UPl | Wyckoff Events & Phases Explained Wyckoff developed a price action market theory which is still a leading principle in today's trading practice.
The Wyckoff method states that the price cycle of a traded instrument consists of 4 stages – Accumulation, Markup, Distribution, and MarkDown.
👉TEXTBOOK EXAMPLE Accumulation Schematic: Wyckoff Events and Phases👈
Price Action Analysis
And this is the accumulation stage -
1) PS— Preliminary Support, where substantial buying begins to provide pronounced support after a continued down-move.
- Volume increases and price spread widens, signaling that the down-move may be approaching its end.
2) SC—Selling Climax, the point at which widening spread and selling pressure usually in high point and heavy or panicky selling by the public is being absorbed by larger professional interests at or near a bottom.
- Often price will close well off the low in an SC, reflecting the buying by these large interests.
3) AR—Automatic Rally, which occurs because intense selling pressure has greatly decline.
- A wave of buying easily pushes prices up.
- The high of this rally will help define the upper boundary of an accumulation.
4) ST—Secondary Test, in which price revisits the area of the SC to test the supply/demand.
- If a bottom is to be confirmed, volume and price spread should be decline as the market approaches support in the area of the SC.
- It is common to have multiple STs after an SC.
5) SOS—Sign Of Strength, a price advance on increasing spread and relatively higher volume.
6) LPS—Last Point Of Support, the low point of a reaction or pullback after an SOS.
7) BU/LPS- Backing up to an LPS means a pullback to support that was formerly resistant, on diminished spread and volume.
All the phases of accumulation stage-
Phase A:
Phase A marks the stopping of the prior downtrend.
-- Up to this point, supply has been dominant.
-- The approaching cutback of supply is evidenced in preliminary support (PS) and a selling climax (SC).
-- A successful secondary test (ST) in the area of the SC will show less selling than previously and a narrowing of spread and decreased volume, generally stopping at or above the same price level as the SC.
-- If the ST goes lower than that of the SC, one can anticipate either new lows or prolonged consolidation.
-- Horizontal lines may be drawn to help focus attention on market behavior, as seen in the two Accumulation Schematics above.
Phase B:
-- Phase B serves the function of “building a cause” for a new uptrend
-- In Phase B, institutions and large professional interests are accumulating relatively low-priced inventory in anticipation of the next markup.
--There are usually multiple STs during Phase B'
-- Institutional buying and selling impart the characteristic up-and-down price action of the trading range.
--Early on in Phase B, the price swings tend to be wide and accompanied by high volume.
Phase C:
-- It is in Phase C that the stock price goes through a final test of the remaining supply.
-- this marks the beginning of a new uptrend, trapping the late sellers (bears).
-- It indicates that the stock is likely to be ready to move up, so this is a good time to initiate at least a partial long position.
-- The appearance of an SOS shortly after a spring or shakeout validates the analysis.
Phase D:
--During Phase D, the price will move at least to the top
--LPSs in this phase are generally excellent places to initiate or add to profitable long positions.
Phase E:
--large operators can occur at any point in Phase E.
--These are sometimes called “stepping stones” on the way to even higher price targets.
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Wyckoffmethod
Wycoff Method Wyckoff is a method of technical analysis that was developed by Richard Wyckoff in the early 20th century. This method is based on the study of price action, market structure, and the interplay of supply and demand forces in the market.
The Wyckoff method is commonly used by traders and investors to identify trends, reversals, and key levels of support and resistance in the market. It involves the use of various chart patterns, such as the Wyckoff Spring and Upthrust, to identify potential buying or selling opportunities.
One of the key principles of the Wyckoff method is the concept of accumulation and distribution. According to this principle, the market tends to move in cycles of accumulation and distribution, where smart money accumulates positions during periods of accumulation and distributes them during periods of distribution.
Another important aspect of the Wyckoff method is the use of volume analysis. Richard Wyckoff believed that volume was a key indicator of market activity and that changes in volume could be used to identify potential changes in market direction.
Overall, the Wyckoff method is a comprehensive approach to technical analysis that incorporates a range of different tools and techniques to help traders and investors make informed trading decisions. It is a useful tool for anyone looking to develop a deeper understanding of the market and to identify profitable trading opportunities.
Uncovering Wyckoff Accumulation Secret PatternWyckoff Accumulation & Distribution is a trading strategy that was developed by Richard Wyckoff in the early 1900s. It is based on the premise that markets move in cycles and that traders may recognize and use these cycles.
