Trading The Wyckoff Way

[MidKnight 12]

I was painfully disgusted by my trading yesterday. HSI gapped up larger than expected just on the upper edge of the zone from SEPT 29th. Don't ask me why, but I remained locked into an short bias despite it holding on the upper edge. I also had recorded in my daily plan that we could get further short squeezing if we traded down to that upper edge from above as the established shorts from SEPT 29th scratch out any held inventory they still had. By my calculations, there was still significant held inventory. I changed my bias from short to long and vice versa, 4 times over the day. Each time changing it at the wrong time. You can imagine the result at the end of the day - not pretty. The 1 tick chart caused me to over-trade my incorrect biases through excessive entry triggering. This is how I get into that problem with low timeframes - when the trade idea is wrong but there is leeway for the trade idea (like a zone) then the low time-frame will trigger me into trades taking many small stops in a row.

 

Anyhow, enough of my complaining. Adding the main pivotal zone from yesterday and keeping the rest the same.

 

[wjrusnak 10]

This is how I get into that problem with low timeframes - when the trade idea is wrong but there is leeway for the trade idea (like a zone) then the low time-frame will trigger me into trades taking many small stops in a row.

 

Anyhow, enough of my complaining. Adding the main pivotal zone from yesterday and keeping the rest the same.

 

If it makes you feel better, I glance at your charts and my eyes glass over. That market just looks so rough. You are definitely playing on the "difficult" setting. Good luck tonight.

[jfw215 11]

Ok, we broke out of the 1712 level, I'm looking to short 1730 area and long any retest of the 1712-1708 area tomorrow. This gives me a nice 20 pt trading range to work with. I think this is pretty straight forward.

 

EDIT:

There's a midline from prior trading range at 1719 (check dotted line on chart). I may look for long of that area as well. We have to see what happens in the globex session. DB, let me know if I missed something

Edited October 8, 2009 by jfw215

[wjrusnak 10]

Ditto what JFW said about the 1730-1712 range. It is also good to notice what happened today. We had a fairly decent down trend that was broken when price pushed above 1708 in the afternoon. One would expect buyers to continue with such strength in the next session, hopefully by holding the 1712 area and providing a nice long entry. We could only be so lucky though...

 

[DbPhoenix 42]

Since we spent most of the afternoon above 1700, traders were clearly comfortable there, and I suspected we'd move higher today. I just hadn't expected it to happen already. Therefore, 8 to 30 does seem to be the range for today's trading.

 

Yesterday was a fish or cut bait day regarding the channel. Buyers had either to get on with it or let price fall out. If they can keep this momentum going, then reaching that supply line becomes a good test of their resolve (I should also point out that 30 is also more or less the midpoint of that channel for today and tomorrow).

[DbPhoenix 42]

Interesting how AMT is an anagram for ATM

[MidKnight 12]

To my surprise, HSI did a decent sized gap up. I say this as a surprise, because usually the gaps are a result of USA's trade, but USA traded virtually unchanged yesterday. The gap was right at the unfilled gap created from SEPT 24th. We sold down and ended up finding support at the minor congestion around the high from the prior day. While I didn't mark it on my post yesterday, I was aware of it. The HOD was at the trading range low (SEPT 17-23).

 

Today I am moving the zone up to enclose yesterdays congestion at the LOD and the WEDS's congestion at the HOD. HSI has done 5 up days in a row now and is knocking on the trading range that (SEPT 17-23) that looked like an island. I'd be very surprised if we put in another up day, but the move up this week has been relentless. Currently up 1300pts.

 

[jfw215 11]

Today NQ did exactly as pre-planned. I tried longing the 12 area but didnt get a fill. Then I skipped the short of the 30 area because the trend was up. Looking back, next time I'll take that trade.

 

For tomorrow, it's pretty much the same, trading range between 1712-1730. However, Monday is Columbus Day so I expect some light volume action. I'll be looking to fade the range and using the midepoint area for scaling exit.

[DbPhoenix 42]

Today NQ did exactly as pre-planned. I tried longing the 12 area but didnt get a fill. Then I skipped the short of the 30 area because the trend was up. Looking back, next time I'll take that trade.

 

One of the advantages of using demand and supply lines rather than "trend" lines is that one can avoid debates over whether or not one is in a trend. One could argue here, for example, that the upmove in the morning to 30 was not a trend per se but rather a return to established R. Either way, the demand line was inarguably unbroken. If one wanted to wait for that line to be broken, he could have shorted the pullback at 1245 (though I don't want to get into CouldaWouldaShoulda). If he wanted to short 30 whether the line was broken or not, he'd have had to do it at least twice.

