Stock Market Tools (14) - Wyckoff's Schematic and Application

This is a very short write-up as the diagrams attached are self-explanatory for those who are ready Think and Get It....




The follow two Wyckoff Schematic diagrams are copied from the web...
The first one signify a typical "Distribution" phase of a stock/market...
While the second diagram added the "Typical Volume Patterns" of various phases....

Figure 1. Wyckoff Schematic on "Distribution" Phase

.
Figure 2. Wyckoff Schematic on "Typical Volume Patterns" on various phases.

.
And, for those who had studied Wyckoff material would know that he would not trade without Analysis the "Internal Condition" of the strength of the stock/market by Tape Reading...  Here are some example of integrating the "Tape Reading" result with the Price Charts:(Click on the Chart to Zoom In).

The Art of War said: “兵马未动 粮草先行.” (Before the troops and horses start to move, food and fodder must go first.)

As translate to stock market, before the Price Trending in a Direction can be developed, the Money Must Flow in that direction first.....

In the following charts, the upper pane shows the price candlesticks, while the lower pan shows the MONEY movement direction (of Strong Hands).



Figure 3:  The "Internal Condition" of the stock is Weak, as money flow out from strong hand.

.
Figure 4: The "Internal Condition" of the stock is Weak, same reason as above... Will see. :-)

.
Figure 5.  Not all the operation of a stock follow the "Typical Schematic", at times it depends on the overall market condition too.  Zoom in to see it clearer.

.

.




.

.

Bless You
KH Tang
------------------------------------   Added on 1 Aug 2015   -----------------------------------

This chart is a follow up Fig 4 above...  What's next? Will See. :-)

-------------------------------------- Added on 4 Aug 2015 -------------------------------------
This is an interesting one...  It shows a serious divergence at this point of time, will see. :-)
(NOTE: Tape Reading is not for Short Term Swing Trading! It merely show the Internal Condition.)
Click on the chart to zoom-in.

.
----------------------------------------- Added on 9 Aug 2015 ---------------------------------------
Here are somethings very interesting...
Let's look at the Major Oil Companies on their "Tape Reading" Status as of now.  Doesn't it tell us that the strong hands knew what's going to happen way early than the public?!

---------------------------------------- Added on 13 Oct 2015 ----------------------------------------------
It would be interesting to see, though as a hindsight, what does the tape reading of some Germany companies - like Volkswagen (after the emissions scandal) and their banking...
(Note: There are a few Stock Exchanges in Germany, and the stocks listed in all of them.  So, the value show the TRENDING only).

.
Volkswagen

.
Deutsche Bank


.
---------------------------------------- Added on 19 Oct 2015 ----------------------------------------
It would be interesting to see what happen to those that have accumulation on the tape. :-)

AMD Tape Reading.

.
---------------------------------------  Added on 05 Nov 2015 ---------------------------------------------
Interesting!
Is there some new technology that can replace Cruel Oil???

Games that People Play (5) - Fueling a Giant Stock Market Bubble

This post is self-explanatory...
Click on the link for more details...

Deutsche Bank "Raises The Warning Flag": 
What The Most Important Chart For The Market Reveals

Entire five year market rally has been due to the Fed

Is the Fed Fueling a Giant Stock Market Bubble?
(Yes, of course)


.



Other Games that People Play


HOME

Personal Finance (13): A Confession of a Public Fund Manager In China

Good day,

Attached, ---8<  Cut and Paste >8---- , is the last portion of an article by a public fund manager in China confessing why he can never beat he "super wealth transfer machine"(stock market system) and decided to quit his job.  And, after all, in his 10 years of career as fund manager, he already made more than 10million RMB as a salary despite losing money for his clients...  

