[mikew]

I think I'm getting it.. !

Originally Posted by motorway »

If everyone who holds a stock is sitting on large losses .. This is a certain Technical Position.... Now if they all sell and Now all the new buyers are sitting on small profits

The Technical Position is totally changed....

It would not go up until AFTER they SOLD.
Once they did sell... Not much could stop it from doing so.

My initial question in the thread was exactly this. I was wondering, well if the people who are on big losses decide to sell, their selling would contribute to the downmove even more, so why wouldn't the downmove continue stronger?

But you say, "not much could stop it from going up". I think I understand it now. The future is now up, because all the people who needed to sell have already done that. And even if there are new short positions who expect the price to go down, eventually they need to close their positions, which will contribute to more future buying pressure.

This quote from Olsen helped me:

In liquid financial markets, up to 98% of all the trading is based on speculative
positions and the hedging of those positions. These positions, being
speculative, are temporary, and any opening trade will need to be closed.
The closing trade has the effect of inducing a price reversal. Due to the duality
of the opening and the closing trade, the price movements are never
fully one sided. At some stage, sooner or later, positions will be closed
and then the price rebounds will occur.

I wasn't really taking into consideration that every open trade needs to be closed. And whatever pressure that occurs as trades get closed, that is 'weak' quality, right? And the side of the trade that is just being opened is of 'strong' quality? So after a sharp decline, all the panic selling is 'weak', because they are closing out their losing trades, and now all the 'strong' buying is opening their position.

Originally Posted by Head2k »

You should study DbPhoenix's blog. It will show you the basics in a very structured and clear way. Use the list of content on the left side to navigate, and start from the beginning.

I have read his blog, but I will do it again now after the insights and help from everyone so far in this thread.

But there is a different quality when you can ask questions and get direct feedback from everyone including yourself. So I hope its not a problem if I continue this thread further. So far we've only covered the very very beginning of the chart

[bamford]

Attached is a PDF of the contents of an article on "The Technical Position" written by John T. Brand (writing as "B") and published in the Magazine of Wall Street in 1916. Brand was an old tape reader and his material is much like Wyckoff's. In this article he covers several items mentioned previously in this thread.

[Kiwi]

A really interesting article bamford. I liked the bit where he hadn't found one in his time involved with the markets.

Worth reading for anyone trying to understand the markets and perhaps reduce their paranoia levels a bit.

[Head2k]

Originally Posted by mikew »

I have read his blog, but I will do it again now after the insights and help from everyone so far in this thread.

But there is a different quality when you can ask questions and get direct feedback from everyone including yourself. So I hope its not a problem if I continue this thread further. So far we've only covered the very very beginning of the chart

It is your thread, so continue at will. If it was a problem for me, I simply wouldn't post here

[mikew]

Ok, Wyckoff continues

Having decided that the trend of the market is upward we must thereafter continue to trade on the long side until there are indications of a change in trend, or until the trend is in doubt. We must always be on our guard against any changes; and when the trend is in doubt we must take a neutral position, that is, be out of the market.

However, I'm stuck on his contradction. Bold is mine

For the next several days, until January 9th, the market makes further progress on the bull side, recording 156½ on that day; but observe that the closing figures on the 6th, 7th, 8th, 9th and 10th are all within a range of about one point. That means the market made no upward progress as a net result of four days’ activities following the 6th. The daily volume shows a tendency to taper off, which may mean a lessening of demand at the top of the swing to January 8th. This conclusion is partly confirmed by the shortening of the upward thrusts from the 3rd to the 7th, indicating that it was hard work advancing the market from l5O to 155. Buyers now seem reluctant to follow prices upward. On the day when the high of 156½ is recorded, the volume increases abruptly compared with the volume of the preceding sessions at the same time that the price runs up to a new high only to close near the day’s low (*) and actually below that of the previous session. All of the foregoing is evidence of the approach of a corrective reaction, but we still hold our long position because, as yet, we have had no indications of important distribution.

