Retracement Vs. Reversal

[cowseathay]

Hi,

I am a novice to Wyckoff and am trying to learn and apply his principles.

Often I have trouble telling a retracement from a reversal and I want to post a chart of the Euro from today to illustrate my problem.

I'm posting the one minute chart and also the five minute chart for context. Around 12:20 price started breaking out of resistance with great volume and pace. Around 12:23 the price and volume action was indicating (to me) a potential buying climax (the volume peaked). Another clue was that price stopped at a well established resistance from earlier in the day and from last week. Then it began retracing and after a few bars the first up bar came about with what seemed to me like good buying pressure (for one, the volume was higher than the prior down bars). However price turned around and started going lower and you can see what happened. But it never went back up to test the high that was just made, and instead just kept going slowly lower. There was even a large volume bar around 13:00 in which the price went higher which I thought could be the buying pressure coming back in but then price kind of died out and started grinding lower and lower.

I'm just wondering, were there any clues that that there was not going to be a complete retracement and that price is instead reversing? Or am I just thinking too deeply into it and should just accept that the trade didn't work?

Any help is greatly appreciated.

Thank you,
CowsEatHay

[cowseathay]

Just for further context, I'm also posting another chart of the euro of a much larger timeframe for a bigger picture view.

Thanks,
CowsEatHay

[Bearbull]

	Quote:	cowseathay
	Just for further context, I'm also posting another chart of the euro of a much larger timeframe for a bigger picture view. Thanks, CowsEatHay

You have already drawn trendlines on the 1min chart, if you were long, your exit would be either the break of TL or break of previous swing low, refer to Dbphoenix forum and blog for further info. on how to apply Wyckoff principles in this regard.

[cowseathay]

	Quote:	Bearbull
	You have already drawn trendlines on the 1min chart, if you were long, your exit would be either the break of TL or break of previous swing low, refer to Dbphoenix forum and blog for further info. on how to apply Wyckoff principles in this regard.

Thanks for your reply Bearbull. I understand that had a long been taken, I could exit at the break of the TL. However, I was wondering if there were any clues in the price-volume relationship that would preclude taking the long in the first place?

[Bearbull]

	Quote:	cowseathay
	Thanks for your reply Bearbull. I understand that had a long been taken, I could exit at the break of the TL. However, I was wondering if there were any clues in the price-volume relationship that would preclude taking the long in the first place?

You had all the signs of reversal to the upside around 10-11 above a support area of 156.72, infact a higher low, ( climatic sell off followed by sharp reversal and then a test on low vol), had this test been on high vol i.e down bars with increasing vol, then that would negate the reversal signal and it would expect the support to fail, in which case you would continue to monitor and look for further signs of reversal via price-vol relationship. I would strongly urge you to study Dbphoenix threads in Wyckoff forum and his blog, there is a ton of invaluable info. there, well worth the slog

[DbPhoenix]

	Quote:	cowseathay
	Hi, I am a novice to Wyckoff and am trying to learn and apply his principles. Often I have trouble telling a retracement from a reversal and I want to post a chart of the Euro from today to illustrate my problem. I'm posting the one minute chart and also the five minute chart for context. Around 12:20 price started breaking out of resistance with great volume and pace. Around 12:23 the price and volume action was indicating (to me) a potential buying climax (the volume peaked). Another clue was that price stopped at a well established resistance from earlier in the day and from last week. Then it began retracing and after a few bars the first up bar came about with what seemed to me like good buying pressure (for one, the volume was higher than the prior down bars). However price turned around and started going lower and you can see what happened. But it never went back up to test the high that was just made, and instead just kept going slowly lower. There was even a large volume bar around 13:00 in which the price went higher which I thought could be the buying pressure coming back in but then price kind of died out and started grinding lower and lower. I'm just wondering, were there any clues that that there was not going to be a complete retracement and that price is instead reversing? Or am I just thinking too deeply into it and should just accept that the trade didn't work? Any help is greatly appreciated. Thank you, CowsEatHay

You got your reversal when price failed to break through R. You then got your retracement at 1300. It didn't retest R, but it was a retracement nonetheless. That volume is "higher" doesn't necessarily mean buying pressure. Look at those upper tails. That's not buying pressure. That's failure.

As for going long, you failed to break through R, so why go long? If you're going to go long, wait for the breakout, if any. If you instead want to buy a retracement back to R now S after the BO, that's up to you. But any retracement after a failure to break through R will just as likely end up being a lower high, and a reason to go short, as in this case.

You have to think about the purpose behind a retracement, which is to give people who missed the real trading opportunity a second chance to enter. Here, there was no missed buying opportunity since price never broke through R. The missed opportunity is instead the short entry at the reversal, and the retracement afterward represents a second opportunity to enter the short.

