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Dr Gary Dayton interview with Gavin Holmes

A trader himself, Dr. Gary Dayton understands what goes through a trader’s mind and can effectively communicate with them.  He integrates his knowledge of advanced psychology with trading to make it easier for the trader to understand.  His approach to trading psychology is focused on helping the trader build mental skills necessary to trade successfully.

Trading since 1999, Dr. Dayton has traded equities, commodity futures, the financial index E-mini futures, options, and E-mini S&P futures markets, applying Wyckoff method of market analysis.  He is an expert in Wyckoff analysis and the lost art of chart reading, in which the technical aspects of the market are read with price bars and volume.

A featured speaker in seminars, Dr. Dayton helps traders learn the mental and emotional side of trading through enjoyable and enlightening hands-on exercises.

Dr. Gary Dayton [GD] is a professional trader as well as being a psychologist.


GH:  How did you first get involved with trading and investing?

GD:  Back in the late 90’s I ordered a brochure from Ken Roberts, which really intrigued me; I stayed up all night reading it two or three times over.  I just couldn’t believe what he was describing.  Of course, it took a lot more than just that kind of material for me to get good at it, but that was how I started.

GH:  You are now recognized around the world as a Wyckoff expert and you have done several seminars on Volume Spread Analysis (VSA) techniques.  How did you come across the teachings of Wyckoff, and also those of Tom Williams? And how do you account for the renewed interest in the Wyckoff method over the past 2 or 3 years?

GD:  My trading wasn’t at all successful at first.  One day, when I was in a trading chat room run by Linda Raschke, she said, “If you really want to understand technical analysis, you need to read Wyckoff.  Wyckoff covers about 90% of technical analysis.”  She had taken the Wyckoff course herself and uses a lot of Wyckoff methodology.  That intrigued me; I’ve always been the kind of person who needs to know the reasons.

So began my quest to learn about Wyckoff.  Being the 90's, there wasn't much information available on line, so I ordered the course from the Wyckoff Stock Market Institute and studied it.  During my studies I came across Tom Williams book, The Undeclared Secrets that Drive the Stock Market.  The £50 I spent on a copy was just about the best money that I ever spent on my trading education.  I read and re-read that book many times and have actually rewritten it, including the charts, in my own words - not to take authorship, but just to have a better understanding of it.

Wyckoff’s original course and Tom Williams’ book are the foundation of my studies.  I then met David Weis and I became his student.  From David, a world-renowned Wyckoff expert,  I learned of the awe in which the method was held when he was first mastering it.

As for your second question: Yes, it really is significant, and I think ‘awesome’ is a fair description.  It tells us how the market works, based on the laws of supply and demand, and how it can be influenced by the actions of the larger players.  Now, thanks to Wyckoff and Williams, Weis and a few others, we have a chance to interpret the tracks left by the big players, and to follow in their steps.

GH:  Wyckoff uses the term ‘ The Composite Operator’ in his books; could you explain what he meant by this?

GD:  Wyckoff is conveying the idea that a good way to understand the market is to regard it as a single entity (even though we know, of course, that it is made up of multiple individuals).  This hypothetical operator is managing the market in terms of supply and demand, building up a line of stock through accumulation, or selling it for distribution. If, for example, there has been panic selling as the market falls, perhaps for days, or even weeks on end, and then, suddenly, we see a large amount of activity and the market closes down, but on massively increased volume, this is a clue that the Composite Operator of the market has decided, ‘Prices have fallen far enough, it is now time to support this market.' (BP is an excellent case in point).

GH:  Do you think the Wyckoff method, formulated 100 years ago for stock trading, is only suitable for stock traders, or does it work in every market? 

GD:  It works in ALL markets, including futures, commodities and FOREX, in all timeframes.  This is because Wyckoff shows us that the principles of market behavior are based on human behavior.  He was really talking about human behavior in the context of freely traded markets - it doesn't matter what the market is trading - as reflected in the charts of those markets.  As a psychologist, I know human behavior doesn’t change materially over the centuries, or even millennia.  Changes in human behavior are evolutionary, not revolutionary.  Changes in information technology may be revolutionary, but the way we respond to them are evolutionary.  That is why Wyckoff remains fresh and relevant today.

GH:  How do you think VSA has enhanced Wyckoff’s original work?

GD:  I think Tom did a brilliant job, particularly in simplifying Wyckoff's sometimes-complex work.  Mastering Wyckoff takes time and dedication - a bit like leaning to play chess to a high standard!  Also, Tom makes it clear that the market, as described by Wyckoff, isn’t just a transfer of stock from strong players to weak players, but it is also a transfer of risk - the strong players understand that when the market rallies to a certain level,  it becomes too risky to hold on to their stock any longer, so they unload it.  These professionals - the 'Smart Money' - look to unload in an active market, when the public - the ‘Herd’ - get involved and are attracted by the high prices, their involvement being reflected in increased volume in the charts.

GH:  How do you think Wyckoff would have interpreted the silver market in May 2011?

GD:  I don’t know quite how dramatic he would have considered that move to be, but he certainly would have seen the potential for silver to move down after the public had been attracted into the market by ever rising prices. It was a perfect opportunity for the Composite Operator (the 'Smart Money') to unload all the silver that they had bought further down.  You will recall that they unloaded their stock at $50 per once the same price that it had been in the 1980's. 

