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Wyckoff In The Original


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  #1 (permalink)
 DbPhoenix 
Phoenix AZ
 
Posts: 470 since Dec 2012

In order to avoid conflict with other Wyckoff threads, I've elected to start a new one. Moderators will, of course, decide what's best.

For the moment, I only want to point out what may be a nice entry point in gold.

Wyckoff viewed price as either trending or ranging. Gold has been in a trading range for quite some time. Midpoints are also important as a means of testing strength. If price rebounds off the midpoint, that rebound suggests strength. If it falls through, that suggests weakness. (Flip for a test of the midpoint from the underside.)



The trader will note that when price attempted to make a new low a couple of weeks ago, it recovered quickly and decisively. This may bode well for bulls. In any case, a buying opportunity presents itself if gold rallies from this point and breaks its supply line. If any rally fails, the most likely target is the bottom of the trading range.


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  #3 (permalink)
 DbPhoenix 
Phoenix AZ
 
Posts: 470 since Dec 2012


Silver is another commodity that's hovering around its midpoint:


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  #4 (permalink)
 DbPhoenix 
Phoenix AZ
 
Posts: 470 since Dec 2012

Gold broke its shorter-term supply line but was turned back by the longer.

In the meantime, the stock on everyone's lips is AAPL, which is already showing preliminary support:



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  #5 (permalink)
 DbPhoenix 
Phoenix AZ
 
Posts: 470 since Dec 2012

-

If the preliminary support mentioned above is not clear, here is an expanded view:



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  #6 (permalink)
 DbPhoenix 
Phoenix AZ
 
Posts: 470 since Dec 2012

Note: Since I can't edit or delete the above posts, and charts have all the immediacy of yesterday's/last week's newspaper, I'm starting over with this post.

If someone has a question, please ask. If someone needs a chart example, I'll try to provide it. Otherwise, this post/thread will serve as a resource, utilized only when someone has need of it (sort of like the Room of Requirement). In other words, there won't be a lengthy series of posts in which I talk to myself.



Richard Wyckoff was a pioneer of technical analysis. While Dow contributed the theory that price moves in a series of trends and reactions, and Schabacker classified those movements into chart patterns, developed gap theory, and stressed the role of trader behavior in the development of patterns and support/resistance, Wyckoff contributed the study of the relationship between volume and price movement to detect imbalances between supply and demand, which in turn provided clues to direction and potential turning points. By also studying the dynamics of consolidations or horizontal movements, he was able to offer a complete market cycle of accumulation, mark-up, distribution, and mark-down, which was in large part the result of shifts in ownership between retail traders and professional money.

Wyckoff sought to develop a comprehensive trading system which (a) focused on those markets and stocks that were “on the springboard” for significant moves, (b) initiated entries at those points which offered the highest probability of success, and (c) exited the positions at the most advantageous time, all with the least possible degree of risk*. His favorite metaphor for the markets and market action was water: waves, currents, eddies, rapids, ebb and flow. He did not view the market as a battlefield nor traders as combatants. He counseled the trader to analyze the waves, determine the current, “go with the flow”, much like a sailor. He thus encouraged the trader to find his entry using smaller “waves”, then, as the current picked him up, ride the current through the larger waves to the natural culmination of the move, even to the extent of pressing one’s advantage, or “pyramiding”, as opposed to cutting profits short, or “scalping”.

What distinguishes Wyckoff from all of the various Wyckoff knockoffs in circulation are (1) the emphasis on the continuity of price and (2) the lack of "setups".

Continuity of Price: Wyckoff began as a tape reader. By the time he incorporated daily charts into his trading, the continuity of price movement via the tape, tick by tick, had become so ingrained that he could see price no other way. Even though he might be looking at a series of daily bars on an end-of-day chart, he saw price as continuous. Thus the bar itself was irrelevant to him, and he was just as comfortable using line charts as bar charts. The line chart, in fact, more closely conforms to this continuity.

"Setups": There are no "setups" in Wyckoff, at least insofar as we commonly use the term. He did not say that if price does this, you buy and if price does that, you short. Rather he stressed that the trader must be sensitive to imbalances in buying pressure and selling pressure, particular at levels where these imbalances might most likely result in profit opportunities, e.g., reversals. Therefore, the "trading signal" is not, for example, a "double bottom" or a "higher low" or a "climax bottom" or even what some call a "spring" (not a Wyckoff term); the trading signal is provided by the imbalances between buying pressure and selling pressure (which is why software won't work), and if one does not view price as a continuous movement and is not sensitive to these continuous shifts in balance/imbalance, he will not understand what it is that he's supposed to do.
*Risk is minimized by (1) focusing on liquid markets, (2) monitoring the imbalances between buying pressure and selling pressure at those levels of “support” or “[AUTOLINK]resistance[/AUTOLINK]” where price is most likely to reverse its trend, (3) entering on reversals (or, if necessary, retracements) rather than breakouts, and (4) getting out when the market tells you to.

WYCKOFF LITE


Wyckoff's original course was comprised of two parts: [I][I]The Richard D. Wyckoff Method of Trading and Investing in Stocks: A Course of Instruction in Stock Market Science and Technique[/I][/I] and [I]The Richard D. Wyckoff Method of Trading in Stocks: A Course of Instruction in [AUTOLINK]Tape Reading[/AUTOLINK] and Active Trading[/I]. The first part of the course (trading and investing) comes to about 400p. The second part (tape reading and active trading) comes to a little under a hundred.

