Change of Behavior Trade
Some of the best trades occur after the market exhibits a change of behavior. We aren’t looking to buy the low tick or sell the high one — that’s a fool’s game. No, we don’t want to be making random traders where we “think” the market will turn. That’s bad trading. I am sure many would be traders are now surveying their losses from the morning, after repeatedly trying to pick a bottom and failing.
That’s not the way to trade. In the Wyckoff Method, we are alert any time the market displays a change of behavior. It did that over the noon hour. After going down in a strong down draft throughout the morning and into the noon hour, the market has a rally, breaking the trend channel and signifying a change of behavior from down to up.
But we don’t just jump in. We want the market to test. Why test? To disconfirm the presence of supply. Selling dominated all morning. Just because we have a decent rally doesn’t mean the market will now continue to rally. What about all that selling from and hour or so ago? We need to test it.
And test it does. We see the test at A. The market came back down to the earlier support level at C. This is about halfway back from the top of the last rally. Note the lack of downside volume back in an area where, just a hour or so ago, there was heavy selling. It’s dried up. There is no appreciable selling at this old support level. So, we have a change of behavior and then a test. And the test sets up a Spring!
As with any Spring, the target is a solid push above the last swing high. The market achieved that easily, which is what we would anticipate for a change of behavior trade. Isn’t this a whole lot better than trying to pick a bottom?