Starting a trading journal based on my understanding of Wyckoff's work

[moreina]

30 min chart shows a possible sign of strength as the last two bars have wide spread and volume has increased compared to the downward moves. Also, price has failed to follow through to the downside and support has risen.

The 15 min chart shows the ease of movement of the last 3 bars, taking out the progress of the down moves.

Entry: 11820

Update:

Price broke through, closed the position when it ran into heavy resistance.

 

[moreina]

30 min chart shows a change in momentum from down to up. Climax selling, accumulation, and a breaching of the upper edge of the trading range. It is now currently retracing and should offer a trading opportunity on the long side.

15 min shows a clearer picture of the bounce and retest of the low.

3 min chart is in the accumulation phase, though since the 15 min and 30 min chart are showing a bounce after accumulation and a breach of the upper edge of the trading range, we're confident that the 3 min chart will break through its own accumulation phase.

Entry: 11865
SL: 11779

Update:
Price just fell through the floor suddenly, taking out our stop.

 

[moreina]

Daily BTC bouncing off the range it created after a major sell-off a few days. Definitely possible change of trend so no long-term longs to be opened here and the faster charts are suggesting a possible short-term trade on the short side.

30 min shows a selling climax, followed by the strongest rally we've seen in a while, and a successful retest of the lows. Now rallying and encountering resistance.

3 min chart shows 2 subsequent sell-offs at resistance, and we're now at the bottom of the trading range. Price breaks through and restests, and we enter a short on the retest.

 

[moreina]

Short term trade on the 3 min chart. Price goes through two high volume up thrusts yet fails to go lower immediately afterwards. Price reaches a top, breaks down, then fails to make a lower low. Underlying strength, so we take a short-term long position.

Update:

Price made a lower low on good volume and failed to rally. Exited the position.

Second Update:

Going long again after selling pressure has disappeared as evidenced by shorter reaction bars to the down side with less accompanying volume.

Third Update:

Price broke out of the trading range to the downside. Exited the longs before price hit the stops then went short on the retrace from the breakout.

 

[moreina]

4 hour shows price trying to rally up and having difficulty, leading us to believe that the line of least resistance for the moment is to the downside. Price is now at a previous resistance area, after having broken out of a hinge.

Because of the amount of struggle it took to get to this point, coupled with the fact that there has been no significant accumulation to justify a rally to the upside, our bias is down. The 30 min chart also shows the top being sold and price having a hard time rallying after these sell-offs.

Finally the 3 min chart shows the latest rally being sold off and renewed selling pressure close to the lower edge of the trading range. We enter here.

Entry: 11903

Update:

Price made a lower low then reversed and started making higher highs and higher lows, eventually breaking out of the range on the up side.

Stopped out.

 

[moreina]

Daily shows price is approaching the upper bounds of the trading range that was at the end of June by a massive supply bar.

The 30 min chart shows an upthrust forming at the resistance line where two previous attempts were strongly rejected, as evidenced by the price action and the volume at those levels.

We dropped down to the 3 min chart and entered a short after we saw price unable to rally, right after the massive down bar that negated the upward breach of the trading range.

Entry: 13140
SL: 13340

Update:
Closed the trade at the lower edge of the trading range.

 

[dbphoenix]

• Objectives
Trading part-time, maybe a transition later on if the results are good.

• Markets & Instruments
Focusing on the cryptocurrency called XRP. Tracking the XRP/USD pairing on the bitfinex exchange but doing the actual trade on a local exchange called Coins Pro.

• Style
Position trader, going for the long-term holds. I try to limit my trading to 2 or 3 trades/day.

• Timeframes
Weekly, daily, 30-minute, and 1-3 minutes.

• Reversals, Breakouts or Retracements?
Reversals and retracements due to the low risk involved if the entry is timed right.

• Trade Set Up
If the daily is at a junction point, or possible bounce from a downtrend, determined when today's price rises to yesterday's closing price, I will look at the 30-minute chart.

• Testing
Back-testing and forward testing done though I need to redo testing with more stringent and defined variables, testing each component one by one then together as a whole.

• Entry, Stop Loss & Targets
Targets are defined using P&F vertical count, since it's the one I'm familiar with and has shown to be reliable if the count is not negated. It's also the one that Wyckoff allegedly used so it fits the overall theme.

As a prelude to responding to the questions you asked in your email, I'd like to explore what you've posted above.

• Objectives
Trading part-time, maybe a transition later on if the results are good.

