It's All Timing

Our level 3 and Advanced Mentoring students are given 6 books to read that Floyd believes explain and detail the market. Our favorite book , because it is written by protégés of my Father as the sole licensee of Richard D. Wyckoff, the famed Wall Street Trader is: Charting the Stock Market: The Wyckoff Method

New Level 3 subscriber Derek B summarizes this book well below. We request detailed book reports from our Level 3 and Advanced Mentoring students, to prove to themselves what they gathered. Derek B did a superb job, and we thought his summary appropriate to your studies:

“Wyckoff did not listen to the BS from broker offices, news, tips, earning reports, rumors, etc.… He taught how to be a detective uncovering the forces behind price and volume fluctuations as well as intercepting stocks when the charts show them at their most profitable stages. The 3 charts that Wyckoff used were the line chart, P&F, and his very own wave chart, used to uncover motives of large investors that were capable of moving and manipulating the market. Wyckoff studied the “bread crumbs” left behind. These charts are used in very specific ways and must be followed accordingly in order for the Wyckoff Method to be effective. The line chart is used to determine the direction of the price and the most opportune time for buying. The P&F charting is used to determine the distance the stock will move (points). The Wave chart is a leading indicator of how the market/sector will travel. The wave chart provides subtle clues of how the market is “turning/reacting” before it does.

(This part of the book had a lot to do with “reading” the overall market, big help with OEX trading)

When we study the market our ultimate goal is to accurately determine when the current trends will change and what type of change (i.e. short term, intermediate, and long term waves). Supply, demand, and trading volume are extremely important aspects of the Wyckoff Method (WM).

The Bear Market Correction sprouts towards the end of a declining market when traders lose hope that the decline was short lived and temporary, while others were attempting to buy on the way down “timing” the market for a quick rebound and was unsuccessful. In any instance the traders begin selling off their high priced stocks feeding fuel into the beginning of a selling climax (I am anxious to witness my first selling climax). The climax begins with a sudden spike in volume while the price range widens followed by a closing near the low. The savvy trader buys at the end of the climax and awaits the rebound; the rebound will show volume dips while price range jumps. This move gives the impression of a quick rebound taken back by the Bulls but in actuality it is setting up for the most critical aspect of the Bear Market Correction, the secondary reaction. The market may pull back and stabilize at the original selling climax with shrinking volume providing evidence that selling has dried up and buying power has moved back into the market. The other outcome after a secondary reaction is the selling (supply) is to much for the market to handle prices will fall lower then the initial selling climax extreme low suggesting a new and further decline. When the selling does subside a solid conformation of a reversal is when prices break the technical rally (rebound).

Bull Market Correction is not the exact opposite of a Bear Market Correction. The Bear market is for the investors needing to pick up stocks at a lower price. The Bull Market Correction is hidden selling by the big players. They attempt to maintain a high price while dumping their holdings. The large operators must not allow the prices to fall to low where the average Joe Shmo will unload his position but maintain some hope in the market until they are down selling off their position. The issue with the Bull Correction is determining how far down the correction will go once the large operators are done selling off and the public beings to panic. The “correction” could become a turning point and move into a down market. Wyckoff mentions standing on the sideline waiting for the dust to settle because of the magnitude of uncertainty. When prices start to rise halfway to previous highs but volume fails to increase this clue tells the savvy trader that buying is maxed out and the larger operators are biding up the price and will being dumping their position time to go short and rake in the Benjamin’s J.

The distance of a Reactions can also provided the strength of the market/trend. A normal reaction is half the distance of an advance. If the reaction is less then half of the advance the market is strong and will likely to climb from the “weak” reaction. If the reaction is greater then half the trend maybe fading does not expect a large bounce. The opposite for a decline

Wyckoff’s method is a very logical one. He believes in finding a weak stock/sector within a Bull market waiting for the trend to reverse and go short. And following a strong stock during a down market waiting for the Bulls to take over and go long on that stock. I like many people believed that buying a beat up stock in a down market would produce more returns when the market turns Bull then a stock that maintained stability in a bull market. This is not the case.

For the most part the market is being manipulated on a daily/weekly basis, so understanding the stages of a manipulators campaigns will further prepare a trader towards insight on future moves. Wyckoff explains a 4-stage process: accumulation, marking up, distribution, and marking down. The accumulation process happens when the stock/market begins to consolidate and congest with low volume (this may happen over several days or weeks). The marking up process begins when the manipulator allows or pushes the price up with increasing volume along with plateaus during the process. The third stage is distribution, the manipulator begins to buy and sell during consolidations giving the appearance that the stock is ready to move further upwards, once the public begins to buy into it he sells his shares and prepares for the downturn. Marking down is the final stage where the operator shorts the stock and watches it naturally fall back down (having supply and demand take over). These manipulators use the market as their personal ATM machine, I can’t blame them only follow their moves and pick up the breadcrumbs.

Volume is the great validator of price movement along with a great indicator of what the future has in story. Wyckoff mentions numerous scenarios throughout the book showing how important price and volume are when used together. He explains the “signs” of turning points, strong markets, weak markets, etc.… all greatly revolving around price and volume.

Students of the Wyckoff method/Floyd method must develop and hone their own trading styles. These methods are teaching tools and help one develop the proper skills to become a successful trader. Paper trading has helped me immensely when entering and exiting positions and seeing where I rushed or did not enter in when the signs were clearly there. Hindsight does have its advantages when learning and paper trading.

Wyckoff and Dorsey both follow the same underlying foundation in regards to their methods: supply and demand. And cause and effect. While Wyckoff does not rely on the same tools as Dorsey they both rely heavily on the P&F charts along with sector rotation, strong stocks within bear markets, weak stocks within bull markets waiting for the reversal, and studying the overall trend of the market. The more I learn the more I realize this is not rock science. That being said I look back to what I knew last November and what I know now and realize that knowledge is power in the market. Though it has only been a couple months I feel like I know 10 times the amount of information I did before I started and wondered how I ever thought I has ready to through money at the market. I still have a lot to learn but what I have learned has maybe me a better trader/person.” Derek B

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The money is all being falsified, and the economy responded to the stimulus. In reality, all of Obamas radical financial moves were not radical as much as shrewd and astute. The economy is showing true strength, the commercial real estate market is up, banks are not bankrupt, and car companies have paid off loans.

The actual deficit can never be paid off. This happened almost 2 years before Obama, based on Social Security and Medicaid, and his added deficits would have stimulated.

We elected Pee Party and GOP because GOP stalemated all, and the game was for him to gain no power. They gained the power back, but could take no credit for what has actually happened.

It's all timing. As usual, America was patient.

Soon I can see the GOP saying Iraq was what brought democracy to the Middle East.

Thanks for letting me babble.