Develop Your Fundamental Trading Skill

8/10/2019 Develop Your Fundamental Trading Skill

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Develop Your Fundamental Trading Skill

Introduction

Googlearound for Trading Methods, and you can easily ton and ton of various methods.Among these, there are 4 timeless approaches to analysis of the market, namely

Elliott Wave Theory,

Gann's !ing Trading,

ha"acker's #hart $attern and

Wyckoff Trading Methods

Each methods has their o!n pro and con, "ut if you !ill to ask me !hich methods i

prefer or i train in% &'m !ill say &'m all in for Wyckoff. Most of my trading skill are "ased

on his teaching and it is serving me good especially for my &nde Trading.

(ichard )emille Wyckoff, a stock market authority, founder and onetime editor of

the Maga*ine of Wall treet, and editor of tock Market Techni+ue
http://google.com.sg/http://bigfatpillar.com/3-top-reasons-why-i-prefer-index-trading/http://bigfatpillar.com/wp-content/uploads/2014/10/Wyckoff-comments.jpghttp://google.com.sg/http://bigfatpillar.com/3-top-reasons-why-i-prefer-index-trading/


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et us read on for more of his trading ideas- An etract of a great article from

http//stockcharts.com/school/doku.php%

id0chart1schoolmarket1analysis!yckoff1market1analy. 2ust remem"er that it is !hatyou do to educate yourselfduring your free time to improve your current financial state.

o let get start to develop your Trading kill-

Wyckoff Market Analysis

(ichard ). Wyckoff, a perpetual stock market student, !as a great trader and a pioneer of

technical analysis. 3ased on his theories, studies and real life eperiences, Wyckoff

developed a trading methodology that has stood the test of time. Wyckoff started !ith a"road market assessment and then drilled do!n to find stocks !ith the most profit

potential. This article, the first of t!o, details Wyckoff's approach to "road market

analysis. &t is important to understand the "road market trend and the position !ithin this

trend "efore selecting individual stocks. The second article sho!s ho! Wyckoff selectedstocks to "uy and sell. This second article !ill "e posted "y the end of e"ruary 5675.

About

(ichard Wyckoff "egan his Wall treet career in 7888 as a runner scurrying "ack and

forth "et!een firms !ith documents. As !ith 2esse ivermore in the "ucket shops,Wyckoff learned to trade "y !atching the action first hand. 9is first trade occurred in

78:; !hen he "ought one share of t. ouis < an rancisco common stock. After

successfully trading his o!n account several years, he opened a "rokerage house and

started pu"lishing research in 7:6:. The Maga*ine of Wall treet !as one of the first, andmost successful, ne!sletters of the time. As an active trader and analyst in the early

7:66s, his career coincided !ith other Wall treet greats including 2esse ivermore,#harles )o!and 2$ Morgan. May have called this the =golden age of technical analysis>.

As his stature gre!, Wyckoff pu"lished t!o "ooks on his methodology tudies in Tape

(eading ?7:76@ and 9o! & Trade and &nvest in tocks and 3onds ?7:54@. &n 7:7,

Wyckoff pu"lished a correspondence course detailing the methodology he developedover his illustrious career.
http://stockcharts.com/school/doku.php?id=chart_school:market_analysis:wyckoff_market_analyhttp://stockcharts.com/school/doku.php?id=chart_school:market_analysis:wyckoff_market_analyhttp://bigfatpillar.com/the-father-of-success-education/http://bigfatpillar.com/the-father-of-success-education/http://stockcharts.com/school/doku.php?id=chart_school:market_analysis:dow_theoryhttp://stockcharts.com/school/doku.php?id=chart_school:market_analysis:wyckoff_market_analyhttp://stockcharts.com/school/doku.php?id=chart_school:market_analysis:wyckoff_market_analyhttp://bigfatpillar.com/the-father-of-success-education/http://stockcharts.com/school/doku.php?id=chart_school:market_analysis:dow_theory


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Two ules

Wyckoff focused eclusively on price action. Earnings and other fundamental

information !ere simply too esoteric and imprecise to "e used effectively. Moreover, thisinformation !as usually already factored into the price "y the time it "ecame availa"le to

the average speculator. 3efore looking at the details, there are t!o rules to keep in mind.