 

Aside from that, there are other considerations with regard trades of this sort at this time of day. For one, the return trip down may take far longer, perhaps two or three times longer, if it arrives at its destination at all. For another, the move may not be nearly as "clean" as it was in the morning, and one may be stopped out fairly quickly, depending on one's management criteria.

 

None of which is to suggest that shorts at R such as this should not be taken. But one should do so only after having considered the consequences, particularly if patience has been an issue.

[jfw215 11]

One of the advantages of using demand and supply lines rather than "trend" lines is that one can avoid debates over whether or not one is in a trend. One could argue here, for example, that the upmove in the morning to 30 was not a trend per se but rather a return to established R. Either way, the demand line was inarguably unbroken. If one wanted to wait for that line to be broken, he could have shorted the pullback at 1245 (though I don't want to get into CouldaWouldaShoulda). If he wanted to short 30 whether the line was broken or not, he'd have had to do it at least twice.

 

Aside from that, there are other considerations with regard trades of this sort at this time of day. For one, the return trip down may take far longer, perhaps two or three times longer, if it arrives at its destination at all. For another, the move may not be nearly as "clean" as it was in the morning, and one may be stopped out fairly quickly, depending on one's management criteria.

 

None of which is to suggest that shorts at R such as this should not be taken. But one should do so only after having considered the consequences, particularly if patience has been an issue.

 

Hi Db,

 

I totally agree, the short would not be as optimal trade as the long in the morning for all the reasons you stated. The trade would totally be a bet that 30 would hold as R, kinda like a coin flip. I considered shorting it after waiting for the double top that occurred later in the day with vol divergence. It looked like no one was willing to take the ask when we broke the prior high established in the morning. I don't wanna get into hindsight trading either. Let's see how tomorrow plays out.

 

BTW, do you find Friday before Columbus Day to be historically a slow day?

[wjrusnak 10]

I feel lazy even posting this, mainly because I didn't add any levels, but JFW is right in saying that tomorrow should be the same play as today. One thing I have to add is that 1708 may be the level more respected tomorrow and that does seem to be how it's playing out tonight. Either way, we have to think of 1712-1708 as a zone and see what traders do in that area. As far as low volume goes for tomorrow... forget about it. Pay attention to the market and if its not giving opportunity, don't trade. No big deal. Who knows... it could be a huge day.

 

[DbPhoenix 42]

BTW, do you find Friday before Columbus Day to be historically a slow day?

 

One can't generalize about this stuff anymore. These days can provide great trades and they can also be like watching concrete set. Since my day is only 90m or so, it's no big deal.

[boru 10]

test

[DbPhoenix 42]

I'm updating the channel chart I posted a couple of days ago in order to add a little air to the upside. By doing so, one can more easily see where diagonal and lateral support and resistance converge and where possible targets might lie.

 

I've also added a tentative supply line which has a more acute angle to it than the parallel line. This may mean nothing. Or it may mean that we're losing momentum. First we have to get past the midpoint, which is now around 35. Then we have to reach the opposite side of the channel. If we were to do it quickly, we'd reach 1800, which was a pronounced swing low in July '08. But we may not get past the lower supply line. Even if it crosses 1800 by that time, the upwave will be shorter, and that's not so good either.

 

No profound conclusions here. Just context.

 

 

[boru 10]

hello all, sort of new to this but I have been studying a lot of Wyckoff lately. I would appreciatte any feedback on my chart if you have the time and inclination. Just want to see if I'm going in the right direction Thanks

[douglaszhu 10]

hi, as a native trader in china, i am trying to apply wyckoff principles to china stock market. one thing confused me a lot and would like to have your comments.

 

attached is the monthly, weekly and daily charts of the shanghai 50 stocks index.

 

my ponit is:

 

1. montly - JOC and maybe there would be a retest to the creek as the sharply break in aug causing big tech damage, there definitely need soem cause to resume the uptrend .

of course there is possibility of trend change but also need cause to go down.

 

2.weekly- found support and a feeble reaction ( less than 50%) and retest the support at a higher level( due to national holidays there is only 1 trading day in this week and 3 days in last week)

 

3. what confused me a lot is the daily chart. in the downtrend , demand has to prove itself , look at the volume , very low, specially at the up bar. I think the daily is weak but two bars(green line) I dont know how to interprete . the first is the bar of 9/oct with 5.02% gain at close on 2430 million shares and the second is the bar of 3/sep with 5.04% gain at close on 3966 M shares.

 

are these two bars can be labeled " no demand " ( i was told no demand bar generally has narrow spread) ? how to interprete these two bars( low volume, large spread, close at almost the high) in the intermediate down trend?

 

****************************************************************

Pls be noted that we cant sell shorts in china.