[cowseathay]

	Quote:	Bearbull
	You had all the signs of reversal to the upside around 10-11 above a support area of 156.72, infact a higher low, ( climatic sell off followed by sharp reversal and then a test on low vol), had this test been on high vol i.e down bars with increasing vol, then that would negate the reversal signal and it would expect the support to fail, in which case you would continue to monitor and look for further signs of reversal via price-vol relationship. I would strongly urge you to study Dbphoenix threads in Wyckoff forum and his blog, there is a ton of invaluable info. there, well worth the slog

Thanks for your reply and explanation Bearbull. I see what you're saying but I was actually referring to the reversal to the downside that happened after 12:23. Sorry if I wasn't clearer. And also, I have been and continue to study Db's threads and his blog and am trying to assimilate his insightful presentation of Wyckoff's methods but I know I have a long way to go. It's easier studying it in hindsight than applying it in real time but I know it just takes a lot of practice as with any other endeavor.

CowsEatHay

[cowseathay]

	Quote:	DbPhoenix
	You got your reversal when price failed to break through R. You then got your retracement at 1300. It didn't retest R, but it was a retracement nonetheless. That volume is "higher" doesn't necessarily mean buying pressure. Look at those upper tails. That's not buying pressure. That's failure. As for going long, you failed to break through R, so why go long? If you're going to go long, wait for the breakout, if any. If you instead want to buy a retracement back to R now S after the BO, that's up to you. But any retracement after a failure to break through R will just as likely end up being a lower high, and a reason to go short, as in this case. You have to think about the purpose behind a retracement, which is to give people who missed the real trading opportunity a second chance to enter. Here, there was no missed buying opportunity since price never broke through R. The missed opportunity is instead the short entry at the reversal, and the retracement afterward represents a second opportunity to enter the short.

Wow, thanks for that explanation db. I didn't really think about the purpose behind the retracement like you mention, but what an insightful way to look at the market. Your explanation makes perfect sense. I just need to keep practicing and learning to perceive the markets in this way.

CowsEatHay

[cowseathay]

I have another question about the same thing.

I'm attaching today's chart of the Euro, 3-minute, 1-minute and also an updated 240-minute if anyone is interested in the big picture.

In the 3 minute chart you can see how around 3:00 price sold off at R (red line) and you can see the long tails indicating a good chance of reversal.

Around 4:30 you can see how price tested R again and see that it reversed. What db said applies directly to this price action (I believe), as price stopped right at R and if you look at a 1-minute chart at this time (which I have not posted) then you can see price tested R again after 2 bars but sold off and closed much lower showing a good sized tail, which might be a good place to go short.

Now, if you look at the place where I have put a red arrow in the 3 minute chart you can see how price stopped at R again but it closed higher than the red R line and also higher than the prior swing high at 4:30. My question is would you consider this as price having broken R or stopped at R since it still closed below the high of the bar at 2:45 (around 157.91, visible as a long tail). Furthermore price then heads lower in the next bar perhaps signfiying that it has stopped at R and is now retracing. The reason I feel this is important is because whether or not one classifies this as a break thru R or a stop at R determines whether one should short or go long (near the blue arrow).

Another related question is the place where i've put a yellow arrow. By now it is clear price has broken thru R, however it was sold off and closed below the high and you can see the tail in the bar. Then price sold off a bit further. Does this suggest selling pressure or should one just keep in mind that price broke R and the best thing to do now is to look for a long?

I know I'm being very nit-picky and looking at individual bars and such but I'm just trying to get a decent grasp on all this so I would appreciate any help in this regard. I hope what I'm saying is clear, if it isn't please let me know and I will clarify.

Thanks,
CowsEatHay

[DbPhoenix]

You're too focused on bars, and that prompts the nit-pickyness. Focusing on bars rather than price movement will cause you to devote your attention to what is essentially trivial and ignore what matters.

In your first batch of charts, what mattered was that (a) price failed to BO and (b) didn't even come close to retesting R, creating a lower high. Whether this was illustrated by bars, points, lines, or not charted at all was irrelevant.

In this batch, price again fails to break thru with any conviction, falls back below R, but then comes right back again. This particular effort is stopped dead at R, and a short is called for.

But look at what's happening with the trading activity (or volume). It rises with those two down bars at 0827 and 0828, but then nothing. Trading activity falls off and there's no follow-through on the drop. Price then, instead of doing what you expect it to do, i.e., fall, makes a U-turn and rises instead. This is sufficient reason to exit the short, stand aside, and re-evaluate (you will at the very least BE).

Buyers then make yet another attempt to break thru R and stay there. You will have decided, I hope, whether or not you're going to go long on a BO, if any, wait for a retracement after a BO, if any, go short on a repeated failure to BO, if any, etc. In this case, price does break thru, but it then straddles R, then hugs it before finally taking off. What is most important, however, is not "the bars" but the fact that price isn't falling. That fact should speak to you and provide you with some guidance as to how to manage your position. If holding here for nearly 20m while price plays with itself is intolerable, then you may want to exit and wait for price to break thru "the wall" (you will likely find this wall on a smaller TF, e.g., 5s; the bars from 0855 thru 0858 appear to represent a springboard, which would be clearer on a 5s chart, but I don't follow this, so I can't say until I see the chart).