JNPR and Wyckoff

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  lmkwin ✭✭

  January 10

  Excellent analysis @markd
  
  
  

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  markd mod

  January 10

  Tx. Back atcha.
  
  What I like about Wyckoff is the "early warning" in the price/volume divergence. What I don't like is the number of divergences that don't pan out, at least not for quite some time. I suppose the duds are relatively safe to hold, but in the meantime, other opportunities are going by. Also, some divergences, if they do pan out, burn out pretty quickly, so you have to catch the breakout or your risk reward is questionable. This is apparent from a review of my earlier post "Wyckoff in real time". Many of them had a decent run but had peaked when I posted them or didn't take off at all. A full Wyckoff analysis - P&F downside target met, a period of "cause" building, an upside target based on the cause - might have eliminated some of those choices.
  
  The CSS method has an advantage in clarity - it's there or it isn't. But, it seems timing the entry is tricky. Do you assume there will be a pullback from the 7x s and wait for an upside breakout?

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  lmkwin ✭✭

  January 11

  I started studying the CSS Strategy back in 2013 after it was shared on the Dorsey Wright message board by its creator Brian Randall, a Raymond James Financial Advisor and Point and Figure expert. He had created it back in 2000 and developed it to the point of sharing it with the PnF crowd at DWA. It was a strategy that included 4 different types of CSS patterns/signals. I liked it after some initial study. I noted my favorite pattern combination at the time, the Triple Top and Change in Trend, was often a CSS Strategy pattern but earlier in its development, with a lower cost basis. He also shared a lot of classic and obscure material from PnF authors and newsletter writers like Clay Allen and Mike Burke and Howard Prenzel and Earl Blumenthal and Stan Weinstein and Gerald Appel and Carroll Aby and Donald Vaughn among others.
  
  I developed my Dynamic CSS Pattern, in 2014, after reading Howard Prenzel's book "Dynamic Trendline Charting". The 7xx (or greater) is considered a "long leg". So after a period of distribution with long legs of O's (often in the CSS) a 7xx column appears, which can be a first sign of accumulation appearing. The 1st signal in a downtrend is often "false" or needs more time to develop. The 7xx could be a result of new strong hands entering, or short covering, or a combination of both. Who knows? I certainly don't.
  
  After the 7xx is shown, I start looking left on the chart. I view the 7xx as an alert and to look for Wyckoff or Weinstein type changes in character. I look to the bottoms of prior columns of O's to see where they stopped. I prefer the last or the 2nd to last sell signal column of O's to be the longest in the CSS as that indicates exhaustion.
  
  Once the 7xx is shown, I would set a 'buy range' in from the 4th or 5th X to where a 10th or 11th X would be shown had the 7xx column continued up. Then I'd watch for development of the structure. This is where you would switch to the % trend PnF to get the clear picture of where support and resistance are. I also suggest adding the Volume By Price indicator to the chart to see where the most activity (most filled rows) has occurred. PnF Moving Averages also can assist in pointing out directional movements as they track midpoints of columns.
  
  Volume By Price can also be used on the Time based charts to give a similar picture that I find useful. Longest bars on the VBP are where the most activity happened. It is a very useful horizontal indicator to show on the chart. On the alternate scale PnF charts I prefer to see that there is a reversal or two (or more) that are showing shorter column lengths as that is a sign of congestion that is 'backing up to the creek" or "sign of strength" or "spring test" or any number of Wyckoff type terms.
  
  I created tracking portfolios to monitor the Dynamic CSS Patterns that occurred in the SP400, SP600 and QQQ indexes back in 2015. Simple 'dumb entry' was equal weighted buy at the 7xx value. No further analysis or any other consideration for entry. Exit was only for 'failure' of the pattern that I pegged at printing an O box equal to the bottom X box of the 7xx column. After a 1 year hold I also reviewed those positions and removed any that hadn't maintained a +18% per year (double your money every 4 years) rate of change pace. I called that the Kicker Rule. The results were quite remarkable. Want to beat the index by a great margin? Invest in the Dynamic CSS Pattern at the 7xx point. I maintained these portfolios until Sept 2022 on the Dorsey Wright website, when their latest "upgrades" made the portfolio function too tedious to maintain.
  
