Big volume is exactly what he wants. Volume is a direct result of activity. No translation needed. And professional money wants the activity so that it can sell what it accumulated in the base. Without activity, i.e., volume, there's nobody to sell to and price drops back into the base. Not enough interest. Yet. Liquidity has to do with price movement, i.e., the less liquidity, the more dramatic price moves can be, even gapping (which you can see if you have a tick chart or are watching the prints in real time). In other words, price movement tells you whether or not there is demand. Volume tells you how much. As to ranging below a previous high, there can be all sorts of reasons for that, but I'd rather not go into it if there's no interest. Wyckoff doesn't draw lines as such unless he's trying to call attention to a trend or trend channel. A line takes the place of the many, many words it would take to describe in text what it is that one is looking at. Unfortunately, many of those who look at these explanatory charts think that the lines are defining trend rather than the opposite and that there is some cosmic meaning in them. But they're just lines. And they're unnecessary to the trader who's doing the trading, certainly so in the case of swing highs and swing lows. Everybody sees those. Everybody (or at least everybody who's looking at that particular interval). Which is why they can ignite so much activity. Because the swing high, for example, is the point beyond which there were no buyers. This is important, because if buyers don't show up if and when that point is tested, why should price remain at that level? The logical thing for it to do is fall. And when it begins to fall, one can easily be blessed with a cascade. As for ranges, yes, there will be a variety of prices at the upper and lower limits, all within a close approximation of each other. Buying reversals off the bottoms of these ranges is tricky and requires a perception and skill that I don't have. Fortunately for me, I should have been in at the reversal of trend so that by the time price ranges, I'm just waiting for whatever resolution there might be. If I didn't get in at the reversal, I'll wait for the retracement after the breakout. If the breakout fails, I can't say I've wasted my time because I didn't lose any money, but it is disappointing. But that's trading.
Excellent advice sir. I am probably spending too much time here. Need to cut down and do more homework. Thank you.
You guys believe big traders/hedge funds are doing breakouts? So they can cause huge slippage for themselves? Think again, smaller traders do breakouts. Think like Buffet, his team runs millions of shares buying something over a few days and they do it so well, it not noticeable. Some of the larger Hedge funds have their own brokerage in different companies and have teams of brokers who try to hide getting in/out. I laugh when I been PM'ed and ask me if their 20 lot going to be seen by anyone trading anything in the futures, in overall market a 20 lot is nothing except for the trader putting it on, why cause oneself extra stress and just concentrate on your ongoing management of the trade. Often times the larger trader or scalper is taking profit and feeding the smaller trader his position, unless enough smaller traders get to really push the breakout like HFT jumps in, then other automation might as well and push price even more. Often times one of my better signals is waiting for the breakout to happen beyond a trendline and weak small traders will get stopped out when price reverses a little at breakeven or one point stop and my program will be entering and feeding them their exits, this goes on and on and on, and if price takes off in my direction, eventually emotions kick in for smaller traders who get onboard again and I am getting out. Does it happen every time---no, but programming seeks what I found patterns within patterns. You work hard at programming and studying the markets, you can find gems. I forget who wrote it but they are right, we don't trade Price action as much as we trade Time action, we are waiting for patterns to happen. I don't think have to reverse engineer indicators, they all work as intended, but it is up to one using them to understand which intended are noise and which they can understand and use to advantage. So comes down to programming and find out what is viable. When you use an indicator long enough, 99% of the time you should know what pattern it is making when price has done it's movement, and when it falls into the 1%, you might have an edge if that 1% shows you one.
Really? Important money doesn't buy at new highs? So when Facebook gaps up from 26 to 34 overnight after earnings sometime in 2013 I think it was and never returns to retest the gap...that was just a bunch of retail 1 lot traders? You don't think that move was mostly driven by 1) big institutions deciding to initiate a new a position or 2) big institutions forced to buy in order to cover their short call exposure? What happened a month ago today? Amazon closes 972 and closes over 1000 the next day. So that was only retail participating in that move? In my experience breakouts have been some of the safest times to buy because the represent short capitulation -- where traders buy not because they want to, but because they have to.
Sure, look at globalarbtrader's journal on this site: https://www.elitetrader.com/et/threads/fully-automated-futures-trading.289589/ He uses great risk management and a diversified group of products but under the hood he is using moving averages as his entry signal for one of his systems. That is my understanding at least. He also spoke about a major fund that he used to work at (AHL) that used moving averages for a few of their longer term systems. In the book Trading Systems & Methods 5th Edition Page 339 & 340 you can see the backtested results on S&Ps and Eurodollars. It is a 20 year backtest. Much of globalarbtrader's work is based on 30+ years of backtested data. Note that this does not scale down to intraday trading that well. This is a a longer term outlook. I am an intraday trader myself but a longer-term system does not have a time-stop like intraday systems. To be an intraday trader you are by definition saying that you will be flat at the end of the day regardless of any positions performance. Longer term trend following funds don't place this time frame restrictions on themselves. When a position starts to work they watch it take liftoff and only manage it at contract roll overs.
Of course important money buys at new highs. Important money buys every day all day at all levels. But, generally speaking, they buy low. At least those that last. And remember that all those buys are matched by sells. Big money isn't necessarily smart money; it's just big, i.e., big enough to move price. But the reasons for buying can be rather complex, such as buying to drive up price so that price will reach a level at which those who are driving it up will be able to then sell and leave the retail trader holding the bag. Nonetheless, a look at performance figures suggests that big money often makes the wrong decisions. As for short-covering, that is a particular type of buying that leaves the trader empty-handed. He's no longer in the market, as he would be if he had consummated an ordinary buy. As for buying breakouts successfully, of course. One can also be successful by regularly fading them. But if one is going to create a set of protocols for trading breakouts, he must in order to be successful at it over the long term understand what the breakout is all about and where it started and why. He should also understand that breakouts begin with the reversals off the lower limits of the trading ranges from which they are breaking. Even if one doesn't trade the reversal, he should at least investigate why it occurred, who initiated it, what the objective might be. It is important to understand that the selling that goes on during a breakout (if there were no selling, there would be no trades and no breakout) is initiated at least partly by those who engineered the breakout in the first place. Even if their objective is to attract attention and support a rise in price beyond their initial sell, it is essential that the breakout attract followers. If it doesn't, the breakout fails. If it does attract a following, then the breakout must survive its first retracement in the form of a continuation to a higher high. Each of these stages attracts a certain category of buyer. But each of these stages also attracts a certain category of seller. All of which brings us back to demand and supply and the balance between the two.
Technical analysis indicators are a reflection of past price and/or volume movement. They can provide information like support and resistance, trend and momentum but they predict absolutely nothing. People talk a good game about different indicators but when you utilize them in real time (not curve fitted historical performance) none perform spectacularly over the long haul. They will do well in spurts when the chosen indicator periodicity matches that of the market and horribly otherwise. Backtesting and optimization easily demomstrates this. If indicators really did work, why would anyone invest/trade based on any other criteria? Why would anyone ever lose money? Why would anyone ever take the other side of the trade if the future was predictable? The best analysis tool is between your ears.
The key word there is 'following'. You find a trend, you take your position and you hope that the trend continues --> follow. Indicators predict nothing.
GAT is one of the top contributors on ET and I greatly respect him. But to my taste, only the 2009 onward period is relevant for evaluating the prospects of trendfollowing. The trade became much more crowded post-crash, after the asset allocators all realized they woulda-coulda been sorta-kinda hedged by allocating to the trendies in 2007/8.