Riding the Wyckoff Wave

[DbPhoenix]

Richard Wyckoff was a pioneer of technical analysis. While Dow contributed the theory that price moves in a series of trends and reactions, and Schabacker classified those movements into chart patterns, developed gap theory, and stressed the role of trader behavior in the development of patterns and support/resistance, Wyckoff contributed the study of the relationship between volume and price movement to detect imbalances between supply and demand, which in turn provided clues to direction and potential turning points. By also studying the dynamics of consolidations or horizontal movements, he was able to offer a complete market cycle of accumulation, mark-up, distribution, and mark-down, which was in large part the result of shifts in ownership between retail traders and professional money.

Wyckoff sought to develop a comprehensive trading system which (a) focused on those markets and stocks that were “on the springboard” for significant moves, (b) initiated entries at those points which offered the highest probability of success, and (c) exited the positions at the most advantageous time, all with the least possible degree of risk. His favorite metaphor for the markets and market action was water: waves, currents, eddies, rapids, ebb and flow. He did not view the market as a battlefield nor traders as combatants. He counseled the trader to analyze the waves, determine the current, “go with the flow”, much like a sailor. He thus encouraged the trader to find his entry using smaller “waves”, then, as the current picked him up, ride the current through the larger waves to the natural culmination of the move, even to the extent of pressing one’s advantage, or “pyramiding”, as opposed to cutting profits short, or “scalping”.

“Trading Wyckoff”, then, is more than just relating price and volume. It is a complete trading strategy, ranging from finding the most attractive opportunities through strategy development and trade management to the best moment to close the trade, all with the least possible degree of risk.

Below are copies of Wyckoff's Studies in Tape Reading, which has been reformatted into The Day Trader's Bible and is as good a place to start as any, along with Reminiscences of a Stock Operator by Jesse Livermore, a contemporary of Wyckoff's. We've also included a chapter from Wyckoff's original trading and investing course. This chapter consists of Wyckoff's analysis of an entire year of price action as it relates to the essential elements of Wyckoff's approach: volume, support, resistance, climactic activity, tests and retests, etc. Supplementary material may be found in my Blog (link below).

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[gassah]

This is exciting!

I'm trying to plot volume by price for the higher trading range of the SP500 but I can't go back that far with the MP module in MarketDelta. Any other suggestions in order to get back to June '07? I can do the price composite with Market Analyst and the TPOs probably match up with the volume areas but I'd like to see anyway.

nic

[Eiger]

This thread looks like it will have some excellent material. I am really looking forward to it. Thanks for starting it.

Eiger

[DbPhoenix]

	Quote:	gassah
	This is exciting! I'm trying to plot volume by price for the higher trading range of the SP500 but I can't go back that far with the MP module in MarketDelta. Any other suggestions in order to get back to June '07? I can do the price composite with Market Analyst and the TPOs probably match up with the volume areas but I'd like to see anyway. nic

Does this help?

[gassah]

Thank you. Is that from stockcharts.com? Do you find the number of horizontal volume bars adequate? Can it be broken down into finer levels?

[erierambler]

Well, just for grins, here's my chart of the Wwave .
erie



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http://http://www.traderslaboratory....1&d=1208017422

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[gassah]

Is the Wave from the SMI components?

nic

[DbPhoenix]

	Quote:	gassah
	Thank you. Is that from stockcharts.com? Do you find the number of horizontal volume bars adequate? Can it be broken down into finer levels?

No, BigCharts. I use the horizontal bars for a "clue". I judge the distribution by eye, by looking at the price waves and noting where the tightest range clusters are. Some may find it easier to do this by using candles and ignoring the tails.

It's all a matter of areas anyway, as opposed to rigid lines. If going from the outside in is a problem, first find the midpoint, or the "POC", then work outward. When activity noticeably diminishes, that's probably your first SD.

Anyone looking for further examples can check the Dailies section in my Blog.

[erierambler]

	Quote:	gassah
	Is the Wave from the SMI components? nic

Yes , I believe it is, now that you mention it, since I've had this for about 3or 4 years.
erie

[treadstone]

Thanks for starting this thread, Db.

Really looking forwards to seeing it develop.