Welcome fellow Wyckoffians!  This blog will help develop scanning skills to search for and capitalize on Wyckoff structural trading opportunities. Stockcharts.com and its scan engine will be our chosen path.

The central theme of this blog is that scanning plays a key role in a Wyckoffian trading system or methodology. Our Wyckoffian Trading Thesis is that a trading system or methodology should create/foster a reasonable expectation of future price action that facilitates the profitable exploration of an expectancy while minimizing the unjustified damage to capital.

Let’s look at our Wyckoffian Trading Thesis in greater depth and as we determine the role of scanning.

1.  A System or Methodology.

A primary concern for our trading journey is “how do we start?” One answer is to find a system or methodology that works with our unique personality. There are as many systems or methodologies as there are snake oil salesmen, with no shortage of charlatans willing to separate you from your capital.  On that note, let’s look at what a system or methodology should do for us.

a.  Fundamentals for a System or Methodology.

A trading system or methodology should create a set of repeatable analytical and tactical steps that allow for consistent and profitable trading.  A repeatable set of analytical steps that can be consistently applied and the results observed/monitored is a critical path for trading mastery and development.  The opposite is random, emotional actions that are neither repeatable nor quantifiable.

Emotion is every trader’s nemesis.  Successful trading is more about process than anything else, including results: good results through erratic trading do not foster mastery!

b.  Reasonable Expectations About Future Price Action.

How many times have we heard that “you cannot predict the stock market”?  Nonsense!

A central premise of any trading system/methodology is that reasonable (not bulletproof) expectations of future price action can be established. While we all know chaos is often just a tweet away, there are recognizable aspects of price action that can lead to reasonable expectations about what future price will do.  When we add volume and perhaps a moving average or other indicator, we are attempting to further support our expectations of future price action.  There are no guarantees that expectations will be fulfilled, so we must have a third element to protect ourselves.

c.  Exploration of Future Price Action While Minimizing the Unjustified Damage to Capital.

Techniques that allow us to explore future price action while minimizing the unjustified damage to capital represent the third leg of our trading system or methodology.  This is commonly known as “risk control.” One interesting definition of “risk” has been formulated by Dr. Preston B. Cline: the intentional interaction with uncertainty. See, The Merging of Risk Analysis and Adventure Education, Wilderness Risk Management (2004). Risk control addresses the issue of capital preservation when choosing to interact with the uncertainty of future price action—the expectancy.

In any speculative venture, there is always the possibility that expectations about the future can be wrong.  The simple fact is that while tomorrow may be predictable based on today’s events, a surprise can derail the best trade plan.  Thus, a means of exploring a future price expectancy, while avoiding unjustified damage to capital, is essential.

Note that a system cannot and should not seek to prevent any diminution/damage to capital. Our focus is the unjustified/unreasonable damage to capital.  Unfortunately, every trade on which you embark is countered by another who believes they are correct, and you are wrong.  Damage to capital is inevitable but should be limited to a justifiable measure.

2.  The Role of Scanning In a System or Methodology.

Every element of a trading system or methodology must support and advance the objectives of the system or methodology. In assessing any trading component, we must ask:

• Does the element/task add to the consistency of application of the system/methodology? (A)
• Does the element/task add to the reasonableness of our expectation of future price action? (B)
• Does the element/task help avoid the unjustified damage to our trading capital? (C)

If scanning is an element of a Wyckoffian trading system/methodology, then which (or all) of the ABC’s listed above is directly served by scanning?  Does scanning help us be consistent in our trades? Does scanning add “reasonableness” to our expectations about future price action?  Finally, does scanning help avoid unjustified damage to our trading capital?

Coming up next time.

In future installments of the Wyckoff Structural Scanning Blog, we will look at the role of scanning in a Wyckoff trading system with a deep dive in the meaning of scanning and how we can use scanning to fill multiple roles in our search of the perfect Wyckoffian trade.

See you next time.

Scan well, trade better!

John Colucci, Jr.