Wyckoff Method, The: In The Original

[dbphoenix]

Someone was asking about shorting Sears, and there's always more profit to be made in something that has yet to weaken. I mentioned MO earlier in the posts on group strength and revisited it today. It'll be interesting to see what happens when price exits this hinge.

 

[dbphoenix]

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[dbphoenix]

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[dbphoenix]

The shift in balance between demand and supply is determined by the behavior of price.

Volume alone is only part of the consideration.

 

[dbphoenix]

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[dbphoenix]

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[dbphoenix]

In re the above chart:

 

[dbphoenix]

In re the above two charts:

 

[dbphoenix]

And to continue . . .

 

[dbphoenix]

Fear, hesitation and uncertainty are deadly enemies of the Tape Reader. Therefore commitments should be no greater than can be borne by one's susceptibility thereto. Hesitation must be overcome by self training. To observe a positive indication and not act upon it is fatal, more so in closing than in opening a trade. The appearance of a definite indication should be immediately followed by an order. Seconds are often more valuable than minutes. The Tape Reader is not the captain, he is but the engineer who controls the machinery. The Tape is the pilot and the engineer must obey orders with promptness and precision. We have defined a Tape Reader as one who follows the immediate trend. This means that he pursues the line of least resistance. He goes with the market. He does not buck it. The operator who opposes the immediate trend pits his judgment and his hundred or more shares against the world's supply or demand and the weight of its millions of shares. Armed with a broom, he is trying to stay the incoming tide. When he goes with the trend, the forces of supply, demand, and manipulation are working for and with him. (Wyckoff)

 

[dbphoenix]

The proportion of commercial failures due to Lack of Capital or Incompetence is about 60 per cent. Call the former by its Wall Street cognomen — Overtrading — and the percentage of stock market disasters traceable thereto would be about 90.

Success is only for the few, and the problem is to ascertain, with the minimum expenditure of time and money, whether you are fitted for the work.

These, in a nutshell, are the vital questions up to this point:

Have you technical knowledge of the market and the factors which move it?

Have you $1,000 [$25,000 today] or more which you can afford to lose in an effort to demonstrate your ability at Tape Reading?

Can you devote your entire time and attention to the study and the practice of this science?

Are you so fixed financially that you are not dependent upon your possible profits, and so that you will not suffer if none are forthcoming now or later?

There is no sense in mincing words over this matter, nor in holding out false encouragement to people who are looking for an easy, drop-a-penny-in- the-slot way of making money. Tape Reading is hard work, hence those who are mentally lazy need not apply.

Nor should anyone to whom it will mean worry as to where his bread and butter is coming from. Money-worry is not conducive to clear-headedness. Over-anxiety upsets the equilibrium of a trader more than anything else. So, if you cannot afford the time and money, and have not the other necessary qualifications, do not begin. Start right or not at all. (Wyckoff)

 

[dbphoenix]

Wyckoff didn't like trading range breakouts. He viewed them as a trap. He preferred entering inside the range, at whatever springboard there might be for a decent move. He was much better at it than I am, but this morning provided a good example of the sort of thing he would look for.

It should be noted that one must keep a tight cover stop, as for example if one had taken the first trade (2). There is no room for hope here. As Teresa Lo used to say, "if it doesn't go, you don't want to be there". But if it's good, it'll go, as with the second entry (3).

 

[dbphoenix]

After you have traded for a while, if you find that your stops are being caught too frequently, it will mean that you are not careful enough in starting your trades. Thereafter decide to use more discrimination. Refuse all but the best opportunities. Wait for them. Take your positions as close as you can to the danger points, as shown on your charts or on the tape. Place your stops according to the requirement of the situation. Study your mistakes and profit by them. Know every minute why you are starting a trade, why you are holding it, and why you should close out. (Wyckoff)

 

[mckaldey]

I hope this is no disturbance for this great thread, but observing the action around the oil plunge and given that the future has reached an equilibrium level at $25 I look at USO to potentially trade it.

Of course the downtrend on the weekly is not broken yet. And in terms of the channel, it just bounced from the midpoint. But in terms of volume, this was the highest yesterday for a long time testing the low and apeared a bit less on the way down.