In accumulation phase Wyckoff strategy involves identifying a Trading Range where buyers are accumulating shares of a stock before it moves higher. This allows traders to enter into positions at lower prices and benefit from the eventual price increase. Wyckoff Accumulation is an effective way for traders and investors to gain on market movements and make profits from their trades.
The Wyckoff Trading Ranges feature a chart pattern called Descending Wedge. This pattern involves two trendlines, one falling and one rising, which converge to form a wedge shape.
This pattern indicates that the price of an asset is likely to break out in the direction of the falling trendline.
In my understanding, "Continuous Weakness" means a shift away from selling towards buying. Sellers fail to hold the pressure, so buyers take the lead leading in D,E: MARKUP phases.
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How Wyckoff & Elliot Wave Theory applied togetherMaybe this near "full-stack" technical analysis using Wyckoff and Elliot Theory along with relevant indicators such as Moving Average and Cumulative Volume Delta (CVD) will puzzled some of the traders who used to have a simpler analysis on the market. But to those who curious this is something that is really interesting to know. The chart above is showing us how the two theories can be complementary to each other.
Lets analyze the chart above of BTC/USD in 4h timeframe from left to right comprehensively based on the Wyckoff phases of the 2nd accumulation model.
Phase A:
During the early November of 2022, BTC was under heavy sell-off after Binance dumping hard on FTX where the price crossunder 200 EMA and 100 SMA. The waterfall crash of BTC was printing a 5-wave of zigzag wave. We can see that the lowest point of wave 3 shows the highest selling volume in a single 4h HA candle and also act as Preliminary Support (PS) where then I put the 1st support line there. The sell-off continue to form the last zigzag wave where we can see multiple high selling volume bars and made a very deep negative cumulative volume delta in which it represents as Selling Climax (SC) in Wyckoff. A massive buying then occurred which immediately push the price back up to the wave 4 of zigzag wave area, which in Wyckoff we can name it as Automatic Rally (AR). By using these to extreme high of AR and low of SC we can draw a rectangle to have a better view on the consolidation area. After the dramatic push and pull of price, the market volume gradually decreasing followed by price having a contracting highs and lows, forming a classic contracting triangle, where we can see some of the lows are respecting the 2nd support line.
Phase B:
The end of contracting triangle followed by another zigzag wave of smaller degree, where it breaks the 2nd support line and creating the second lowest low which we can name it as Secondary Test (ST) that the selling volume is much smaller hence also creating a shallower negative CVD. Price then go up back to the 2nd support line and able to reach back to 100 SMA although still not able to candle close it on the first attempt but eventually able to close it on the second attempt. Price then going on a small rally creating an ascending channel of 5-wave leading diagonal and able to close above the 1st support line, the 200 EMA and even able to make a higher high. But the volume is still not enough to make a change of character breakout.
Phase C:
The mini rally is identified as the 1st wave of primary impulsive wave, so the reactionary move where the price breaking down the ascending channel, the 1st support line, 200 EMA and 100 SMA and going back down to the 2nd support line can be identified as wave 2. Most of phase C volume going under the Volume Mean Level, it is the lowest volume of all of the phases. Combination of multiple minor corrective waves creating a WXY wave and we can see the 2nd support line is holding the price quite well where it represents as Last Point of Support (LPS).
Phase D:
The volume and price gradually moving up and able to close above 100 SMA and 200 EMA, then going higher to 1st support line with higher volume to a point of Show of Strength (SOS) where a change of character breakout is formed and also breaking out from the box or the whole Trending Range. Phase D is the perfect time to make an entry. The identifying of the first two waves of an impulsive move also creating a high confidence that we are entering the wave 3 or we can also call it as the money wave.
Phase E:
Just enjoy the rally
This whole chart actually representing a very textbook Wyckoff Theory of the 2nd Accumulation Model and we can also see in this chart the transition between corrective wave and motive wave of Elliot Wave Theory. In Phase A and the early Phase B, the corrective wave is on its end, where the rest of the Phase B to E we can see how the scaffoldings of early structure of an impulsive move is constructed. making a consolidating of accumulation before going a strong trending move. Wyckoff explains this transition of corrective wave to a motive wave in a beautiful way and surely we can also use it on the transition of motive wave to a corrective wave using the distribution model. This is just one variation where we can use Elliot and Wyckoff hand in hand in order to have a much better technical analysis on the market and maybe this combined analysis that I made on the above chart could be the best scenario to apply for both theories.