I discourage beginners, or anyone who has a job or some other demanding commitment during market hours, to avoid trading during the day. If you're trading part-time, your focus should be daily and weekly charts, nothing faster. Daily and weekly charts are ideal for part-time traders.

• Markets & Instruments
Focusing on the cryptocurrency called XRP.

Why this as opposed to stocks, commodities, or futures?

• Style
Position trader, going for the long-term holds. I try to limit my trading to 2 or 3 trades/day.

There's an inconsistency here. If you want to be a position trader, you may be looking at 2 or 3 trades a month, not per day. Unless your definition of "long-term" is a few hours. If so, I suggest you give this further consideration.

• Timeframes
Weekly, daily, 30-minute, and 1-3 minutes.

In Wyckoff World, there are no such things as 30m or 1-3m "timeframes". Price movement is continuous. Chopping it up into 1m or 30m or 5m or 17m intervals may serve some purpose, but those intervals exist solely in the minds of the trader and the software engineer; they have nothing to do with the market itself nor with how it moves. I'll grant that "everybody (appears) to do it this way", but this has been the case for only twenty years. In the pre-internet dark days, traders focused on daily, weekly, and monthly charts. If they used charts at all. Or they traded the ticker, which takes us back to intraday trading, which, as I said, is not recommended.

• Reversals, Breakouts or Retracements?
Reversals and retracements due to the low risk involved if the entry is timed right.

FWIW, retracements are easier to enter and manage than reversals, but this is covered at length in my book (the one you have). I suggest you focus on retracements that occur after reversals or wait for the test, which arguably is another form of retracement.

• Trade Set Up
If the daily is at a junction point, or possible bounce from a downtrend, determined when today's price rises to yesterday's closing price, I will look at the 30-minute chart.

See above regarding "30m" charts.

• Testing
Back-testing and forward testing done though I need to redo testing with more stringent and defined variables, testing each component one by one then together as a whole.

You'll find that back-testing and forward-testing is never really done. No matter how robust and solid your trading strategy and tactics, markets change, at least in the details. The past two years, for example, markets have moved according to the contents of Trump's tweets. This has required some modifications in strategy, all of which have to be tested.

• Entry, Stop Loss & Targets
Targets are defined using P&F vertical count, since it's the one I'm familiar with and has shown to be reliable if the count is not negated. It's also the one that Wyckoff allegedly used so it fits the overall theme.

If you're accustomed to P&F and you've had success with it, by all means use it. Consider, however, that in focusing on price movement Wyckoff relied on the dynamics of trader behavior and the auction market (see Section 7 in his course or my thread on Wyckoff's work).

Db

 

[moreina]

Hey DB

Thanks again for taking the time to comment.

As a prelude to responding to the questions you asked in your email, I'd like to explore what you've posted above.

• Objectives
Trading part-time, maybe a transition later on if the results are good.

I discourage beginners, or anyone who has a job or some other demanding commitment during market hours, to avoid trading during the day. If you're trading part-time, your focus should be daily and weekly charts, nothing faster. Daily and weekly charts are ideal for part-time traders.

Understood. So should we derive all information for trading the daily/weekly from those charts without going into the smaller time frames?

• Markets & Instruments
Focusing on the cryptocurrency called XRP.

Why this as opposed to stocks, commodities, or futures?

I live in the Philippines, I can't trade the US market and our own markets here are very thin with regards to trading volume. We're also not allowed to short the market, which limits us to waiting for long opportunities.

The other real reason is that I got into trading through cryptocurrency. After I did a "fundamental analysis" on bitcoin (my training is as a software engineer), I bought into it and proceeded to lose more than 60% of my equity. That's when I decided that it was probably a good idea to learn to read the charts before doing something like this.

After that I just got hooked.

• Style
Position trader, going for the long-term holds. I try to limit my trading to 2 or 3 trades/day.

There's an inconsistency here. If you want to be a position trader, you may be looking at 2 or 3 trades a month, not per day. Unless your definition of "long-term" is a few hours. If so, I suggest you give this further consideration.

Yeah I realized this after you pointed this out. Since I was limiting myself to one instrument until I doubled my equity, I think I was getting bored and started looking at swing opportunities. Will go back to the longer-term trades until I gain enough experience and proficiency.

• Timeframes
Weekly, daily, 30-minute, and 1-3 minutes.

