The Wit and Wisdom of Richard Wyckoff

[Joey]

How are we to know in advance why and to what extent someone else is prompted to buy or sell? We cannot know; it is impossible for us to foretell what actuates all of those whose orders are poured into the vast intake of the Stock Exchange machinery during the day's session.

But if we study the action of prices; the responses; the speed of the ticker, indicating urgency or the contrary; the intensity of the buying or selling, as indicated by the volumes; and the intervals when the volume is heavy or light -- all these in relation to each other -- then we gain insight or the design and the purposes of those who are dominant in the market situation for the time being.

All the varying phases of stock market technique may thus be studied and interpreted from the buying and selling waves as they appear on the tape. From these we form a conclusion as to the balance of the probabilities. On this we base our commitments.

RW

Great Quote. The teachings of the Master are applied to commodity trading at http://www.ltg-trading.com/archives.htm

Tons of info. freely available for anybody interested

 

[dbphoenix]

The market always tells you what to do. It tells you: Get in. Get out. Move your stop. Close out. Stay neutral. Wait for a better chance. All these things the market is continually impressing upon you, and you must get into the frame of mind where you are in reality taking your orders from the action of the market itself — from the tape.

Your judgment will become poorer from the very time when you decide that you know more about the market than the market is telling you. From that moment your results will be unsatisfactory, for in this trading business the tape is the boss. You must learn to obey its orders, doing exactly what it tells you. When you can accomplish this, you are on the high road to success in your stock trading.

RW

 

[dbphoenix]

In a certain sense, reading charts is like reading music, in which you endeavor to interpret correctly the composer's ideas and the expression of his art. Just so a chart of the averages, or of a single stock, reflects the ideas, hopes, ambitions and purposes of the mass mind operating in the market, or of a manipulator handling a single stock.

The study of charts is not as some people claim, the mere identification of certain labeled patterns made by the actions of stocks. That sort of thing borders on the mechanical and does little to aid in the development of one's judgment. But when a student undertakes to read from his charts the purposes and objective of those who are responsible for a stock's action in the market, he is beginning to see, in a true light, the meaning of scientific stock speculation.

RW

 

[ljyoung]

Wyckoff was in addition to being a student of the tape (in the very best sense of the word) a market savvy speculator who well appreciated the necessity of the trader being aware of what was going on throughout the market. To whit:
Before you can make a success of Tape Reading you must acquire a broad fundamental knowledge of the market.

 

[firewalker99]

The tape tells the news minutes, hours and days before the news tickers, or newspapers, and before it can become gossip. Everything from a foreign war to the passing of a dividend; from a Supeme Court decision to the ravages of the boll-weevil* is reflected primarily on the tape.


* is a beetle that had infested all US cotton-growing areas by the 1920s, devastating the industry.

 

[gassah]

Peto

Besides the information that Db provided, if you are interested in further free stuff, there is a Wyckoff Yahoo group
http://finance.groups.yahoo.com/group/Wyckoff-SMI/

This is run by the Stock Market Institute. There is a files section with downloadable material. They also still run the original Wyckoff course - comprehensive but expensive

Charlton

Hi,

I moderate this Yahoo! group and SMI plays no part in it. They allow me to post much of their material but otherwise they aren't affiliated or responsible for what is posted.

We try to cover everything Wyckoff, not only the SMI point of view. The SMI course includes the original Wyckoff course (before SMI added their alterations) which is openly discussed along with any of his other works.

nic

 

[firewalker99]

Unfortunately dbphoenix left this site but, having learnt a lot from him, I thought of doing a follow-up on this thread.

"Whenever I notice a trader studying a market letter I recall seeing a mother chewing her baby's crackers. Those whose stock market crackers are masticated for them will never develop their own teeth."

 

[firewalker99]

The Five Qualities of a Speculator

(1) Self-reliance: a man must think for himself, must follow his own convictions. Self-trust is the foundation of successful effort.

(2) Judgment: that equipoise, that nice adjustment of the faculties one to the other is essential to the speculator.

(3) Courage: confidence to act on the decisions of the mind.

(4) Prudence: the power of measuring the danger, together with a certain alertness and watchfulness, is very important. There should be a balance between the two.

(5) Pliability: the ability to change an opinion, the power of revision.

-- Richard Wyckoff

 

[innovation]

Unfortunately dbphoenix left this site but, having learnt a lot from him, I thought of doing a follow-up on this thread.

"Whenever I notice a trader studying a market letter I recall seeing a mother chewing her baby's crackers. Those whose stock market crackers are masticated for them will never develop their own teeth."

I look forward to your posts

Matt

 

[firewalker99]

The tape

The best inside information is on the tape. I would rather follow its indications than act on a tip from J.P. Morgan himself.

 

[firewalker99]

On the papers

You need never read anything on the financial page of your newspaper except the table of stock prices and volumes.

 

[ljyoung]

(1) Self-reliance: a man must think for himself, must follow his own convictions. Self-trust is the foundation of successful effort.

(2) Judgment: that equipoise, that nice adjustment of the faculties one to the other is essential to the speculator.

(3) Courage: confidence to act on the decisions of the mind.

(4) Prudence: the power of measuring the danger, together with a certain alertness and watchfulness, is very important. There should be a balance between the two.

(5) Pliability: the ability to change an opinion, the power of revision.

