Trading The Wyckoff Way

[mikew 10]

Thanks for the reply

 

I'm actually a professional poker player looking to make a transition into trading, so your analogy rings true.

 

The thing is, with poker, there are mathematics that I can rely on, as long as I can accurately gauge how my opponents are playing. As you say, I may have pocket aces, but depending on the the other cards on the board, and how I think the other people play, the hand may or may not be so good.

 

But, if I can get all in before the flop with pocket aces against someone else all in before the flop, then I can be assured that I am at least a 4:1 favorite. So even if I'm unlucky and lose that 1/5 times, I can rely on the probabilities that I will win more often than not.

 

Using your 3:1 risk reward example, I have difficulty finding those numbers with any confidence in trading. Sure you can enter the trade, set your stop loss at -1, set your target at +3, but how can you be confident that your targets are good?

[cunparis 10]

Thanks for the reply

 

I'm actually a professional poker player looking to make a transition into trading, so your analogy rings true.

 

The thing is, with poker, there are mathematics that I can rely on, as long as I can accurately gauge how my opponents are playing. As you say, I may have pocket aces, but depending on the the other cards on the board, and how I think the other people play, the hand may or may not be so good.

 

I'm just a beginner poker player but there are a lot of similarities between poker & trading. I bet you will be able to pick up trading if you can stick it out.

 

Using your 3:1 risk reward example, I have difficulty finding those numbers with any confidence in trading. Sure you can enter the trade, set your stop loss at -1, set your target at +3, but how can you be confident that your targets are good?

 

The main way to get 3:1 ratio is to trade near S/R levels. If the level doesn't hold it will usually pull back to the level giving another trade (in the direction of the breakout). Between the two one will often work (unless the market is just chopping).

[peterjerome 10]

i use PnF and eSignal daily to screen for trading candidates.

currently 2 setups: bullish catapult, and double top with rising bottom.

candidates are monitored with standard bar chart to watch for breakouts using only CCI.

any other traders here in TL using this platform?

interested in exchanging ideas.

(forgive me if this is not the correct forum for PnF)

thanks,

peter.

[Tams 20]

i use PnF and eSignal daily to screen for trading candidates.

currently 2 setups: bullish catapult, and double top with rising bottom.

candidates are monitored with standard bar chart to watch for breakouts using only CCI.

any other traders here in TL using this platform?

interested in exchanging ideas.

(forgive me if this is not the correct forum for PnF)

thanks,

peter.

 

can you post some of your charts?

[peterjerome 10]

Tams, i have charts in eSignal (.png) format. i can email but don't have URL to post here.

unless you know how to post (.png) here?

peter.

[Tams 20]

Tams, i have charts in eSignal (.png) format. i can email but don't have URL to post here.

unless you know how to post (.png) here?

peter.

 

to attach files,

just click on the "Go Advanced" button under the message window.

[peterjerome 10]

ok tams,

i've attached 2 charts to this post.

1st chart (PnF) is used for screening

2nd chart (bar) is used for entries.

notes should explain strategy(hopefully)

peter.

[peterjerome 10]

OK...i attached 2 files to a post prior to this post.not sure how long they take to verify with moderator.

peter.

[peterjerome 10]

here's 2 charts. a P&F chart and a bar chart.

notes on chart explain strategy.

questions...comments?

peter.

[PQL111 12]

I have dabbled with P&F charts and although every site I went to said "These are so simple to use" I know there is plenty more than that. I welcome a nice in-depth discussion of these charts as I am as green as grass with them. Hoping we can get some seasoned P&F chart users to give this thread a go!

Sledge

 

I don't know that P&F is going to show any short pullbacks for November, because when I look at this chart I only see that it showcase a trend of 120 days out. There doesn't seem to indicate anything in the short term time frames in studying by price. I tried using only one O instead and that doesn't tell me much. I consider the study of support and resistance if I already know the study of my trend. :crap:

[icecool 10]

Where is Db? I have not seen his post since so many months. Am I missing something?

