Trading The Wyckoff Way

[zeon 10]

Since no one else (but zeon) has mentioned this particular long opportunity, and since it is so far worth up to six ES points, I'll post this now rather than later.

 

It should be self-explanatory. The green dots represent most if not all the available entry points, selection of which depends on the skill, talent, and risk-tolerance of the individual trader.

 

 

Perhaps we could also do the same for exits? I've had a go at it myself, but I can't see a reason to hold on till the close.

 

I'm assuming we went long either at "1": break of the supplyline after a selling climax on support or at "2": after a re-test on lower volume.

 

After price makes a little swing low we can connect the low of the re-test with this low (the bar right next to "2") and draw a demandline.

 

"3": first exit, very cautious because there's only a break of the demandline (which was quite steep in the first place), and we're not even at resistance

 

"3a": a new demandline can be drawn, there's again demand coming in (high volume) and price continues upwards

 

"4": price is at resistance but fails to break through, this is a nice target to exit or lighten your position

 

"5": break of the second demandline after a failure to breach and two bars later price falls on decent volume with the bars closing on the lows. Exit the rest of your long position.

 

Because of the high volume at "5" and because it drops back a couple of points, I can see no reason to stay in. Though some people might trade by leaving one contract on till the close with their stop at breakeven I'll continue with this assumption:

 

After "5" there's a congestion on decreasing volume. I would think this means lack of demand, because prices fail to rise. However there's no continuation to the downside and prices rise back to resistance and break higher at "6" (confirmation by volume and bar closes at the highs).

 

"7": looks like a test of resistance now turned into support

 

"8": break of the demandline, high volume: a lot of supply

 

"9": back at support and end of the day.

[Upthrust86 10]

Did Wyckoff ever talk about volume in relation to waves? He spoke about small waves building into larger waves and then trends, and also viewing waves as an indicator of trend change, but don't recall reading about volume in the context of a wave chart?

[gassah 10]

Did Wyckoff ever talk about volume in relation to waves? He spoke about small waves building into larger waves and then trends, and also viewing waves as an indicator of trend change, but don't recall reading about volume in the context of a wave chart?

 

Definitely. I'll post some examples this week from the course.

[gassah 10]

He even developed a few indicators based on intraday wave volume, time and momentum that SMI calls the Force, Momentum and Optimism/Pessimism Index today. Someday we can take a look at these. Few people realize that W used indicators.

[Upthrust86 10]

I'd love to see that. Thanks.

[Upthrust86 10]

Perhaps we could also do the same for exits? I've had a go at it myself, but I can't see a reason to hold on till the close.

 

 

You could put in a trend channel or a resistance line off the AM wave highs. It started trending with higher highs/higher lows after the shake out at 5. The upper trend channel was a reasonable target.

[DbPhoenix 42]

Something I posted elsewhere:

 

Yes, there need to be criteria for exits. But the nearly universal problem that beginning traders have with regard to exits is a desire to trade all in then all out. Add to that the fact that they are nearly always trading with one contract or one lot, and you have a doomed setup.

 

The solution to exits is a simple one: trade as if you were trading five contracts or five lots and abandon the idea of being able to exit with all of them at the exact top or bottom. The goal is to make money, not to prove to oneself what a superior trader one is.

 

Then determine in advance where each of those contracts will be sold. For example, if one is trading support and resistance, sell the first contract at one or the other. Sell the second contract, for example, at the lower high or the break of the trendline, whichever comes first. Sell the third at whatever you didn't sell at for the second. Sell the fourth, for example, at a breach of the last swing low. Leave the fifth, for example, at breakeven.

 

Then sell the first contract at whatever point you predetermined and paper trade the other four. Do this for several months. When it becomes second nature, carry the second contract for real. Sell the first and second contracts at your predetermined points. Paper trade the remaining three.

 

And so on.

 

Simple.

 

No wringing of the hands, no thumb-twiddling, no head banging.

[gassah 10]

I'd love to see that. Thanks.

 

In fact, I think W looked at average wave volume also and called it Activity, volume divided by time. I'll check it out to be sure.

[DbPhoenix 42]

In fact, I think W looked at average wave volume also and called it Activity, volume divided by time. I'll check it out to be sure.

 

Most of this, however, has to do with feel rather than calculation. For real-time trading, I haven't found any of it to have much practical value. For one thing, by the time one has considered all of this, the trade entry is long gone. And, of course, what was meant by "indicator" a hundred years ago is worlds different from what's meant today.

