Daily CPR Width and Range Relationships and Floor Trader Pivot Levels. |
Sunday, August 13, 2023
The Central Pivot Range & Floor Trader Pivots | Trading Strategy
Friday, March 17, 2023
How Livermore Judges the Turning Points | Richard D. Wyckoff
Wyckoff started as a stockbroker's runner at the age of 15, became a brokerage firm auditor a few years later, and at age 25 opened his own brokerage firm. |
Just as the market displays to his practiced eye the downward phase, so it forecasts the end of the reaction and the time to resume the long side. These indications appear in the leading stocks of important groups and in many individual issues - usually the most popular trading mediums. The principles of judging the market by its own action, Livermore learned long ago and he found that they operate over the whole wide range of stock market movements, from the little half-hourly ripples back and forth to the great swings in prices running from one to three years. It is a question of supply and demand and once recognized and properly applied, it goes a long way toward solving of most stock market problems.
The market moves along the line of least resistance and when demand is greater than supply this line is upward. To detect the momentary changes as well as those taking a longer time to work out, is the daily task of Mr. Livermore, just as it is the business of every manufacturer and merchant to judge the future course of his particular industry.
Monday, February 13, 2023
The Arithmetic of Pump & Dump Patterns | Jesse Livermore
The 1870 census in the US found that 1 out of every 8 children below 14 years old was a wage slave. By 1910 it was 1 out of 5. |
Trend Change Rules |
Livermore’s approach to swing trading required two filters: (1.) a larger swing filter and (2.) a penetration filter of one-half the size of the swing filter. Penetrations were significant at price levels he called pivot points. A pivot point is defined in retrospect as the top and bottom of each new swing. The pivot points in the below swing chart are marked with letters. Positions are taken only in the direction of the major trend. A major uptrend is defined by confirming higher highs and higher lows, and a major downtrend by lower lows and lower highs, and where the penetration filter (swing filter) is not broken in the reverse direction. That is, an uptrend is still intact as long as prices do not decline below the previous pivot point by as much as the amount of the penetration filter. Once the trend is identified, positions are added each time a new penetration occurs, confirming the trend's direction. A stop-loss is placed at the point of penetration beyond the prior pivot point. Unfortunately Livermore never revealed how the penetration point was calculated. It seems however to be a percentage of the current swing size (e.g. 16%, 20%, 25%, 33%,50%) .
Failed Reversal in the Livermore Method |
In Livermore's system the first penetration of the stop-loss (a swing high or low depending on the direction of the trade) calls for liquidation of the current position. A second penetration is the necessary confirmation for the new trend. If the second penetration fails (at point K) it is considered a secondary reaction within the old trend. The downtrend may be re-entered at a distance of the swing filter below K, guaranteeing that point K is defined, and again on the next swing, following pivot point M when prices reach the penetration level below pivot point L. It is easier to re-enter an old trend than to establish a position in a new one.
- Markets are never wrong opinions often are. Back your judgment and don't trust your opinion, until the action of the market itself confirms your opinion.
- Few people ever make money on tips, beware of inside information. If there was easy money lying around, no one would be forcing it into your pocket.
- Money is made by sitting, not trading. It takes time to make money. Don't give me timing; give me time.
- Buy right, sit tight. Big movements take time to develop. Men who can both be right and sit tight are uncommon.
- Money cannot consistently be made by trading every day or every week during the year.
- Nothing new ever occurs in the business of speculating or investing in securities and commodities.
- Never average losses.
- The human side of every person is the greatest enemy of the average investor or speculator. Wishful thinking must be banished.
Jesse Livermore (1940) - How To Trade In Stocks.
Friday, February 10, 2023
Trading Tips from the Front Office | Tom Hougaard
15 Minute Bar Chart of Crude Oil with red Simple Moving Average of 60 bars: Price goes where the Other Time Frame Traders have their Stop (Loss) or Limit (Buy or Sell) Orders: Around Highs and Lows of previous 1 Hour and 4 Hour Bars, Sessions, Days, Weeks, Months, Quarters, Years, 3 Years. Look for Peak Formations a.k.a. Reversal Patterns around these Levels (QM Patterns, V-, M-, W Formations). Dotted blue horizontals = Yesterday's High and Low Blue solid horizontals = Last Week's High and Low Red Solid Horizontal = Last Months High and Low. See also HERE |
Tom Hougaard (2011) - Trading at the Top: Trading Tips and Strategies from a Professional Trader.
Wednesday, December 21, 2022
Accumulation & Distribution Schematics | Richard D. Wyckoff
An understanding of manipulative procedure in any-event helps us to judge the motives, the hopes, fears and, aspirations of all the buyers and sellers whose actions today have the same net effect upon the market as 30 many pool operations would have. So if we are squeamish about the term "manipulator" we may substitute the words "Composite Operator" with the same force and affect. Some people might object to this statement on the ground that regulation of the stock market has eliminated pool operations. Even though pool operations and old-fashioned manipulation are banned by law, for our purpose in studying, understanding and correctly interpreting market action, we must consider any operation a "manufactured" movement wherein the buying or the selling is sufficiently concerted and coming from interests better informed than the public as to produce the same effects as pure manipulation.
