I am new to understanding Wyckoff. I have read the "Daytrader's Bible" twice, listened to a couple "Tag" presentations by Hank Pruden, read the 19 pages of this thread and from the perspective I've gained thus far from a purist point of view, I believe that Head2K is wrong in his analysis of the chart and entry points [Ed Note: see here and here].

I have annotated the chart with Wyckoff's terminology, and if a trader takes the price levels @ "Preliminay Demand" and "Selling Climax"; subtracts the later from the former then divides by "50%" "Wyckoff's only retracement level" that I've read thus far. That trader should expect a reaction to occur @ that level providing a "Secondary Test". If this held the trader could then enter a long position with a stop below the "Selling Climax".

When the trader has this Stop calculation, he then multiplies it by a factor of 3 "Wyckoff Profit target" I've read. With these thoughts the trader would have had a stop of 25 and a profit target of 75.

[DbPhoenix]

Originally Posted by da-net »

I am new to understanding Wyckoff. I have read the "Daytrader's Bible" twice, listened to a couple "Tag" presentations by Hank Pruden, read the 19 pages of this thread and from the perspective I've gained thus far from a purist point of view, I believe that Head2K is wrong in his analysis of the chart and entry points.

I have annotated the chart with Wyckoff's terminology, and if a trader takes the price levels @ "Preliminay Demand" and "Selling Climax"; subtracts the later from the former then divides by "50%" "Wyckoff's only retracement level" that I've read thus far. That trader should expect a reaction to occur @ that level providing a "Secondary Test". If this held the trader could then enter a long position with a stop below the "Selling Climax".

When the trader has this Stop calculation, he then multiplies it by a factor of 3 "Wyckoff Profit target" I've read. With these thoughts the trader would have had a stop of 25 and a profit target of 75.

While it's always possible that we're wrong in our analyses, I'm unfamiliar with some of what you propose here.

What is "preliminary demand"?

What is "Wyckoff's only retracement level"?

Why would one expect a reaction to occur there?

Why have you designated the secondary test so late?

Why multiply by a factor of three?

Why use a vertical chart to do so?

Why determine a profit target (I'm assuming that you would exit at the target)?

I have attempted to search for the answers to the questions you pose from all the things I've read thus far. I have assembled the info into a pdf that contains the answers incl documentation where available. Hopefully I have not violated the "fair use doctrine" of these materials.

[DbPhoenix]

Originally Posted by da-net »

I have attempted to search for the answers to the questions you pose from all the things I've read thus far. I have assembled the info into a pdf that contains the answers incl documentation where available. Hopefully I have not violated the "fair use doctrine" of these materials.

While I appreciate the effort, you've combined a variety of not necessarily compatible elements into a stew that may not be the best first course.

First, "preliminary demand" is not a Wyckoff term. As you point out, it came later. And even if it were a W term, demand would not show along the supply line.

Second, W suggested that a retracement of less than 50% suggested strength (in an uptrend) and of more than 50%, weakness. However, this does not necessarily apply to intraday trading (nor necessarily to interday trading, either). Just this past week, we have seen 100% retracements turn on a dime and go right back to where they started, then make yet another trip. This particular nugget is insufficient for plotting a trading strategy.

Third, "secondary test" is not a W term. I believe you mean "secondary reaction". This occurs after the technical rally, which occurs after the selling climax. Therefore, the secondary reaction is the first pullback after the selling climax at around 0945, not a half hour later. Additionally, you're mixing his approach to daytrading with his approach to interday trading. He relied on P&F for the former and took quick profits. And though he may have traded differently had vertical intraday charts been available, we can't assume that. On the other hand, we can apply the principles he used for vertical charts to intraday trading since we do have them available. If we didn't, we'd all be using P&F charts and we'd all be scalping.

Fourth, he suggested that the distance to the potential profit be at least three times the distance to the stop, but he also incorporated the notion that the probability of the profit actually being reached should be considerably higher than the probability of the stop being tripped. This carries with it far more importance than simply calculating a r:r ratio and initiating the trade.

Fifth, the "targets" that W proposed were determined by P&F charts, not vertical charts. But he also reminded the trader that the profit potential depended entirely on what the trader wanted out of the trade; there was no self-limiting cap on what he could expect.