The full article, in Chinese, can be read from the link attached:

---------------------------------------Cut and Paste---------------------------------------------
一个公募基金经理的忏悔书
我无法对抗这个制度、我彻底投降、我准备辞职，我对我管理的基金的投资者表示深深的忏悔!我真的无能为力在这个市场中帮助你们赚钱！
　　中国XX基金管理公司 XXX基金经理
　　（恕我在此不公布老东家的名字，毕竟服务多年，领取了千万元的薪水！）
--------------------------------End of Cut and Pate ---------------------------------------------
http://bbs.hexun.com/stock/post_5_5961685_1_d.html

Any way, here is a very very brief summary with the KEY FACTOR of why he can't win:

"The author, 10 years fund manager in China, described that the stock market is a wealth transfer machine.... Due to the fact that the fund managers, by Law and software system, must keep at least 60% of the money in the market. Even if the fund manager want to get out of the stock and keep cash when the market is clearly in down trend or even crashing, the software would not allow them to sell...."

Here are some points of ponder:

* FACT
Now, the above chart showng the China Shanghai and ShenZhen 300 index (SSE300).  There is clearly more down trend than up trend for the past 5 over years.  And, if one were not only can't short the market, but also must spend at least 60% of the fund to purchase stocks at any point of the time.  As a Public Fund Manager, how can they make money as the calculated probability seriously against them?

Anyway, this is  the rules and regultion for fund managers world-wide.  Imagine IF there is no such rule, what would happen, if most fund managers try to find exits for cash?


* OPPORTUNITY
Now, what would you do IF you are a fund manager under such rule?
The manager would at least want to beat the overall market index by selling the worse sectors/stocks and get a ride on the better sectors/stocks.

So, in order to sell 10% worth of weak stocks in his portfolio, the fund manager MUST FIRST purchase at least 10% of the equal value of stronger stocks before the software system allow him to sell the weak one.

This would result in lot of money rushing into relatively handful of sectors/stocks and result in sharp rally!

For Example:  Some Internet/Games companies are the current percieved "safe harbour" and the money is rushing in at this point of time:(QIHU,DATE,GAME,YY)

..the above are just a few, can include the famous BIDU (but the up side is may not be that great as high price stock generally move slower... but safer).


*CONCLUSION:
It is better off spend your resources (time and money) to learn and DIY.  The chances is very much higher. 

AND, off course... don't do this:  Dash into the market without going throuh a proper stock market training, withot going through adequate paper practice, and without a reliable trading system.  It is like the message from the following cartoon I found in facebook. :-)

Thank you for your time, and

Bless You
KH Tang


NOTE: THIS ARTICLE IS MERELY FOR AWARENESS ONLY!

Who Gain the Profits from Financial Crisis?

Attached is a short article that tell people How and Who will gain huge profit

from financial crisis. Although it was written in the 80's...

-------------------------------------------------- 8< -------------------------------------------------------

Excerpt from "Syndrome of Control" - Chapter 1 by Lindsey Williams

--------------------------------------------------------------------------------------------------------------

Farms
One-tenth of one percent of the farms in America are going into bankruptcy every thirty days. Recently, a farmer in South Dakota told me the following story. He said that his farm had been in their family for three generations. His great, great grandfather had homesteaded it. It has been successfully and profitably tended for three generations.

A few years back when land values increased considerably, the bank persuaded the farmer to purchase more land and equipment by borrowing from the bank, using his land as collateral. Then the bottom dropped out of land prices because of the economy which had been intentionally manipulated by the Internationalist. The bank came to the farmer and said that because land prices had fallen, he no longer had enough collateral to cover his loan, and even though he was current in his payments, he must pay the difference between the amount of his loan and the amount of collateral which he had to back the loan. The farmer could not come up with the amount of money the bank was demanding. Later the bank came to the farmer and announced that they were going to repossess, but the bank asked the farmer if he and his family would stay on the farm as Tenant Farmers.

Was it to the advantage of the Internationalist to bring about a financial crisis for the farmers? Yes! They got the farm for the price of the combine. If a farmer can't afford to farm without borrowing money, then he surely can't afford to farm borrowing money and paying interest. I predict that the majority of the farms of America will be corporate farms within a few years, if the Internationalists have their way.

-------------------------------------------------- 8< -------------------------------------------------------

This trick had been applied world wide... and it is now applied to all the oil production countries... and still working well. History keep repeating itself. Just that the scale and location keep changing.

