[DbPhoenix]

The forest:

Wyckoff stresses that, in addition to trend and whatever channels may be formed by apparent consistency in the intrusion of demand and supply, one must also look to previous areas of support and resistance, which is what we're doing now. Wednesday (5/14) there was an upthrust in the Nasdaq and the Dow. There was also an upthrust of sorts in the SPX, but there've been so many over the past few weeks that they are forming their own base .

Whatever these thrusts mean in and of themselves does not matter as much as where they are occurring, i.e., against important, previous support. Therefore, both intraday and EOD traders would do well to concentrate on how price behaves at this particular juncture.

As to why these upthrusts didn't make good shorts today, it may help to set aside overhead resistance for the moment and look at the trend, or "stride".

Note here that even though the YM and ES are struggling, they are also each coming off their respective demand lines. And while they have been unable to maintain their strength since mid-April, they nonetheless remain in uptrends in this interval.

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As for the NQ, note that its demand line has altered its course.

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Keep in mind that resistance is not a line but a zone. And that the herd is always right. Except at turning points.

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[DbPhoenix]

Managing a Trend Day:

Once one has taken the short (you have, of course, taken the short), there's no need to do anything else other than wait for a test of support, unless of course the short is stopped out, but, again, that is not the subject here. Volume can be ignored because without any sort of test, it's irrelevant (as Bearbull explained so well earlier). Once the first "counter-wave" has completed itself, a supply line can be drawn:

When price resumes its decline, volume rises on the downmoves, but even when the first level of potential support is reached, the volume doesn't even approach climactic. In the meantime, the supply line can be extended:

Price eventually breaks the supply line, but there's nothing remarkable about the volume, and price doesn't come anywhere near approaching the previous swing high, much less breaking it:

Price then resumes its decline and volume becomes climactic. However, even though price breaks the newly-extended supply line, it does not break the previous swing high. Nor is price anywhere near the next potential support level of 1970. All of this constitutes continued weakness.

Price continues its decline and volume is again "climactic". Even more so. But, again, price doesn't even come near the supply line, much less the previous swing point:

Price now reaches the next potential support level at 1970. Since the angle of decline is greater, an additional, more form-fitting supply line is drawn. Volume is again "climactic" and the "test" is on lighter volume, a seeming classic buy signal given that all of this is taking place at potential support.

However, even though price breaks this new supply line, it breaches the previous, minor swing high by only a couple of ticks, and there's no "bullish push". The experienced Wyckoff trader takes note of all of this and exits his long, if he had taken it at all.

Now we approach the next potential support level, the midpoint of the upmove on the 1st, and the trader begins paying attention to volume again.

Here the angle of decline increases again and a new supply line is drawn (the experienced trader knows that as these angles become more acute, the probability of their being broken increases), but even though volume becomes increasingly "climactic", price doesn't break the supply line, much less reach the previous swing high. A new element is a general increase in volume throughout.

We now get to the next level of potential support, and volume is again "climactic". But even though price breaks the newest supply line, it does not reach the previous swing high, nor does it break the prior supply line. The effort becomes a new -- though not higher -- swing high and the previous supply line is extended. Price continues its decline.

Now to the next level of potential support, and we're running out of time. Price hits 1950, again on "climactic" volume, breaks the supply line and breaches the previous swing high. This attempt fails, but, this time, price makes a higher low, tries again, and holds above the previous swing high.

Whether a trader goes long at the test of 1950, at the break of the supply line, at the breach of the previous swing high, at the higher low, at the second breach of the previous swing high, or anywhere else inbetween is not Wyckoff's problem. It's up to the trader to decide based on his sensitivity to and analysis of market forces, on his risk tolerance, and on his skill.

In any case, this is how we begin the following day.

[DbPhoenix]

As one might expect after a trend day, particularly one worth so many points and which represented a substantial failure on the part of bulls, Thursday would not be and was not about drama.

But assuming that one had no bias toward the day, he would note first that the market was going to open (the red vertical bar) at or about the midpoint of the 5/1 upmove (1962). This, in and of itself, would be of secondary importance or less. The fact that that midpoint was on the same level as the low of the day on 5/6 might help to account for the level at which Thursday opens, but, again, it’s not all that important. What is more important is that price does not retest 1950 and ricochet off 1962, nor does it punch through 1962, test that, then rocket higher. Rather it just sits there, for an hour and a half, on moderately high but unremarkable and relatively featureless volume. Therefore, unless the trader wants to manufacture a trade, there’s really nothing to do unless and until support is tested on the one hand, or the nearest resistance at the midpoint of the previous day’s downmove (1978) is tested on the other.

The trader, after all, must remember that the proper entry here was at or near 1950 the previous day. Whether he took the entry or not is irrelevant. The market doesn’t care whether he took it or not. It only knows where he should have taken it. If he didn’t take it, he has to keep in mind that any other entry is second-best, if not third or worse. If he has a strategy for pyramiding, this may be the time to implement it. If he doesn’t, his choices are limited: wait and gauge the relative strengths of the bulls and bears or go ahead and buy with a very wide stop.

