Wide Range Bodies or 'big' candles

[waveslider 10]

I have been watching WRBs for over a month now. In my analysis, the majority of the time they are not a good entry or exit point.

Before getting anyone worked up I'll just point out the value I do think they have, and why.

 

My research is concluding that most WRBs will result in at least a short term range. The only case when this is not true is when an inversion is occurring in the market and a powerful move is underway (rare).

 

So a WRB will occur, and the market will travel (or attempt to travel) out of the range of that WRB. What happens next in a majority of cases is that price returns to test the WRB bar.

 

This testing would be the point of entry or exit if you are using this methodology. 2 cents.

[Anonymous 11]

I have been watching WRBs for over a month now. In my analysis, the majority of the time they are not a good entry or exit point.

 

You're half right.

 

WRBs do not make good entries. They are good precursors to a good entry point that occurs within the range of the body of a WRB.

 

WRBs represent changes or shifts in supply/demand. They are more like guide-posts to what is happening in the underlying dynamics of the market.

 

To understand why they make good exits, one has to have some understanding of why they make (set -up) good entries.

[wrbtrader 10]

I have been watching WRBs for over a month now. In my analysis, the majority of the time they are not a good entry or exit point.

Before getting anyone worked up I'll just point out the value I do think they have, and why.

 

My research is concluding that most WRBs will result in at least a short term range. The only case when this is not true is when an inversion is occurring in the market and a powerful move is underway (rare).

 

So a WRB will occur, and the market will travel (or attempt to travel) out of the range of that WRB. What happens next in a majority of cases is that price returns to test the WRB bar.

 

This testing would be the point of entry or exit if you are using this methodology. 2 cents.

 

I hope you realize there are different types of WRBs.

 

Also, I've been using WRBs for +15 years and I myself don't use them as an entry signal all by themselves.

 

In analogy, its kind'uv like using a White Hammer Line as a Long signal without understanding the price action that occurred prior to the White Hammer Line.

 

That leads me into this question...can you explain what type of WRB your testing as an entry signal and/or show a chart example.

 

Further, when you said the following...

 

My research is concluding that most WRBs will result in at least a short term range. The only case when this is not true is when an inversion is occurring in the market and a powerful move is underway (rare).

 

So a WRB will occur, and the market will travel (or attempt to travel) out of the range of that WRB. What happens next in a majority of cases is that price returns to test the WRB bar.

 

The above is true only for one particular type of WRB and that particular type of WRB is not an entry signal.

 

It's a profit target and I can better explain it when you post a chart example.

 

For example, lets say the market is dropping and a particular type of Dark WRB (Open > Close) is produced in the declining price action.

 

Next, several intervals later you get a bullish signal...you can use the Open of that Dark WRB as a profit target.

 

Just keep in mind that some WRBs will attract the price action like a magnate to retrace the WRB while other WRBs will push the price action away in that there's price continuation away from the WRB into the range of a prior WRB s/r zone.

 

Regardless, using a WRB as an entry signal all by itself is not recommended and I myself don't even do that.

 

Last of all, your going in the right direction because your actually talking about Volatility Analysis and that's where WRBs begans to differ from each other.

 

However, I'm very curious at how your using WRBs via chart examples or specific details of your research because I strongly suspect your using them much different than I use them.

 

WRB's tells you something will soon happen and anything beyond that requires many years of experience with WRBs. Thus, they are a warning sign (precursors) that you should start looking for pattern signals.

 

Mark

(a.k.a. NihabaAshi) Japanese Candlestick term

[Anonymous 11]

You're half right.

 

WRBs do not make good entries. They are good precursors to a good entry point that occurs within the range of the body of a WRB.

 

 

WRB's tells you something will soon happen and anything beyond that requires many years of experience with WRBs. Thus, they are a warning sign (precursors) that you should start looking for pattern signals.

 

 

This is key.

 

Another key element, and one that is a bit more difficult to test, has to do with the creation of the candle (bar) line. That is, Was the WRB created because of a news event? Is the WRB the direct result of an event in its sister market? For example, maybe you are looking at the emini S&P, and you see a WRB at 0830 on Wed. The actual event that caused the WRB was from the Oil market (inventory report).

