Wyckoff trading method

Originally posted by Rooster100: ↑

Hi all, here's a chart with a few things going on and comments most welcome.

There's one of those gappy bullish reversals at the March low, and after a little test price responded higher. It's interesting that the reversal happened at much lower volume than when demand showed up a week earlier. And the fact that it was gapped down makes it look like a shakeout type of maneuver - a final violent test for supply lower?

I'm a fan of the Volume Profile to help identify strong horizontal support and resistance zones but it doesn't seem to be a widely used tool so here's a bit of an example of how it can be applied. I've shown some HVN's (High Volume Nodes) identified by the profile. These high liquidity, or thick trading zones provide logical areas for large traders to park buy and sell orders, and price often reacts off the edges of these zones, or once stuck inside can bounce around within the zone. An example of this is the Volume Profile drawn for the late Feb to late March drop, which identified a HVN highlighted with an orange rectangle. You can see how price gets a bit stuck within this thick trading zone on it's way up after the reversal bars.

What's more interesting is on 22/4 when price comes back down towards the top of the HVN (circled in pink) it is strongly rejected and establishes that as a major support level throughout the course of the trading range. I guess it's not really a VSA/Wyckoff spring as there wasn't an established support level there yet, but I think of these as a type of spring- a "HVN Spring" perhaps? Anyway, it's a reasonable example of how the Volume Profile can provide another angle to identify strong S&R levels and even help predict the most likely levels that might come in to play.

For the past few weeks it's been in a ~25% trading range and eventually broke above it earlier in the week and looked like it was going through a standard test of the breakout. But Friday it gapped down further with the rest of the market and this week will be interesting. I think on balance it still looks more bullish with a lot of volume coming in the last move down suggesting bullish absorption, and the Volume Profile for the trading range showing much higher levels of trading at the bottom of the range.

Anyway, thought this was an interesting chart and it would be great if anyone has some comments to add.

Expand

Really appreciated @Rooster100 and my thoughts on that spring like action on the 22/4 and where at first it doesn't appear to occur in an established support area.

There were two bars back on the 12th and 13th March which had above average volume yet an anomaly in spread, the second bar (the green one) should have been the recovery or the start of one but the downward move continued but not with the same intensity nor volume and finally recovered back above that resistance level given by those two bars. The dip into this resistance area on the 22/4 while not appearing as a spring as we know it was certainly a strong rejection of that support area.

The other bar I find interesting was the wide spread down bar of the 23rd March. It was not supported by a large increase in volume and subsequently the sp recovered as you've noted.

I do use volume at price (VAP) plots occasionally to confirm the type of analysis like the above but it will miss things like those two bars I mentioned.