I would be very interested in another interpretation...

In re to this post I would like to say: The point where it turned again to the downside could have been anticipated. Just another equilibrium level...

But I'm not sure how to interpret the volume here...First test of the apex level with a high level of participation, less on the second?

 

[dbphoenix]

I'm not channeling Wyckoff, but I doubt he'd think about it much. He'd have seen that the trading opportunity was in November and that price has made a series of lower lows ever since, seguing into a state of equilibrium, and given that the ranges and hinges that characterize equilibrium include a lot of activity, I doubt he'd be concerned about it. If he were short, he'd look for some evidence that the landscape had changed, that the trend was getting ready to turn upward. Otherwise, he'd likely just sit and wait, same as Livermore.

Db

 

[dbphoenix]

Occasionally we find a new student who is endeavoring to combine this Instruction with all or part of other ideas and theories (particularly some of the popular, new day "studies" of geometrical chart "patterns") which he has previously acquired. It is sheer folly to suppose that you can hope to discover any easy short cuts to practical market operations. The very nature of the art is such that it cannot be reduced to a basis of rigid formulas functioning along mechanical or mathematical lines. In short, you cannot solve your market problems with a calculating machine. (Wyckoff)

 

[dbphoenix]

A famous operator, Dixon G. Watts, expressed the idea many years ago that the qualities essential to the equipment of a speculator (and an investor) are: Judgment, self-reliance, courage, prudence and pliability.To these should be added another quality, patience.

We can train you to develop good judgment, but you must train yourself to act upon your decisions and to carry them to a successful conclusion. By this is meant that you must operate with no emotions whatever. Be just as indifferent, hard-boiled and level-headed in opening and closing actual commitments as you would if they were merely paper trades. You can do this if you will be honest with yourself. Make a searching analysis of your own mental processes. Study your psychological shortcomings. To know them is to beat them.

If you find you do not possess courage, self-reliance, patience, prudence and pliability, cultivate those qualities. It is folly to be in the market without them. (Wyckoff)

 

[dbphoenix]

This is the objective point of the Tape Reader – to make an average profit. In a month's operations he may make $3,500 and lose $3,000 – a net profit of $500 to show for his work. If he can keep this average up, trading in 100-share lots [NB. or one contract], throughout a year, he has only to increase his unit to 200, 300, and 500 shares or more, and the results will be tremendous.

The amount of capital or the size of the order is of secondary importance to this question: Can you trade in and out of all kinds of markets and show an average profit of say ⅛ per cent per day? If so, you are proficient in the art. If you can trade with only a small average loss per day, or come out even, you are rapidly getting there. (Wyckoff)

 

[dbphoenix]

Whenever you find hope or fear warping your judgment, close out all your positions at the market price, regardless of whether you have a profit or a loss.Then keep out of the market a few days, a week or longer, until you feel that you can go back again and be guided by your judgment instead of your hopes and fears. These two emotions are the cause of many failures in stock trading.Until you can learn to trade and invest without hope or fear you will not meet with all the success you should. (Wyckoff)

 

[dbphoenix]

The Secret Trading Strategy From The 1930s That Hedge Funders Don't Want You To Know About

Matthew Boesler MAR 20, 2014


“The large operator does not, as a rule, go into a campaign unless he sees in prospect a movement of from 10 to 50 points. Livermore once told me he never touched anything unless there were at least 10 points in it according to his calculations.”

So writes Richard Wyckoff, the legendary trader who in the 1930s wrote a manifesto that gained him a cult following on Wall Street.

His 1931 book, “The Richard D. Wyckoff Method of Trading and Investing in Stocks — A Course of Instruction in Stock Market Science and Technique,” is out of print and somewhat difficult to find these days (not impossible), but even in 2014, hedge fund managers still swear by it.

One of the key takeaways from the book is that if you want to succeed, you have to learn to recognise the professionals and understand what they are doing. That’s what those who follow Wyckoff do — they watch the large operators.

Wyckoff walks us through the process of how a large operator will manipulate a stock up or down — so that next time one sees it unfolding on the screen before his or her own eyes, he or she can react accordingly.

This, you could say, is real technical analysis…

(click here for the article)