These rules come directly from the "ook, #harting the tock Market The WyckoffMethod, "y 2ack B. 9utson, )avid 9. Weiss and #raig . chroeder.

Rule One:Don't expect the market to behave exactly the same way twice. The market is

an artist, not a computer. It has a repertoire of basic behavior patterns that it subtly

modifies, combines and springs unexpectedly on its audience. A trading market is anentity with a mind of its own.

Rule Two:Today's market behavior is significant only when it's compared to what the

market did yesterday, last week, last month, even last year. There are no predetermined,

neverfail levels where the market always changes. !verything the market does todaymust be compared to what it did before.

&nstead of steadfast rules, Wyckoff advocated "road guidelines !hen analy*ing the stock

market. Cothing in the stock market is definitive. After all, stock prices are driven "y

human emotions. We cannot epect the eact same patterns to repeat over time. There!ill, ho!ever, "e similar patterns or "ehaviors that astute chartists can profit from.


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#hartists should keep the follo!ing guidelines in mind and then apply their o!n

Dudgments to develop a trading strategy.

!road Market Trend

3y definition, vast maDority of stocks move in harmony !ith the "roader market.#hartists, therefore, should first understand the direction and position of the "road market

trend. With this in mind, Wyckoff developed a =!ave chart>, !hich !as simply a

composite average of five or more stocks. Cote that #harles )o! developed the )o!2ones &ndustrial Average and )o! 2ones Transportation Average around the same time.

While the )o! &ndustrials is perhaps the most famous =!ave chart>, chartists today can

choose among several indices to analy*e the "road market. These include the


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The charts a"ove sho! eamples of an uptrend and do!ntrend. Within the trend, pricescan "e positioned at oversold levels, over"ought levels or some!here in the middle of the

trend. Trend position is important to determine the riskre!ard ratio of a ne! position.

&deally, chartists should look for long positions !hen the trend is up and the inde is


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oversold. This means a pull"ack or correction has occurred. The riskre!ard ratio is less

attractive if "uying in an uptrend !hen prices are over"ought. imilarly, the riskre!ard

ratio is less attractive if selling in a do!ntrend !hen an inde is in an oversold position. &tis "est to esta"lish a ne! short position !hen the inde is either over"ought !ithin a

do!ntrend or in the middle of this do!ntrend.

Ma"or Tops and !ottoms

&n "et!een trending periods, the "road market indices form maDor tops and "ottoms thatreverse eisting trends. Wyckoff noted that tops and "ottoms !ere different. Market tops

!ere often long dra! out affairs, !hile market "ottoms !ere relatively short violent

"easts. Wyckoff identified specific characteristics some 766 years ago and thesecharacteristics can still "e seen in today's markets.

3ear markets often end !ith a selling clima or spring, !hich is a failed support "reak.

irst, the maDor stock inde is in a do!ntrend "ecause it has "een moving lo!er for an

etended period. entiment is +uite negative and many investors are thoroughlydiscouraged !ith their mounting losses. At some point, discouraged investors finally

thro! in the to!el and unload their stocks. $rices fall sharply and often "reak a key

support level. $rices appear to "e in a free fall at this stage, "ut the =smart> money is!aiting in the !ings. mart money "uying pressure suddenly reverses the free fall and

prices surge to close !ell a"ove their lo!s.


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Wyckoff used volume to confirm the validity of a reversal, "reakout or trend. A selling

clima or spring should "e accompanied "y an increase in volume to sho! epandingparticipation. &t is important that "ig money ?i.e. institutions@ support a market move for it

to have staying po!er. o! volume suggests limited participation and increases the

chances of failure.

The eample a"ove sho!s a high volume selling clima and spring in early Hcto"er5677. Cotice ho! the


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Hn the price chart, the market top is often not clear until the second half of the pattern

unfolds. This often involves a failed "reakout or a failure at resistance. This is not so

negative at the time, "ut prices then return all the !ay to support. uch a sharp declinereflects a marked increase in selling pressure. There is then some sort of "ounce off

support that forms a lo!er peak, !hich sho!s diminished "uying pressure. At this point,

the charts sho!s an increase in selling pressure on the support test and a decrease in"uying pressure on the su"se+uent "ounce. The reversal is completed !ith a final support

"reak on increasing volume.