Since 1973, the price had been forced up from $1.95 an ounce to a high of $54 by the Hunt brothers.  They had accumulated half of the world's deliverable supply.  Then the price plummeted to below $11, bankrupting the Hunts.  This raises the question of why silver should have hit $50 and then plummeted on two occasions, despite inflation during the intervening 30 years.  My explanation, as a psychologist, is that $50 is a psychologically significant level.  Round numbers are often significant; consciously or unconsciously people 'anchor' to them and respond to them in their market behavior.

GH:  I refer to those round numbers as trigger numbers in my book because that’s exactly what they are.  If you see a price level going back to the same price area, and then you see an unusual swell of volume coming in as we saw last week with silver in the TradeGuider charts, what in fact you are seeing is a buying climax, followed two days later by no demand.  This is quite interesting, and always confuses many traders.  Can you explain why weakness appears with  very high or ultra high volume up bars, and then appears again a few bars later with low volume up bars?

GD:  It is confusing, and it can seem daunting for novice traders.  Even though it sounds contradictory, my recommendation is to persevere because eventually they will understand.   Professional traders (the 'Smart Money') need an active broad market to unload their stock (whatever it may be) And so the buying climax occurs when we have weaker holders (the 'Herd') rush into the market, tempted by rising prices and favorable news.  The 'Smart Money' see the increasing volume caused by the entry of the 'Herd' into the market and sell into this active buying.  We can identify the climax by the way in which the high up bar closes: it will usually close somewhere off the high, closer to the middle, or even down on the lows.  The spread will be wide, indicating heavy activity.  Most telling is that we’re going to see a very, very large volume (or Ultra High Volume, as VSA would indicate).  That is how we know that the 'Smart Money' is unloading into an active market. 

Remember however, that an up bar on high volume is not in itself a signal to sell.  We need to see the complete package: high volume bars with a wide spread, closing mid range or lower, after a move has been underway for some time.  At the beginning of a move, high volume is generally considered to be a positive sign, but negative at the end.  Bear in mind that market reversals are not abrupt events; they are more of a process, part of which is a testing to make sure there is no further demand.  Finally, once the market has reacted to the buying climax, it will rally.  Wyckoff described this - a buying climax, a reaction, and a rally - as a topping process.  To confirm to that there really was weakness coming into the market, and that the climax was, in fact, a buying climax, and that buying is exhausted, we want to see light volume and no demand, characterized by lack of volume and narrower spreads.  At that point we can look for an opportunity to short the market.

GH:  That’s a perfect explanation.  I have two more questions.  First: How important is it for traders to have belief in their system to enable them to trade the markets successfully?

GD:  I would say it’s vitally important.  If you don’t believe - if you don’t have confidence in your method, if you don’t have confidence in yourself as a trader - you will find trading very difficult.  For example, if the market isn’t cooperating with your trade entry, you must have the confidence that you can manage your way out of the trade without having a huge loss.  If you don’t have belief in your method - whether it is Wyckoff/VSA or any other method, you’re going to be lost as a trader. 

That is because you are always going to be looking to fine-tune and improve your system.  You’ll likely always be checking the MACD, the RSI, or looking to some other indicator for your confidence.  You’ll do that because you really don’t have confidence in your own abilities. 

Also, when you do that, you’ll start getting conflicting information.  The MACD won’t give you the same information as VSA, for example.  Now you are left even more confused.  It’s like having more than one clock.  Which clock is telling the right time?  You don’t really know, and that’s going to cause further doubt.  It’ll create a vicious circle in your belief system.  You are just not going to know, but you keep looking and looking.  In that process of constantly looking, you are never going to gain confidence in your trading and your system. 

You first need to test what works for you, MACD, VSA, Wyckoff or whatever.  Once you have decided what works for you, discard the others.  Then get to know your chosen method inside and out and become an expert in it.   That is the hallmark of professional traders; they are true experts in their chosen method.  As your expertise increases, your belief in your method, and your belief in yourself as a trader, is only going to grow  to the point where you really do become a competent trader. 

GH:  And my last question: What would be the next step for someone who has just discovered the Wyckoff method and VSA?

GD:  For sure, you would want to read both the Wyckoff course and Tom Williams’ book,
The Undeclared Secrets that Drive the Stock Market.  You should also look at a book edited by Jack Hutson, The Wyckoff Method: Charting the Stock Market, where you will find a couple of chapters on trading bonds by David Weis.  This is brilliant work.  Also avail yourself of the great resources online: the VSA Club, through TradeGuider; is a terrific resource with excellent information on Wyckoff and the VSA method.  My website,, is another resource where I often post on the Wyckoff method. 

In a few weeks, we will be launching a new website called that has new software and educational materials on the Wyckoff method.  I would encourage traders interested in Wyckoff to look at that.  It’s all there for traders to acquire and learn and integrate into their own trading.  It’s the best method that I’ve ever come across and I have studied an awful lot of stuff.  Traders are lucky today; they have both Wyckoff and VSA, which complement one another so nicely.  I don’t know what else to say about it.  It’s the best there is.