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So how would one make trades using Wyckoffs own work? You have posted daily charts and in one of your last posts made the comment that the level on the NQ has shown to be an area that can be traded. Does that mean one can short the area with a stop above the range?
Are lower time frame charts used or some other means of confirmation? How would Wyckoff do it?
Please don't take my questions argumentative. That is not my meaning. I'm genuinely curious because I'd be a scared little boy to just enter at the indicated area.
I strongly suggest you study chapter 7 in his course, the analysis of the market average during 1930-31. This is of course an interday analysis, but nowadays we trade intraday using the same guidance because we have the bars. And we have many different bar intervals. W had none of that, so he traded intraday off the tape, sometimes using formal P&F and sometimes just notations. I like to use a 1t chart intraday if available, and no more than a 1m if not. I follow the movements intraday as I do the interday, just as he did. Same wave structures except in the matter of degree, same fear and greed, same doubts, same hesitations, same confusions. As long as one focuses on trader behavior, he can use all of this against those whose focus is elsewhere, like indicators or "the book".
But ultimately this is all a lot of blah blah unless one is following price action in real time. You can read the books and watch the DVDs and take the courses and listen to the tapes until you turn blue, but none of it will do you a bit of good until you sit down in front of a screen and watch price move, with no intention whatsoever of taking a trade. Once you become attuned to the continuous flow of price and how it's determined by traders' choices and actions, you'll not only know what to do but when to do it.
I have no idea what the market is going to look like in the morning, but I'll try to make posts on what I see, at least at the beginning of the session. They won't be real time, of course, but they may give you some idea of what to look for. In a nutshell, you look for resistance and you wait to see what traders do if and when they get there. Will they reject it? If so, how strongly? Will buyers try more than once? Will they make a double top? A lower high? Will the demand line be broken? And so on. All these are potential indications that you may have a short in your future.
Well, the NQ sailed thru the midpoint of the range like a hot knife through butter and is now sitting at the top of the range. Therefore, one looks for a reversal signal or waits for a breakout and retracement. Even though W is not mechanical, there is a methodology to be followed if one is to control risk.
09:08 I haven't reproduced all the previous trading ranges. These can be found in earlier posts. Just scroll up.
Here, the most recent higher range is a little skimpy, but you never know. Price may be more likely to find R at the top of it (2780) than at the midpoint (2745). But both options are in play.
Price retraced briefly to its first swing low. Since then, buying waves have been longer than selling waves:
09:28 Stalling at last swing high and sitting in trendline. Whether price rises or falls, look for the first retracement.
09:34 Springboard at 09:32.
09:49 Retracement to 2732 fails; test of springboard also fails. Retracement effort finds S at 2722.
09:53 Price makes it past halfway mark of decline, coincident with the level of the springboard.
10:00 Supply line broken. Lower high.
10:11 Higher low. Potential hinge.
10:22 Downside poke out of hinge at 10:19.
10:29 Price riding demand line.
10:38 Price pokes below hinge again at 10:32 and rallies to demand line, coincidentally forming a mini-trading range between 24 and 28.
10:45 Price falling of little trading range. First potential S is at bottom of hinge, second is the top of the premkt base. Activity, however, has dropped dramatically since 10:00. Trading a dull market carries its own risks.
10:59 Waffling around at the bottom of the hinge. Too dull to trade. Congratulations to winsor for almost seeing it through.
Given the expressed interest in learning this approach, I was rather surprised at the low turnout yesterday morning. No more than two people were here at any given time, and only one person was here for more than a brief period. This doesn't hurt my feelings, but it does serve to explain to a large extent why so many beginners fail.
Hindsight charts can be great for learning principles and for formulating and testing setups. And, of course, when one is reviewing one's trades, the charts are by definition hindsight.
But one can't learn to trade in hindsight. Beginners and not-so-beginners may spend millions of dollars on courses, DVDs, tapes, books, subscriptions of one sort or another, software, indicators, etc., etc., ad infinitum, but they won't learn to trade, and their money will be for the most part wasted because all of these media live in the past. But trading for real is not in the past, and one can't make a dime off hindsight charts. Trading is now, and in the next moment, and in the moment after that. Unless one knows (a) what to look for and (b) what to do with it if and when he sees it, he's wasting his time and his money. And if he doesn't know what to look for or what to do with it, fear will be his constant companion.
This is not to say that one can't trade if he isn't glued to his monitor for an uninterrupted span of time, but learning to do so is so near to impossible that it may as well be so. And if one's time in front of the monitor is, shall we say, spotty, it should come as no surprise that the beginner focuses on the meaning of this bar or that bar, probably using a large interval such as the 30m or 60m and using at least one indicator to show him where he's been and where, supposedly, he is likely to be at some point in the future when he is in a position to enter a trade.
None of this has anything to do with the "Wyckoff Method", much less learning how to implement it. Anyone can show a profit using hindsight charts. Anyone. But that's not where the money is made; the money is made in real time. And real-time Wyckoff trading means a 1t chart or a T&S display with only price (no bid and ask) and volume (of transactions, not bid and ask). No one who is trading at work or at school or is engaged in some other task can do this.
Therefore, if one who can't focus on continuous price action is trying to trade this method, he should trade intraday and interday the same way, trading some instrument, like futures, that trades 24/7, using a bar interval that enables him to trade "real time", even though the price action contained within that larger bar interval will be shuttered to him, except in hindsight.
And keep your wallets in your pants, taking all claims of "profitable trading strategies" with a ginormous grain of salt.
Having said all of that, let's look at a couple of charts, a daily to show where we are and what we're up against and a 60m for trading.
There are two supply lines provided, one of which includes the gap and one of which forms after the gap (these gaps occur only on weekends and holidays). Both have by now been broken. However, price has come nowhere near the last swing low and has in fact formed a nice little base with a marginally higher low.
One could enter the first retracement yesterday (the first green dot), or, depending on his risk tolerance, he could enter within this little premarket base (W preferred entering the base rather than at the breakout, though this can present problems unless the base can be expected to resolve itself rather quickly, which is the case with futures due to the volatility one finds at the "open"). If the trader cannot tolerate the risk of price falling below this base, he should not take the trade.
Well said Db. There's lots of value in learning from practicing with a papermoney account. As with classes one would take in high school or college there is only theory, but it's when one applies the theory in a lab class is when the theory is proven to the student and the student gets confidence. I think the website that you use for your charts can help with this in providing real time charts and your itemized discussion of the chart's changes at specific times is very helpful.
I too use chart patterns on occasion. I mostly use trend and range channels, but I think the chart patterns like the triangles, pendants, etc may not have been well defined in Wyckoff's day and maybe that's why he didn't use them. However, I find them helpful because they are not lagging indicators any more so than the trend channels.
I agree about trading sim, though there are those who think it's a waste of time and that one needs to be trading real money in order to experience all the attendant emotions. However, if one is having emotional issues, that has more to do with an inadequate or nonexistent trading plan than with any distinction between trading sim or for real.
As to patterns, they were well-defined enough at that time (see Schabacker), but W was concerned with behavior, not patterns. Whether or not the behavior created a pattern was irrelevant. The danger was, and is, that the attention became focused on the pattern rather than on the behavior which created it. More often than not, these detours prompted the trader to make the wrong decision, whereas if he had stayed focused on the behavior, he'd have stayed on track.