[Gringo 10]

Everything one needs to learn the pure Wyckoff method is available here. It's not the messenger but the message that matters (wow that's an impressive line )

 

We're all silently observing.

 

Gringo

[icecool 10]

You won't forget the teacher after leaving the school, that too the one who taught you so clearly and affectionately. Would you?

[quinn123 10]

hi,

 

I started a forum thread asking where DBpheonix was but I still havn't recieved any replies. :helloooo:

 

Can somone please contact him and tell him to come back to this forum. His contribution is being missed.

 

Quinn

[Head2k 10]

hi,

 

I started a forum thread asking where DBpheonix was but I still havn't recieved any replies. :helloooo:

 

Can somone please contact him and tell him to come back to this forum. His contribution is being missed.

 

Quinn

I don't know of anybody who knows where DbPhoenix is or what he does now. Furthermore, I doubt he would return in here if asked.

 

Everything you need to know about Wyckoff and AMT is here. I don't know why Db left, but I would guess that one of the main reasons was that he had said everything what had to be said. If Db was still here, he would be answering the same questions again and again, explaining the same theories again and again, and providing the same or similar examples again and again. The Wyckoff forum would have hundred threads with repeating subjects, the old threads would have hundreds of pages with repeating questions and as a result, the forum would just become confusing for a newcomer and the important stuff would be harder to find.

In other words, further posting wouldn't add value, just mess.

[mikew 10]

Well for me, its good to see that at least a few people are still participating and viewing here.

 

I'm a complete beginner and I'm going through section 7M and have TONS of questions. I plan on starting a new thread for it, and I hope that people are willing to help me.

[cunparis 10]

Well for me, its good to see that at least a few people are still participating and viewing here.

 

I'm a complete beginner and I'm going through section 7M and have TONS of questions. I plan on starting a new thread for it, and I hope that people are willing to help me.

 

I haven't ever read through those sections and I'd like to. I just noticed that there aren't all the numbers nM in the stickies. How do I find the others? Is there a set list of posts to read in chronological order??

[Head2k 10]

I haven't ever read through those sections and I'd like to. I just noticed that there aren't all the numbers nM in the stickies. How do I find the others? Is there a set list of posts to read in chronological order??

The very first sticky in Wyckoff forum is called Wyckoff: The Original Course. In the first post in this sticky thread, there is a link to a post in another thread, called Wyckoff Resources, where the complete Wyckoff's original course, with all sections, is attached as pdf.

[mikew 10]

Hi,

 

I'm new to trading in general, and have tried to understand the stuff posted here. I'm just starting to go through the Section 7M pdf, where Wyckoff gives his analysis of a daily chart. I'm finding that I have tons of questions as to how and why he's coming to the conclusions that he is.

 

If the forum doesn't mind, I will be posting my questions in response to Wyckoff's analysis, in hopes that others here can help me to understand things. The questions will probably be VERY basic, so I will apologize in advance. Bold will be mine, to emphasize his words that I'm trying to grasp

 

So, to begin,

 

 

The story told by this chart is as follows: We use the period from

December 8th to December l7th as our starting point, and without regard to the market history previously recorded. This interval of nine days marked a sharp acceleration of the previous major decline, culminating in a widening spread of the daily price range and a very marked expansion in the daily volume of trading as the market reached its low point -- thus reflecting the panicky selling which takes place under such conditions (see Footnote following).

 

 

The volume on the 8th was around 2,000,000. This increases to 5,000,000 on the day of the low point. Tape observers would have noted the fact that a large part of this volume occurred as the market recorded the extreme low and on the rally from the lows. This confirms the fact that the climax of the downward movement (*) has actually been passed, and gives us the starting point for our next forecast.

