There is no doubt in my mind that the Wyckoff perspective offers the modern trader a very strong technical edge. Today – like virtually all trading days – provides excellent examples of Wyckoff principles. Keep in mind that the Wyckoff method is all about reading the market by its own actions. Surely it is not infallible, but the astute Wyckoff student can read much in price action and volume.
Setting Up For Day Trading
For day trading, we always start with the higher time frames. The daily chart gave us clear indications of what the market was trying to do. In my post from last night, I noted that recent price action indicated a reaction was due. This comes from reading the individual price bars and volume reflecting the trading activity from last Friday to yesterday as Wyckoff did nearly ninety years ago. Although we have made great, revolutionary strides in technology since Wyckoff first published his methods, the human behavior as reflected in the charts has not changed at all. We are evolutionary beings. Our trading behavior today is the same as it was 100 years ago. It will be the same 100 years hence. This is why Wyckoff will trump indicators every time.
In that post I also noted the various principles and characteristics of recent market action that indicated the market was in a near-term bullish phase. You can read that post by clicking here. So, although a reaction was expected, the recent market action also indicated that it would be short-lived. A key support level was noted which the market had to hold in order to rally higher and continue its recent bullish character.
Wyckoff Principles Today
Today, the market came right into that support level and held nicely. It gave us a clear selling climax – a unique Wyckoff principle – that told us ahead of time that the support level was likely to hold and the market reverse. In a selling climax, weak traders are frightened out of long positions to the advantage of larger operators. We see that as indicated on the intraday chart and highlighted nicely by the Weis Wave and trend channel. It told us that a large amount of contracts had changed hands paving the way for a rally.
The market rallied strongly from that key level. There were several opportunities to get long on smaller intraday charts, but I want to illustrate another important Wyckoff principle and trade setup: the Spring. In a Spring, the market revisits a recent swing low, dips underneath that low, finds no selling, and rallies aggressively away to new highs. The Spring today came at another key level (1394 – last month’s low). After the climax and strong rally, the market came back to the October low, tested it, and then rallied higher. I am sure many traders saw that 8-point drop as a reversal and were caught short. Those who know the Spring trade and the principles behind it were patiently waiting for the market to reject further lows and begin to rally.
What’s Next
Given the higher volume today, we may spend another day in the congestion zone that began last Friday, but I am anticipating a drive up and beyond the 1430 level near-term. If that occurs, we will see how the market both rallied to that level and how it acts around that level to determine the next probable market action. Obviously, a break below today’s low would indicate the market wants to at least retest the daily chart’s oversold lows, though I view the odds for that scenario to be low.
Learn More About The Wyckoff Method
There is much to be learned in the Wyckoff method. A good place to start is my two-part tutorial on applications of Wyckoff in today’s, modern markets. This provides a strong introduction to the fundamentals of Wyckoff analysis and trading, including selling and buying climaxes, when corrections are likely to be over, the characteristics of a bullish advance (from price and volume only), how to see serious selling enter the market, how to anticipate a correction, and much, much more. You can learn more here: Wyckoff in the Modern Markets Part I and Wyckoff in the Modern Markets Part II
Hi Dr. Gary,
Why the area around 1380 would be a key support area? Do you mind to share?
Because that is where the market was stopped earlier – in mid-November. Old resistance becomes support. This is a fundemental Wyckoff principle of trader behavior.
Hi Dr. Gary,
Why the area around 1380 would be a key support area?
Does it mean that it stopped earlier before touching the support line?
It is not a specific price or line, but an area. I highlighted the area on the daily chart – the narrow blue rectangle. It is a price area that the market was unable to get through in early November and had difficultly later around the 20th of the month. The market often tests these kinds of areas.
Many many thanks for your insightful comments.