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Wyckoff Trading Method
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Wyckoff Trading Method

  #881 (permalink)
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David_R View Post
DB,

Can/would you elaborate on what you said about yesterdays plunge and recovery? I view recent activity as being in a trading range and price "springing" at support. It may have, but there was no follow through today and your mentioned level of 2580 is just about there.

Also, Can you explain how and why it appears that the June-July trading range is still influencing present price movement? Please.

David

Trading ranges are like rest stops. Traders have been out there looking for trades (note the several pokes or feelers outside the box I've drawn around the central trading range) and come back to the trading range to do business. After all, one can't make any money if he doesn't trade at all. Sometimes, though, they find the trades they're looking for. And more. And whatever road they're traveling suddenly opens up (like a new section on the freeway) and price extends itself into new territory, leaving the old trading range behind (Market Profile would "discover" this dynamic decades later, as would Darvas). Traders therefore have their reasons for staying in the range and reasons for venturing out of it.

You'll note that in this case there is a central range, where I've drawn my box. The lower limit of this is around 2622. But one can't ignore those two pokes from 11/27 and 12/16 given that there's nothing stopping the adventurous from testing those levels a third time. Which is what they did. And if one knows and understands why they do it, one can anticipate it (perhaps W's greatest contribution to the trading/investing world was his placing all his work in the context of trader behavior and how it determines the movement of price as well as how price in turn illustrates/betrays trader behavior and motive; this is why efforts to mechanize W can't succeed). But, wiggle the bait as much as they might, not enough people bit, so everybody went back to the trading range and had a beer.

Buyers couldn't gain any real traction, though, and were unable even to hold onto what they'd won, so price broke out of this wider trading range for real and stopped just barely short of that big honking trading range from the summer. Why? Who knows? Traders' motives aren't always transparent, and all one has is conjecture. Fortunately, one needn't know why. The what is much more important. The why can wait until one is sitting in front of the fire reviewing the day's trades.

The importance of this level is that it represents a midpoint, the midpoint of that Borg trading range, and midpoints were important to W. In his view, they represented a measure of strength, or traders' will. If price could fall 50% into a range and back out again, this suggested strength (or weakness, if price was entering a range from underneath). These midpoints therefore represent tradeable support (or resistance). Same goes for a 50% retracement of a rally, or correction (therefore my green line). Do buyers, or sellers, have what it takes to push price past that point? The answer to that question, as illustrated by the trades they're able to complete, tells you whether to go long or short.

Db

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DB,

Have you purchased the Wyckoff course from SMI? I was wondering about the quality of the workmanship of compiling the content. There are some old versions of the course floating around on the internet and the way it was edited for publication is very awkward. Charts and illustrations are in a separate volume from the study sections discussing them. Even some of the English grammar needs to be edited. I don't mean to criticize them, but if the quality of editing and assembling the course materials hasn't improved over the years why would someone want to spend over $1,000 to purchase the course?

I don't know of anyone who has purchased the course, so I'm looking for comments from those who have.

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  #883 (permalink)
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winsor View Post
DB,

Have you purchased the Wyckoff course from SMI? I was wondering about the quality of the workmanship of compiling the content. There are some old versions of the course floating around on the internet and the way it was edited for publication is very awkward. Charts and illustrations are in a separate volume from the study sections discussing them. Even some of the English grammar needs to be edited. I don't mean to criticize them, but if the quality of editing and assembling the course materials hasn't improved over the years why would someone want to spend over $1,000 to purchase the course?

I don't know of anyone who has purchased the course, so I'm looking for comments from those who have.

The SMI course is an adaptation of the Evans work which was an adaptation of Wyckoff's original work. I've seen the SMI course but didn't purchase it. I obtained -- or more accurately a TradersLab member obtained -- the original from the Library of Congress. Interestingly, the charts in the LOC copy are in much better condition. Some of the charts in the SMI course are -- or were, in case somebody has cleaned them up since -- virtually unreadable. In all fairness, however, one must remember that before computers one was often working with copies of copies of copies of copies. If the originals had been lost, one was faced with reconstructing the material from scratch if one was fortunate enough to have a copy. Unfortunately, much that was issued in mimeograph form and never bound is now lost for good, rotted away. We know of these works only because somebody has mentioned them in something that has survived.

Additionally, the LOC copy is available for the cost of copying and postage. Or you can download it from the TradersLab site, if I'm permitted to say so.

Db

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  #884 (permalink)
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Prices have started to move a bit, but for now, here's where they lay with regard to support.