Hopefully this helps to educate for anyone of you who read this post, thank you
📊 Wyckoff SchematicsThe Wyckoff Method involves a five-step approach to stock selection and trade entry, which can be summarized as follows:
Determine the present position and probable future trend of the market. Is the market consolidating or trending? Does your analysis of market structure, supply and demand indicate the direction that is likely in the near future? This assessment should help you decide whether to be in the market at all and, if so, whether to take long or short positions. Use both bar charts and Point and Figure charts of the major market indices for Step 1.
Select stocks in harmony with the trend. In an uptrend, select stocks that are stronger than the market. For instance, look for stocks that demonstrate greater percentage increases than the market during rallies and smaller decreases during reactions. In a downtrend, do the reverse – choose stocks that are weaker than the market. If you are not sure about a specific issue, drop it and move on to the next one. Use bar charts of individual stocks to compare with those of the most relevant market index for Step 2.
Select stocks with a “cause” that equals or exceeds your minimum objective. A critical component of Wyckoff's trade selection and management was his unique method of identifying price targets using Point and Figure (P&F) projections for both long and short trades. In Wyckoff's fundamental law of “Cause and Effect,” the horizontal P&F count within a trading range represents the cause, while the subsequent price movement represents the effect. Therefore, if you are planning to take long positions, choose stocks that are under accumulation or re-accumulation and have built a sufficient cause to satisfy your objective. Step 3 relies on the use of Point and Figure charts of individual stocks.
Determine the stocks' readiness to move. Apply the nine tests for buying or for selling (described below). For instance, in a trading range after a prolonged rally, does the evidence from the nine selling tests suggest that significant supply is entering the market and that a short position may be warranted? Or in an apparent accumulation trading range, do the nine buying tests indicate that supply has been successfully absorbed, as evidenced further by a low-volume spring and an even lower-volume test of that spring? Use bar charts and Point and Figure charts of individual stocks for Step 4.
Time your commitment with a turn in the stock market index. Three-quarters or more of individual issues move in harmony with the general market, so you improve the odds of a successful trade by having the power of the overall market behind it. Specific Wyckoff principles help you anticipate potential market turns, including a change of character of price action (such as the largest down-bar on the highest volume after a long uptrend), as well as manifestations of Wyckoff's three laws (see below). Put your stop-loss in place and then trail it, as appropriate, until you close out the position. Use bar and Point and Figure charts for Step 5.
🔹PS — preliminary support, where substantial buying begins to provide pronounced support after a prolonged down-move. Volume increases and price spread widens, signaling that the down-move may be approaching its end.
🔹SC — selling climax, the point at which widening spread and selling pressure usually climaxes and heavy or panicky selling by the public is being absorbed by larger professional interests at or near a bottom. Often price will close well off the low in a SC, reflecting the buying by these large interests.
🔹AR — automatic rally, which occurs because intense selling pressure has greatly diminished. A wave of buying easily pushes prices up; this is further fueled by short covering. The high of this rally will help define the upper boundary of an accumulation TR.
🔹ST — secondary test, in which price revisits the area of the SC to test the supply/demand balance at these levels. If a bottom is to be confirmed, volume and price spread should be significantly diminished as the market approaches support in the area of the SC. It is common to have multiple STs after a SC.
🔹Test — Large operators always test the market for supply throughout a TR (e.g., STs and springs) and at key points during a price advance. If considerable supply emerges on a test, the market is often not ready to be marked up. A spring is often followed by one or more tests; a successful test (indicating that further price increases will follow) typically makes a higher low on lesser volume.
🔹SOS — sign of strength, a price advance on increasing spread and relatively higher volume. Often a SOS takes place after a spring, validating the analyst’s interpretation of that prior action.
🔹LPS — last point of support, the low point of a reaction or pullback after a SOS. Backing up to an LPS means a pullback to support that was formerly resistance, on diminished spread and volume. On some charts, there may be more than one LPS, despite the ostensibly singular precision of this term.
🔹BU — “back-up”. This term is short-hand for a colorful metaphor coined by Robert Evans, one of the leading teachers of the Wyckoff method from the 1930s to the 1960s. Evans analogized the SOS to a “jump across the creek” of price resistance, and the “back up to the creek” represented both short-term profit-taking and a test for additional supply around the area of resistance. A back-up is a common structural element preceding a more substantial price mark-up, and can take on a variety of forms, including a simple pullback or a new TR at a higher level.
🔹PSY — preliminary supply , where large interests begin to unload shares in quantity after a pronounced up-move. Volume expands and price spread widens, signaling that a change in trend may be approaching.