 

*The phenomenon of the Selling Climax is caused by the panicky unloading of stocks (supply) by the public and other weak holders which is matched against buying (demand) of (1) experienced operators; (2) the large interests and sponsors of various stocks who now either see an excellent opportunity to replace at low prices the stocks they sold higher up, or wish to prevent further demoralization by giving the market support temporarily; and (3) short covering by the bears who sense a turn.

 

Stocks thus become either temporarily or more lastingly lodged in strong hands. An abnormal increase in volume is one of the characteristic symptoms of a selling climax, since supply and demand must both expand sharply under these conditions, but the supply is now of poor, and the demand of good, quality; and since the force of supply now will have been exhausted, a technical rally ensues.

 

How does he conclude that the supply is now exhausted? How can he be sure that on the next bar, selling re-commences? And how does he say that the demand is good quality, while the supply is poor?

 

We have a big drop, and a huge volume spike. On this last bar, sellers succeeded in pushing the price past the previous days lows, but then buyers overwhelmingly came in to close at the high. It seems like Wyckoff is saying that all the panicky sellers are worn out, and the people buying are stronger. But why can't it be viewed that this huge volume spike was the last of the support buyers being taken out, and that the move will continue downward?

[gassah 10]

Hi Mikew,

 

I'll have more to say later but I'll post this chart of the DJIA from the same period to provide a broader perspective of that selling climax.

 

gassah

WOC SC-AR-ST.pdf

[Head2k 10]

But why can't it be viewed that this huge volume spike was the last of the support buyers being taken out, and that the move will continue downward?

First, I'd like to know what you mean by "last support buyers being taken out". Every trade is a two-sided transaction between a buyer and a seller. So if there is a buyer who buys and holds, but then gets shaken out as price continues lower, then there is always another buyer at the lower prices. If there wasn't any buyer at these lower prices, there wouldn't be any trade there, thus these lower prices couldn't be even printed. It implies that no spike can "take out the last buyers". And it doesn't really matter which price you consider to be the support.

 

Perhaps you meant that the price and volume spike could have represented the last people willing to buy there, and if price re-approaches the low then there might exist no further demand, correct? That, of course, is perfectly possible. Notice what Wyckoff writes in your second quotation:

Stocks thus become either temporarily or more lastingly lodged in strong hands.

Either temporarily or more lastingly. You don't know. All you know is that there was a decline, this decline accelerated, that seemingly freaked out some people so they started selling more. This behavior, after all, caused the acceleration and increase in volume. Furthermore, you know that at certain price or zone, this increasing selling pressure stopped accelerating price further down. Instead, at these prices the stock or whatever it was became so appealing for buyers that they entered the market with force, absorbed all the selling and even competed among each other as they wanted to buy even more than there was to sell. This competition caused prices rise.

 

Since there was so high volume, you know that a lot of people were involved at these prices, hence the prices are now important. The climax establishes a tentative support. Tentative. Only if and when price re-approaches this price again, then you can observe and judge whether the selling pressure re-appears and overwhelms the remaining demand, or whether the selling is exhausted and buyers compete to buy more.

 

Now to poor vs. good quality. You can expect that an experinced operator buys low and sells high, while an inexperinced trader buys high (late), and sells low (late). The inexperienced trader sells because he freaks out. He sells while price is falling. The experienced trader waits at low prices and takes advantage of panic of the others. He buys cheap when the panicking traders sell. The experienced operators represent demand of good quality, that is demand which is less likely to be withdrawn if price re-approaches their entry price. Demand of poor quality, on the other hand, is more likely to be withdrawn at first sight of trouble, because inexperienced traders are not sure and consistent with thier decisions.

But you cannot really make the distiction between good and poor demand in advance, i.e you cannot tell in advance whether the demand will or won't be withdrawn. Therefore, in most cases you must wait for a test to see if the demand is still present and if the selling is exhausted, or if the buyers who bought the seeming climax are getting rid of whatever they bought and almost noone seems to want it.