As spoken in the 1st video that the Manipulator will only buy stocks at it lowest price by spending penny for value of dollars. How can this be done? Or, how can this be detected? This article, TAPE READING, would show you the clue of how to do so.

"The average man doesn’t wish to be told that it is a bull or a

bear market. What he desires is to be told specifically

which particular stock to buy or sell. He wants to

get something for nothing. He does not wish to

work. He doesn’t even wish to have to think."

--Jesse Livermore

Stock Market Tools (5) - Tape Reading

"Money is made in

Tape Reading by anticipating what is coming

-- not by waiting till it happens and going with the crowd."

— Richard D Wyckoff

1. Introduction

"Tape Reading" is a classical method that uses to calculate the number of shares Accumulated or Distributed in a particular stock. It been used as one of the key tool to measure the "Internal Factor" by the Gurus, such as Jessie Livermore, Richard Wyckoff, etc... combined with other "Technical Factors" of the stocks/market.

The Proposition of how Tape Reading works is that The direction of the long term trends depends upon the amount of stock owned by and disposition of the insiders and key investors against the public. As Tape Reading can be use to deduce the Accumulation and Distribution activities, and even estimate the total percentage of shares in the insiders and key investors. Therefore it can use to deduce the price direction and level.

Those who are interested in the original detail of how to do so can find out from some old classic book, such as "Reminiscences of a Stock Operator -by Edwin Lefèvre" or "Day Trading Bible - Richard Wyckoff", etc.

2. How does Tape Reading Methodology been Evolved... Volume Based Indicators

While the "Tape Reading" methodology has be evolved over time and use in current charting indicators, it basic Proposition for the idea are the same:

A) The manipulators/ insiders must accumulate enough percentage of the shares in a particular stock before they would mark up the price for distribution.

B) The manipulators/insiders are having more information than the public, and would act before the public has notice the potential of the movement.

The direct translation of the methodology into the current charting indicator is the On Balance Volume(OBV).

The OBV calculation is basically adding the day's volume to a running cumulative total when the security's price closes up, and subtracts the volume when it closes down.

There are many other variations, such as volume weighted moving average etc... All are based on the same idea that volume should move first (or to be more exact, that the accumulation or distribution should start first), before the price would move strongly.

3. How and why does it loss it effectiveness

For those who are seriously want to find out how effective of those volume based indicators, it can check it out by doing a throughout back-test of data since the indicators inception till current date.(Which would not likely possible for individual to do so). Or to check out the results in some books. "The Encyclopedia of Technical Market Indicators, by Robert Colby" is one of a good book for doing so. (Some example backtest result -> Link)

It can be seen that all these volume-based indicators were performing wonderfully well from 60's,70's and all of a sudden, in the 80's, they lost their effectiveness as an indicator for buy and sell.

This is because there are more and more trading software available together with the Personal Computers, and computerized trading system for the big institution.

Let me explain...

For those volume based indicator that the public is using, they are mainly using the daily time-frame. So, the volume based indicator has made an assumption that the trading volumes are equally distributed in the whole day.

For the manipulators who would want to paint a picture of Accumulation, they can simple sell (distribute) the shares heavily, and just before the market is closing, they can suddenly buy back a couple of percent of what they had sold and push the price above yesterday's closing price. By doing so, all the Volume-based indicators will give false information.

One can simple do an experiment to proof this...

By collecting the one minute OBV, 15 minutes OBV, 60 minutes OBV and Daily OBV over a period of some time, say for two months. It would notice that there will be contradiction in the signals by the same indicators itself with different time frame.

In general, the shorter the time frame, the more accurate it would be. But then the problem would be that most softwares are not able to handle years of 1 minutes data (Unless the user has to write special peace of code to compress the 1 minutes OBV and load it back to match with the daily price chart.)

4. How to correct these errors and bring back it accuracy

Even so, that is to reduce the time frame down to a minute or second, there is still a problem with the accuracy in such volume based indicator. As there is one more factor that need to be consider...

As today, the market is full of trading news in all sort of controlled media...

So, when the manipulators wanted to purchase some particular shares, bad news would have came out to the public first, so that they can buy all the way down.