In Wyckoff World, there are no such things as 30m or 1-3m "timeframes". Price movement is continuous. Chopping it up into 1m or 30m or 5m or 17m intervals may serve some purpose, but those intervals exist solely in the minds of the trader and the software engineer; they have nothing to do with the market itself nor with how it moves. I'll grant that "everybody (appears) to do it this way", but this has been the case for only twenty years. In the pre-internet dark days, traders focused on daily, weekly, and monthly charts. If they used charts at all. Or they traded the ticker, which takes us back to intraday trading, which, as I said, is not recommended.

So this is kind of related I guess to my answer above, if we trade based on the daily chart, are we looking solely at that information or do we go into faster charts to see the nuances of how price is acting at the edges, to time our entries and exits better?

• Reversals, Breakouts or Retracements?
Reversals and retracements due to the low risk involved if the entry is timed right.

FWIW, retracements are easier to enter and manage than reversals, but this is covered at length in my book (the one you have). I suggest you focus on retracements that occur after reversals or wait for the test, which arguably is another form of retracement.

Understood.

• Trade Set Up
If the daily is at a junction point, or possible bounce from a downtrend, determined when today's price rises to yesterday's closing price, I will look at the 30-minute chart.

See above regarding "30m" charts.

• Testing
Back-testing and forward testing done though I need to redo testing with more stringent and defined variables, testing each component one by one then together as a whole.

You'll find that back-testing and forward-testing is never really done. No matter how robust and solid your trading strategy and tactics, markets change, at least in the details. The past two years, for example, markets have moved according to the contents of Trump's tweets. This has required some modifications in strategy, all of which have to be tested.

Are we testing entries and exits, or the general theory of Wyckoff's work?

I'm assuming that since this had been tested and has worked for over 100 years, and the fundamental basis is the root cause of how markets operate, not some mathematical formula that is used to describe how price is moving NOW, that the reasons for testing are:

a) testing our understanding and our analysis of W's work
b) entry and exit timing
c) which trading opportunities are better for the specific kind of instrument, e.g. reversals, retracements, etc.
d) trader confidence in his choices

Is this accurate?

• Entry, Stop Loss & Targets
Targets are defined using P&F vertical count, since it's the one I'm familiar with and has shown to be reliable if the count is not negated. It's also the one that Wyckoff allegedly used so it fits the overall theme.

If you're accustomed to P&F and you've had success with it, by all means use it. Consider, however, that in focusing on price movement Wyckoff relied on the dynamics of trader behavior and the auction market (see Section 7 in his course or my thread on Wyckoff's work).

Db

Is defining targets based on the upper edges of the trading ranges a valid method?

My stop losses are based on that, not on the P&F structure but on the current trading range boundaries.

 

[dbphoenix]

Hey DB

Thanks again for taking the time to comment.



Understood. So should we derive all information for trading the daily/weekly from those charts without going into the smaller time frames?




I live in the Philippines, I can't trade the US market and our own markets here are very thin with regards to trading volume. We're also not allowed to short the market, which limits us to waiting for long opportunities.

The other real reason is that I got into trading through cryptocurrency. After I did a "fundamental analysis" on bitcoin (my training is as a software engineer), I bought into it and proceeded to lose more than 60% of my equity. That's when I decided that it was probably a good idea to learn to read the charts before doing something like this.

After that I just got hooked.



Yeah I realized this after you pointed this out. Since I was limiting myself to one instrument until I doubled my equity, I think I was getting bored and started looking at swing opportunities. Will go back to the longer-term trades until I gain enough experience and proficiency.



So this is kind of related I guess to my answer above, if we trade based on the daily chart, are we looking solely at that information or do we go into faster charts to see the nuances of how price is acting at the edges, to time our entries and exits better?



Understood.



Are we testing entries and exits, or the general theory of Wyckoff's work?

I'm assuming that since this had been tested and has worked for over 100 years, and the fundamental basis is the root cause of how markets operate, not some mathematical formula that is used to describe how price is moving NOW, that the reasons for testing are:

a) testing our understanding and our analysis of W's work
b) entry and exit timing
c) which trading opportunities are better for the specific kind of instrument, e.g. reversals, retracements, etc.
d) trader confidence in his choices

Is this accurate?



Is defining targets based on the upper edges of the trading ranges a valid method?

My stop losses are based on that, not on the P&F structure but on the current trading range boundaries.

So should we derive all information for trading the daily/weekly from those charts without going into the smaller time frames?

Correct.

I live in the Philippines, I can't trade the US market and our own markets here are very thin with regards to trading volume. We're also not allowed to short the market, which limits us to waiting for long opportunities.