Whether or not one buys the higher low that occurs between 1045 and 1100, one can now draw a demand line underneath that low, beginning with the previous day’s low. Note that this is a demand line, not a trend line. It tracks those levels at which demand enters the market and stops or turns price. Therefore, whether 17 hours’ worth of time bars are included or not is irrelevant. One can use P&F or, as here, he can use CVBs. Since only two “points” are needed, the line can be extended toward the EOD.

Once this line is plotted, it can be copied and another, parallel line placed at what has so far been the swing high. This is also extended toward the EOD so that the trader can monitor the behavior of price if and when it approaches this line.

Shortly after 1100, price does approach, then push through, this line, becoming “overbought” by virtue of having pushed through the line. A few minutes later, it pushes further to the midpoint of Wednesday’s downmove. If the trader were long, should he exit here? Should he go short? That depends on the trader. But this is where the bears gain the upper hand and turn price back, not out of the blue, but at the confluence of these two important levels (compare the time chart to the CVB chart).

Thereafter, price reverses at 1966, though there’s no way of knowing that it will, and volume does not provide a clue until price hits this level a second time, after lunch. Whether one closes his short and goes long here depends on how confident he is that support is to be found in this area. But the point of this is not to find trading opportunities per se; it is rather to gauge the relative strength of bulls and bears. So far, the bulls are in control as shown by the higher lows.

Price thereafter makes a higher high, again “overbought”, followed by a higher low. If one is going to trade this, volume does provide clues at turning points, but a central and perhaps more important concern is just how far bulls can push price. If it cannot reach the previous day’s midpoint, this suggests weakness. On the other hand, if it can get past the midpoint, this suggests strength, either of which carries implications for the following day’s trading. This second higher high at 1400 does push past the midpoint, suggesting strength. And it appears to make a higher low a half hour later.

However, price now drops below the demand line and is unable to push back through it for more than a couple of points for more than a few minutes. This represents a change in the dynamic between bulls and bears which, again, is the point of plotting these lines and monitoring the relationship of price to them and to the support represented by the previous day’s low and the resistance represented by the midpoint of the previous day’s downmove. Again, one can trade this and, yes, one can make money with it. But, according to Wyckoff, the likelihood of doing so is enhanced by being sensitive to this push and pull between demand and supply and being able to place all of it in the right context. Otherwise, one is more likely to be making random trades, i.e., gambling.

Here, again, the supply line is drawn first, then a parallel line is plotted underneath to track demand.

For those who follow the ES, note that it never even made it to the previous day's midpoint, much less establish a trend. The fact that it could not do so suggests weakness.

The red lines are the midpoints of the respective moves. The dotted line is both a support and a resistance line, depending on where price is in relation to it during this period. The black line is, of course, the midpoint of the post 4/18 trading range.

A couple more points regarding these charts.

1. The purpose behind drawing these lines is not to make the chart look pretty but to draw the trader's attention to those areas, zones, points, levels, whatever where price action is most likely to provide trading opportunities. Whether one draws lines, boxes, circles, arrows, or big, pointy fingers is irrelevant.

2. Once those areas, zones, points, etc are identified, volume becomes largely a non-event, i.e., one pays attention to it only at those areas, etc where it is most likely to mean something. That this point is so often overlooked is probably why so many people think volume is useless.

For example, using the 1m time bar chart I posted earlier, I've blown up the shaded area:

Until price reaches an area where a trading opportunity is most likely to occur, there's no reason to obsess over the minor ebbs and flows in volume. However, once trading opportunities are on the horizon, what might be considered directionless activity elsewhere suddenly becomes important.

Here, for example, when price comes back to 1966 the second time, the fact of the test is interesting enough. That it cannot make a lower low even with all the volume is even more interesting. The bullish boost at 1329-30 becomes more important because of what has come before, as does the volume recession when price pulls back to 1975. When another bullish boost occurs, beginning at 1352, it is significant, again, because of what has come before. And when price makes an attempt at a higher high at 1401 and volume isn't there, that again becomes significant because of what has become before and provides the "classic" double-top price-volume divergence setup for the short. Without the context, none of this matters, and volume is little more than traders going about their business. With the context, it becomes a high-probability short trade.

Update:

There is no end to the story, really, just chapter after chapter after chapter. I put this chart together to post elsewhere, but since it addresses "what happened next", I may as well include it here.

The short takes you all the way to support at 1950, and even though the volume on the test is only slightly lighter than on the "climax", it's not heavier, either. Then afterward, a hinge. The long entry, in order to avoid whipsaws and feints, is on volume just above 1970, five bars past the point of the hinge (one can enter at the apex of the hinge, but this occurred just before the close; of course, this may not trouble some people ).

[DbPhoenix]

Scaling Out

There need to be criteria for exits. But the nearly universal problem that beginning traders have with regard to exits is a desire to trade all in then all out. Add to that the fact that they are nearly always trading with one contract or one lot, and you have a doomed setup.