 

Even if one does not use VSA, volume is also a key measure. Volume is activity. The more activity on the WRB the more significant is may be. (in the VSA thread I talk about low volume signals in the range of high volume bars). A WRB created with little volume is suspect and should not be traded/treated as one created on extreme volume.

 

So, as Mark echoed me, I will echo him: Not all WRBs are created equal.

[waveslider 10]

This is very good input, thank you!

 

I agree very much with everything said here, especially that WRBs are not entries or exits with out proper context.

 

Mark said:

 

"WRB's tells you something will soon happen and anything beyond that requires many years of experience with WRBs. Thus, they are a warning sign (precursors) that you should start looking for pattern signals. "

 

My interpretation and the reason for my comment was to point out exactly this:

 

What is happening (by definition) with a WRB is that:

 

1. Volatility is higher on this bar than the previous bars, and...

 

2. The volatility lasted throughout the bar (time frame or tick).

 

So, as I see it (particularly in the futures market), when volatility is introduced into a market and seen in the form of a WRB, the market will either run, or retest the WRB. What we are presented with is an important point of reference to analyze the situation with, and gauge the conviction of the market.

 

 

I have been using a little method that tick chart users may be interested in trying.

 

I have an 89 tick screen of YM. When more than (x) bars pass during the period of one minute, I get a signal. This is indicating to me that there is enough action in the market to create more than (x) bars per minute - it's another gauge of volatility. In a moving market tick bars will sometimes be created every few seconds.

 

I use this method as a filter for a WRB.

 

Here's a chart. Don't mind the yellow lines, they are static reversal times. The color of the WRB at the bottom is not material either. The blue lines illustrate how many bars per minute were passing.

 

Pivot - this seems to fall in line with you thinking when you said "The more activity on the WRB the more significant is may be."

 

There are a lot of WRBs on this chart, this is just one way to highlight those which occurred during an active market. The premise is that WRBs in an active market should be more important because of mass participation.

 

The way the market responds to volatility is how we as traders make (or lose) money.... I am still watching and learning the nuances of WRBs, but I believe they are valuable and worth watching. I have enjoyed this thread for the most part, thanks to those contributing!

 

ws

[brownsfan019 17]

wave - another interesting observation of your highlighted candles - many are also traditional candlestick analysis signals as well. Point being that if guys like me are trading those and if others implement something as you've done here, there are plenty of times when we are initiating a new trade at the same time, even though we got there in different ways.

 

Just an FYI if you are not using candlestick analysis, you may want to consider it simply b/c you've highlighted some great candlestick trades as well. Perhaps that's a good filter for you. Just an idea.

 

RE: WRB's for exits - I still stand by that these are good exit points. Keep in mind that my version is simple - when I visually see a big body, it's an exit point. These are not bulletproof by any stretch; however, for the way I trade, they work well. And I am only using visual WRB's for exits, they do not impact my entry criteria at all.

[brownsfan019 17]

wave - one question if I may - sorry to ask something that you explained, but how are the 'WRB alert' things at the bottom being formed? I don't need your exact numbers, just general ones are fine. I'm a numbers guy so if you can explain in # format, that would be great.

[waveslider 10]

Brown, they are set to the highest open minus close (absolute value) of the past 3 bars, which occur within a window where there are more than 2 tick bars occurring per minute.

[RAVIN 10]

My 2 cents worth

 

Anybody interested in developing strategies and tactics incorporating Wyckoff's principle (including VSA) and WRB would do well to get hold of "Techniques of Tape Reading" by Vadym Graifer & Christopher Schumacher.

What I have read on this thread reinforces the concepts in the book, which I should add has helped me tremendously in progressing from paper trading to real money. The exit strategy based on WRB , scaling out of multiple contracts with Support/Resistance is quite a revelation.

[ranj 10]

My 2 cents worth

 

Anybody interested in developing strategies and tactics incorporating Wyckoff's principle (including VSA) and WRB would do well to get hold of "Techniques of Tape Reading" by Vadym Graifer & Christopher Schumacher.

