25hingesr springboard volume

Hinges Hinges are a type of springboard, like trading ranges. But they are not "boxes", like the typical trading range. Below is a chart of a Dow hinge:

Perhaps the most attractive feature of the hinge is that it's so easy to recognize in real time. As soon as you note a higher low and a lower high (or vice-versa), be on the lookout. A hinge may be on the horizon. Genuine hinges share common characteristics and can therefore be traded in much the same way. If buying what appears in real time to be an upside breakout through the supply line, keep a tight stop. If it doesn't go, you're out at breakeven. If price returns to the midpoint, one can place a buystop above this activity so that one can be stopped in on a second attempt at an advance. Otherwise, one can as you suggest sell a break of the demand line, again with a tight stop. If he is again stopped out but the return to the midpoint turns out to be a test, he can place a sellstop below this test and be stopped in on a second attempt at a decline. The dynamics of this endgame are not difficult to understand. The hinge, after all, is created because of differences of opinion. That this testing should continue once one side or the other pushes price out of the hinge should not come as a surprise. But clearly one has to be quick on one's feet to avoid getting trampled.

PDF created with pdfFactory trial version www.pdffactory.com

http://www.pdffactory.com

Those who are intrigued by hinges will benefit from the following 20-post (in the original) arc: I would like to identify instances where the shrewd application of W's principles of market interpretation can be practically applied for profit. Specifically I am looking to reduce price risk to its sensible limit by getting in to a trade as early as possible and by identifying instances where prior price and volume action indicate high probabilities of a specific outcome, reduce the information risk side of the equation when compared to a current price action only standpoint. I can't find the exact quote but I seem to remember that W said something like: Whatever happens in the market is a result of what has gone before. I am not looking for certainties but factors that when present will load up the likelihood of movement in one direction over a movement in the opposite or indeed no useful movement at all. Things I am currently looking at in my testing/trading are:

• Hinges • Climax - Test • Rejection at previously established S or R • Penetration of previously established S or R • Breakouts from consolidation after testing interest

I am still working through trying to understand the possible buying and selling dynamics at work in these situations and any PAV 'tells' that might favour one direction to the other. I will have a stab at hinges here as I have spent more time on those. Btw I understand that where these things occur in the context of other things will have a bearing on likely outcomes but for the sake of discussion lets assume that the context is neutral. Hinges The dynamics of a hinge, as I understand are that buyers and sellers disagreement on 'value' reduces over time until a point is reached where there is so few trades occurring that one side or other takes the initiative and exerts pressure on the other side trying to move price to a level that they now view as 'value' in the hope of profiting from their effort. Say buyers take the initiative as in my chart, then the sellers try to oppose the momentum created by the buyers as they believe 'value' to lie below the current price level. The buyers exert more effort/pressure than the sellers and price rises. Once price rises above the supply line of the hinge



some of the original sellers may become buyers (cutting losses, changing bias, accepting the outcome of the struggle) adding fuel to the buyers fire.

The mid point of the hinge acts as S/R as that is the point at which the struggle began and so the point which the buyers will want to defend, assuming the same level of commitment that initiated the move in the first place. Moves that happen on low volume which would indicate (assuming a long move) that there are few sellers (low selling pressure) or that all market participant roughly agree on where true 'value' lies (up). As everyone agrees (has the same bias) few trades occur and price moves easily with very little effort (volume). This type of move can be easily reversed just because there have been few trades conducted during it, there are few participants with any vested interest in it being sustained. How can any of this be of practical value? Well, I am still relatively new to all this but have noticed that moves that result in break out of a hinge sometimes begin on the opposite side (demand or supply) to the resulting break out. The potential to enter prior to the actual breakout which would be a low info risk, high price risk trade would mean that you would have a low price risk (as your SL could be just under LSL) and potentially low info risk trade (assuming this occurs with any reliability).

Has anyone noticed this behaviour or is it a sacrificing virgins to volcano, coincidental, sort of thing? Any views, observations or comments on increased probability of price moving one way or other out of a hinge would be most welcome. In fact I would like to know if anyone looks to previous volume as an indicator of future events or only as a confirmation of current action. Oh and I found this excerpt from Sect 14M - Volume Studies "Some people regard a stock (or the market) in this (springboard) position only when it breaks through an old line of resistance or support into a higher or lower field. I claim that the beginning of the springboard move is at the bottom of a range of accumulation, or in the upper levels of a range of distribution." If this is in the wrong place feel free to move it, I thought about posting to the Hinges thread but as hinges are only part of the posts subject I thought here was the best place.



Are you saying that you had no idea which way price was going to go before it broke out of the hinge?

In this instance I had an idea that price would break out to the long side based on the increase in volume after the last bounce off of the demand line (not including prior PA). I guess I wanted to know if this was a valid/reliable indication of breakout direction or coincidental.

In and of itself, not so much. But there's a lot more here.