[mikew 10]

First, I'd like to know what you mean by "last support buyers being taken out".

 

Perhaps you meant that the price and volume spike could have represented the last people willing to buy there, and if price re-approaches the low then there might exist no further demand, correct?

 

Yeah, thats what I meant. This is the problem I seem to have in interpreting large volume spikes. Let me try to explain my problem further.

 

Lets say theres a horizontal range of choppy up and down trading. Support and resistance lines have held a few times now. Lets say the next time price approaches support, we get a big down bar on high volume:

 

 

Would you conclude that this is indicative of support being "taken out" or "not holding", and that price may continue further downward? That's is how I would look at it; am I thinking wrong? But if I apply what I learn in this example, I could say, "well we broke out of the horizontal range and support didn't hold, but maybe it was just panicky sellers and all those trades were matched with strong buys."

 

 

Since there was so high volume, you know that a lot of people were involved at these prices, hence the prices are now important. The climax establishes a tentative support. Tentative. Only if and when price re-approaches this price again, then you can observe and judge whether the selling pressure re-appears and overwhelms the remaining demand, or whether the selling is exhausted and buyers compete to buy more.

 

Therefore, in most cases you must wait for a test to see if the demand is still present and if the selling is exhausted, or if the buyers who bought the seeming climax are getting rid of whatever they bought and almost noone seems to want it.

 

Right ok, so we wait for a test of these lows again to see what happens. I think this is the point gassah was making in his attachment. Wyckoff does go on to say that confirmation will be provided on the next swing move down, to see if the price holds. I didn't quote that part in my original post because I was first stuck on this original climax.

[sgoh56 10]

If you look at the ES or YM on the 5 min bar chart you see exactly this pattern and it never retested the previous drop. It is now almost 200 dow pts above that bar. So the orginial question is still very much the hard question to answer.

[Head2k 10]

Would you conclude that this is indicative of support being "taken out" or "not holding", and that price may continue further downward? That's is how I would look at it; am I thinking wrong? But if I apply what I learn in this example, I could say, "well we broke out of the horizontal range and support didn't hold, but maybe it was just panicky sellers and all those trades were matched with strong buys."

There is a difference between breakout from a horizontal range and a climax after accelerating decline. You need to see the psychology behind the price movement. In a climax, the rise in volume is caused by panic. The growing panic is demonstrated by the acceleration. Almost everybody is freaking out and wants get to get rid of the stock, while there is just a few buyers willing to buy for current prices. Price thus accelerates down, causing even more panic and more selling pressure. Then, a strong buyer or buyers enter to buy the stock from the panicking traders for cheap price.

 

A breakout from a range is something different. The rise in volume is caused by sellers pushing through all the demand which defends the support and also by triggered stops. There is no phase of developing panic demonstrated by acceleration.

 

Yet even in this case, you can learn to make a distinction between a breakout and a thrust. A thrust occurs if the push attracts no follow-through, but the lower prices are quickly rejected instead. It means that a strong buyer took advantage of price poking through the support and quickly absorbed all the selling incl. the triggered stops and aggresively returned price into the range.

[gassah 10]

How does he conclude that the supply is now exhausted? How can he be sure that on the next bar, selling re-commences? And how does he say that the demand is good quality, while the supply is poor?[/b]

 

Wyckoff is talking in probabilities. He isn't concluding at the moment of the SC bar that it is, in fact, a SC. As he states, he needs more evidence. Given the background decline and the heavy volume and bar he believes that odds favor the probability of a climax and suggests buying only if you see the demand intraday. If selling re-commences then the buying was only temporary, but you can't know this in advance.

 

But why can't it be viewed that this huge volume spike was the last of the support buyers being taken out, and that the move will continue downward?

 

Following an extensive decline it's far more likely that sellers are exhausted. In general, buyers are exhausted after a prolonged advance. The context of the bars has to be taken into consideration.