For the classical method, all fall in price during the transaction are considered as a distribution, while all raise in the price are considered as a accumulation. And, in the Figure 4, it shows a snap shot of the Raw data of a typical transaction. Since the Bid and Ask are very dynamic, and for some high volume stocks, it can be transacted a couple or few tens of time within a second.

So, the correct way to calculate the accumulated/distributed volume MUST take consideration of the Bid and Ask on the transacted price.

If the price is taken place on the Ask, it is a accumulation, and if the price is taken place on the Bid, it is a distribution.

When one can collect the data as such for a particular share, then... over a long period of time... he can then decode the INTERNAL CONDITION of the stock. And, it must use together with others Technical Analysis Tool to get a better timing.

For those who can understand this, it need no further explanation. So be it.

Bless You.

KH Tang

...BTW, The last chart show how the money was hidden in the stock... The manipulator are the one with deep enough pocket to go through the crash, and know exactly which one to accumulate...

--------------------------------------  Added on 10 July 2015 ----------------------------------------

Application of tape reading with modern software...
The last chart in this article - Wyckoff Schematic and Application shows the "Internal Condition" of a stock under the pool operation...

-------------------------------------------------------------------------------------------------------------

Relevant Articles:

-> Jesse Livermore's Secret Market Key <-
-> More articles on Stock Market Tools...<-
->Personal Finance<-
->Project Freedom<-

->HOME<-

->Comment<-

Some Events that Create Waves in the Market

The market behavior is so strange that it mostly go the “Wrong” direction as perceived by the public. And, that cause most public, (90%), continues to lose money in feeding the financial system.

Here are two simple terms which might be interested for some, in order to know a little more why would the market often goes the different direction with their researches.

1) Triple Witching

2) Window Dressing

In the derivative market, such as option and future, when one person is making some profits, some others got to lose the money to him.

Imagine that when the market is so bearish that everyone would believe that it would continue to go down… What most public will do is to buy the “PUT” Option, which it can use margin to leverage for high benefit from the market. So… Imagine that all the public is right; this would drive the option writers, mostly by financial institutions, to have big losses or even drive them to bankrupt with a few consecutive rounds of "strike" in the targeted price.

Now, imagine that you are the financial institution, what strategies or action you are going to take???

Of course, you would want to make sure you are the one who win, and that is the whole purpose for selling the option. You would then do whatever necessary possible to ensure that the option would not strike within the expiration date! (It is up to you to imagine what necessary action it might be…)

So this create pullback from the trending market and create waves…

What Does Triple Witching Mean?
An event that occurs when the contracts for stock index futures, stock index options and stock options all expire on the same day. Triple witching days happen four times a year on the third Friday of March, June, September and December.

The impact of "triple witching" has been associated with increases in the volatility of the market. The increased volatility increases the uncertainty about prices of the underlying stocks. This phenomenon is sometimes referred to as "freaky Friday".

And, if one would to examine the market behavior around these period, it can usually find serious pullback just before these dates.

What Does Window Dressing Mean?

Performance reports and a list of the holdings in a mutual fund are usually sent to clients every quarter. To window dress, the fund manager will sell stocks with large losses and purchase high flying stocks near the end of the quarter. These securities are then reported as part of the fund's holdings.

Another variation of window dressing is investing in stocks that don't meet the style of the mutual fund. For example, a precious metals fund might invest in stocks that are in a hot sector at the time, disguising the fund's holdings, so clients really have no idea what they are paying for.

Window dressing may make a fund appear more attractive, and it can't hide poor performance for long. But, the trick is that most public do have faith with their fund managers, and hope that they are doing all the best to protect their interest as they paid the fund managers to do so... Well, things are getting more complicated in modern society, and HOPING is definitely not a good strategy...

Bless You,
KH Tang

"It is better to be out of the market for a week or

a month than to make one wrong trade.

Stay out and your judgement

will clarify"

-Richard D. Wyckoff

What's the Value of "Trust" ?!

(Note: It can click on the picture to zoom in for better clarity)

On the surface, the people who design the financial crisis might have thought that they are very smart...