* The action of the 9th is an illustration of a typical buying climax, which is the reverse of a selling climax. On this day, a poor quality of demand is being promptly overwhelmed by the superior force of supply of good quality. In order words, the bulls, realizing that they are encountering resistance to the advance, break the stalemate of the 6th to 8th by bidding prices up to attract those buyers who were too timid to come in before the advance to 155, but who now fear that the market may get away from them because it is “making a new high.” Thus, there is a concerted rush of public demand which gives the larger and shrewder operators their opportunity to dump part of their lines on a broad and active buying wave, made to order for the purpose.

He says there is no indication of big distribution. Is this because the volume on this climax is lower, relative to the previous selling climax in mid December?

If he sees a corrective reaction in the future, why not close the long trade now, and either go short, or buy more at the bottom of the reaction? He says to hold onto the long position, even though he expects a pullback..

[mikew]

Such a reaction begins on the 12th and the low point of it occurs on the 16th. Volume on the reaction diminishes appreciably compared with volume on the rise from the December 29th low, a bullish indication, showing that the selling pressure is light.

Playing devil's advocate, why can't this be viewed bearishly as, "volume is low on this pullback, indicating that there are no buyers, price is dropping even with little selling pressure."

On the 16th, the closing is nearly at the high point of the day -- a bullish indication which is the reverse of the bearish indication on the 9th. This is our first sign that the reaction is nearly over. (*)

I don't see any special volume on the 16th, but closing near the high is a bullish indication. But, again, playing devils advocate, I see the same thing on the 14th. Prices were supported from the previous drop on the 13th, and now on the 14th, it closes at the high. But there is no mention that this is an indication that the reaction might be over on this date. But the market is always right, and if I would've went long on the 14th based on this, on the 15th I would probably be stopped out

(*) So here we have a new buying opportunity in expectation that the advance will be resumed. (**) Further confirmation of this comes in higher support on the 17th and in an almost complete drying-up in volume on a dip to the same low level on the 19th. The closing prices on the 15th, 16th, 17th and 19th show support within a narrow zone, mostly around 147-8. We must, therefore, look for the advancing tendency to be resumed.

[bamford]

What may be missing at this point in the material is a definition for what "indications of a change in trend" we should be looking for.

One of the characteristics is a sharp increase in volume, suggesting outside ("public") participation entering the market. In this case, the outside interests would be buying and "they," the smart money, would be selling into the demand.

In early January, the typical volume was reasonably steady at about 2 million shares and there was no significant increase leading up to the 9th. I think this, coupled with the the observation that volume was beginning to increase on days with low closes and the other items mentioned by Wyckoff, suggest there is little outside buying, indicating a short-term top and not and change of trend. Buying and selling climaxes occur on each time frame in addition to major turning points.

An early issue of the Ticker magazine had as the epigraph: "The Fundamental Principle of Wall Street is the Sale of Securities to the Public" (1908). So an important thing is who has the stocks. If the large interests have most of the inventory, esp. if recently purchased in an accumulation area where the public was dumping stocks, the large interests would have to be doing the selling---but there is little public demand to sell to. There is evidence of buying support 2/16 as the price approaches the accumulation zone, which is about where "Tom, Dick, and Harry" bailed out just the month before and are probably exhibiting "masterful inactivity" until "prices are high enough."

In February the volume increases sharply as the index breaks out above the absorption area, and sustained high volume and mostly horizontal price movement suggests that this is probably the outside demand "they" have been waiting for to realize profits.

The data under the blanked-out part of that graph for February and March looks much like the S&P 500 now, except for the sharp increase in volume.

BTW, thanks for posting that chart with the portion blocked out. It made me realize that I have been looking at a different PDF file that is apparently the 1937 course and not the 1931 material posted by dbphoenix in the sticky.

[gassah]

Originally Posted by mikew »

He says there is no indication of big distribution. Is this because the volume on this climax is lower, relative to the previous selling climax in mid December?

The one bar on the 9th isn't enough to say there is significant distribution. He states that the preceding days are more likely a lessening of demand at the top of a rally, which doesn't concern him too much.

Originally Posted by mikew »

If he sees a corrective reaction in the future, why not close the long trade now, and either go short, or buy more at the bottom of the reaction? He says to hold onto the long position, even though he expects a pullback..

Because he isn't looking to only trade the swings. He wants to hold through reactions trying to capture the larger moves, and unless there are signs of significant distribution he will hold.