There are other markets besides the US. But I'm not familiar with what is available to those living in the Philippines. Nonetheless, you needn't trade anything at all in order to learn how to trade. Your focus should be study and practice. And this will take far longer than you anticipate, particularly if you have a great deal to unlearn. Only after you are able to achieve consistent success in paper trading should you begin trading with real money on an extremely limited basis. Wyckoff offers the same advice.

...if we trade based on the daily chart, are we looking solely at that information or do we go into faster charts to see the nuances of how price is acting at the edges, to time our entries and exits better?

A smaller interval is not "faster". It just reveals what may not be clearly visible in a larger interval. IOW, if you watch the "tick" on the right side of your hourly bar, you'll see every trade that you'd see on a tick chart, but it will not likely provide you with any useful information. Nor will the "faster" chart, given that price movement is continuous. If you're position trading in a longer timeframe, then timing is not as important as the likelihood that your trade will be successful, the location of your entry, your stop, your trade management. If you don't know where to enter or how much room to give the trade or how to manage the trade after entry, then a "faster" chart isn't going to be of much help. I should also remind you that a trade using the daily chart is based on information provided by the weekly chart.

Are we testing entries and exits, or the general theory of Wyckoff's work?

The criteria for entry and exit are drawn from W's work. So, both.

I'm assuming that since this had been tested and has worked for over 100 years, and the fundamental basis is the root cause of how markets operate, not some mathematical formula that is used to describe how price is moving NOW, that the reasons for testing are:

a) testing our understanding and our analysis of W's work
b) entry and exit timing
c) which trading opportunities are better for the specific kind of instrument, e.g. reversals, retracements, etc.
d) trader confidence in his choices

Is this accurate?

As far as it goes, yes. I suggest you study carefully "Developing A Plan" in the SLAB, pp. 21-34.

Is defining targets based on the upper edges of the trading ranges a valid method?

My stop losses are based on that, not on the P&F structure but on the current trading range boundaries.

Targets are fine but are less important than price's behavior. Price behavior will tell you when the move is getting tired, pausing, reversing, regardless of the predetermined target. Price behavior will also tell you when the target is irrelevant and price wants to begin a continuation. Therefore, the chief objective is to understand price behavior, not to come up with more accurate targets.

................................

Trading Wyckoff is difficult for anyone whose exposure to trading is limited to the last twenty years: indicators, candles, color-coding, etc. When these traders look at charts, they see bars, or, more often candles. They see indicators. They see lots of colors and shadings. They may see oscillosopic displays. But what they don't see is movement. When a Wyckoff trader looks at a chart, he sees movement, just as a musician when looking at a score hears music. As Wyckoff points out, "the tape is like a moving picture film", but nearly all traders are looking a slideshows. Those who are unable to make this transition are unlikely to find any more success with Wyckoff than they have with any other approach.

Db

 

[moreina]

Ah that's true, I can easily pick a US market to paper trade in.

So we're at:

1. Paper trade daily chart
2. Trade only retracements

Is there anything else I should be doing? Do I keep on watching replays of price moving? I was doing this with on a 3 minute chart, I guess the time frame for this doesn't matter?

 

[dbphoenix]

Ah that's true, I can easily pick a US market to paper trade in.

So we're at:

1. Paper trade daily chart
2. Trade only retracements

Is there anything else I should be doing? Do I keep on watching replays of price moving? I was doing this with on a 3 minute chart, I guess the time frame for this doesn't matter?

I suggest you set aside intraday work for the time being since you will be focusing on daily charts until you become more comfortable with Wyckoff's process. The first step, then, is to find an instrument that is simple to trade, easy to trade, that is “directional”, that moves smoothly, that moves with ”intent” (i.e., that is decisive after reversals and breakouts), that chops as little as possible, and is, of course, liquid. I suggest that you review pp. 28-34 in the Dbs Burrow section of your book. You may also want to review Wyckoff's approach to the use of group charts, posts 29-34 in the Wyckoff thread. This is, to be honest, grunt work, but it's what one has to do if one is going to trade stocks rather than, say, futures. If at some point you decide that stocks just aren't for you, then you'll have other choices to make. The "Developing A Plan" section may be of further help in that circumstance, at least in terms of determining exactly what it is you want to accomplish.

Db

 

[moreina]

So, looking at Veeva Systems (VEEV) on the NDX shows a strong markup phase with no signs of distribution as of yet. I've chosen this stock since it has basically ignored the dip in May of the NDX and has just continued on its way, suggesting strength.

We can see a congestion zone that started in November and lasted until mid January, at which point the stock just took off. So far it has gained 90 points. The increase in the slope of the advance, marked by the second demand line, suggests a certain urgency in the markup phase that could suggest a distribution area not too far in the future. However since there is no sign so far we will trade on the long side.