What I have read on this thread reinforces the concepts in the book, which I should add has helped me tremendously in progressing from paper trading to real money. The exit strategy based on WRB , scaling out of multiple contracts with Support/Resistance is quite a revelation.

 

Hi Ravin,

 

do you mind providing some examples in chart form. I trade primary via VSA. In reviewing my successful trade, I noticed WRB involved in my various VSA entry setups.

 

Thanks

Rajiv

[RAVIN 10]

Hi, Rajiv

Would require many pages and numerous charts to illustrate the strategies and tactics from the book which has nearly 33 detailed examples, they are a combination of the charts and comments posted by PP and BF

[TinGull 10]

I'd been getting into WRB as S/R lately after reading and reading and reading stuff from Pivot and NihabaAshi...just wanted to post a picture perfect chart from just now...

 

 

Beautiful how the WRB provided resistance. Really is quite amazing after looking through tons and tons of charts today, seeing how that happens time and time again.

[CandleWhisperer 10]

Hello BF nice posts. Some of my response will be in this thread and some in the vsa thread. I hope this can breath new life into a worthwhile thread.

 

I have used the term WRB support/resistance zone, as PP and Mark have. To be sure, there are many times when you will find the body of a significant WRB acting as support or resistance. However, I think a more appropriate term of the area is "METHOD ENRTY (and exit) FOCUS ZONE".

 

"Method entry (and exit) focus zone". No matter how one enters: moving average cross, ADX, red bars become green, CCI, VSA, or candle patterns the body, or zone, of a significant WRB is the ideal place see one's method give a signal. To be sure, VSA, with its focus on supply and demand is in my opinion superior to use than say a moving average cross system. WRBs represent possible shifts in supply and demand so any other method that is like-minded would be better suited then some, but all would work.

 

It is very easy to see a WRB appear and then (1) place a line at the body's open and a line at the body's close or (2) write the numbers for the open and close on a post it. It really isn't difficult and many traders would actually be able to simply SEE the zone on the chart. Simply, determining the zone is not difficult, what is more so is determining what a significant WRB is.

 

Yet, that is not all that hard. First and foremost one needs to ask was the WRB connected to a news release? Clearly, a WRB created on the Jobs release means more than a random non-news generated WRB. WRBs are about price action. Understanding what cause the WRB is a necessary condition to understanding price action.

 

Volume is another key. A large dark WRB on very high volume with the next bar up means there was some hidden buying going on. This is what VSA tells us, but once you know just that, one can now focus on what happens within the body moving forward irrespective of VSA. But again, we can move a out of the VSA and just think the more the volume the more we need pay attention.

Something you probably already do with respect to candles and such.

 

Another way to determine what WRBs constitute significant deals with volatility. The chart I posted shows a volatility spike which would have me already predisposed to look to fade it. Had it been a volatility breakout, then I would been looking for a continuation trade...

 

(This is the part I hate. I can't say much about this aspect. I like WRBs and want to share all I know. I hope much of what there is to know can be found in my posts and those of others on this thread and the VSA thread. I would rather an interested person NOT spend money to learn this stuff. With that said, I am bound not to disclose some things.)

 

With that said, Volatility in some ways also equates to candle size. A white WRB larger than the previous 5 white WRBs probably means something. This is just an idea to play around with, but the point would be set a number and stick with it to take out arbitrariness going forward.

 

BTW, If one looks at the chart you posted of my chart, it is clear that you would of gotten in on the second trade prior to my entry signal-the first test. So for those who are concerned with getting in first, WRB zones are not the panacea.

[brownsfan019 17]

CW - nice post, and welcome to the WRB thread.

 

I like how you explained a few things. Really what stood out was the WRB based on a NEWS event. Makes perfect sense. I'm sure Mark mentioned it, but it never hit home for some reason.

 

Questions if I may:

1) Do you ONLY play WRB's based on news? Why or why not?

2) What timeframe(s) do you look to see a WRB on?

 

Using WRB's based on news could be a little puzzle piece (for me at least).