[zeon 10]

Yes, there need to be criteria for exits. But the nearly universal problem that beginning traders have with regard to exits is a desire to trade all in then all out. Add to that the fact that they are nearly always trading with one contract or one lot, and you have a doomed setup.

...

 

Simple.

 

No wringing of the hands, no thumb-twiddling, no head banging.

 

 

I agree this sounds all very simple. But most books I read consider scaling out as a less profitable strategy in the long run. This strategy also assumes that you only take one trade a day and try and maximize it's potential. Which I fine I suppose as far as it goes. In trending days, this will keep you in the market with at least a small part of your position till the end. But in ranging days it might mean several stop outs at break-even. Perhaps it's just not possible to find a 'one size fits all' exit strategy.

[DbPhoenix 42]

Whether the tactics employed by somebody who writes a book (assuming that he trades, which cannot be assumed at all) are appropriate for any given individual depends on how alike they are in their goals, risk tolerance, etc. Scaling in and out can be far more profitable than all-in/all-out. Depends on how good the trader is.

 

Also, it doesn't assume that one makes only one trade a day. It assumes that he makes only one trade in a given direction at any one time. He can also scale in if he likes. Unless one knows whether the day is going to be a trend day or not in advance, that particular issue is irrelevant.

 

The point is that most beginners want to know where to enter and where to exit as if there's only one entry and one exit. This can lead to years of frustration. One can elect instead to be a grown-up about it.

[treadstone 10]

Something I posted elsewhere:

 

Yes, there need to be criteria for exits. But the nearly universal problem that beginning traders have with regard to exits is a desire to trade all in then all out. Add to that the fact that they are nearly always trading with one contract or one lot, and you have a doomed setup.

 

The solution to exits is a simple one: trade as if you were trading five contracts or five lots and abandon the idea of being able to exit with all of them at the exact top or bottom. The goal is to make money, not to prove to oneself what a superior trader one is.

 

Then determine in advance where each of those contracts will be sold. For example, if one is trading support and resistance, sell the first contract at one or the other. Sell the second contract, for example, at the lower high or the break of the trendline, whichever comes first. Sell the third at whatever you didn't sell at for the second. Sell the fourth, for example, at a breach of the last swing low. Leave the fifth, for example, at breakeven.

 

Then sell the first contract at whatever point you predetermined and paper trade the other four. Do this for several months. When it becomes second nature, carry the second contract for real. Sell the first and second contracts at your predetermined points. Paper trade the remaining three.

 

And so on.

 

Simple.

 

No wringing of the hands, no thumb-twiddling, no head banging.

 

Thanks for this explanation of scaling out multiple contracts, Db. Excellent advice. I'm sure an annotated chart with these ideas applied would be appreciated by many. Personally I'm a more visual kind of guy, and always find your annotated examples to be very good learning material.

 

[DbPhoenix 42]

Since we've been discussing Friday's chart, I'll use that. However, this is not a template. These are suggestions only.

 

[Upthrust86 10]

In fact, I think W looked at average wave volume also and called it Activity, volume divided by time. I'll check it out to be sure.

 

I think I read that they used the length of the actual ticker tape per half hour or something like that for the activity at one time. Maybe in today's world it would be tick volume.

[gassah 10]

I think I read that they used the length of the actual ticker tape per half hour or something like that for the activity at one time. Maybe in today's world it would be tick volume.

 

Here's a little from the course. The chart examples are too voluminous to post. I'm not sure what Wyckoff used for Activity. SMI uses volume/time for Activity today.

 

Even if you plan to become an active, day-to-day trader, it is better at first to learn to analyze the market’s tape action from a Wave Chart rather than from the tape itself. The chart teaches you to become a sound judge of the market, for by its use you become familiar with all the elements necessary in successful trading: judging the lifting power as compared with the pressure; the market’s responsiveness or lack of responsiveness to the rotation of supply and demand; the speed of the advances and declines as measured by the net price change and duration of the buying and selling waves; the character of the buying and selling as revealed by proportional changes in activity and volume on advances and declines; and more especially, the changes from strength to weakness, from weakness to strength, and back again.

 

All of these factors are revealed by the Wave Chart. It is the pulse of the market.