We can see a top at the 173 price area but the inability of supply to push the price back down, comparing the price and volume reaction on the 24th of june to that of the 16th of july, suggests absorption is happening.

As price is just now rebounding from the low formed just below the resistance area, and volume is low, it seems like price is readying itself for a strong move up to break through resistance.

We will enter here at 173, with a stop loss at 168.

 

[moreina]

Price broke down and took out the stop but the volume was unremarkable. Volume then increased the next day and pushed price further down to 163. The day after that volume increased significantly and price remained unchanged, suggesting that buyers came in at that price level. The next day price moved up to 168, confirming that demand has outstripped supply.

We re-entered at that level.

The following day price moved up to 170, halfway back from the top formed at 176.

 

[dbphoenix]

Given the outcome of this trade, would you change your original analysis, as posted here? If so, how?

Db

 

[moreina]

I wouldn't change my analysis, I'm taking the position that the down move from the area that I thought was the bottom is just a normal fluctuation based on these things:

Price retraced to almost exactly 50% of the last up move from 154 to 176 and held there with strong volume - buyers stepping up and defending the price area

The price action at the top and the down move were relatively normal, and it took a few days to get to the halfway-point - indicative of no strong move by sellers

If a trading range forms between 154 and 176, which seems likely at this point, then the rising support, followed by good volume, indicates absorption rather than distribution.

The only negative indication I can find with regards to price advancing is that there seems to be some sort of shortening of the buying waves, but isn't this normal when we enter a trading range?

 

[dbphoenix]

I he were to do so, where do you suppose Wyckoff would enter this trade?

Db

 

[moreina]

I assume Wyckoff would enter here, at the retracement, since the high volume and failure to push price lower would confirm the bullish tendency of the market. Maybe with a stop at 160, halfway between the retracement bottom and the origin of the last up move.

 

[Szimbahun]

I think maybe you should check what happened on 07/24 11:01 am if you haven't already done so.

 

[dbphoenix]

I assume Wyckoff would enter here, at the retracement, since the high volume and failure to push price lower would confirm the bullish tendency of the market. Maybe with a stop at 160, halfway between the retracement bottom and the origin of the last up move.

W looked for equilibrium, an accumulative base, preparation for an advance, and the springboard for that advance. Buying something absent these elements would not be an efficient use of funds since price could drift along in a trading range for weeks, or months. VEEV's first base was two years long. The next base, after having doubled, was nine months long. The stock then dropped 20% along with the rest of the market last Fall but recovered and reached new highs this past January. Since then there have been higher highs and higher lows along with a few retracements, but no preparations per se. This does not mean that the advances are done, but the risks here are far greater than they would be after a sufficient period of accumulation - or, at this point - absorption - and preparation for another advance. I'm hardly an expert on Wyckoff (I unfortunately don't know anyone who is), but, based on what he says in his course, particularly Section 7 (Appendix D in your book), the last opportunity to enter would have been off the month-long base in May, perhaps the RET at the very beginning of June.

Analysis and trading needn't be joined at the hip. In fact, beginners and traders who have been having difficulties ought to make every effort to separate the two. The focus should be on what traders are trying to accomplish rather than "where do I enter?". If one doesn't understand traders' objectives then the question of where do I enter is moot. At least for the time being. You've made some good points in your analyses, but consider that this stock has sextupled since it exited its primary base, tripled since its second, and more than doubled since its correction last Fall. Its advance has been pretty much vertical. Wyckoff - if I understand his work - would be more likely to buy on a correction rather than jump into a momentum play and would be more likely to monitor this stock while looking for others that were on the springboard after doing the work of preparing for an advance.

If you are at heart a momentum player, this may not be your cup of tea. But the risks involved in W's approach are far less.

Db

 

[moreina]

Thanks for the comments DB, I hadn't paid much attention to areas of equilibrium and their relationships with the length of the advance/decline after price leaves it. Will go back and do a hindsight analysis on those areas. Since the danger point is so close in those areas I actually find them attractive places to enter. What I can't properly do is understand the flow and balance in those areas.

In your opinion, is it better to enter only on equilibrium areas that are about to move, rather than combine those entries with retracements? W mentions pyramiding and selling on bulges in Section 7 during the bear market, are those applicable only in the early parts of the bull/bear cycle?

You're right, I find that when I'm just observing price action vs when I'm actively looking for an entry things are much clearer. Will focus on that right now.