Change of Behavior Trade
Some of the best trades occur after the market exhibits a change of behavior. We aren’t looking to buy the low tick or sell the high one — that’s a fool’s game. No, we don’t want to be making random traders where we “think” the market will turn. That’s bad trading. I am sure many would be traders are now surveying their losses from the morning, after repeatedly trying to pick a bottom and failing.
That’s not the way to trade. In the Wyckoff Method, we are alert any time the market displays a change of behavior. It did that over the noon hour. After going down in a strong down draft throughout the morning and into the noon hour, the market has a rally, breaking the trend channel and signifying a change of behavior from down to up.
But we don’t just jump in. We want the market to test. Why test? To disconfirm the presence of supply. Selling dominated all morning. Just because we have a decent rally doesn’t mean the market will now continue to rally. What about all that selling from and hour or so ago? We need to test it.
And test it does. We see the test at A. The market came back down to the earlier support level at C. This is about halfway back from the top of the last rally. Note the lack of downside volume back in an area where, just a hour or so ago, there was heavy selling. It’s dried up. There is no appreciable selling at this old support level. So, we have a change of behavior and then a test. And the test sets up a Spring!
As with any Spring, the target is a solid push above the last swing high. The market achieved that easily, which is what we would anticipate for a change of behavior trade. Isn’t this a whole lot better than trying to pick a bottom?
Hello Gary, “A” is a UP Bar. The Test occuren in DOWN bar, no?
Tests don’t always occur on down bars. Tests return to an area of high volume to assess the current activity at that level. We look for comparatively lower volume or activity on the test.
In this case, “A” refers to the area, not an individual bar. In the area of A, we had a Spring. The Spring does get tested, but the point here isn’t that the Spring is tested, but that the Spring itself is a test and a failure to follow-through to the downside. We are looking more at the forest rather than the individual trees. The Weis Wave volume at A is considerably smaller than at C, the last swing low at that level, and certainly much less than the last swing low (not labeled) on high wave volume. This tells us that the active selling we saw at C and the next swing down had dried up when we revisit that level at A. If the selling has dried up, then buyers are likely to see an advantage, step in and take the market higher, which is what they did. So, in this case we have: Strong selling followed by new demand coming into the market, followed by a test and Spring showing no further selling at that level.