I also wanted to see if my current understanding of the dynamics of the creation of the hinge are accurate.

Yes. Since you're using Volume At Price, what does the VAP tell you in your chart?

It tells me that price is above a short term level of support established between 09:40 and 10ish (the lower red box), this was tested successfully around 10:20. Price then failed to make a new high and returned to the demand line and potentially stronger area of S/R (middle red box).



The top red box probably had a different VAP histogram associated with it prior to price leaving the hinge, so I don't know how useful it is. You say there is a lot more here, please elaborate... Cheers

Not exactly. Remember that these bars did not exist in the form you've plotted until at least 11:15. Therefore, they aren't going to tell you much about S/R until it's too late to do anything about it. If you're going to use VAP in real time, then you have to attend to whatever message they send you in real time and then respond to it -- if any response is called for -- in real time. So, in real time, you would see these VAP bars being formed. Without regarding them as "boxes" or as formal S/R of any kind, what would they be telling you by 1015 by forming at certain price levels in front of your very eyes? What would they be telling you by 1020? Keep in mind that you have two goals: to determine which direction the breakout, if any, will take, and to find that level at which you can enter ahead of the breakout.

I have been trying to figure out how to respond to this but can only say I have no idea how to use VAP in RT [Real Time]. I have only used it on historical PA to show where price might find S or R on any move back though that range. If I were to say that price was establishing a new area of value then I would be talking about something I know little about and probably wrong with it The two goals you mention are indeed what I wish to achieve but am currently at a loss as to how to proceed. Thanks

Volume is trading activity. The more trading activity at a given price or price level, the more likely that level will act as support or resistance at some point in the future. And given how important support and resistance are to reversals, retracements, and breakouts, paying attention to volume at price is worth the doing, particularly if one has trouble seeing these relationships with vertical bars or with vertical bars only.

I understand that areas where a lot of trades occur will offer resistance to the progress of price as traders have vested interests within these areas and will try to protect those interests where possible. Therefore, look at where these horizontal VAP bars are pointing. What is happening at those levels that may or will be important to you later in the chart?



I thought that in your previous post you were asking me how to interpret VAP in realtime as they were being formed and how this would indicate the eventual BO direction and a safe entry point. The horizontal grey lines are where price is being turned around, they are acting as R or S.

And the first blue line shows where price is finding S as it works its way back and forth across the trading range that it's forming along the gray line. The second blue line shows where price is finding S above the VAP. Now look at what's happening with price with regard to the vertical price bars as price approaches, flirts with the gray lines, then reverses away. What does volume tell you about the level of activity in each of these events? What does price tell you about the relative strength of buying pressure and selling pressure? Remember to read the chart from left to right, not right to left.



09:22 - very little interest buy buyers or sellers - a move either way is imminent. 09:33 - Sellers take the initiative and are committed but buyers are putting up a fight and sellers are not getting it all their own way as the volume is very high, especially compared to the recent past. 09:34 - 09:35 - Buyers are over come by sellers or rather buyers withdraw as vol decreases. 09:36 - Sellers are done and buyers are able to recover on low vol Until 09:37 where sellers exert themselves as price nears the lowest grey line. Sellers however loose interest and so too do buyers. Then 09:40 buyers take advantage of the sellers lack of commitment and get the drop on them. Sellers presumably (can't tell on historical chart) stepped in as price went above the level that was important to them (lower grey line).



Now sellers are not as sure of themselves as they were having already given up a fair bit of ground, nor are the buyers exerting themselves after the effort taken to stop the fall. This continues until 10:03 where buyers manage to exit the range established over the last 10 or so minutes with very little effort/opposition. Sellers try to bring price back into the range but are unable and more buyers join in. When price nears the upper grey line sellers start to offer some resistance to the buyers but only to get price down a few ticks where both sides seem to pause for a re think. Buyers again get the drop on the sellers and have another stab at getting back above the level that the sellers are defending but the sellers soon wake up and stop prices upward progress. A second attempt is made by buyers which is also repelled, followed by a brief pause before the sellers take price back down to the lower grey line under fairly stiff opposition from buyers. That is until price reaches the previous area of consolidation between 09:40 - 10:03 where vol tapers off (dunno why, sellers and buyers done?) Price then rises on very little vol except one attempt to push back by sellers that was nipped in the bud by the buyers (10:31). Price continues upward until the upper grey line where there is a vol spike as price is rejected. Price moves down with very little effort ( buyers loose commitment?) until it reaches the last area where sellers attempted to move down. No increase in vol this time (means sellers are not interested?) price rises still under low vol and then vol almost disapears until sellers try to move down and buyers step in to stop them. Price then moves up to the upper grey line on increasing vol and breaks out.

