Getting to Grips with DbP/Wyckoff

[dbphoenix]

Stopped out this afternoon @ 429.25 for a small loss

Interesting that it isn't rallying along with the FTSE. Could it be acting as a canary?

Db

 

[barjon]

Interesting that it isn't rallying along with the FTSE. Could it be acting as a canary?

Db

Maybe. Gap up open and on the strong side against ftse to start with, but not much volume and precious little demand after opening orders. Volume picked up quite significantly on the afternoon decline.

 

[dbphoenix]

Maybe. Gap up open and on the strong side against ftse to start with, but not much volume and precious little demand after opening orders. Volume picked up quite significantly on the afternoon decline.

Note, however, that it appears to be testing the top of that range it formed the last few days of January. If it holds there, you may have another opportunity for a long. Someone is obviously supporting price down here.

Db

 

[barjon]

Note, however, that it appears to be testing the top of that range it formed the last few days of January. If it holds there, you may have another opportunity for a long. Someone is obviously supporting price down here.

Db

Yes, if ftse holds up. I'll still go half position if contrary to ftse and any trade is likely to be via my usual 3 bar retracement rather than sla (although I take the point that the lines are just helpers towards understanding).

 

[barjon]

Stopped out this afternoon @ 429.25 for a small loss

................and as it continued a little bit of hindsight woulda, shoulda. Maybe a short at 1 exit at 2 and now long at 3?

 

[dbphoenix]

................and as it continued a little bit of hindsight woulda, shoulda. Maybe a short at 1 exit at 2 and now long at 3?

If you had gone long at 3 per SLA, you'd be out of it already at about BE.

Db

 

[barjon]

If you had gone long at 3 per SLA, you'd be out of it already at about BE.

Db

Yes, depending on your exit criteria, of course

 

[barjon]

mmm, ok, I concede that SLA is not ideally suited to short term share trading because of the preponderance for much of any move to come from opening gaps.

I will still use SLA to support my basic equity trading, but will concentrate my attention on FTSE futures for the shorter term trading.

 

[barjon]

CONTEXT:

Weekly chart 1 - the long term trend with..................
Weekly chart 2 - pretty clear supply level (blue rectangle) leading to.......
Weekly chart 3 - several fruitless weeks (yellow rectangle) for buyers who failed to take the game forward despite breaching the supply level. Disheartened buyers then allowed sellers to take over and price moves into downtrend breaking the long term demand line. Last week sees a poke above the trend line..........

 

[barjon]

OPPORTUNITY?

That poke above the line may represent an opportunity, either for a continuation of the relatively strong daily trend that got price to this point, or for AMT to come into play and a retracement towards continuation of the down trend. Can I cover both eventualities?

The hourly shows how price has gone and I can assume the last 3 bars are retracement and enter long if that finishes (by a higher high) with a stop either on a return below the down trend line (red) or on a break of the demand line (green).

If price does breakdown below the green I can enter short on a retracement with a stop above the retracement high.

 

[dbphoenix]

OPPORTUNITY?
Can I cover both eventualities?

You needn't. Assume that you were long on the trip up to the upper limit of your channel. You wouldn't be exiting unless and until your demand line is broken, unless you've found that trading a reversal outright is the better option. If and when the demand line is broken, then you can look at short tactics, whether you apply the SLA or not.

Too bad you don't have volume. Perhaps you should consider trading something that provides you with all the information you need.

Db

 

[barjon]

You needn't. Assume that you were long on the trip up to the upper limit of your channel. You wouldn't be exiting unless and until your demand line is broken, unless you've found that trading a reversal outright is the better option. If and when the demand line is broken, then you can look at short tactics, whether you apply the SLA or not.

Too bad you don't have volume. Perhaps you should consider trading something that provides you with all the information you need.

Db

Yes, but I'm looking at this as of now so not long on the trip up. Given the context it seems to be sitting at a point where there is a valid opportunity to trade?

 

[dbphoenix]

Yes, but I'm looking at this as of now so not long on the trip up. Given the context it seems to be sitting at a point where there is a valid opportunity to trade?

There is an opportunity to trade. That's what flirtations with the limits of a trend channel are all about. The question is how?

Retracements in uptrends occur because demand can't absorb supply. If demand does not materialize, the retracement fails and becomes a reversal. In this case, the retracement was confirmed but immediately reversed. If you had volume, I'd expect to see a sudden withdrawal of it.

If I'm not mistaken, the dashed red line on your hourly should be about 30pts higher. This adds weight to the hypothesis of a failed breakout. Given all that, I'd still wait for the demand line to be broken unless you have a protocol all worked out for this sort of scenario.

Db

 

[barjon]

There is an opportunity to trade. That's what flirtations with the limits of a trend channel are all about. The question is how?

