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Wyckoff Trading Method


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Wyckoff Trading Method

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  #31 (permalink)
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Rassi, I have an idea of what you mean but can you clarify? I think maybe you mean that when price does not respond to a level, then it could be ready for a strong reversal, for example? Just taking a stab at what you mean...

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josh View Post
Rassi, I have an idea of what you mean but can you clarify? I think maybe you mean that when price does not respond to a level, then it could be ready for a strong reversal, for example? Just taking a stab at what you mean...

Josh,

Rassi will correct me if I'm wrong, but what I believe he means is that with Wyckoff, you expect certain things to happen. For example, if you are in an uptrend and price is trading in a channel, you expect it to find buyers at the lower channel line which is the demand line and sellers at the upper channel line or the supply line. If price is unable to get to the supply line that would be a change in behavior and something to take note of. It isn't doing what it has been doing which is trading between the lower and upper channel line, so its not doing what would be expected. I hope that makes sense.

David

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  #33 (permalink)
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David_R View Post
I hate it when I have an opinion because it has not served me well. Even if you want to call it a bias, it can cloud your decisions. When I started to look at the indexes I felt unclear and could not really come to a conclusion either way. In some respects that may be best. I then told myself that its just analysis and you need to allow for any outcome. Obviously the market is uptrending so we consider that continues, but I will say based on what I see in the charts there appears to be a fair amount of weakness. Before the holidays there was a fair amount of volume, but the closes were not very strong. I highlited those days in yellow. During a good part of December the market continued higher, but on very light volume. Now we can justify it any way you want and say its because of the holidays and everyone is on vacation, but that would be a fundamental reason and I prefer to look at things technically. My opinion or bias is not as strong in some of the indexes, but in most I come to the conclusion that they are weak and the NQ is more glaring to me than the others, but the TF is fairly glaring as well.

...

I got a little extra busy this weekend ...

I often find myself able to make both a bullish and a bearish case. When this occurs, I simply note the levels at which price would break down or hold, and then be patient as the market unfolds.

In this chart we are seeing non-confirmation at the highs, which indicates weakness. But, the trend is up and we also see the Naz as a relative strength leader. So, it is crosscurrent for now. On the intraday charts, a lower high and lower low has been put in (except Naz, which may put in a lower high today). Until we make higher highs (again?), odds favor sideways to down, in my judgement.

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Update to ISRG. We finally got a little volume to the upside after making the HH and breaking the down trend line. I drew in what I believe to be resistance areas, but also target areas as well, assuming it continues to move higher.

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I put these charts in the Ellusive price Action thread, but sine this thread is open to all i thought I'd post the same pics here. The first two are from Monday and the last one is from today.

David

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Here is a Daily of gold and my comments.

David

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Big Mike View Post
I could use a bit of education. What is the difference between Wyckoff's method and typical VSA, like here:


?

Mike

Hello Mike.

I use both VSA and Wyckoff in my analysis and the way I see it is that VSA is a specialization on the volume/spread part of the Wyckoff Method. So in all there is much more to the Wyckoff Method. The back side of VSA is that it is almost always taught with no emphasis at all on the rest of the Wyckoff part of it. Meaning Wyckoff Schematics and different credentials for the different phases of the markets, the so called tests and so on. This leaves the student/trader very much in the same position as with other indicators because he or she does not have the original framework to use it effectively. Previously myself included. It was not until I seriously got to know about the Wyckoff Method through Hank Prudens and Jim Fortes work it all started to fall into place. Personally, with the new understanding of where and why things happens it caused a paradigm shift in my perception of market structure. Powerful when used with proper use of S/R and Trend lines. A very interesting part of it, is that one can use the same schematics in all time frames. Making it very useful for the day trader. A note is that based on the understanding of the different schematics one can often trade on price action alone. And if putting volume into it again, using it as confirmation. My experience is that the schematics automatically keeps you in an overview mode, helping one from getting the tunnel vision.

As a starter for those interested I would recommend reading the articles in this zip archive which I have uploaded myself. High value. I started using it right after reading these articles. Starting with Jim Fortes "Anatomy of a Trading Range" and Prudens "Wyckoff Schematics: Visual templates for market timing decisions". Note: there is an error in the illustration "Schematic #2" on page 3 in the article "Wyckoff Schematics: Visual templates....". It shows an accumulation schematic where it should be a distribution schematic. The right "Schematic #2" distribution illustration is illustrated on page 6 in "Anatomy of a Trading Range".

