Riding the Wyckoff Wave

[DbPhoenix]

Whether or not one buys the higher low that occurs between 1045 and 1100, one can now draw a demand line underneath that low, beginning with the previous day’s low. Note that this is a demand line, not a trend line. It tracks those levels at which demand enters the market and stops or turns price. Therefore, whether 17 hours’ worth of time bars are included or not is irrelevant. One can use P&F or, as here, he can use CVBs. Since only two “points” are needed, the line can be extended toward the EOD.

Once this line is plotted, it can be copied and another, parallel line placed at what has so far been the swing high. This is also extended toward the EOD so that the trader can monitor the behavior of price if and when it approaches this line.

[DbPhoenix]

Shortly after 1100, price does approach, then push through, this line, becoming “overbought” by virtue of having pushed through the line. A few minutes later, it pushes further to the midpoint of Wednesday’s downmove. If the trader were long, should he exit here? Should he go short? That depends on the trader. But this is where the bears gain the upper hand and turn price back, not out of the blue, but at the confluence of these two important levels (compare the time chart to the CVB chart).

[DbPhoenix]

Thereafter, price reverses at 1966, though there’s no way of knowing that it will, and volume does not provide a clue until price hits this level a second time, after lunch. Whether one closes his short and goes long here depends on how confident he is that support is to be found in this area. But the point of this is not to find trading opportunities per se; it is rather to gauge the relative strength of bulls and bears. So far, the bulls are in control as shown by the higher lows.

Price thereafter makes a higher high, again “overbought”, followed by a higher low. If one is going to trade this, volume does provide clues at turning points, but a central and perhaps more important concern is just how far bulls can push price. If it cannot reach the previous day’s midpoint, this suggests weakness. On the other hand, if it can get past the midpoint, this suggests strength, either of which carries implications for the following day’s trading. This second higher high at 1400 does push past the midpoint, suggesting strength. And it appears to make a higher low a half hour later.

However, price now drops below the demand line and is unable to push back through it for more than a couple of points for more than a few minutes. This represents a change in the dynamic between bulls and bears which, again, is the point of plotting these lines and monitoring the relationship of price to them and to the support represented by the previous day’s low and the resistance represented by the midpoint of the previous day’s downmove. Again, one can trade this and, yes, one can make money with it. But, according to Wyckoff, the likelihood of doing so is enhanced by being sensitive to this push and pull between demand and supply and being able to place all of it in the right context. Otherwise, one is more likely to be making random trades, i.e., gambling.

Here, again, the supply line is drawn first, then a parallel line is plotted underneath to track demand.

[DbPhoenix]

One who understands how to interpret charts correctly can usually decide whether the whole market, or any single stock, or group of stocks, is most likely to advance, decline or stand still. Every market and every stock is always in a bullish, bearisn or neutral position. The person who can determine, with a high percentage of accuracy, the position in which the market, or a group, or a certain stock stands, holds the key to success in trading and investing.

Richard Wyckoff

[DbPhoenix]

For those who follow the ES, note that it never even made it to the previous day's midpoint, much less establish a trend. The fact that it could not do so suggests weakness.

The red lines are the midpoints of the respective moves. The dotted line is both a support and a resistance line, depending on where price is in relation to it during this period. The black line is, of course, the midpoint of the post 4/18 trading range.

[treadstone]

Very good series of posts there, Db. Thank you.

[Bearbull]

Zeon,
Hope you have gained more insight now , another illustration to reinforce what has been outlined in the posts here,

NQ 1,2 : prices fall with increasing vol. to 1965 , and bounces off the up trendline, you then have the classic VSA signals, downbar on high vol, followed by tests on low vol, Go Long,

NQ 3, however the traders had other ideas, the prices go down on low vol breaking the trendline because the demand is of poor quality. they do not tell you that in the VSA school. Had the market gone up from 1965, they would have come out and claimed how good VSA signals are. Have seen this countless times in their seminars, illustrations of setups which panned out.

My final effort to provide you with the incentive to seek answers from the charts rather than from any outside source.

[Bearbull]

Zeon,
And ofcourse another ideal long setup, hammer, doji, dragonfly right at the support from left 1963, palm tree in florida (VSA mantra), all signs of strength.

They talked about all the 9 principles of signs of strength and weakness in their seminars , however when somebody from the audience asked where is the entry and the stop loss, in short, how do you trade this. The answer was: it is up to the skill of the trader, all the 3 presenters claimed their style of trading would not suit everyone

[zeon]

	Quote:	Bearbull
	Zeon, And ofcourse another ideal long setup, hammer, doji, dragonfly right at the support from left 1963, palm tree in florida (VSA mantra), all signs of strength. They talked about all the 9 principles of signs of strength and weakness in their seminars , however when somebody from the audience asked where is the entry and the stop loss, in short, how do you trade this. The answer was: it is up to the skill of the trader, all the 3 presenters claimed their style of trading would not suit everyone

If those are ideal long setups, than just watch how it goes down to 1952 again.

[Bearbull]

	Quote:	zeon
	If those are ideal long setups, than just watch how it goes down to 1952 again.

Yes I know that, I wanted to bring to your attention the ideal setups as per the VSA tutors, now you can ask them why it did not work that time, same to the candlesticks folks, am sure they will all come up with some justification.