[CandleWhisperer 10]

CW - nice post, and welcome to the WRB thread.

 

Questions if I may:

1) Do you ONLY play WRB's based on news? Why or why not?

2) What timeframe(s) do you look to see a WRB on?

 

 

Leave it to BF to ask the tough questions. LOL. Great questions really.

 

Your first questions says "you" and the answer is no. However, I would state that "one" CAN only play WRBs based on news. This depends on personal style and instrument(s) traded. Some markets are more predisposed to news than others. I should mention that news includes things like a speech at a luncheon by the Governor of the NY Fed. Or the Chairman's testimony to the house. So we are not simply talking about Jobs reports, GDP, trade figures, housing starts and the like. If one is trading corn, a speech by treasury secretary Paulson might not matter so much. So if you, or others, are wondering if there are enough news events for an active trader, it really depends on the instrument and of course the day.

 

News events are a good basis to start with. As I said in the previous post, there are many types of significant WRBs and some do overlap. I like high volume WRBs even if they are not news related. There are also some WRBs that are based on volatility patterns that I like. In truth, even at my early stage of development in this area I can see that one is probably better off limiting what WRBs one wants to focus on.

 

By the way, I want to make a quick point about news events that some may be thinking. Suppose there is a GDP report at 0830 NY time and you are trading off a 3 minute chart. If a WRB is formed during the 0836-0839 interval and not before, than that is the news related/caused WRB. Also, and this gets into question 2 a bit. If there is not a WRB on the 3 min but there is one on the 15 minute, it would be expectable to look for entry signals on the 3 but within the range of the WRB on the 15.

 

Currently I am only focused on one timeframe: the 5 minute.

[CandleWhisperer 10]

This is in response to something said in the VSA thread.

 

WRB analysis is independent of candlestick analysis. I and many others use candles because of the picture of price action they present. As such, we have no idea, nor do we care, about the names of the candles or patterns associated with them. Interestingly, some advanced candle traders like BrownsFan and James don't care about names either.

 

If you have a bar chart with open, high, low, close information, then you can use WRB analysis.

 

WRBs involve supply/demand, volatility and Price Action.

 

Simply, calling WRB analysis, Candlestick analysis shows a lack of understanding of the former.

[CandleWhisperer 10]

Been wanting to post this for awhile now.

 

As far as WRB patterns go, I really like the volatility breakout pattern. Another pattern I like is one I have "discovered" on my own. At least as far as I know, I did.

 

I call this the WRB Gap Sandwich. Basically, we need a WRB (white or dark) followed by an actual price gap (hint) and then another WRB. We also need to look at the candle prior to the first WRB and the one after the second WRB. This price action creates the Supply/Demand Delta zone.

 

In the chart below, the left side shows the WRB Gap Sandwich followed by a no demand within the key area. Short signal generated. Traditional gaps are important and represent changes in supply/demand. This is doublely so with the appearance of the two WRBs.

 

The second thing to note is the bottom reversal. The first bar happens to be a WRB, but that is not important for this post. What is important, is once we get to this point our entry signal zone created by the WRB Gap Sandwich is now a good profit target zone.

[AgeKay 10]

I use VWAP bands from yesterday, 1 week, 1 month and 1 year as pivot lines on my charts.

 

Jerry, what contract do you to base your VWAP on? Do you always use the contract that was the front month contract during that time for VWAP calculation or do you use the current front month contract only (going back 1 day, 1 week, 1 month and 1 year in that contract). I guess the former, since contracts trade only for 9 months so that 1 year would not even be possible. Could you please enlighten me?

[jperl 11]

Jerry, what contract do you to base your VWAP on? Do you always use the contract that was the front month contract during that time for VWAP calculation or do you use the current front month contract only (going back 1 day, 1 week, 1 month and 1 year in that contract). I guess the former, since contracts trade only for 9 months so that 1 year would not even be possible. Could you please enlighten me?

 

Agekay, I trade mostly the mini Russell2000 index futures which are 3 month contracts. So for instance if you want a 1 year VWAP, you have to have a continuation chart which shows 1 years worth of contracts on 1 chart.