They had been creating Financial Crisis here and there around the globe on order to take advantages from the not so well developed countries. It can also be seen in the past, that there are funny phenomenons in this society... It tends to promote some people, who actually causing the financial crisis to happen in other countries and get lot of profits from it, as Hero!?

This time round, they have gone too far... Even though they can get some materialistic gain, they have also causing serious damage to the "Trust" of their own citizens to the Financial System, which is the backbone of the modern civilized society!

It took their predecessor centuries of hardwork, trial and error, determination and sacrifiices to set up the stability of the financial system, and it take just slightly more than a decade for a minority to form a sub-prime debt model to destroy the system.

The Aftermath of the Financial Crisis:-
I think this "experiment" would only take time to find out some of the following answers...

How much does the "Trust" cost?
Who is actually gaining??
What's the impact after that???

But There is One Thing that I am sure:-
It would help to raise the public consciousness to a new degree of higher level after the whole event ...

那些制造了此次金融危机迷局的人也许觉得自己非常聪明......。
为了从那些欠发达的国家谋利, 他们在全球到处制造金融危机。从过去也可以看出， 社会上有些有趣的现象 ，好像它提拔了很多英雄!? 正是这群人引发了金融危机，而且从中获取巨大的利润。
而这次 ，他们做得太过火了......。即使他们可以得到一些物质利益，但是他们的国民对自己的国家的"信任"--这是现代文明社会的支柱，同样被严重破坏。
他们的先辈下定极大决心，经历了数百年的艰辛、磨难、经历无数错误、 牺牲才创建的稳定的金融系统 ，仅仅十几年，从小至大形成的次贷危机就毁坏了这个系统。

金融危机的最终结果:-
我想这次的 "试验" 需要时间来为下列的问题找到答案......
"信任"价值几何？
谁会最终获利？
之后的影响会是怎样？

但是有一点我很确定：
这次事件会帮助公众意识提升到一个新的水准......

(Translated by:云淡风轻)

Bless You

KH Tang

"In a time of crisis we all have the potential to morph

up to a new level and do things we never thought possible."

— Stuart Wilde

Trap for Investors (2) - 暗渡陈仓

continue from...

Traps for Investors (Part 1)

One of the mostly used trap to trick the investors is called 暗渡陈仓. Basically, it means to deceive the enemy with an obvious approach that will take a very long time, while surprising him by taking a shortcut and sneak up to him. As the enemy concentrates on the decoy, he will miss you sneaking up to him.

Here is how it normally work in the stock market:--

When the news talk about the market direction, it usually reports on a few indices...
Such as the Dow Jones Industrial Index, Nikkei 225, Hang Seng Index etc...

And, in actual fact, these Major indices are representing very very minor number of stocks in their respective market...

For example, Dow Jones Industrial consist of only 30 stocks out of a few thousands stock in the US market, and usually those key indices normally consist of higher price stocks.

So, when the manipulators would like to distribute their stocks at the high price, especially the poor quality and low price stocks... They can focus in pushing up some index stocks and with the help of the media to broadcast that the market is keep moving up... While some untrained public would prefer to buy some lower price stocks for what ever reasons... Then they would fall into the traps...

That's why some time people may wonder, why the market keep moving up while the stocks that they owned does not move. It need to look into more details... such as which sector is now moving up or down, what kind of capitalization (Large, Mid, or Small) stocks is leading, etc...

Most people heard of the phrase that "Knowledge is Power". The fact

is that Knowledge isn't power, it is just a potential power.

IMPLEMENTATION of knowledge is the POWER.

- Unknown

Traps for Investors (1) - Kill with a borrowed knife

"The World is a dangerous place

to live, not because of the people who are evil,

but because of the people who don't do anything about it."

-Albert Einstien

There are so many traps in the game of investment . As most public are working hard striving for financial freedom, unfortunately, many will step on the traps because of the lack in investment education... and then they will be squeezed until dry!

So, when one discovers a trap, it is good to share it and alert others...

