Richard Wyckoff and the Straight Line Approach - Traders Hideout | futures io social day trading
futures io futures trading


Richard Wyckoff and the Straight Line Approach
Updated: Views / Replies:5,988 / 38
Created: by DbPhoenix Attachments:31

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors – all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you don’t need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Closed Thread
 31  
 
Thread Tools Search this Thread
 

Richard Wyckoff and the Straight Line Approach

  #1 (permalink)
Banned: Vendor self-promotion
Phoenix AZ
 
Futures Experience: Advanced
Platform: IB
Broker/Data: IB
Favorite Futures: NQ
 
DbPhoenix's Avatar
 
Posts: 470 since Dec 2012
Thanks: 95 given, 1,543 received

Richard Wyckoff and the Straight Line Approach

About Richard Wyckoff

Richard Wyckoff (1873-1934) was a pioneer of technical analysis. While Dow contributed the theory that price moves in a series of trends and reactions, and Schabacker classified those movements into chart patterns, developed gap theory, and stressed the role of trader behavior in the development of patterns and support/resistance, Wyckoff contributed the study of the relationship between volume and price movement to detect imbalances between supply and demand, which in turn provided clues to direction and potential turning points. By also studying the dynamics of consolidations or horizontal movements, he was able to offer a complete market cycle of accumulation, mark-up, distribution, and mark-down, which was in large part the result of shifts in ownership between retail traders and professional money.

Wyckoff sought to develop a comprehensive trading system which (a) focused on those markets and stocks that were “on the springboard” for significant moves, (b) initiated entries at those points which offered the highest probability of success, and (c) exited the positions at the most advantageous time, all with the least possible degree of risk*. His favorite metaphor for the markets and market action was water: waves, currents, eddies, rapids, ebb and flow. He did not view the market as a battlefield nor traders as combatants. He counseled the trader to analyze the waves, determine the current, “go with the flow”, much like a sailor. He thus encouraged the trader to find his entry using smaller “waves”, then, as the current picked him up, ride the current through the larger waves to the natural culmination of the move, even to the extent of pressing one’s advantage, or “pyramiding”, as opposed to cutting profits short, or “scalping”.
*Risk is minimized by (1) focusing on liquid markets, (2) monitoring the imbalances between buying pressure and selling pressure at those levels of "support" or "resistance" where price is most likely to reverse its trend,
(3) entering on reversals (or, if necessary, retracements) rather than breakouts, and (4) getting out when the market tells you to.

Continuity of Price: Wyckoff began as a tape reader. By the time he incorporated daily charts into his trading, the continuity of price movement via the tape, tick by tick, had become so ingrained that he could see price no other way. Even though he might be looking at a series of daily bars on an end-of-day chart, he saw price as continuous. Thus the bar itself was irrelevant to him, and he was just as comfortable using line charts as bar charts. The line chart, in fact, more closely conforms to this continuity.

"Setups": There are no "setups" in Wyckoff, at least insofar as we commonly use the term. He did not say that if price does this, you buy and if price does that, you sell or short. Rather he stressed that the trader must be sensitive to imbalances in buying pressure and selling pressure, particular at levels where these imbalances might most likely result in profit opportunities, e.g., reversals. Therefore, the "trading signal" is not, for example, a "double bottom" or a "higher low" or a "climax bottom"; the trading signal is provided by the imbalances between buying pressure and selling pressure, and if one does not view price as a continuous movement and is not sensitive to these continuous shifts in balance/imbalance, he will not understand what it is that he's supposed to do.


About the Straight Line Approach

Wyckoff's magnum opus was his Course of Instruction in Stock Market Science and Technique. The course was in two parts totaling over 500 pages. While some traders have consumed every word, others have had considerable difficulties with the course, partly because of the language (it was finished eighty years ago) and partly because there is much in it that for most traders is "dated", such as drawing one's own charts.

But those who have studied it understand that much of what we consider to be "modern" had its beginnings in Wyckoff's work, particularly his course. The accumulation-distribution cycle , the "hook", the "1-2-3", the "Trader's Trick Entry", the "2B" and much else had their origins in Wyckoff, along with group and sector and intermarket analyses. The notions of support and resistance originated with Wyckoff.

