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It is returning to the range, The Co has established that the JOC (SOS) was a valid source of Demand, and a Price that will be defended. Time now to establish Cause.
Its the buying climax that I was referring to, I have no objection to you calling this down move a shakeout- I myself would be thinking that it is a test of the JOC, thus a back up to the creek, but this in itself could be considered a shakeout also.
A shakeout is as you show a transfer of risk from weak hands to strong hands in an uptrend. In my mind it does this by:
-Catching stops for longs,
-it entices shorts so when price hits a value area, or a price which will be defended by the strong hands and price action is marked up or resumes the trend, those getting out of their shorts helps price move upward and potentially break any resistance.
- It is also establishing a level for demand (in this case as we are in an uptrend), ie testing what sort of demand was at the last break of resistance hence back up to the creek.
-The fact it happened after a small range shows some distribution for sure. And we return to a place we know where we have support. We fell through the ice.
I dont know where price is going from here, but it will have to establish cause in this current range before it moves. You can see that there was high activity when we hit support, I'm thinking this is people getting out of shorts and taking profits... But I don't follow BAC- just going of Wyckoff principals.
What you won't often see is a shakeout to the short side after a buying climax. When you see a buying climax, price will move down as it is not supported by the CO, once distribution is complete, this is now markdown. In saying this- it can happen- you do get cases where price forms a high and drops suddenly then climbs slowly back up where the distribution process can occur at a lower level (but this is usually news related- think Earthquake)
Don't take what I say as condescending I in no way mean it this way. Its all terminology right and there is a danger in translation- we both could be arguing the same thing!
I use demand and supply channels, as these signify the states of overbought and oversold- two conditions I trade from when supported by price levels.
I always thought that a shakeout was a swift move to the downside to "shakeout" weak longs. I gueess it works both ways.
The wide spread high volume bar at the high on the chart. How would be determine that it is not a bullish sign even though looking at it by itself it appears to be bullish? I think the bar is around 10:10 on your chart. Is it the lack of follow through?
Good question, David. I've been looking for a diagram in a publication to clarify that. I thought that I read somewhere that an upthrust is the reverse of a shakeout.
Another thing that I noticed is that even in the diagrams from the publications that I have show some identifying points that don't always show up on live trading charts. Sometimes the PS is not apparent and the down trend stops at the SC or the PSY not apparent and the up trend stops at the BC. Maybe the PS or the PSY mostly show up in large time frames? What do you guys think?
My understanding is that a spring is the inverse of an up thrust. In both of these cases price is probing a resistance (upthrust) or support (spring) and then closing below resistance and above support. I think the conceptual maps, or schematics you show depict that where it says up thrust after distribution, as an example.
I think it was mentioned that a shakeout is a VSA term. That is my understanding. I would think the only way to know that it is a shakeout is if there is no follow through. As far as the terminology goes on the schematic such as PSY or PS is concerned, I don't try and identify these areas or phases. I think the schematic is a guide and true price action will rarely if ever look like the schematic. Maybe I am not a true Wyckoffian, but I'm ok with that. I really rather be able to read the chart in such a way that provides trade setups with the least risk. The charts that Gary F. has been posting on the ES are an example of that as well as the ones Traveller has posted on the Euro.
Yes, I think that is the case as I don't always see them either. There are a few other points on the schematic that don't always show up either; however, I do think that identifying the phases helps in guestimating the timing of the completion of the range and a possible move to a breakout. Wyckoff provided the tools to analyze a trade and they are available for those who wish to use them. I agree with you that trading can be done without them or just using some of them. I'm choosing to learn all of them.
If you want to see a classic Wyckoff Dist Process check out AUD/USD. Be good practice for those that want it to ID the phases A-E and the various Labels that Wyckoff applied.
There is a substantial risk of loss in trading commodity futures and options. Past performance is not indicative of future results. The opinions expressed here are those of Gary Fullett, and are not to be taken as a recommendation to buy or sell commodity futures or options. This is for educational purposes only.
