[DbPhoenix]

Originally Posted by habi »

Since you are talking about waves, it could be interesting, what happend since 2000. I compared the downmove from the high to the low in October 02 with the upwave to October 07. This upmove last nearly two times longer than the preceding downmove. Volatility increased since the last high and in this view it's doubtable, if the 1250 lows forms a long term bottom. If I'm correct in Db's interpretation of support and resistance, the we have resistance at 1555 and support at aroung 800. To mitigate the worse scenario, we need now a rally up.

Swing points provide a form of support and resistance, yes, but it's somewhat different from the support and resistance provided by zones. The "resistance" provided by points, particularly if they are isolated, is provided primarily by the inability of the trader to find a trade (which, after all, is the business of the trader). There's nothing going on up there, or down there, so price returns back to an area where these trades can be found, which is where the "value area" comes from.

In a V formation, price never stays anywhere long enough to provide these zones, and one is equally likely to find a trade at point A as point B or C or any other point. Since the ES has reached that top zone twice now, the resistance it provides is a bit more formidable than a single point. But whether we make a trip all the way down to the bottom is anybody's guess. If you'll look closely at this particular chart, what appears to be a V has some of those value areas or consolidations within it. 2004 was spent going more or less sideways, then the first half of 2005, then the second half of that year, then a little more than half of 2006. Each of these represents a potential waystation. We're at the first of them now.

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[DbPhoenix]

Originally Posted by BlowFish »

This is something I have meant to ask you about for a while. While rectangles may provide a much truer picture of where S/R might lie they do present more challenges to the trader looking for trades. I think you coined the term 'preliminary climax' for the push that comes before the real one. Sometimes you may get a couple if the side in control just wont give up. Now what if all these are in the zone?

I guess one trades them all? You mentioned elsewhere that Wyckoff would have no qualms about entering and re-entering. If you get good trade location and apply decent money management principles you should get a scratch or even take some profits on a portion if that is your preference. Is this the answer, trade management.

Actually lines provide a similar challenges too because if price has visited somewhere a lot (i.e. it is 'real' S/R) there is likely to be 'clusters' of them resulting in a zone anyway.

I guess another way of putting this is if the S/R zones are pretty wide compared to the space between them they become less useful in there job of guiding the trader to where he should be looking for trades?

Not sure if this is the right place for this. I was going to post in your blog or PA thread. Feel free to link off somewhere if it's straying off topic here. I have given this quite a lot of thought, maybe its the old traders malaise of looking for 'certainty' where none exist. Still I would be appreciative of any thoughts you might have on this.

Cheers.

I think I used the term "potential climax". What appears to be a potential climax and turns out not to be THE climax is considered "preliminary support". W didn't know at the time whether the selling clmaxes were in fact selling climaxes until they were tested. Rather he went with what was in front of him and stayed open.

But an omnibus answer to your questions may be that the best trades are found at the extremes. Therefore, you wait for the extremes. I read somewhere recently -- and can't remember where -- having to do with MP, I believe, that most experienced traders will avoid trying to catch the tops and bottoms and focus on "the middle", waiting for confirmations to enter and confirmations to exit. This is likely what they were taught to do. However, since "the middle" is by definition where most of the trading is going on and is largely non-directional, there is also a lot of whipsawing in the middle, and that generates a lot of losing trades. One can sometimes avoid this by widening the stops, but, since the market always teaches us to do what will lose the most money, this will turn out to be an unproductive tactic.

W used a combination of events to tell him when a wave was reaching its natural crest or trough: the selling/buying climaxes, the tests, higher lows/lower highs, and so on, all confirmed by what the volume was doing and by the effect the volume had on price (effort and result). What auction market theory provides is the WHERE these events are taking place, providing an important clue as to whether they are culminating or merely preliminary. Since W was big on extremes (climaxes), support and resistance, stride, momentum, midpoints, etc., I do not view any of this as being off-topic at all. If anything, it's just a natural extension.

Dunnigan had this same issue, and it may have been for him the missing piece. TLo also had problems with this since she was (and I suppose still is) a Dunnigan fan. One can try to hit what appear at the time to be the important swings again and again and be stopped out again and again, hoping all the while that once one hits the true turning point, all the effort will turn out to have been worthwhile, and the P&L will change from red to black. But by waiting for the extremes, one avoids most or all of those losing trades, and even more important avoids trading counter-trend. These boxes -- which are simply a graphic variation of the MP distribution curve, whether skewed or not, or of the VAP pattern -- are nothing more than a means of locating those extremes. What I've found more useful about them is that they are encapsulated by time, i.e., the price and volume ranges have a beginning and an end. This enables me to see at a glance where the important S&R are, or at least are likely to be. Without them, one ends up with line after line after line until the S/R plots become a parody of themselves.

[zdo]

db,

Do you have a minimum number of bars in a ‘box’ (/ zone) and if so, how many? Many thanks.

zdo

[DbPhoenix]

No. Counting bars doesn't make much sense since they're entirely dependent on the bar interval you choose. When price stops moving up, or down, and retraces, I then wait to see if it's going to continue or bounce back and forth. If the latter, that becomes a congestion or a trading range (if it's tradeable). That earns a box.

[erierambler]

today then should be quite simple, should we open with yesterday's range. On the ES s/r match with your analysis of the ES. 1421 and 1409.

[DbPhoenix]

That's the drill, as I mentioned in the longer post above and in more detail in the Dailies. The general idea is to find S&R then trade the extremes, selling R and buying S. The worst chop is most likely to be found at the midpoint, which in this case is 1415 (and it looks like we're going to open right there).

OTOH, moves do originate from the midpoint, and the midpoint sometimes acts unexpectedly as S or R. Seeing this can be frustrating. But if one reviews several dozen charts (or more), the probabilities for good entries with tight stops are most often found at the extremes.

Note: I should also point out that we'll be opening just above the midpoint of that long upmove from 5/9. So if price doesn't take off straight out, there may be a lot of jockeying here.

[gassah]

Originally Posted by DbPhoenix »

OTOH, moves do originate from the midpoint, and the midpoint sometimes acts unexpectedly as S or R. Seeing this can be frustrating.

As I mentioned once before Tom Alexander discussed buying out of the midpoint but it required a mature range as defined by MP and a bell shaped curve after the four stages of development. I don't know how you would define mature by only looking at a bar chart but you probably can.

[DbPhoenix]

If one were statistics-minded, he could determine the typical length of time that traders spend in a particular box or range and thereby determine how likely they are to want to look for a new value area. I suppose one might also be able to determine how far they're willing to go to find it.

Sounds like a P&F project.