I did a webinar for one of the trading forums the other day and some of the comentary that followed questioned why the classic trading methods (developed nearly 100 years ago) such as Wyckoff still worked. Here is my response:
I think classic trading methods like Wyckoff still work because they are based on a very deep understanding of how we as human beings behave in the context of a free market. Wyckoff (just like Dow, Shabacker, Gann, Elliott and other early pioneers of TA) charted by hand. No computers or advanced data feeds at that time. Each price and volume bar and each figure (point & figure chart) were placed on paper by hand and tracked closely, day by day. In doing this they developed a real intimacy with the markets they traded. Because of this intimacy, Wyckoff discovered things in the charts no one else had seen before.
Wyckoff was also a broker. He observed how the average person acted in the market – when it was going up, when it was going down, when news came out, when the tape was active, when it was dull, etc. Wyckoff also knew most of the large, professional traders of his day – people like Livermore, Harriman, Gould, Morgan and the like. He studied their activities very closely. He was in a unique position to piece togther the actions of the small and large traders with the chart. He had an ‘inside view’ from behind the scenes, so to speak, and could relate this to the price bars and volume. In other words, he connected human behavior with the chart.
Keep in mind that we as human beings change only very gradually. We are built to change on an evolutionary scale. We don’t make revolutionary changes in our overall behavior. People today are basically the same as they were 100 years ago. We have the same emotions, thoughts and sensations as the people living not just 100 years ago, but 1000 years ago. Our behavior today is essentailly the same as it was then, as well. It will be the same 100 years and more from now.
So, when you think about markets being traded by people, and the fact that people really haven’t changed much over time and that Wyckoff really taught that an educated eye can read the behavior and actions of the large, sophisticated traders as well as the average traders in the chart, you begin to realize that, indeed, it ‘still works’ and will continue to work well into the future.
One thing that doesn’t lie is price. It didn’t lie in Wykoff’s era, nor does it in ours. What I really like about the Wykoff studies is that everything is based on price behavior, which also keeps it simple – very important for people like me who have a propensity for making things more difficult than they are. 🙂
Hi Maureen,
I know about that propensity to make things more difficult than they are 🙂 . Wyckoff is straightforward. You can bring everything down to his three main laws: Supply-Demand; Effort-Result; and Cause-Effect. Whenever you find yourself over analyzing or unsure, go back to the fundementals. Usually, that will help clarify. But sometimes, we really won’t have an idea. Then, it is best just to stand aside, be patient, and wait for more information. The market will soon tell us what it is doing.