I use Ensign software which does this automatically.

[AgeKay 10]

Agekay, I trade mostly the mini Russell2000 index futures which are 3 month contracts. So for instance if you want a 1 year VWAP, you have to have a continuation chart which shows 1 years worth of contracts on 1 chart.

I use Ensign software which does this automatically.

 

Jerry, thanks for your reply.

Is there are reason why you use a continuous contract consisting of 3 months front month contracts instead of the current front-month contract that might have been trading for 7 months already (mini Russel 2000 also trades for up to 9 months)? I know this is not really possible for a 1 year VWAP, but in case you wanted to calculate the 6 month VWAP, wouldn't the later approach be more accurate since you would only include the trades in the calculation that were actually traded in that contract? Does it make a difference or am I making things more complicated than they should be?

[jperl 11]

Jerry, thanks for your reply.

Is there are reason why you use a continuous contract consisting of 3 months front month contracts instead of the current front-month contract that might have been trading for 7 months already (mini Russel 2000 also trades for up to 9 months)? I know this is not really possible for a 1 year VWAP, but in case you wanted to calculate the 6 month VWAP, wouldn't the later approach be more accurate since you would only include the trades in the calculation that were actually traded in that contract? Does it make a difference or am I making things more complicated than they should be?

Agekay, you always want to be trading the contract with the most volume. This gives you the best liquidity for your trades. So for example, I am presently trading the mini Russell 2000 contract which expires in September and will switch to the December contract 8 days before expiration (the so called rollover day). At that time, the December contract should have higher volume than the September contract. (I say should because in September the Russell is moving from Globex to ICE. So it should be interesting to see what happens to the volume).

[AgeKay 10]

Agekay, you always want to be trading the contract with the most volume. This gives you the best liquidity for your trades.

 

Sure. I would of course trade only the front-month or almost front-month contract, but my question was with regards to which contract to use to calculate the longer term VWAP. Wouldn't it make sense to use only the volume data of the current front-month contract going back 6 months or longer since traders don't have any open positions in the expired contracts anymore? I thought the whole idea of looking at the volume distribution and VWAP was to get an idea of the commitment of traders - at which prices traders have traded the most or least (correlating this with traders having open positions). If you use a continuous contract, wouldn't that include positions that have already been closed and therefore don't matter anymore? Longer term traders would have rolled over in the front-month contract anyway as you have described.

 

Sorry, I don't wanted to take over this thread with my questions, I just wanted to fully understand the reasoning since I am still a little confused in that regard.

[jperl 11]

... my question was with regards to which contract to use to calculate the longer term VWAP. Wouldn't it make sense to use only the volume data of the current front-month contract going back 6 months or longer since traders don't have any open positions in the expired contracts anymore?

 

The problem with that AgeKay, is the VWAP is volume weighted. The front month contract has little or no volume going back 6 months. Consequently the VWAP will be essentially flat and then show a sharp spike in the front month data as the volume picks up.

[AgeKay 10]

The problem with that AgeKay, is the VWAP is volume weighted. The front month contract has little or no volume going back 6 months. Consequently the VWAP will be essentially flat and then show a sharp spike in the front month data as the volume picks up.

 

I was aware of this, and I guess this is what troubles me. Does it make more sense to include the volume of expired contracts which is potentially irrelevant (since nobody has any open positions/interest in it anymore) or to use the volume of the front month contract only where there isn't much volume before it became the front month contract. Intuitively, I am thinking the later, because those traders that wanted to keep their positions had to roll it over to the next front month contract anyway when their contract expired (even if this aren't that many), so the current front month contract should include all the volume that is relevant. If that's a lot less volume then so be it.

What do you think? Does my reasoning go wrong here somewhere or am I missing something? Why should we include the volume of a contract that has expired?

[sevensa 10]

Why should we include the volume of a contract that has expired?

 

I am not Jerry, but here is my opinion... The fact that the contract has expired is irrelevant. What is relevant is the volume and price levels.

 

If you buy at 100 and roll over at 120, what price is more important for you? 100 where you have entered, or 120 where you have rolled over?