Not too shabby.

For a dozen+ years, I encouraged traders, new and otherwise, to study the course without much luck. I then looked for various ways to "translate" this material into forms that were more approachable. There were some phenomena whose influence I underestimated, largely the phenomenon of fear. Be that as it may, I eventually developed an approach which took Wyckoff's assortment of lines (supply, support, overbought, etc) and distilled them into trendlines and demand/supply lines. This appeared to have at least some resonance with interested traders. At minimum, it helped them to distinguish between up and down and to stay on track. It also helped them to distinguish between trending and ranging and to avoid chop.

For an introduction, this post is long enough as it is. The pdf attached below will explain the Straight Line Approach as quickly and briefly and painlessly as I can. There is more, of course, primarily the synergy between the SLA and Auction Market Theory, something which Wyckoff was only one small step away from codifying. But that can be addressed in subsequent posts.

Attached Thumbnails
Richard Wyckoff and the Straight Line Approach-bmt-sla.pdf  
The following 15 users say Thank You to DbPhoenix for this post:
 
  #2 (permalink)
Quick Summary
Quick Summary Post

Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.

 
  #3 (permalink)
Banned: Vendor self-promotion
Phoenix AZ
 
Futures Experience: Advanced
Platform: IB
Broker/Data: IB
Favorite Futures: NQ
 
DbPhoenix's Avatar
 
Posts: 470 since Dec 2012
Thanks: 95 given, 1,543 received


Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).



The SPX has clearly broken its stride and has been ranging for quite some time. The uptrend has changed, but has not necessarily ended. For now, it treads water.

The NDX, on the other hand, is still in its weekly trend channel, hovering around its median.


Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).



Figuring the odds of what is the "line of least resistance (LOLR)" at these "middles" is more difficult than assessing the odds of moving one way or another when price rejects either the upper or lower limits of the channel (this is all Auction Market Theory; see the pdf in post 1). However, looking at the daily and hourly provide some clues:


Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).



Traders have been working their way toward equilibrium for quite some time, their efforts forming what Wyckoff calls a "hinge", with an apex of 4569+/-. Traders have already sought trades 60pts upward and a little more than that on the downside. We rebounded to 4535 on Friday, but there are many signs of weakness here: the failure to hold a higher high on the daily, a drop back into the daily range that's been in place for months, and of course the lower low.

There are no guarantees, of course. We could rally all the way to 4700. But at the moment, the LOLR looks to be down.

By tomorrow morning . . .

The following 7 users say Thank You to DbPhoenix for this post:
 
  #4 (permalink)
Banned: Vendor self-promotion
Phoenix AZ
 
Futures Experience: Advanced
Platform: IB
Broker/Data: IB
Favorite Futures: NQ
 
DbPhoenix's Avatar
 
Posts: 470 since Dec 2012
Thanks: 95 given, 1,543 received

And here we are, having tested the last swing high at 0200, 0445 and 0545:


Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).



Remember that it's not about lines. It's about buyers and sellers and what they want and when they want it and how much or how little they're willing to pay/take for it. The lines are merely a map to point the way, just as the lines on a roadmap are not the roads themselves. Traders are telling you that 4535 is important. The trader has a choice between buying a breakout or selling a reversal.

When we become quite familiar with stock charts we shall find ourselves looking for various pictures and patterns formed by our charts, but if we are to be complete masters of our study and get the fullest benefits from our own analysis it is important that we do not entirely lose sight of the fundamental basis for the formation of those pictures and patterns.

That fundamental basis is in actual stock market trading, and actual stock market trading is the result of individual actions by many thousands of people, based in turn upon their own hopes, fears, anticipations, knowledge or lack of knowledge, necessities and plans. It is the danger of losing sight of this human element in stock charts that we must guard against, and since this human element is basic it may be wise to fit it into the foundations of our study at the very outset.