 

***************************************************************

 

could you pls give some light on thesse two bars with wyckoff method? thanks.

Edited October 10, 2009 by douglaszhu

[douglaszhu 10]

 

 

the charts

 

daily - > weekly -->montly

Edited October 10, 2009 by douglaszhu

[douglaszhu 10]

furthermore , pls correct me if anything wrong or missing, thanks...

[Gringo 10]

Below is analysis of Oil. There is a monthly long term view and then we zoom into the dailies to see how it's panning out. Gold broke out recently and is holding well and now oil appears to be behaving similarly. It hasn't broken out but considering the inflation play if it materializes oil could similarly follow to the upside.

 

Most comments are included with the charts.

 

USO Monthly

 

USO Daily

 

Notice volume in the hinge. It's not receding to show supply/demand coming to and equilibrium and traders agreeing around a price and reducing their efforts. Here higher volume suggests (in my opinion) unresolved agreement on price and perhaps uncertainty of price? Something for you to think about.

 

Price target calculated using s/r and a voodoo technical analysis method both give around 45 as target. I take these targets with little gumption unless there's an s/r there.

 

Enjoy the charts and feel free to find faults and add your thoughts so that we can all grow together.

 

Gringo

Edited October 11, 2009 by Gringo

[DbPhoenix 42]

 

hello all, sort of new to this but I have been studying a lot of Wyckoff lately. I would appreciatte any feedback on my chart if you have the time and inclination. Just want to see if I'm going in the right direction Thanks

 

You're going in the right direction, but your map needs a bit of re-drawing.

 

Regarding your first comment, the advance shows a lack of interest only -- apparently -- on the part of sellers. If there were a complete lack of interest, price wouldn't go anywhere. And as for the "apparently", sellers are interested, but they want a better price. So they're willing to give buyers rope until price gets to a point where sellers are more willing to take action. This will occur when price reaches resistance. If buyers can't absorb the extra supply and push price forward, price will reverse.

 

Less volume on the retest? Yes. But what does that mean?

 

As to the accumulation, buyers are willing to step up to the plate here and impede or halt the decline. This can be seen by the increase in volume and the result of that increase, i.e., price stops falling. But whether it can be called "accumulation" or not is debatable. There isn't time for much. More likely, sellers just don't want to sell at a level this low. Look at how low volume is on the next trip to R at 1225.

 

As to your next pair of arrows, take care not to assign to much meaning to volume unless you're at a level where it matters, usually support or resistance. Again, "accumulation" may not be the best way to characterize what's going on here. Suffice it to say that buyers have stepped up and are trying to impede or halt the decline in price. They succeed in doing so easily (if they were having difficulty, volume would be higher during this swing low). This would appear in real time to be a higher low, but one wouldn't know until price exits from the trough that a higher low was in place. There's no other compelling reason to enter here. The "retest" is only a couple of ticks, though there may be more drama on a tick chart, or even a 1m chart (a 5m chart provides you with a summary).

 

As to your "springboard", technically yes, since a springboard is a preparation for an advance. This particular springboard, however, comes after the real springboard.

 

Consider an alternative way of looking at all this.

 

First, locate the trading ranges as well as the important swing points, any or all of which may provide support and resistance in real time. The last important trading range which might affect the activity on this chart was formed the third week of September, from 52 to 76, more or less. The midpoint of this range would be 64 (note how price spends quite a lot of time hovering around this level). The last important swing high that is within the range covered by your chart was at the end of September, at 66 (specifically, 65.75). And if you have any doubts in real time as to whether or not this is really resistance, just watch how price behaves as it moves thru it.

 

 

 

 

 

 

Now back off and divert your attention from specific bars. Look instead at how price is moving. Price makes a higher low after the day's high, then a lower high thereafter. This action should prompt you to think "hinge" in real time and look at what's happening with the volume. If this confirms what you suspect, and it does, then watch what happens as price reaches equilibrium (which, you'll note, is the same midpoint as that of the trading range referred to above). Here there is a test of selling interest accompanied by higher volume. This is usual. But the selling interest isn't there (price doesn't fall). This bodes well for the upside, but not yet. Traders piddle around for half an hour. But eventually price breaks out to the upside (the blue arrow), though few would recognize this as a breakout since it occurs before the more obvious resistance at 66 and since the volume is so low (volume in fact remains low until the more obvious resistance at 66 is penetrated, though even then the volume doesn't come in until after resistance is penetrated). The hinge, therefore, is your springboard. The retracement to 66 after the breakout is what might be called a Last Chance Springboard.