🔹BC — buying climax, during which there are often marked increases in volume and price spread. The force of buying reaches a climax, with heavy or urgent buying by the public being filled by professional interests at prices near a top. A BC often coincides with a great earnings report or other good news, since the large operators require huge demand from the public to sell their shares without depressing the stock price.
🔹AR — automatic reaction. With intense buying substantially diminished after the BC and heavy supply continuing, an AR takes place. The low of this selloff helps define the lower boundary of the distribution TR.
🔹ST — secondary test, in which price revisits the area of the BC to test the demand/supply balance at these price levels. For a top to be confirmed, supply must outweigh demand; volume and spread should thus decrease as price approaches the resistance area of the BC. An ST may take the form of an upthrust (UT), in which price moves above the resistance represented by the BC and possibly other STs before quickly reversing to close below resistance. After a UT, price often tests the lower boundary of the TR.
🔹SOW — sign of weakness, observable as a down-move to (or slightly past) the lower boundary of the TR, usually occurring on increased spread and volume. The AR and the initial SOW(s) indicate a change of character in the price action of the stock: supply is now dominant.
🔹LPSY — last point of supply. After testing support on a SOW, a feeble rally on narrow spread shows that the market is having considerable difficulty advancing. This inability to rally may be due to weak demand, substantial supply or both. LPSYs represent exhaustion of demand and the last waves of large operators’ distribution before markdown begins in earnest.
🔹UTAD — upthrust after distribution. A UTAD is the distributional counterpart to the spring and terminal shakeout in the accumulation TR. It occurs in the latter stages of the TR and provides a definitive test of new demand after a breakout above TR resistance. Analogous to springs and shakeouts, a UTAD is not a required structural element: the TR in Distribution Schematic #1 contains a UTAD, while the TR in Distribution Schematic #2 does not.
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wyckoff Accumulation 1 can apply on any timeframe PS—preliminary support, where substantial buying begins to provide pronounced support after a prolonged down-move. Volume increases and price spread widens, signaling that the down-move may be approaching its end.
SC—selling climax, the point at which widening spread and selling pressure usually climaxes and heavy or panicky selling by the public is being absorbed by larger professional interests at or near a bottom. Often price will close well off the low in a SC, reflecting the buying by these large interests.
AR—automatic rally, which occurs because intense selling pressure has greatly diminished. A wave of buying easily pushes prices up; this is further fueled by short covering. The high of this rally will help define the upper boundary of an accumulation TR.
ST—secondary test, in which price revisits the area of the SC to test the supply/demand balance at these levels. If a bottom is to be confirmed, volume and price spread should be significantly diminished as the market approaches support in the area of the SC. It is common to have multiple STs after a SC.
Note: Springs or shakeouts usually occur late within a TR and allow the stock’s dominant players to make a definitive test of available supply before a markup campaign unfolds. A “spring” takes price below the low of the TR and then reverses to close within the TR; this action allows large interests to mislead the public about the future trend direction and to acquire additional shares at bargain prices. A terminal shakeout at the end of an accumulation TR is like a spring on steroids. Shakeouts may also occur once a price advance has started, with rapid downward movement intended to induce retail traders and investors in long positions to sell their shares to large operators. However, springs and terminal shakeouts are not required elements: Accumulation Schematic 1 depicts a spring, while Accumulation Schematic 2 shows a TR without a spring.
Test—Large operators always test the market for supply throughout a TR (e.g., STs and springs) and at key points during a price advance. If considerable supply emerges on a test, the market is often not ready to be marked up. A spring is often followed by one or more tests; a successful test (indicating that further price increases will follow) typically makes a higher low on lesser volume.
SOS—sign of strength, a price advance on increasing spread and relatively higher volume. Often a SOS takes place after a spring, validating the analyst’s interpretation of that prior action.
LPS—last point of support, the low point of a reaction or pullback after a SOS. Backing up to an LPS means a pullback to support that was formerly resistance, on diminished spread and volume. On some charts, there may be more than one LPS, despite the ostensibly singular precision of this term.
BU—“back-up”. This term is short-hand for a colorful metaphor coined by Robert Evans, one of the leading teachers of the Wyckoff method from the 1930s to the 1960s. Evans analogized the SOS to a “jump across the creek” of price resistance, and the “back up to the creek” represented both short-term profit-taking and a test for additional supply around the area of resistance. A back-up is a common structural element preceding a more substantial price mark-up, and can take on a variety of forms, including a simple pullback or a new TR at a higher level
Redistribution schematic 1 PSY—preliminary supply, where large interests begin to unload shares in quantity after a pronounced up-move. Volume expands and price spread widens, signaling that a change in trend may be approaching.