The S&P has dropped more than halfway below the last rally, but may well find support at that old trading range.


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The Dow, on the other hand, appears to be finding support at its own halfway point.


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And the NQ reached the target I anticipated two posts up.

Lots of time for price to surprise before tomorrow morning.

Db

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  #885 (permalink)
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Db,

After prices have entered into a range, is there a way to determine whether the range is distribution or accumulation before the range has been completed?



DbPhoenix View Post
A simpler Wyckoff:

Even though interday trendlines are of little to no importance to the intraday trader, prior trading ranges can and should be. Here, for example, though one might be tempted to consider the influence of the June-July trading range to have expired, the October and December trading ranges revolved around the top of that earlier trading range like pigs on a spit. Given also that price could not hold above the 50% retracement of the last downmove (the green level) despite multiple attempts suggests further downside, and given that that June-July trading range appears still to be exerting an influence on present price movement (not unlike a moon), 2580 becomes a level of interest.

Sometimes, however, price will find support in unexpected places, as yesterday during the lunch hour. Interested students should study that plunge and recovery so that they might recognize it the next time it occurs.


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StockJock View Post
Db,

After prices have entered into a range, is there a way to determine whether the range is distribution or accumulation before the range has been completed?

With all you've read, you know as much or more about it than I do. Of course, A&D apply to stocks, not futures, but I no longer believe that it really matters one way or another if the trader can determine whether accumulation or distribution is going on. One can impress the folks by making "calls", but none of that has much to do with the work, unless one is trying to sell something.

If the range is wide enough to trade, then one trades it as usual, buying support and selling resistance. Then if price busts out of the bottom, the trader is already in. Likewise if it busts out of the top. If he hasn't taken a position while price is still inside the range, then he has to be on his toes and know how to trade breakouts and retracements.

Otherwise, I'm sure you know the drill: are prices hovering at the top of the range or the bottom, are the movements compressing as they approach one side or another, is the volume consistent with heavy or light trading during and at the end of the trip from one side to another and so on. There is of course some advantage to being able to detect accumulation or distribution as price approaches one side or another and one wants to make a "stealth entry" in advance of a breakout. But it's so much easier just to buy support or sell resistance and be in place long before a stealth entry becomes an issue, assuming one is willing to assume the opportunity risk of tying up his money in something that may not move for weeks. If he isn't, and he hasn't been paying attention for whatever reason and price breaks out without him, there's always the springboard, the last opportunity to catch the move before it gathers too much momentum.

Of course there's always the possibility that I've misunderstood your question entirely. If so, feel free to try again. In the meantime, there's a section in my book on the accumulation/markup/distribution/markdown cycle, but it's much too long to stuff into a post. What I can do is copy out some of what to look for in the accumulation phase. This may be of interest to those who have no idea what we're talking about.
First, volume should be relatively quiet. It should reflect indecision, not an ongoing tug-of-war for dominance between bulls and bears. To the contrary, there should be general agreement between fans and detractors that the stock is pretty much worth whatever it's going for. There should be no massive flows of volume on either up days or down days. In fact, the "up" days and "down" days should be within a fairly narrow range of each other.

Second, even if volume is quiet there should not be a generally wide range between highs and lows each day. If there is a wide range between the highs and lows (indicated by long bars), there is still considerable disagreement intraday and day-to-day as to the value of the stock.

Third, when prices hit the low end of the trading range in the base (the "support" or "demand" line), volume should remain low. Coincidentally, when prices reach the upper end of the trading range (the "resistance" or "supply" line), volume should be higher. Color-coded volume, if you just can't live without it, should show generally higher green bars than red bars, though, again, even a high red bar should be analyzed carefully. As mentioned earlier, if the stock falls toward the support line and shows a strong recovery during the day, closing near its high for the day but a hair below the previous day's close, it will show as red. However, you have been sent a message that there is strong support at whatever level the stock reached before rebounding and that there was enough demand on that day to propel it back into the court. Make sure that you're home to receive this message.

Fourth, is the low end of the trading range less than halfway to the support line? For example, if the highest high is 24 and the lowest low is 20, are most of the price bar bottoms at 22 or higher?

Fifth, if the base is several weeks (or months) old, have there been any shakeouts, i.e., short, sharp spikes to the downside generally accompanied by relatively high volume but which last for only a day or so and which have no lasting effect on the day-to-day progress of the stock?

If the answers to the above questions are mostly if not all yes, then your stock is probably under accumulation. But first, a few more words about shakeouts, as they can be very unsettling to those who don't know what they are or how to recognize them.
And so on.