Retracements in uptrends occur because demand can't absorb supply. If demand does not materialize, the retracement fails and becomes a reversal. In this case, the retracement was confirmed but immediately reversed. If you had volume, I'd expect to see a sudden withdrawal of it.

If I'm not mistaken, the dashed red line on your hourly should be about 30pts higher. This adds weight to the hypothesis of a failed breakout. Given all that, I'd still wait for the demand line to be broken unless you have a protocol all worked out for this sort of scenario.

Db

Yes, quite right. The dashed red was drawn on the daily and looked ok, but it wasn't. Thx for the spot and it certainly is looking more like a failed breakout which I'll trade if demand line goes and forget any thoughts of long for the moment.

 

[barjon]

Finally triggered short - stoploss 6181

 

[barjon]

thought about going on the "faster" supply line, didn't but an ok ending.

 

[barjon]

Monthly: The 2007 high was tested 8 times in 2013/14 and after a brief foray above that level in 2015 it's been downhill with the long term DL broken - (surprising how often a significant move is preceded by a short push in the other direction - rather liking sucking in a breath before blowing out hard)

Weekly: As last week price has poked above the SL with a relatively sharp recovery after a dip to around 6000 and the current context again represents a trading opportunity, or does it.......

Daily: The 6200+ level that was the end of year stumbling block was tested 4 times in the last 8 days with no apparent enthusiasm for higher (with ftse trading weak against dow in this period - ie: should have gone higher if following dow lead as usual). I wouldn't want to be considering break out until past this level. Thus, I will be thinking a short AMT trade (particularly since short term daily DL has been broken).

Hourly: The short term hourly DL is intact and a break of that will be the necessary prelude to a short trade.

 

[barjon]

Opened 63 down. That's broken the DL alright but a bit rich for my liking. See what any retracement brings.

 

[barjon]

Since DB has chosen to ban me from the SLA thread (how petty can you get ) I can't respond on there to his reply to my post - here http://www.trade2win.com/boards/tra...traight-line-approach-sla-12.html#post2720526 .

At the end of it he says " The trade is the first RET after the DL is broken, at 0213. The short trade is a winner. (Rule #2)"

My response is: yes, but why wouldn't you start to track it with an SL drawn on the only info you've got at that time. As I show in the thumbnail.

Much as I think that SLA is an excellent piece of work by DB and is a good basis for trading, I do not think it is without fault and/or elements that require definition and judgement. And I don't think that something that smacks of hindsight analysis in some part helps.

 

[Kleft]

An answer of sorts

At the end of it he says " The trade is the first RET after the DL is broken, at 0213. The short trade is a winner. (Rule #2)"

My response is: yes, but why wouldn't you start to track it with an SL drawn on the only info you've got at that time. As I show in the thumbnail.

DB covers the what ifs with the line you draw in your thumbnail, and what a trader following price banana peel tight will likely do, but, you want to know why a trader trading SLA would do anything differently.

I'm not an expert so take what I say with a pinch of salt.

Why would a trader not draw a line? And why wouldn't they exit on a stride break?

You seem to say "expert trader" with a little venom in your last post to the SLA thread, traders who have done some work are not a figment of DB's imagination.

In my early days with SLA I would exit as soon as stride broke and end up missing the bulk of the move, it was suggested I look into how much stride can break yet keep going, hundreds of examples later I had my answer along with a better understanding of the behaviour of a break, I also did the work on swing point/range breaks and what would happen next, for example, the entry leg went as far as I would expect it to go before putting in the next ret.

This still does not answer your question but it is a start, like I mentioned I am not an expert but there are a few things that I believe I understand, that initial drop is unsustainable, unless it is climactic which it is not price will break stride. I don't aim for 8 points, I know price will recoil but I don't know by how much, there are tools I can use to gauge the strength of the recoil, I'm ok-ish with recoil in the early stages and can relax a little if I have context onside.

The above are some if the reasons why someone who has studied and worked with this for a while might do something differently, the paragraph below is from page 13 of the PDF I suggest you study it as you will actually find the answers to most of the questions that you ask.

Price then breaks our new supply line and again we have to make a choice: exit the break and take the money or wait to see how strong the rally might be, not unlike "Let's Make A Deal" ("Do you want to take the car or Door #2?"). Here, though, we have three choices: exit at the break of the supply line, exit at a breach of the last swing high, or exit at a breach of the halfway point. For our purposes here, we'll assume that the trader relaxed and stayed in due to Auction Market Theory (again, later), which suggested that the line of least resistance was down, keeping in mind that even if he had exited, he'd've always had the option of getting back in.

DB says three choices I'd say 3.5, stride break, stride break plus magic number, swing point break magic number or 50% Hi-Lo Lo-hi, again, this might differ with context, the best trades will often make you grit your teeth.

If you are sweating a stride break +2,3 or 4 points waiting to find out if the trade is good or not I would recommend reading appendix F.

Good trading.