Those who are intimidated by the prospect of working their way through 500p of a century-old course and/or those who are skeptical of the value of the course at the outset may be game for an abbreviated course, not a shortcut, but an "essence".

This can be accomplished in two phases. The first is targeted toward those who may be interested but first want to know what this is all about. This amounts to about 45p (that's the best I can do): The Basic Law of Supply and Demand (Section 2), Judging the Market by its Own Action (Section 3), and Buying and Selling Waves (Section 5), the application of all of which are demonstrated by Wyckoff himself in a year-long study (Determining the Trend of the Market, Section 7) of the market from the end of 1930 through 1931 and an 18-month study of a stock, from 1934 through 1935.

If after reading this tenth of the entire course, you think there may be something to all this after all, step in to phase two. This amounts to the four sections above plus the Forward (Section 1), Volume Studies (Section 14), Significance of Trend Lines (Section 15), Refinements (Section 21), Stop Orders (Section 23), General Instructions: Cautionary Suggestions (Section 24), and Market Philosophy (Section 25), about 90 additional pages all told. If one has a question about something in particular, he can scan the course using Ctrl+F plus the term or phrase.

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  #7 (permalink)
 
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 David_R 
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DB,

I've posted a chart of ISRG. I'm posting it because it has the characteristics of trend and trading range plus in the Wyckoffesk thread I started I had posted charts of this stock some time ago when it was in the $250 range and had the opinion of higher prices at that time.

Please excuse the wave volume on the bottom.

My interpretation of this chart is of a bullish nature. The trend is up (Up channel) and price has reached the demand line ( I hope that is the correct term).

You have said that in Wyckoff there are not setups. Wyckoff traders make assessments of supply and demand and the who is in control, Bulls or Bears. I assessment is that ISRG would be in a re-accumulation phase preparing for another mark-up phase. Can you tell me what your assessment is? If there are not setups, what would make this a buy? I would think some more testing of the current lows is in order.

I would think for a sell we would want to see it break support and have a reaction back to that support.

David

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  #8 (permalink)
 DbPhoenix 
Phoenix AZ
 
Posts: 470 since Dec 2012


David_R View Post
DB,

I've posted a chart of ISRG. I'm posting it because it has the characteristics of trend and trading range plus in the Wyckoffesk thread I started I had posted charts of this stock some time ago when it was in the $250 range and had the opinion of higher prices at that time.

I hope you bought it at that time.


My interpretation of this chart is of a bullish nature. The trend is up (Up channel) and price has reached the demand line ( I hope that is the correct term).

Yep, still "bullish".

You have said that in Wyckoff there are not setups. Wyckoff traders make assessments of supply and demand and the who is in control, Bulls or Bears. I assessment is that ISRG would be in a re-accumulation phase preparing for another mark-up phase. Can you tell me what your assessment is?

Whether or not it is in a "re-accumulation phase" is debatable. It's been in this range long enough for the float to have changed hands four times. Given the fact this this is 93% owned by institutions, one could argue simply that there isn't enough buying pressure to move it higher, given its PE, nor sufficient reason to sell it, given the fact that it's not going anywhere and hasn't for over a year.

If there are not setups, what would make this a buy? I would think some more testing of the current lows is in order.

As I'm not going to get any further into FA than I did above, it's up to you and why you want it and what your risk tolerance is. As you can see from the second chart, buyers/holders supported the price in December and also in mid-March. You could if you like place a buystop above this waffling so that you wouldn't be stopped in unless price rose. However, your cover stop might be much too far away for you. And those gaps would scare the crap out of me.

The other option is to wait for it to exit the top of the range, but that could get messy.


I would think for a sell we would want to see it break support and have a reaction back to that support.

Or just short the breakdown and be prepared to exit if price recoils on you.


David

Db

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  #9 (permalink)
 
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 David_R 
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DbPhoenix View Post
Db

DB,

Unfortunately I did not buy it at 250. I did not have the funds to do so, but I would have.

I almost fell out of my chair when you mentioned PE and float. Is that relevant in Wyckoff?

I'm not looking to buy or sell. I wanted to post the chart for education purposes. Thanks for responding .

D

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  #10 (permalink)
 DbPhoenix 
Phoenix AZ
 
Posts: 470 since Dec 2012



David_R View Post
DB,

Unfortunately I did not buy it at 250. I did not have the funds to do so, but I would have.

I almost fell out of my chair when you mentioned PE and float. Is that relevant in Wyckoff?

I'm not looking to buy or sell. I wanted to post the chart for education purposes. Thanks for responding .

D

PE, no. Float, yes, since the point of accumulation is to accumulate enough shares so that when the mark-up phase begins, there will be fewer sellers to deal with. W knew exactly how many shares the operator needed in order to begin his mark-up phase. That was one way for him to know when the stock was on the springboard.

I mentioned PE and the gapping as a subtle way of discouraging you from buying this. I started with CANSLIM way back when, so this is somewhat of a knee-jerk reaction.

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Last Updated on July 4, 2013


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