--Richard W. Schabacker


Last edited by DbPhoenix; August 10th, 2015 at 08:26 AM.
The following 5 users say Thank You to DbPhoenix for this post:
 
  #5 (permalink)
Banned: Vendor self-promotion
Phoenix AZ
 
Futures Experience: Advanced
Platform: IB
Broker/Data: IB
Favorite Futures: NQ
 
DbPhoenix's Avatar
 
Posts: 470 since Dec 2012
Thanks: 95 given, 1,543 received

This might be a good time to revisit the last post in the "trading opportunities" arc:


Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).



Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


Last edited by DbPhoenix; August 10th, 2015 at 08:04 AM.
The following 5 users say Thank You to DbPhoenix for this post:
 
  #6 (permalink)
Banned: Vendor self-promotion
Phoenix AZ
 
Futures Experience: Advanced
Platform: IB
Broker/Data: IB
Favorite Futures: NQ
 
DbPhoenix's Avatar
 
Posts: 470 since Dec 2012
Thanks: 95 given, 1,543 received

In many writings on the Stock Market since 1907 I have frequently expressed this thought: Correct interpretation of the Stock Market requires a study of the forces which cause advances and declines in the prices of stocks.

These forces are constantly at work. They are of varying power, intensity and duration. They grow out of events, conditions and circumstances and acquire potency as a result of the acts of men, corporations and governments throughout the world. No one can anticipate the effect of these forces to the point of certainty, for no one knows when those now operating may be overpowered by greater forces.

These forces are accentuated in various ways. News items, tips, gossip play their part, but these are of limited effect until they cause men to buy or sell stocks on the Stock Exchange. No matter how bullish or bearish traders become, if their ideas and emotions are expressed only in words, hopes or fears, they have no effect upon the market prices of stocks; but the moment orders to buy or sell are given, functioning begins, and the effect of these orders is registered on the tape of the stock ticker.

The news may be bearish in the estimation of those who are selling; the bears may anticipate that their selling may make an impression on the market; but if at that moment there are other men or institutions whose brokers stand there with buying orders, ready to take whatever the sellers offer, then these sellers will have misjudged the probable effect of their sales.

How are we to know in advance why and to what extent someone else is prompted to buy or sell? We cannot know; it is impossible for us to foretell what actuates all of those whose orders are poured into the vast intake of the Stock Exchange machinery during the day's session. But if we study the action of prices; the responses; the speed of the ticker, indicating urgency or the contrary; the intensity of the buying or selling, as indicated by the volumes; and the intervals when the volume is heavy or light -- all these in relation to each other -- then we gain insight or the design and the purposes of those who are dominant in the market situation for the time being.

All the varying phases of stock market technique may thus be studied and interpreted from the buying and selling waves as they appear on the tape. From these we form a conclusion as to the balance of the probabilities. On this we base our commitments.

--Richard D. Wyckoff

The following 9 users say Thank You to DbPhoenix for this post:
 
  #7 (permalink)
Trading for Fun
Bogotá
 
Futures Experience: None
Platform: ninja
Favorite Futures: nq
 
Posts: 69 since Apr 2015
Thanks: 142 given, 77 received

Context 10/08

Although everything is said in the charts uploaded by Db; attached is the chart of my context

Note: trades attached

Attached Thumbnails
Richard Wyckoff and the Straight Line Approach-context.png   Richard Wyckoff and the Straight Line Approach-trades.png  

Last edited by lajx; August 10th, 2015 at 11:21 AM.
The following user says Thank You to lajx for this post:
 
  #8 (permalink)
Banned: Vendor self-promotion
Phoenix AZ
 
Futures Experience: Advanced
Platform: IB
Broker/Data: IB
Favorite Futures: NQ
 
DbPhoenix's Avatar
 
Posts: 470 since Dec 2012
Thanks: 95 given, 1,543 received


DbPhoenix View Post
And here we are, having tested the last swing high at 0200, 0445 and 0545:


Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).



Remember that it's not about lines. It's about buyers and sellers and what they want and when they want it and how much or how little they're willing to pay/take for it. The lines are merely a map to point the way, just as the lines on a roadmap are not the roads themselves. Traders are telling you that 4535 is important. The trader has a choice between buying a breakout or selling a reversal.

As it turned out, the breakout was the way to go.