It would take many dozens of posts to sort out what Wyckoff said or wrote from what others say he said or wrote. There is a great deal out there that is "based on" Wyckoff but which has little relation to the contents of his original course. Much of it is just plain lazy, saying, for example, that Wyckoff moved to Phoenix in the 30s (after his death, presumably) to open the Stock Market Institute. Much of it is also manufactured, for one reason or another.

I suggest, therefore, that you listen to Wyckoff's original voice. You will get to know him in a way that is not possible via a translator, even if that translator is me. The core of his approach lies in the stickies at the top of this forum. Elaborations can be found elsewhere in the forum in other threads.

I also suggest that you reread the 20-post arc preceding and relating to the chart which Head analyzed. This isn't about lines and points and calculations and patterns. It's about traders trading. Once you understand what traders are doing to push price higher or pull it lower, you'll become a better Wyckoff trader than most.

Note: since all the posts in the arc referred to above wound up being mostly about hinges, they have all been moved to the Hinges thread.

[facc]

I trade the euro stoxx 50 and I am amazed that price doesn’t move if there is a big imbalance between bid vs ask volume, on several occasions this week I saw bid vs ask ratio of more than 5:1 or 1:5 and price went nowhere not even a single point.

Am I missing something here?

I do find the speed of the tape very helpful but it seems that it doesn’t always matter how many contracts are being traded.

[DbPhoenix]

Originally Posted by facc »

I trade the euro stoxx 50 and I am amazed that price doesn’t move if there is a big imbalance between bid vs ask volume, on several occasions this week I saw bid vs ask ratio of more than 5:1 or 1:5 and price went nowhere not even a single point.

Am I missing something here?

I do find the speed of the tape very helpful but it seems that it doesn’t always matter how many contracts are being traded.

Price moves because of transactions, not because of intentions. Bid and ask "volume", therefore, are not pertinent unless and until they result in a transaction. Once the actual transactions have taken place, one can then analyze the results of those efforts and judge the balance between buying pressure and selling pressure.

If you're scalping, however, you're more likely to be concerned about the initial impulse away from your entry point. That may have more to do with where the entry is made than with the volume behind it. Without knowing your strategy, I can only guess.

[facc]

I trade of the 5 min chart and I don’t scalp I normally try to go for 10 to 20 points on the fesx and on a trend day I will try to hold my position until I think the move is overdone or before a news event comes out. I also don’t use level 2 but just time and sales.

And the bid vs ask I mentioned are the real volumes being traded so those are transactions. I do see value in volume on daily chart. But on a 5 min chart I sometimes see thousands of lots being traded while price goes nowhere for minutes and then it moves on less volume, and it doesn’t always move in the same direction as the thousands of lots traded minutes before.

[DbPhoenix]

Originally Posted by facc »

I trade of the 5 min chart and I don’t scalp I normally try to go for 10 to 20 points on the fesx and on a trend day I will try to hold my position until I think the move is overdone or before a news event comes out. I also don’t use level 2 but just time and sales.

And the bid vs ask I mentioned are the real volumes being traded so those are transactions. I do see value in volume on daily chart. But on a 5 min chart I sometimes see thousands of lots being traded while price goes nowhere for minutes and then it moves on less volume, and it doesn’t always move in the same direction as the thousands of lots traded minutes before.

I'd have to see a chart example to give you more than a general answer, but if, for example, price is at a certain level and a lot of trading activity (volume) begins to take place and price is going more or less nowhere, then there is likely an equivalent exchange of buying pressure and selling pressure going on. In other words, sellers are unloading what they want or need to unload onto willing and eager buyers, but whatever imbalances there may be are not strong enough to move price. Price is in stasis, or a state of equilibrium. Once this exchange has taken place and the trading activity falls off, then the underlying nature of buying pressure vs selling pressure can manifest itself. If sellers are "done", then only a slight bias toward buyers can move price substantially higher on very little volume (if volume were higher, sellers would still be active). If, on the other hand, buyers are out of steam, then very little selling pressure and coincidental low volume (low trading activity) will prompt price to drop.

Think effort and result. Trading activity (volume) is a clear manifestation of effort. What are the results of all this effort? If zip, then buyers and sellers are probably at a standoff. But what happens then? If price rises thereafter, then sellers likely unloaded most of what they wanted to unload, but buyers are still willing to pay the premium. If the opposite occurs, buyers are out of bullets, and there's little to prevent sellers from driving price down.

Why sellers would want to drive price down in the first place is another matter, depending on who they are and what their motives are. But this should serve for now.