Richard Wycoff's Method why it works, and why it doesn't...

[MartinLe]

I just want to know people's thoughts in the forum on why they believe Wycoff's technical analysis works and others on why it doesn't. Below is a short bio on who he was and what he did...

Richard D. Wyckoff

Richard Demille Wyckoff (1873–1934) was an early 20th-century pioneer in the technical approach to studying the stock market. He is considered one of the five “titans” of technical analysis, along with Dow, Gann, Elliott, and Merrill. At age 15 he took a job as a stock runner for a New York brokerage, then he became the head of his own firm while still in his 20s. He also founded and for nearly two decades wrote and edited “The Magazine of Wall Street,” which at one point had more than 200,000 subscribers. Wyckoff was an avid student of the markets and an active tape reader and trader. He observed the market activities and campaigns of the legendary stock operators of his time, including JP Morgan and Jesse Livermore. From his observations and interviews with those big-time traders, Wyckoff codified the best practices of Livermore and others into laws, principles, and techniques of trading methodology, money management, and mental discipline.

Mr. Wyckoff saw retail investors getting fleeced repeatedly, and dedicated himself to instructing the public about “the real rules of the game” as played by the large interests, or “smart money,” behind the scenes. In the 1930s he founded a school, which later became the Stock Market Institute. The school's central offering was a course integrating the concepts that Wyckoff had learned about how to identify large operators' accumulation and distribution of stock, and how to take positions in harmony with these big players. His time-tested insights are as valid today as when they were first articulated.

 

[Jamal D]

I am currently working on this approach to the market through DbPhoenix (forum member)e-book and now also the newly discovered and excellent book "Trades-about-to-happen" David H. Weis (highly recommended)

For me, the most eye-opening thing about the Wyckoff method is that it is not imposing it`s will on the market, but is all about observation and interpretation. I find that too many systems are interested in telling what the market will do next, while Wyckoff reacts to what the market does. I also like the approach of thinking more in waves rather than micro-structural patterns through candlesticks patterns. (I actually traded purely on breaks of trendlines when I started out...until I made every simple concept under the sun very complicated )

Personally I think many people would benefit from cleaning up their charts and get rid of the thought of double-triple confirmation from MAs and MACDs. That is just what makes a retail-sucker....you come to the party when all the ladies (or gentlemen, for those who prefer this) has gone home and there is no vodka left.

Now I am in the early stages of my studies, but I have found something I can understand/that makes sense....my assignment is clear. Of course, trading is still a mystery unsolved on my part, but at the very least I can focus on limited factors and try to become a specialist at that.

I assume you are new to Wyckoff yourself, no? If so, check out the material mentioned earlier and if I might suggest one thing...don`t overload your charts with indicators if you are just starting out. Unlearning is incredibly difficult and I wish I knew this when I started out myself. It took me 3 years to strip every single indicator off my charts, and it is only just recently I finally feel I am a student of the market again...

PS. It has come to my attention some information in regards to mr. Weiss. This has been mentioned already on this forum...https://www.trade2win.com/threads/martin-weiss-of-www-martinweiss-com.21735/

I despise all snakeoily behavior as trading is hard enough as it is. I will add, after getting on with later chapters I got slightly underwhelmed by it, because it is just repeating hindsight about charts and does not put anything into context. So I would take down my praise for his book a notch and blame it on the excitement of finding an approach through Wyckoff that I can rationally believe and understand.

 

[Der_Umweger]

Wyckoff method works because it's based on supply & demand. Wyckoff discussed his Composite Man campaign as a tool for understanding market historical action. Such a tool is also known as an Imaginary Construction but it comes with some restrictions. Imaginary statements are historical in nature and lose universal character. So, it works because it has an historical counterpart in the real market. It doesn't work because its statements are essentially inductive in nature and can refer only to historical data. Stated differently, its statements apply to history but not the future. You must imagine the future and act according to your imagination. Algos can’t do that. Hence, the source of your edge.

 

[EldnitJ]

Wyckoff reads supply and demand, effort vs result and structure. It worked 100 years ago and still works because it deals with human actions. If you want to trade intraday check out Gary Dayton, his courses are superb.

 

[drcruz]

GASP! Why isn't Schabacker mention as another pioneer in the development of TA in the OP...Good book BTW. I've read Wyckoff's book "Stock Market Science and Technique" and enjoyed it. I don't think I'll ever get into Point and Figure, but I do plan on re-reading the book again for the market the price action and volume analysis

 

[Der_Umweger]

GASP! Why isn't Schabacker mention as another pioneer in the development of TA in the OP...Good book BTW. I've read Wyckoff's book "Stock Market Science and Technique" and enjoyed it. I don't think I'll ever get into Point and Figure, but I do plan on re-reading the book again for the market the price action and volume analysis

This thread is about Wyckoff not Schabacker. Otherwise, Schabacker features prominently in the literature.
Also, why won't you get to point and figure? It's a great tool to identify the nature of the current swing and helps to plan trades. Don't cut yourself short of some useful tools & useful fictions to help you in your trading plans.

 

[Der_Umweger]

Wyckoff reads supply and demand, effort vs result and structure. It worked 100 years ago and still works because it deals with human actions. If you want to trade intraday check out Gary Dayton, his courses are superb.

I would caution against psychological approaches to trading largely because so much of what I read & hear is based on behaviorism, which is founded on the idea that there are no ideas. You need a cognitive process based on sound principles. What am I talking about? I am talking about a reasoning process based on the facts of reality and propositions & arguments based on valid syllogisms. Reason is your algorithm and psychology is your result or consequence, not the cause of your trading achievement.