Here is a trap, let give it a name - "Kill with a borrowed knife ( 借刀杀人)* ", which I came across from an out-of-print book.... And it happened in the past in Wall Street... before 1929...

When a greedy, rich and powerful person, say Mr. "BADGUY", discovers one of the stocks in his portfolio will become "Rubbish" in the near future due to some internal information, such as a drug company will fail some test in the new drug release or some technology can not be taken off, etc... Here are the steps he would do...

1) Packaging and Marketing... He would go to Investment firm/Bank to look for a fund manager, Mr. "Borrowed_Knife", to start up a "Investment Fund". Depends on timing, there will be many tricks, such as "Certain % Capital Protection", "Best Track Record Fund Management Team", etc... As long as the Public, Mr. "GOODGUY", feel safe and like it, they would package that way...

2) Distribution at Higher Price along with good forecasting Result... Normally, the fund would have a fixed term such as 3-5 years contract. (Worse of All, some need to pay them management fee for using the money..)
Once the fund is raised from the Public... Mr. BADGUY would, under his influence, had the company to publish excellent business forecast, such as pouring out the last bit of reserved from the "Cooky Jars", turning on the Rumors Factory 24 hrs for good news, etc.. what ever method it might be, just make sure it looks good... While Mr. Borrowed_Knife (Fund Manager) would start to buy the "Rubbish" from Mr. BADGUY, at higher price, with the justification, to the public, of such good reports and news...

3) Fire the Manager with Big Rewards... As long as the fund manager used up the cash in the fund to clean up the rubbish... He would later be "Fired" for his incompetence in poor performance on the surface... While a large sum of "kickback" would be given for the GOOD JOB (in the view of Mr. BADGUY), which would much more than the person continue to be a fund manager for the rest of his life...

4) The Public is still Confused or Happy... For some fund, the public is totally broke... and confused... For some other scheme, such as "Capital Protection" to certain %... The Public would even be very happy think that they are lucky to have such scheme protecting them... While not knowing that the Investment firm/Bank would just simply put it on paper as P&L...
In general, many Investment firm/Bank are public listed company and making much more money from loaning program... Extra profit would be distributed to Shareholders any way, and... Why not help some people that is "Politically Correct" in the future tense...

亡羊补牢,未为迟也 。

要亡羊补牢，更要亡羊"捕狼"。

"It is not too late to fix the fence of the farm,

after one discovers that sheep been eaten by the wolf."

- A Chinese Proverb

Yes,it must fix the fence, and it is even more critical to Catch that Wolf!


* Ref:
http://en.wikipedia.org/wiki/Thirty-Six_Strategies

to be continue...
* Loot a burning house 趁火打劫.
* Openly repair the gallery roads, but sneak through the passage of ChenChang 暗渡陈仓.
* Defeat the enemy by capturing their chief 擒賊擒王.
* Take the opportunity to pilfer a goat 順手牽羊.
.......
And, how to stay in profit. :-)

Monkey Business in the Stock Market

A friend had sent me a short story that I think it is worth to share. :-)

Once upon a time, in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each.

The villagers, seeing that there were many monkeys around, went out to the forest, and started catching them.

The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20.

This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms.
The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on his behalf.

In the absence of the man, the assistant told the villagers. 'Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each.'

The villagers rounded up with all their savings and bought all the monkeys.

They never saw the man nor his assistant again, only monkeys everywhere!

Now you have a better understanding of how the stock market works...

"Be careful about reading health books. You may die of a misprint."

- Mark Twain

The Circle of Life in the Stock Market

For those who owns the public media can easily manipulate the public perception.

The cycle of Stock Market

A downloadable PowerPoint Slide Show version is at :-
http://www.scribd.com/doc/6072470/Points-for-Ponder

Click on the link, then click on the "Download" botton for the PPS format. The PDF version does not has the animation feature.

秦人无暇自哀而后人哀之,后人哀之而不鉴之,亦使后人复哀后人也。

History Repeat Itself:-
This happen in many countries during various financial crisis. It is basically a process of repeating the history... So, one can either learn the lesson from books, or participate in repeating the history as a victim.

<HOME>