Last edited by DbPhoenix; December 31st, 2012 at 01:05 AM. Reason: grammar
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  #887 (permalink)
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Thanks Db. I like the way you put it - "catch the move before it gathers too much momentum". I didn't know you wrote a book. What's it called?



DbPhoenix View Post
With all you've read, you know as much or more about it than I do. Of course, A&D apply to stocks, not futures, but I no longer believe that it really matters one way or another if the trader can determine whether accumulation or distribution is going on. One can impress the folks by making "calls", but none of that has much to do with the work, unless one is trying to sell something.

If the range is wide enough to trade, then one trades it as usual, buying support and selling resistance. Then if price busts out of the bottom, the trader is already in. Likewise if it busts out of the top. If he hasn't taken a position while price is still inside the range, then he has to be on his toes and know how to trade breakouts and retracements.

Otherwise, I'm sure you know the drill: are prices hovering at the top of the range or the bottom, are the movements compressing as they approach one side or another, is the volume consistent with heavy or light trading during and at the end of the trip from one side to another and so on. There is of course some advantage to being able to detect accumulation or distribution as price approaches one side or another and one wants to make a "stealth entry" in advance of a breakout. But it's so much easier just to buy support or sell resistance and be in place long before a stealth entry becomes an issue, assuming one is willing to assume the opportunity risk of tying up his money in something that may not move for weeks. If he isn't, and he hasn't been paying attention for whatever reason and price breaks out without him, there's always the springboard, the last opportunity to catch the move before it gathers too much momentum.

Of course there's always the possibility that I've misunderstood your question entirely. If so, feel free to try again. In the meantime, there's a section in my book on the accumulation/markup/distribution/markdown cycle, but it's much too long to stuff into a post. What I can do is copy out some of what to look for in the accumulation phase. This may be of interest to those who have no idea what we're talking about.
First, volume should be relatively quiet. It should reflect indecision, not an ongoing tug-of-war for dominance between bulls and bears. To the contrary, there should be general agreement between fans and detractors that the stock is pretty much worth whatever it's going for. There should be no massive flows of volume on either up days or down days. In fact, the "up" days and "down" days should be within a fairly narrow range of each other.

Second, even if volume is quiet there should not be a generally wide range between highs and lows each day. If there is a wide range between the highs and lows (indicated by long bars), there is still considerable disagreement intraday and day-to-day as to the value of the stock.

Third, when prices hit the low end of the trading range in the base (the "support" or "demand" line), volume should remain low. Coincidentally, when prices reach the upper end of the trading range (the "resistance" or "supply" line), volume should be higher. Color-coded volume, if you just can't live without it, should show generally higher green bars than red bars, though, again, even a high red bar should be analyzed carefully. As mentioned earlier, if the stock falls toward the support line and shows a strong recovery during the day, closing near its high for the day but a hair below the previous day's close, it will show as red. However, you have been sent a message that there is strong support at whatever level the stock reached before rebounding and that there was enough demand on that day to propel it back into the court. Make sure that you're home to receive this message.

Fourth, is the low end of the trading range less than halfway to the support line? For example, if the highest high is 24 and the lowest low is 20, are most of the price bar bottoms at 22 or higher?

Fifth, if the base is several weeks (or months) old, have there been any shakeouts, i.e., short, sharp spikes to the downside generally accompanied by relatively high volume but which last for only a day or so and which have no lasting effect on the day-to-day progress of the stock?

If the answers to the above questions are mostly if not all yes, then your stock is probably under accumulation. But first, a few more words about shakeouts, as they can be very unsettling to those who don't know what they are or how to recognize them.
And so on.


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StockJock View Post
Thanks Db. I like the way you put it - "catch the move before it gathers too much momentum". I didn't know you wrote a book. What's it called?

I'd rather not get into it here. My chief interest is in discussing Wyckoff, particularly since my name was mentioned at the beginning of the thread. Most such discussions are accompanied by or end up with a sales pitch.

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The averages all found S at the levels anticipated (see previous chart posts) and rallied nicely. Looking at the NQ in particular, price has rallied to the midpoint of the last trading range, which coincides with the midpoint of the previous trading range, which coincides with the top of the Borg range prior. This has proven to be a tradeable level.

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DbPhoenix View Post
Greetings!

I was only recently made aware of this thread, which is unfortunate since -- based on the number of posts over the past few months -- it seems to have run its course.

Be that as it may, if anyone is interested in Wyckoff's own work rather than the modified materials discussed here, let me know.

Happy Trading

Db

Welcome Db, good to see you here.

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