 

...This closing price then becomes the starting point from which you carry forward your chart of the buying and selling waves for the next and succeeding days. Thus you will have a continuous, zigzag line which portrays the market’s price action from the one session to another, minute by minute and from hour to hour; and from this chart you are enabled to judge the factors of:

 

1. Price movement – the number of points advance or decline.

 

2. Time elapse in each movement – up or down.

 

3. Comparative lifting power or pressure on each up and down swing.

 

….Thus far we have not considered the volume of trading nor the activity because it is better, first, to learn to judge the factors just enumerated – i.e., Price Movement, Time and Comparative Lifting Power or Pressure.

 

After you have mastered these, you should begin the study of volumes and the intensity of action (activity) in connection therewith. This will give you added understanding and power.

 

(Incidentally, it should be noted that the activity index has no relationship to the price movement as recorded in the Wave Chart table, and it is only indirectly related to the time and volume figures because it represents the rate at which orders are flowing into the market, not a ratio between time and volume.)

 

…when volume is increasing while price is rising or decreasing while price is declining, the inference is usually bullish – unless the increase is unusually large, in which case the sudden increase may indicate the culmination of the particular movement accompanying the abnormal volume.

 

Similarly, when volume is increasing on the down waves and decreasing on the up waves, the indications are usually bearish – unless the volume surge is abnormal, in which case the abnormal volume may indicate the approach or the actual culmination of the movement.

 

The chart studies which follow will illustrate….

[gassah 10]

The attached is a SPY wave for the past four days. The bottom graph is volume and you can observe the relationships of the waves. I highlighted the the large move up that wasn't supported by volume and the next wave up that had disproportionately high volume suggesting the presence of supply,

IMO.

[heretodaygone... 10]

gassah,

 

what does wycoff say about up gaps, which are for the most part achieved on light volume as you chart indicates? Does "W" talk about 'other time frame buyers'? Could it be possible that an 'other time frame buyer' saw value and bought overnight(which caused the gap) and then "finished his buying" into the opening where the buyer knew supply would be? Does the fact that the 'buyer finished' give the illusion of mass supply or mass demand? How does 'W' view price going to where the "size" is? just wondering....thanks

[gassah 10]

heretodaygone...

 

I don't recall Wyckoff ever addressing gaps or the other questions. Db?

[gassah 10]

The attached is a SPY wave for the past four days.

 

If you take the OHLC of the intraday volume plot and make daily candlesticks from them you get what SMI calls the Optimism-Pessimism Index (OP). You can use it to identify divergences with price or to see volume strength or weakness as at the Jan low where volume climaxed first and led price higher.

[Tannism 10]

" the the large move up that wasn't supported by volume and the next wave up that had disproportionately high volume "

 

Is this what is meant by comparative lifting power?

[Upthrust86 10]

If you take the OHLC of the intraday volume plot and make daily candlesticks from them you get what SMI calls the Optimism-Pessimism Index (OP). You can use it to identify divergences with price or to see volume strength or weakness as at the Jan low where volume climaxed first and led price higher.

[/center]

 

Very nice. Are you doing all this by hand via Wyckoff Secrets Revealed?

[gassah 10]

Very nice. Are you doing all this by hand via Wyckoff Secrets Revealed?

 

Basically, yes. I only do it for SPY and it takes 9m a day in Excel to do the entire Trend Barometer and OP. All the calculations are derived from the same waves so it isn't a stretch to do them all at one time. I don't follow SMI's rules for the wave determinations. Wyckoff never actually stated his rules for how to determine which bars go into what waves and I mainly differ from SMI by placing climax volume into the next wave instead of going by where price turns around. I think this is a better reflection of supply and demand.

[gassah 10]

" the the large move up that wasn't supported by volume and the next wave up that had disproportionately high volume "

 

Is this what is meant by comparative lifting power?

 

I'm not sure what this is?

[gassah 10]

SPY comes up to a high volume node (actually the volume POC) today from a composite started on 4/18 and gets rejected. How could W not use MP?

 

[DbPhoenix 42]

" the the large move up that wasn't supported by volume and the next wave up that had disproportionately high volume "

 

Is this what is meant by comparative lifting power?

 

Not exactly. Comparative lifting or selling power precedes a consideration of volume. If one ignores this and relies on volume climaxes, he will find that volume climaxes aren't as common as he might expect, and he won't be trading much.