The solution to exits is a simple one: trade as if you were trading five contracts or five lots and abandon the idea of being able to exit with all of them at the exact top or bottom. The goal is to make money, not to prove to oneself what a superior trader one is.

Then determine in advance where each of those contracts will be sold. For example, if one is trading support and resistance, sell the first contract at one or the other. Sell the second contract, for example, at the lower high or the break of the trendline, whichever comes first. Sell the third at whatever you didn't sell at for the second. Sell the fourth, for example, at a breach of the last swing low. Leave the fifth, for example, at breakeven.

Then sell the first contract at whatever point you predetermined and paper trade the other four. Do this for several months. When it becomes second nature, carry the second contract for real. Sell the first and second contracts at your predetermined points. Paper trade the remaining three.

And so on.

Simple.

No wringing of the hands, no thumb-twiddling, no head banging.

For example:

Note that (as stated on the chart) this particular sequence is used for those situations where R is indeterminate. If R has instead been determined, the remainder of the trade is exited at the target. Then preparations are made for the next trade, either a continuation into a new range or a reversal back into the old one.

[MC]

Awesome thread!

I'm tuned in and want to learn some wyckoff, to go along with my VSA and other things I've picked up in my 1 and a half years so far. I'm still a baby so I pick up new stuff each day, I love the wave and volume techniques.

Keep up the good work

[DbPhoenix]

Thanks. Even though Wyckoff provides truckloads of examples in his course, the principles are few, stemming from support/resistance, supply/demand, the price/volume relationship, and trend (or lack of it). If you can hang what you learn on these, they may help you stay organized.

[MC]

Originally Posted by DbPhoenix »

Thanks. Even though Wyckoff provides truckloads of examples in his course, the principles are few, stemming from support/resistance, supply/demand, the price/volume relationship, and trend (or lack of it). If you can hang what you learn on these, they may help you stay organized.

Well I had a light bulb moment on Friday. For the first 9 months I had a horrible "mentor" that had no clue, though I still respect that he helped me the best he could. From then it has been mainly allot of self learning and I'm finally getting to see things properly now. Thursday and Friday I wasn't at work and was able to devote 100% attention to the markets movement which proved to be what I needed.

Looking at the market as a slighted auction driven by the big money and chopping it into waves is crucial IMO. So the lightbulb went on when my mind saw volume and price action in the proper fashion, much clearer than I had before using VSA and trends alone, kind of a mixup of what all I've seen in probably 10-12 hours of screentime daily.

Another thought that clicked is that trending moves are emotional, and congestion is a balancing/thinking slice in time. Of course the consolidation is needed for a breather and gives us supply and demand zones and entry and stop triggers.
I had been trading in congestion zones for some time without really seeing the bigger picture or knowing it. Good traders prey on the emotions of others, in chop there isn't enough emotion to exploit beside scalping. Let the congestion break and take the emotional slice of price action to the next level of congestion and so on. This defines trend trading at its core, and though I "knew" it, I didn't quite see it properly.

Anyhow...enough rambling.
Thanks again, a few of your posts had a role in me making this transformation.

[DbPhoenix]

Originally Posted by mcichocki_ »

Well I had a light bulb moment on Friday. For the first 9 months I had a horrible "mentor" that had no clue, though I still respect that he helped me the best he could. From then it has been mainly allot of self learning and I'm finally getting to see things properly now. Thursday and Friday I wasn't at work and was able to devote 100% attention to the markets movement which proved to be what I needed.

Looking at the market as a slighted auction driven by the big money and chopping it into waves is crucial IMO. So the lightbulb went on when my mind saw volume and price action in the proper fashion, much clearer than I had before using VSA and trends alone, kind of a mixup of what all I've seen in probably 10-12 hours of screentime daily.

Another thought that clicked is that trending moves are emotional, and congestion is a balancing/thinking slice in time. Of course the consolidation is needed for a breather and gives us supply and demand zones and entry and stop triggers.
I had been trading in congestion zones for some time without really seeing the bigger picture or knowing it. Good traders prey on the emotions of others, in chop there isn't enough emotion to exploit beside scalping. Let the congestion break and take the emotional slice of price action to the next level of congestion and so on. This defines trend trading at its core, and though I "knew" it, I didn't quite see it properly.

Anyhow...enough rambling.
Thanks again, a few of your posts had a role in me making this transformation.

Sounds like you had some real breakthroughs. Congratulations. Watching the bars move makes a big difference. You learn that it's not about the bars but about the flow. As for the auction part, MP brings a lot to the table. It's a nice fit.

But don't beat yourself up for taking what might have seemed like too much time to put it together. If you're a Voyager fan, think of the game that Tuvok enjoys so much (if "enjoy" is the right word): kal-toh. A piece here, a piece there, and suddenly it forms a "perfect sphere". Takes a lot of practice, though.