[DbPhoenix]

Originally Posted by thalestrader »

It took me longer than it should have, but I eventually learned that if someone has to invent an entire new vocabulary or lexicon to explain their interpretation of price action, rather than use the tried and true concepts that carried the earliest market practitioners to success, then they are not explaining price action.

Well, all the jargon and "patterns" sell books. And software. And seminars. And DVDs.

Picks and shovels.

[cowseathay]

I thought today was a great day to see many of the Wyckoff concepts in action in a very clear way. I'm attaching a 5s and 1M chart of the NQ from this morning pointing out a few key clues to the beginning of the giant reversal that occurred. And all of these clues were pointed out in real time in chat by Db, atto and others.

You can see that with each potential selling climax price drops sharply with a dramatic increase in volume. The final climax that occurred didn't seem to have any big volume bar, but a lot of volume occurred in a small period of time, which you may not pick up if you were following bar by bar. Also, note that the final climaxes and shakeout occurred at support (or right below), which signals a much higher chance of a reversal than if they occurred in the middle of nowhere. You can also see lower volume on the test, and then large volume during the shakeout followed by rapid price reversal. The job of a shakeout is to get rid of "weak hands" so that a new move could be started. And as you can see that job was accomplished with great success.

[atto]

Yep. Price gave several scaleout opportunities for the short. And on the long, there were several decent spots to add or initiate a position if you didn't catch the bottom real time (I didn't).

I got in at the springboard shortly after the bottom. Volume spiked as price broke the 08 area again (longer term zone), and then entered a period of sideways congestion as volume tailed off. On top of that, you have the bounce off of S to the lows, and a series of hh's and hl's (a trend up).

The circled areas are places that I'd enter. Logical stops on both are at 07.00-07.25.

[thalestrader]

Hi folks,

I have noticed a fair number o fhtose who participate here in the Wyckoff forum seem to favor the NQ as their trading vehicle; and I am just wondering if that is because the NQ lends itself more readily to Wyckovian analysis than the other index futures? Or is there some other reason? Or is it just coincidence?

Best Wishes,

Thales

[atto]

Originally Posted by thalestrader »

I am just wondering if that is because the NQ lends itself more readily to Wyckovian analysis than the other index futures? Or is there some other reason? Or is it just coincidence?

I've yet to find an instrument that doesn't yield well to Wyckoff analysis. In its core, it's simply a study of supply and demand to analyze trends, congestion (or simply, lack of a trend), support, and resistance. These dynamics exist in all liquid, free (as in market), and tradeable instruments.

As for the reason, I've found that ES tends to mess around for a while. I used to trade it exclusively, but found I like the personality of NQ better. Tick size is also smaller, so I can use smaller stops (my average initial stop loss is around 1.25 NQ). I would be able to go back without any problems, though.

[DbPhoenix]

Originally Posted by cowseathay »

I thought today was a great day to see many of the Wyckoff concepts in action in a very clear way. I'm attaching a 5s and 1M chart of the NQ from this morning pointing out a few key clues to the beginning of the giant reversal that occurred. And all of these clues were pointed out in real time in chat by Db, atto and others.

Yes, it was a good day to see these concepts play out, and fun in a twisted, geeky sort of way to see it happen. Because today was almost a template for Wyckoff -- that is, true price action -- trading, I'd like to get into the S&R of it. But I don't want to mark up your charts, and I want to back up a little bit in order to explain further what I mean about planning these trades in advance. So......

First, we back up to the larger timeframe:

Because of where the overnite action took place (again, there are no gaps in futures) and where price lay just prior to the open, it isn't necessary to plot those S/R levels which aren't likely to affect price after the open. The most likely S/R levels to be important are 1438/40, 1425, and 1392.

Extending these levels into a nearer timeframe, we see that 1403 might also be important (NeoTrader brought this to everyone's attention):

And zooming in even further to get a more detailed view of the immediately-preceding activity, it's easier to see why 20 may be important. It's also easier to see the thrust that was made thru 25 (the arrow). One can also see that price made one more test of 1403. This serves to narrow one's focus considerably.

And then the games begin. Here we see the same thrust only on a 1m chart. All the previously-plotted S/R lines have been brought forward. One could short at several places during or after the thrust, including a drop below 18.

After that, it's just a matter of waiting until price reaches S. One could scale out at the first test of 1403 and wait on the rest to see if we dropped all the way to 92. If he did so, and if he were paying attention, he'd notice the shakeout 10m later (see the second arrow). This offers a signal that 1403 may hold and that he should anticipate the necessity of exiting entirely and going long, which he could do when price exits this congestion (I should point out that most of this can't be seen on a 5m bar chart).

If the trader does go long, then his target becomes 1440. But, as atto pointed out with regard to scaling out on the short, there are also obvious places to scale out on the long, if one worked out the S/R in advance.

Note here that price chokes at 20, 25, and 38. Surprise, surprise. Even at the first test of 38, however, one needn't exit his position entirely, assuming he has more than one contract left. The trendline isn't broken, and the last swing low at 35 has not been breached. So if he wanted to try to squeeze out a few extra points, why not? The risk is clearly determined (one or more ticks below 35 or a break of the trendline).

One can then be satisfied and quit, or hang around and hope for another trade. I suppose that depends in large part on the weather.

[DbPhoenix]

Originally Posted by cowseathay »

You can see that with each potential selling climax price drops sharply with a dramatic increase in volume. The final climax that occurred didn't seem to have any big volume bar, but a lot of volume occurred in a small period of time, which you may not pick up if you were following bar by bar. Also, note that the final climaxes and shakeout occurred at support (or right below), which signals a much higher chance of a reversal than if they occurred in the middle of nowhere. You can also see lower volume on the test, and then large volume during the shakeout followed by rapid price reversal. The job of a shakeout is to get rid of "weak hands" so that a new move could be started. And as you can see that job was accomplished with great success.

Your mention of the "final" climax and shakeout taking place at support should not be overlooked by those who read this. Many novices search for selling climaxes at every swing point that has higher than normal volume. But it is not unusual to find swing points with higher than normal volume. That's in large part what makes them swing points in the first place. So how does one differentiate between "climactic volume" and a selling climax? Because the selling climax will take place at or near an important support level.

One must understand that just as distribution takes place on the way up and not just at the top, accumulation takes place on the way down and not just at the bottom (this is why price will sometimes spend very little time at the bottom before reversing and taking off in the opposite direction).

The "climactic volume" that occurs when buyers attempt to provide "preliminary support" signals an effort toward accumulation. Weak holders will throw their shares/contracts back on the market when price continues to fall, but stronger hands will continue to slow and eventually halt the decline. This is what creates the bottom in the first place.

Price does not just stop as if it were hitting the sidewalk after being dropped from a highrise. Its fall is gradually slowed, as if brakes were being applied, until it comes to rest. The accumulation which made possible the rise from 1400 to 1440 did not occur just in those few minutes after the shakeout. It began long before, from the first time buyers tried to halt the decline.

There are those who claim that volume is useless, and if one doesn't understand what it is, then it is indeed useless to that individual. But if one understands that volume is a measure of trading activity, it becomes an invaluable aid at key points and levels, providing that extra added insight into trader behavior which can make the difference between a successful trade and a failed one.

[boru]

Originally Posted by BlowFish »

And of course lets not forget buying to open, buying to close and selling to open, selling to close.

pretty short statement blowfish, but it got my attention in a big way light bulb is getting a little brighter thanks never thought about it like that before