Though various observers may quibble over the characterizations of motives of buyers and sellers, you're in the correct groove. And while all this may seem extraordinarily complex, what may take pages to explain in text may take less than a minute of mental analysis, sometimes only seconds. But to get from A to Z, one must first go through B, C, etc. Granted you may be learning far more about playing hinges than you wanted to know, but there is a process to go through if one is to understand what is happening and how to profit from it. I could in one post explain what's going on in this hinge and how to enter at just the right time and trade the correct direction, and you'd learn exactly how to play this hinge. But so what? You can't play this hinge. It's gone. And there'll never be another quite like it. You can, however, get behind the hinge and learn why price is doing what it's doing. Knowing that, you can then play any hinge you find. So, having wrung volume dry, let's put that aside for the time being and look at price alone. First, let's trace the progress of the balance of buying and selling pressures as they are manifested by the trades that traders are completing, i.e., the prices paid, converting the bars to waves:



Once these have been plotted, we can eliminate the bars entirely (or one could have used a line chart in the first place):

What conclusions -- or at least tentative conclusions -- can you now draw from these movements regarding the ebb and flow of buying and selling pressures?



I hope you can still see price behind all that mess I've drawn there.

Very nice. We aren't going to go over this wave by wave. But even if one is using only demand lines, there are messages being sent. You have answered this to some extent, coming at it from a different direction. But what new, if anything, does the behavior of price, at or near these lines, tell you, keeping in mind that you're not even sure you have a hinge until around 1030?



What about these points in particular?

Looking at sloping demand and supply lines I would notice that the angle of the demand line is more acute. Bulls seem to be more aggressive than bears. The first thing that would draw my attention would be the quick rejection below the last swing low and the congestion after it. That would tell me that 1.3030 is somewhat important, since price was sharply rejected below and bulls then absorbed all there was to sell during that congestion after. Yet price didn't make a new high, so I would be curious if 1.3030 holds again. The first red arrow marks this test. Not only the level holds, but price is not even able to get to the bottom of the congestion and the rejection is again quite sharp. Price bounces above that congestion zone and then tests it from above (not the second arrow but the shallow pullback before). This whole action confirms the importance of 1.3030 and suggests strength. Yet another failure to make a new high. At this point I would probably notice the hinge. Price than falls again but it finds support on the top of that congestion again (and now also at demand line). It bounces slightly and tests downside again, finding support even higher. This contraction of price action would suggest that the hinge is probably coming to its end. And having observed the importance of 1.3030 and the manner of lifting of levels where bulls engage (and having the advantage of hindsight ) I would bet on the bulls. From the test marked by the last arrow price advances rapidly, showing bulls' conviction. That confirms the analysis made before and suggests the upside breakout.

So going back to the Wyckoff quoted in the original post ("Some people regard a stock [or the market] in this [springboard] position only when it breaks through an old line of resistance or support into a higher or lower field. I claim that the beginning of the springboard move is at the bottom of a range of accumulation, or in the upper levels of a range of distribution."), where might one enter, and what would be the risks involved in each possibility?



1. The most aggressive entry (IMHO). Given the data available on this chart I wouldn't use this entry. But if 1.3030 were a former S/R level and not only a swing point, nr.1 would be a perfect entry because of its distance from support. Stop loss could be placed either below 1.3015, or even below 1.3030 (but that's a bit risky). 2. Provides more confirmation. I wait for a result of that congestion. But then I am entering in the middle between support and supply line and stop must be the same as in case of nr.1. And what is even worse, I can't hope to move the stop to BE until the supply line is broken. And again, unless 1.3030 is former S/R level I don't see a justification for this entry. 3. Even more confirmation. Entry after a successful test of 1.3030. Nr. 3 could be as well right on the break above the congestion. This entry is probably better than nr.2, because now the support is confirmed and stop can be safely placed right below the congestion. And even the entry price is the same as in case of nr.2, the risk is smaller. 4. Entry in anticipation of breakout. Given the successful tests of the top of that congestion, a contraction of price action and the higher supporting point of the last test, I could enter here. But I probably shouldn't, because it is too high and before the actual breakout. So if the breakout fails, at least for the time being, I am left holding the bag. And where should I place my stop? One option is below 1.3045, which is a midpoint of the hinge and also a top of that congestion. Another option is to put it below 1.3030 again. In the former case there is higher probability of being stopped if the breakout fails (since the stop is only below midpoint and not below support), and in the latter case the stop is quite wide.



5. Breakout above supply line and the last swing high. The most confirmation and the worst price. In this case I would place my stop below the midpoint of the hinge, that is below 1.3045. Again a wider stop, but maybe justified by probability of the desired outcome. 6. Retracement after breakout. Same price, same stop, a bit more confirmation. 7. Re-break. So much confirmation that it implies a very wide stop. Too late entry IMHO. There are probably more opportunities to enter, but these are the ones I would be thinking about.

Thanks. Anyone who takes the time to make his way thru this arc will learn a great deal.



25hingesr springboard volume

Documents