The pdf uploaded to post 1 is the beginner-simple edition of the SLA. Given that there are only two people that I know of who are past that, I'd like to keep my posts at the beginner-simple level. This may be somewhat frustrating to those who are eager to rush ahead, but a content thread is not unlike a one-room schoolhouse: everybody is in the same room but working on different levels. Even if I could, I can't put blinders on people so that they can't see stuff that may be too advanced for them, so I'll have to leave it up to the individual to focus on what's right for him according to his self-appraisal. If he's untethered to reality, the market will let him know tout suite, and he can then back up to wherever he can find solid ground in order to begin again.

So . . .


Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).



As I posted above, at 0629, the market was telling you that 4535 was important. The market didn't lie (as is its wont). Price broke above this level at 0635, retraced, made a higher high at 0720, retraced again, and made a higher high at 0805. It then began ranging up to the market open at 0930.

At that point, price breaks above the range high of 50 and travels all the way to 72.5. A demand line drawn across the swing lows on the 5m is broken at 63.5 (on the 1m it's broken a little higher, at about 70).

And that's all that the beginner or the damaged trader needs to know: breakout, retracement, all the way to either 70 or 63.5 depending on the choice of bar interval, then out. Twenty points in twenty minutes. Those in the advanced class who know why price stopped at 72.5 may have elected to trade a reversal there, but that's not for beginners.

Addendum: I just received notice that I had private messaging disabled. This has been corrected.


Last edited by DbPhoenix; August 10th, 2015 at 06:36 PM.
The following 7 users say Thank You to DbPhoenix for this post:
 
  #9 (permalink)
Banned: Vendor self-promotion
Phoenix AZ
 
Futures Experience: Advanced
Platform: IB
Broker/Data: IB
Favorite Futures: NQ
 
DbPhoenix's Avatar
 
Posts: 470 since Dec 2012
Thanks: 95 given, 1,543 received

Regarding prep, I'm reminded of the following:

For want of a nail the shoe was lost.
For want of a shoe the horse was lost.
For want of a horse the rider was lost.
For want of a rider the message was lost.
For want of a message the battle was lost.
For want of a battle the kingdom was lost.
And all for the want of a horseshoe nail.


If one substitutes "for want of adequate preparation" in the first line, the rest is not difficult to work out.

The following 2 users say Thank You to DbPhoenix for this post:
 
  #10 (permalink)
Banned: Vendor self-promotion
Phoenix AZ
 
Futures Experience: Advanced
Platform: IB
Broker/Data: IB
Favorite Futures: NQ
 
DbPhoenix's Avatar
 
Posts: 470 since Dec 2012
Thanks: 95 given, 1,543 received


Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).



Interestingly, buyers have refused to pay the ask at the same level at which sellers refused to lower it last week.

Asian traders -- and insomniacs -- catch a lot of the breaks.

The following 3 users say Thank You to DbPhoenix for this post:

Closed Thread



futures io > > > Richard Wyckoff and the Straight Line Approach

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Jigsaw Trading: TBA

Elite only

FuturesTrader71: TBA

Elite only

NinjaTrader: TBA

Jan 18

RandBots: TBA

Jan 23

GFF Brokers & CME Group: Futures & Bitcoin

Elite only

Adam Grimes: TBA

Elite only

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
A New Multilateralism for the 21st Century: the Richard Dimbleby Lecture kbit News and Current Events 2 August 10th, 2015 02:21 PM
Richard's VirtualBars Big Mike NinjaTrader 23 June 29th, 2015 09:38 AM
Wyckoff 2.0 (Trade Journal)Wyckoff 2.0 I’ve been studying the markets and trading fo YertleTurtle Elite Trading Journals 45 July 23rd, 2013 05:46 PM
How to go straight to New Posts CDesai13 Beginners and Introductions 2 November 7th, 2012 02:00 PM
Straight Through Processing Big Mike Terms (Glossary) 0 October 18th, 2011 12:38 PM


All times are GMT -4. The time now is 02:30 AM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-12-14 in 0.19 seconds with 20 queries on phoenix via your IP 54.221.76.68