For further serious study I would recommend the book "The Three Skills of Top Trading" by Hank Pruden. The middle part of it is exclusively on the Wyckoff Method. Another book to be released is the "Trades About to Happen - A Modern Adaptation of the Wyckoff Method" by David H. Weis. Have read that Weis is considered by some to be the foremost expert on Wyckoff today. It should have been released in the beginning of Dec. 2010, but have been delayed.

Hope this will be of help and inspiration.

By the way, looking forward to check out the Elusive Price Action thread.

Laurus

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One Wyckoff principle is the concept of driving up through and overcoming supply, often referred to as a "sign of strength." Take a look at the NVida chart. It is a weekly basis.

You can see that this stock was hard-hit by the bear market of 2008. It spent that entire year in a downtrend. By the second quarter of 2009, however, it broke the downtrend channel and rose higher. By the fall of last year, it was clear NVDA was making a higher low.

Some fundamental news surfaced, and NVDA has risen dramatically over the past week and one-half. If may look like the train has left the station and it's too late to get on board, but the odds favor more upside.

We are seeing a push up through supply - the supply that formed the resistance during the first quarter of 2010 (boxed on the chart).

Tom Williams, who developed VSA, talks extensively about the Wycoff principle of demand overcoming known supply areas. We see it by urgent buying on wide range bars and huge volume. Whatever supply exists from short sellers at resistance or trapped longs looking to get out (and yes, there are many longs who bought in that area and held on all through the down move of 2010) is absorbed by the heavy buying. We can see this in the very high volume in the last two bars.

So, how do you trade this? At some point, there will be a pullback. If that pullback shows only light supply, then an entry can be considered.

The second chart is a tick chart of the past few days in the S&P e-minis (ES), including today. See any similarity between the weekly NVDA and this intraday chart? Although they look a bit different, it's the same principle.

Bob Evans owned the Wyckoff Associates organization set up by Wyckoff to educate the public about the nature of the stock market. Evans was a great Wyckoff educator. I've listened to many, many of the weekly tapes he produced from the late 1940s through the 1960s. On those tapes, he would often tell "homey" stories to help traders better understand the Wyckoff Method. One of those stories is known as the "Creek" story, or "Jumping Across the Creek."

The story is about a Boy Scout hiking in the woods. He comes to a creek and finds it is too wide to cross. Still wanting to get to his destination on the other side of the creek, he follows it downstream, looking for a place where it narrows so that he can jump across. Finally, he reaches a spot where he thinks he can jump it. He backs up a bit, gets a running start, and successfully jumps across the creek.

In Evans's story, the creek represents supply. Our Boy Scout is unable to surmount the creek because supply is just too great at the early points. In the market, the supply line curves and twists as drawn in blue (free-hand) on the chart. Because the jump across the creek takes a lot of effort (a running start on the part of our Scout), we will see that effort in the volume and the range of the price bars. This is another Wyckoff principle - effort vs result. Here we see a lot of effort (in the volume in NVDA and in the momentum oscillator in ES) and the result is positive - both charts show higher prices.

Clearly, supply has been overcome. We have a sign of strength in the market. Although Wyckoff would buy on a breakout, it was his least favored location. Better to buy on a pullback. So, back to Evans ...

After the Boy Scout has jumped across the creek, he notices that he is a bit tired after all that effort. So, before moving on to his destination, he decides to take a short break. So, he goes Back to the Edge of the Creek, takes off his boots, and dips his feet into the cool waters of the creek.

We often (not always) get a pullback to the old resistance area (creek). As in the ES chart (green arrow), look for narrowing price bar ranges and an overall lack of supply. This is a typical market sequence and confirmation that the Jump has been successful. It is confirmation because price returns to the known supply area and supply does not materialize. It is a good location for a trade.

Although both the ES and the NVDA charts show the same principles, the patterns and "look" of the charts are different. What is most important are the principles highlighted. Learn these and other Wyckoff principles. They will serve you well.

Disclosure: Please note that I currently hold shares of NVDA in my personal account.

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Hello Gary Surprise to know that you are in the forum.

Thank you very much for your input. Makes one tread more carefully when one knows there is an expert observing ; )

Edit: When reading through the posts again more slowly I realized that I have overlooked that you are also the author of six previous posts in this thread. Kind of embarrassing . Sorry about that one. The more proper expression would then be; thank you very much for your inputs.

By the way, I have attended many of your "price/volume-bar by bar" webinars included taking your Wyckoff Upthrust course and would warmly recommend others to take your courses also. I very much appreciate your style of teaching about the subject.

Laurus

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Gold failed at the resistance area around 1393. We will see if the downward move continues.

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