 

 

 

 

Now about the "breakout volume". As I said above, the big volume comes in after the breakout (you can see this on a small interval, such as 30s). But even if one saw it in hindsight as coming in during the breakout, the big volume is not necessarily good news. The big volume means sellers are finally interested, and they're throwing much more of what they've got at the buyers. Buyers, however, are feeling their oats and pushing price higher until they become exhausted, and price plummets to 65.5. Here now is where the balance of power is determined. Can sellers push price lower? Do they want to? Do buyers have enough bullets left if sellers get serious?

 

Selling is suddenly withdrawn, and price drifts sideways for a few bars. When volume returns, price moves to the upside, and your Last Chance Springboard is activated. Sellers are offering more supply, but not so much that the advance is squashed. Buyers are able to absorb what sellers are offering and push price higher in the bargain.

 

But the real volume doesn't come in until after price gets past 67.5. Sellers are being much more aggressive, but one can't drawn any conclusions about buyers' resolve in what's left of the chart. They may be spent, in which case price will fall. Or sellers may be done, in which case price will rise.

 

It is not, then, about bars and colors and what this or that volume level "means". It's an ongoing, continuous drama of buyers and sellers and demand and supply and the different perceptions everyone has about "value" (which rarely has anything to do with price). This entails a different way of looking at a chart, even in hindsight. In real time, it entails a different way of trading.

[DbPhoenix 42]

are these two bars can be labeled " no demand " ( i was told no demand bar generally has narrow spread) ? how to interprete these two bars( low volume, large spread, close at almost the high) in the intermediate down trend?

 

could you pls give some light on thesse two bars with wyckoff method? thanks.

 

You appear to be confusing Wyckoff with subsequent adaptations of it. There are no "creeks" in Wyckoff. Nor are there "no demand" bars. If you're interested in starting fresh from a Wyckoff viewpoint, I'll be happy to help. Just let me know.

[DbPhoenix 42]

No one posted a chart for today, but then nothing has changed. Resistance was pegged at 30, and price found support there this morning within a tick. The next level of resistance was found at 40, the midpoint of the channel I drew in my previous post, above.

 

How easy does it get?

[jfw215 11]

I didn't get enough sleep last night. Ended up shorting 39.25 in the morning but closed myself out for BE.. What a shame.. No sleep = no preparation = fear = no disicpline = no profit.

 

Anyways, For tomorrow, I'm a bit confused. We have pivots now at 1740, 1730, 1717, 1708. They are all so close together. Depending on AH action, I'll have a better idea what to do tomorrow.

 

DB, I just read your instructions are how to draw demand/supply lines. It makes so much more sense to me now. I included then in both my daily and 10k anchor charts.

Edited September 22, 2015 by DbPhoenix

[Gringo 10]

I see s/r right here and vol lower on this test of Q's. For those who are planning a swing or something may enter shorts here.

 

Danger is that market is in a significant uptrend spanning the past seven months. Note that if market has a mind to blast up it may do so quite around here and leave shorts scrambling to get out. I am no magician but if one doesn't take a trade when it appears then one might just end up waiting most of the time. It is at these extreme points opportunities favour the brave.

 

 

Q's 60min show a more engaging outlook where it become apparent how having a good trading philosophy still leaves one to chose one's own poison whether to trade or not to trade. It is quite messy up here no doubt. I used horizontal volume bars to give me a clue in concert with price to draw the bigger box.

 

 

As a side note I would like to add that using options to trade for direction requires quite a different skill set than using straight leveraged and liquid instruments such as ETFs, stocks or futures. The greater the number of variables that separate you from true price the harder it gets to figure out what actually is happening. For options it's volatility, time and a host of other variables. Please, stay cautious and spend some time learning the skill of trading before plunging in.

[Gringo 10]

I see s/r right here and vol lower on this test of Q's. For those who are planning a swing or something may enter shorts here.

 

Danger is that market is in a significant uptrend spanning the past seven months. Note that if market has a mind to blast up it may do so quite around here and leave shorts scrambling to get out. I am no magician but if one doesn't take a trade when it appears then one might just end up waiting most of the time. It is at these extreme points opportunities favour the brave.

 

 

Q's 60min show a more engaging outlook where it become apparent how having a good trading philosophy still leaves one to chose one's own poison whether to trade or not to trade. It is quite messy up here no doubt. I used horizontal volume bars to give me a clue in concert with price to draw the bigger box. I consider 42.6 (NQ 1730 to be quit significant because of price trips to this level).

 

 

As a side note, I would like to add that using options to trade for direction requires quite a different skill set than using straight leveraged and liquid instruments such as ETFs, stocks or futures. The greater the number of variables that separate you from true price the harder it gets to figure out what actually is happening. For options it's volatility, time and a host of other variables. Please, stay cautious and spend some time learning the skill of trading before plunging in.