 

 

.

[wjrusnak 10]

Sometimes a guy needs to brag a little when his strategy works very well:

 

 

Refer to my chart from last night to see that I had 1660 as a lower extreme. As you can see, this was a test of the low (1658) on the 1m chart and it even had lower volume (typical Wyckoff reversal -- notice the volume right under my blue entry arrow). Below is the 1 tick chart to show you the price action on the test. In circles are the higher lows. Know that I placed my buy stop at 1661 when I saw those. The exit was a matter of trailing the swings and using demand lines as further guidance. This was probably the most relaxing trade I've had in a long time.

 

[jfw215 11]

 

Below is the 1 tick chart to show you the price action on the test. In circles are the higher lows. Know that I placed my buy stop at 1661 when I saw those.

 

 

Hi wjrusnak

 

Awesome trade! I'm curious do you also have vol loaded on your 1t chart?

[ziebarf 10]

Fantastic S/R day. Even for other markets, like the ZN. On a random note, I am loving renko bars lately, they make spotting S/R a little cleaner for me.

[MidKnight 12]

Good planning and nice trade wjrusnak.

 

Yesterday's HSI respected the S/R 'value are' from Friday. We tried to probe up to the last daily swing low (just over 20500) but failed and came back to the 'value area'. I'm keeping all the levels the same going into Tuesday's trade.

 

From DB's last post about the forest....I'm also attaching a bigger view chart. The question from me is, which is more accurate here, the big green rectangle or the small red one? Because the small red one is more recent, I would have tended to put more weight on it. However, it is small, so how significant could that be. The green one would be involving a lot more traders than the red one did.

 

PS: how are you guys embedding the picture within your posts?

[jfw215 11]

hi wjrusnak ,

 

do you know where I can download the pricehistogram indicator used on your charts? I'm having trouble finding this type of indicator that would work on historical data in NT. If anyone else has suggestions, I'm all ears.

 

Thanks.

 

JW