  I believe the key aspect to take away is that, for best results, you can buy early on the initial column values, you can buy later after more development, but never buy outside of the "buy range" and maintain the most important aspects of any investing strategy, patience and discipline. Oh, and NEVER buy anything that is showing a High Pole column on the PnF chart. They ALWAYS retrace. A High Pole column is a column of X that exceeds the prior column of X by at least 3 boxes. I actually count a High Pole column, if shown, as the 1st sell signal in a CSS.
  
  I think most investors would benefit from, at least, viewing a Point and Figure chart on any securities they are considering buying or holding or selling.

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  markd mod

  January 13

  Thanks for a very clear and cogent explanation. I agree PnF can be very rewarding for the patient investor. If I were starting over, I think it would be the place to begin.
  
  Just out of curiosity, have you looked at Dynamic CSS on smaller time frames, like hourly?

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  lmkwin ✭✭

  January 15

  Prices are fractal, so on smaller time frames it should look similar in nature. In fact you can use the smaller time frames for an "alternate scale" review as well. I don't, but it could provide some useful insights if so inclined. I can't scan on smaller or larger than daily time frames. The smaller time frame will be reflected in the daily chart to a certain extent. I can't vouch or reasonably review the accuracy of the smaller time frames so never put much effort into studying it. One scale that I don't use, nor recommend, is using the ATR scaling on a PnF chart. It distorts the past activity of the chart by applying the current ATR value to the older data, so patterns are often different, or non-existent, in the past using the current value of ATR.
  
  Just to mention further Wyckoff study materials, Bruce Fraser, on his Power Charting show and occasional Your Daily Five appearances has episodes (starting in 2021/22 I believe) with one of his Wyckoff Market Report team, John Colucci aka Johni Scan Over the course of several episodes, he shares several different scans that he uses to help discover securities that may warrant further Wyckoffian review. The thing that I don't like about most of the scans is that they tend to focus on the short term in analysis. I understand that short term bleeds into intermediate and long term but it's a little too short term for my liking.
  
  I also recommend using the Zigzag indicator on time charts so that the trend is very visible. Trend is Higher Highs and Higher Lows for Bullish trend. Lower Highs and Lower Lows for Bearish trend. A combination of the two often is a sign of no trend or congestion setting up the next trend. Price Channels can be of great assistance as well but I find Zigzag a great visual and helpful in determining entry options.
  
  I'm more of a Weinstein type as it's a little simple to understand in basic terms, even though they both follow a similar principle of price cycle movements. Weinstein tends to be longer term as he uses the weekly time frames to look for turns in the activity. I developed a few scans along those lines, looking for Weinstein Stage 4's turning into Stage 1's and stuff like that. I can then review those charts and put those chartlists into my Public Chartlist scan. I'm also a member at Chartmill.com and they have Weinstein Stage and Stage Length scan filters that I use to create lists to pull over to StockCharts for inclusion in analysis and scans.
  
  I didn't START studying and subsequently using Point and Figure until I was in my mid 40's. I was looking for something to help me overcome my "trader" mentality as I realized that I was doing damage to my long term by focusing too much attention on the short term. Not only looking for entries, but also being too focused on exits, instead of letting winners win and letting losers belong to someone else, I would win the battles but lose the wars, in my opinion. Once I got comfortable with PnF charts, it greatly enhanced my patience and discipline skills. I mentioned the Zigzag earlier. If you think of the columns of X as the up zig, and the columns of O's as the down zag, it may help in deciphering what the chart is actually showing, highs and lows.
  
  
  

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  markd mod

  January 16

  Thanks. I'm not sure I agree the market is really fractal across all time frames. Often similar looking but different in the subtleties. Rules or patterns that work in larger time frames may fall apart in smaller time frames that have more noise.
  
  Also, I think Fraser over applies Wyckoff, at least as I have read him. Not every stock has sponsorship and prices for many stocks often move in sympathy with the market as a whole and not as the result of sponsor (operator or "composite man" ) accumulation or distribution. I don't think it was meant to apply to indexes, or securities based on indexes, like the SPY, etc. either. But, if it helps make sense of things, I suppose no harm done.

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  lmkwin ✭✭

  January 16 edited January 16

  I meant PnF charts are fractal. You'll find little difference between an Hour chart and a Daily chart based on the traditional scale. The reversals are going to reverse on both, barring some extreme volatility intraday, it'd still reflect about the same. Maybe using Close Only pricing would be different, but I have not studied that at all.

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  markd mod

  January 17

  It occurred to me later that PnF charts are price based, not time based, so a fractal of a PnF chart would be a smaller or larger box size, not a time period.

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