-- Richard Wyckoff

Does Wyckoff speak to the differences between the mindset of a speculator and a trader? Like the differences between say Victor Neiderhoffer and a trader of your choice. Or, Wyckoff aside, are there no differences, IYO?

lj

 

[Mr. Charts]

Unfortunately dbphoenix left this site but, having learnt a lot from him, I thought of doing a follow-up on this thread.

"Whenever I notice a trader studying a market letter I recall seeing a mother chewing her baby's crackers. Those whose stock market crackers are masticated for them will never develop their own teeth."

Very sorry to hear db has left - he was a fine contributor.
Richard

 

[firewalker99]

Does Wyckoff speak to the differences between the mindset of a speculator and a trader? Like the differences between say Victor Neiderhoffer and a trader of your choice. Or, Wyckoff aside, are there no differences, IYO?

lj

For what I've read, Wyckoff hardly speaks of 'the trader' but frequently uses 'the speculator' to describe he person interested in dealing in the stock market. I'm not sure what differences you are alluding too, perhaps you have a distinct definition of speculator and trader?

On the side of the market, he talks about the 'Composite Operator', the idea that the whole story of the market should be regarded as the expression of a single mind.

 

[firewalker99]

The Law of Supply and Demand operates in all markets in every part of the world. When demand exceeds supply, prices rise, and when supply is greater than demand, prices decline. This is true not only of stocks, it is constantly being demonstrated in markets for wheat, corn, cotton, sugar and every other commodity that is bought and sold.

 

[ljyoung]

For what I've read, Wyckoff hardly speaks of 'the trader' but frequently uses 'the speculator' to describe he person interested in dealing in the stock market. I'm not sure what differences you are alluding too, perhaps you have a distinct definition of speculator and trader?

On the side of the market, he talks about the 'Composite Operator', the idea that the whole story of the market should be regarded as the expression of a single mind.

That was my impression too, that RW talked about speculators and not traders. I think there is a difference for a number of reasons but one which sticks out in my mind arises from a quote attributed to Jesse Livermore when referring to the market, e.g., "You can beat a horse race but you can't beat the horse races." It is said that Livermore thought that short term [= intraday = ID] traders would inevitably get wiped out. He was wrong of course but returning to the wisdom of Richard Wyckoff, I believe that ID traders need to have a very precise context in mind when incorporating some of the things that RW said into their trading protocols.
For example there are, IMO, many types of market players but a very general depiction would be that there are two groups - informed players and uninformed players. If one wished to assert that at any given millisecond, dare I say, the manifestation of the interaction between these two groups is "The Composite Operator" then perhaps one could, but others would say that this construction is an inaccurate transmogrification.

lj

 

[nine]

I favour the "inaccurate" view lj. But only because its seeking a single simple (too) classification.

I think the later models built around market profile make this point clearly with participants operating on different timeframes. A lot of discussion goes into the interaction between them and how you might perceive who is dominating the current trendiness or rotation.

I personally find that Wyckoff's reading of the market applies on a lot of different timeframes but that shorter timeframes create noise to larger timeframes. So the actions of longer term trend traders have noise imposed by swing traders have noise imposed by "long term" day traders have noise imposed by microswing traders have noise imposed by pip scalpers. And at each level the big boys of that level must disguise their goals so there are fakes and attempts to hide intent - and sometimes the attempts from one group of players are confused with other groups.

Darn, its difficult to be sure your conjecture about direction is right! No wonder. So you read the market based on your timeframe (but with awareness of the timeframe above and below and how they might operate) and you take your setup, make your entry, and then all you can do is manage that trade until it delivers a profit or a loss. Good management and low emotional response to the result are what makes a winning trade.

IMHO of course.

 

[firewalker99]

"The tape is like a moving picture film. Every minute of the day it is demonstrating whether supply or demand is the greater. Prices are constantly showing strength or weakness: strength when buyers predominate and weakness when the offerings overpower the buyers. All the various phases from dullness to activity; from strength to weakness; from depression to boom, and from the top of the market down to the bottom – all these are faithfully recorded on the tape. All these movements, small or great, demonstrate the workings of the Law of Supply and Demand. By transferring to the charts portions of what appears on the tape, for study and forecasting purposes, one is more readily enabled to make deductions with accuracy."

 

[ljyoung]

"The tape is like a moving picture film. Every minute of the day it is demonstrating whether supply or demand is the greater. Prices are constantly showing strength or weakness: strength when buyers predominate and weakness when the offerings overpower the buyers. All the various phases from dullness to activity; from strength to weakness; from depression to boom, and from the top of the market down to the bottom – all these are faithfully recorded on the tape. All these movements, small or great, demonstrate the workings of the Law of Supply and Demand. By transferring to the charts portions of what appears on the tape, for study and forecasting purposes, one is more readily enabled to make deductions with accuracy."

A money post Firewalker and thank you. Whatever way (MP, VSA, other volume stuff)we choose to use what Wyckoff laid out for us, there is no doubt that to not consider the volume component of the market's activity (on all time frames), is to foolishly ignore a criticality. The tape is the record of what's been going on and FWIW, I have found it useful to fractionate the T&S into three components: unfiltered, >49 filter and > 499 filter. I trade futures now (ES) and by doing this segmentation one gets to see what size fish are involved with the price action. Hope you all are having a good morning and to help you relax and enjoy wherever you might be in P, V, and t(ime) space, check the vidi:

http://www.youtube.com/watch?v=eELH0ivexKA

lj