[...] The market is made by the minds of men, and all the fluctuations in the market and in all the various stocks should be studied as if they were the result of one man’s operations. Let us call him the Composite Man, who, in theory, sits behind the scenes and manipulates the stocks to your disadvantage if you do not understand the game as he plays it; and to your great profit if you do understand it.
Great activity and breadth induces trading in large quantities by big operators on the floor and outside. Such a market enables the manipulator to unload a large line of stock. When he wishes to accumulate a line, he raids the market for that stock, makes it look very weak, and gives it the appearance of heavy liquidation by sending in selling orders through a great number of brokers.
You say all this is unethical, if not unscrupulous. You say it is a cruel and crooked game. Very well. Electricity can be very cruel, but you can take advantage of it; you can make it work for your benefit. Just so with the stock market and the Composite Man. Play the game as he plays it. I am giving you the inside view.
oOo
Richard D. Wyckoff (1931) - The Wyckoff Method of Trading in Stocks.
See also:
Hank Pruden & Max Lichtenstein (2006) - Wyckoff Schematics - Visual Templates for Market Timing Decisions.
TPR (2022) - Daily and Weekly Market Maker Cycles - ICT Intraday Trading Templates.
Tuesday, September 27, 2022
The Bullish & the Bearish Market Maker Cycle
- On day one the retail traders are selling and the institutions buying from the retail traders.
- On day two the retail traders are selling and again the institutions are buying.
- However, on day three the retail traders are again interested in selling and the institutions are buying up heavily.
- Now price moves up aggressively triggering stops and taking a profit. (In effect, the market makers are using a scaling-in method to book their profit).
- Following a Level III pullback price becomes choppy and continues because of what happens with the trader’s psychological adaptation to loss. After the market has run down for three days and traders have taken losses, these individuals react by pulling away from the market quite literally and having a few days off before coming back to trade. During this period the market is choppy and relatively stagnant until the traders have returned to play in the game again.
- "After a big drop the market must chop"
- "After three days of drop the market must chop"
- "After a big rise the market needs more guys"
- "After three days of rise the market needs more guys"
Count the levels to know what part of the cycle price is currently in. Entering trades at peak reversals is best. One should only take a long position when the Low of the Day (LOD) or High of the Day (HOD) is clear. This is the only place that has a high level of certainty in directional movement. Look for a midweek reversal which will generally correlate with one or both of the intraday reversals. With an awareness of the longer cycle and assuming one is in the correct place within the cycle, it is possible to convert a spot trade to a swing trade from one of the 3 day cycle peaks to the other given an appropriate entry. This would involve going from one peak formation high to the next peak low and may take several days.
On an intraday trade, it is still important to understand the current position within this larger cycle. This will help to make a judgement about how far a run may last. For example, if price has just passed the peak high and is at a Level I accumulation then an intraday long trade after a bearish stop hunt, while valid, will not be likely to produce consistent results. Hence, it is a good idea to not take trades against the longer trend at a Level I accumulation.
- Take out existing stops, that is: collecting buy side and sell side liquidity.
- Encourage traders to commit to positions in a direction that is opposite to where the real trend is going to be.
- The spread is opened up by a few pips. This allows traders orders to be triggered outside their normal boundaries and they will be holding negative positions from the outset.
- It is common to see price undergo a further period of accumulation lasting 30 to 90 minutes which encourages traders to take further positions. When there are enough positions, the price is moved in the direction of the true trend and their stops will be triggered.
- There is often a second move to the HOD/LOD though most of the time it will fail to take it out (so as to not give those who got in a profitable position to escape from). This forms the typical W or M pattern.
If a trade is taken in the area of the HOD/LOD one might notice that price is moving around but the position changes little. Looking at the price board one will see that it is "flickering red and blue" with lots of changes suggesting that there is lots of activity but in fact there is little and a reversal is imminent. Another observation during this period is that the spread widens. This is done so that a broader range of orders can be collected and accumulated during this period, making it even more difficult for traders to take profit as they are in a losing position right from the outset. The diagram below demonstrates what happens to the spread during this period.
Like before, this move will be in the 25 – 50 pip range and be comprised of 3 candles or 3 pushes. But also like before this is not necessarily the case and more or less are also possible. Again the trader must use their own judgement and discretion. Therefore, identifying that after a period of time the stop hunt has not led to a reversal one should scratch the trade. An appropriate period of time is 2 hours following the second leg of an M or W pattern. It the trader has not moved in the expected direction by this time, something is wrong and they have not been able to build up enough volume to make it worthwhile to reverse the market.