The eample a"ove sho!s the )o! &ndustrials !ith a peak in 566;. Cotice ho! prices

moved side!ays for around seven months. There are five points on this chart to definethe topping process. The first point, !hich occurred in the second half of the pattern,

sho!s the )o! failing to hold a"ove its prior peak. There is nothing "earish a"out thisfailed "reakout until prices decline all the !ay "ack to the August trough. This is the first

sign that selling pressure ?supply@ is increasing. $rices "ounce off support, "ut a lo!er

peak forms in early )ecem"er. This is the first signal that "uying pressure ?demand@ isdiminishing. An increase in selling pressure and decrease in "uying pressure com"ine to

mark an important top that is confirmed !hen prices "reak support !ith a sharp decline


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in 2anuary 5668. Wyckoff used volume to confirm price movements. Cotice ho! volume

on do!n days eceeded volume on up days in Hcto"er and Covem"er as prices declined

to support. This sho!ed an increase in selling pressure that validated the support "reak.

#rice #ro"ections

Hnce a market top and "ottom or "ottom took shape, Wyckoff turned to figure charts to

calculate price proDections. igure charts later evolved into $oint < igure charts. &n

general, Wyckoff "ased his price proDections on the !idth of the pattern. The !ider thepattern, the higher the ultimate price proDection. &n other !ords, a long "ase etending

over ten $


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etend a support line across the chart. #hartists can then identify the column leading into

the pattern ?start@ and the column leading out ?end@. These t!o define the entire pattern.

The eample a"ove sho!s the


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their targets, !hile some counts eceed their targets. Fou can read more on traditional

$


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continuation of the markup phase. &n contrast to a consolidation, a pull"ack is a corrective

decline that retraces a portion of the prior move. #hartists should look for support levels

using trend lines, prior resistance "reaks or prior consolidations. Alternatively, Wyckoffalso looked for support or reversal signs !hen the correction retraced 6K of the last up

leg.

A do!ntrend starts !ith a distri"ution phase and then enters a markdo!n phase as prices

move steadily lo!er. Cote that Wyckoff did not shy a!ay from shorting the market. 9elooked for opportunities to make money on the !ay up and on the !ay do!n. As !ith the

accumulation and markup phase, there are five potential selling points during this

etended do!ntrend. irst, a lo!er peak !ithin a distri"ution pattern offers a chance toshort the market "efore the actual support "reak and trend change. uch aggressive tactics

offer the highest re!ard potential, "ut also risk failure "ecause the do!ntrend has not

officially started. The "reakdo!n point is the second level to short the market, providedthe support "reak is validated !ith epanding volume. After a "reakdo!n and oversold

conditions, there is sometimes a thro!"ack to "roken support, !hich turns into

resistance. This offers players a second chance to partake in the support "reak.

Hnce the markdo!n phase "egins in earnest, chartist should !ait for flat consolidationsor oversold "ounces. Wyckoff referred to flat consolidations as redistri"ution periods. A

"reak "elo! consolidation support signals a continuation of the markdo!n phase. &n

contrast to a consolidation, an oversold "ounce is a corrective advance that retraces aportion of the prior decline. #hartists can look for resistance areas using trend lines, prior

support levels or prior consolidations. Wyckoff also looked for resistance or reversal

signs !hen the correction retraced 6K of the last do!n leg.


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$onclusions

There are four key areas of the Wyckoff market method trend identification, reversal

patterns, price proDections and trend position. Getting the trend correct is half the "attle"ecause the maDority of stocks move in conDunction !ith the "road market trend. This

trend continues until a maDor top or "ottom pattern forms. Aggressive players can act"efore these reversal patterns are complete, "ut the eisting trend does not officiallyreverse until price "reaks a key support or resistance level on good volume. Hnce a top or

"ottom is complete, chartists can use a hori*ontal count method on $

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Develop Your Fundamental Trading Skill