BC—buying climax, during which there are often marked increases in volume and price spread. The force of buying reaches a climax, with heavy or urgent buying by the public being filled by professional interests at prices near a top. A BC often coincides with a great earnings report or other good news, since the large operators require huge demand from the public to sell their shares without depressing the stock price.
AR—automatic reaction. With intense buying substantially diminished after the BC and heavy supply continuing, an AR takes place. The low of this selloff helps define the lower boundary of the distribution TR.
ST—secondary test, in which price revisits the area of the BC to test the demand/supply balance at these price levels. For a top to be confirmed, supply must outweigh demand; volume and spread should thus decrease as price approaches the resistance area of the BC. An ST may take the form of an upthrust (UT), in which price moves above the resistance represented by the BC and possibly other STs before quickly reversing to close below resistance. After a UT, price often tests the lower boundary of the TR.
SOW—sign of weakness, observable as a down-move to (or slightly past) the lower boundary of the TR, usually occurring on increased spread and volume. The AR and the initial SOW(s) indicate a change of character in the price action of the stock: supply is now dominant.
LPSY—last point of supply. After testing support on a SOW, a feeble rally on narrow spread shows that the market is having considerable difficulty advancing. This inability to rally may be due to weak demand, substantial supply or both. LPSYs represent exhaustion of demand and the last waves of large operators’ distribution before markdown begins in earnest.
UTAD—upthrust after distribution. A UTAD is the distributional counterpart to the spring and terminal shakeout in the accumulation TR. It occurs in the latter stages of the TR and provides a definitive test of new demand after a breakout above TR resistance. Analogous to springs and shakeouts, a UTAD is not a required structural element: the TR in Distribution Schematic #1 contains a UTAD, while the TR in Distribution Schematic
Wyckoff Distribution Schematics 2Phase A: Phase A in a distribution TR marks the stopping of the prior uptrend. Up to this point, demand has been dominant and the first significant evidence of supply entering the market is provided by preliminary supply (PSY) and the buying climax (BC). These events are usually followed by an automatic reaction (AR) and a secondary test (ST) of the BC, often upon diminished volume. However, the uptrend may also terminate without climactic action, instead demonstrating exhaustion of demand with decreasing spread and volume; less upward progress is made on each rally before significant supply emerges.
In a redistribution TR within a larger downtrend, Phase A may look more like the start of an accumulation TR (e.g., with climactic price and volume action to the downside). However, Phases B through E of a re-distribution TR can be analyzed in a similar manner to the distribution TR at the market top.
Phase B: The function of Phase B is to build a cause in preparation for a new downtrend. During this time, institutions and large professional interests are disposing of their long inventory and initiating short positions in anticipation of the next markdown. The points about Phase B in distribution are similar to those made for Phase B in accumulation, except that the large interests are net sellers of shares as the TR evolves, with the goal of exhausting as much of the remaining demand as possible. This process leaves clues that the supply/demand balance has tilted toward supply instead of demand. For instance, SOWs are usually accompanied by significantly increased spread and volume to the downside.
Phase C: In distribution, Phase C may reveal itself via an upthrust (UT) or UTAD. As noted above, a UT is the opposite of a spring. It is a price move above TR resistance that quickly reverses and closes in the TR. This is a test of the remaining demand. It is also a bull trap—it appears to signal the resumption of the uptrend but in reality is intended to “wrong-foot” uninformed break-out traders. A UT or UTAD allows large interests to mislead the public about the future trend direction and, subsequently, sell additional shares at elevated prices to such break-out traders and investors before the markdown begins. In addition, a UTAD may induce smaller traders in short positions to cover and surrender their shares to the larger interests who have engineered this move.
Aggressive traders may wish to initiate short positions after a UT or UTAD. The risk/reward ratio is often quite favorable. However, the “smart money” repeatedly stops out traders who initiate such short positions with one UT after another, so it is often safer to wait until Phase D and an LPSY.
Often demand is so weak in a distribution TR that price does not reach the level of the BC or initial ST. In this case, Phase C's test of demand may be represented by a UT of a lower high within the TR.
Phase D: Phase D arrives after the tests in Phase C show us the last gasps of demand. During Phase D, price travels to or through TR support. The evidence that supply is clearly dominant increases either with a clear break of support or with a decline below the mid-point of the TR after a UT or UTAD. There are often multiple weak rallies within Phase D; these LPSYs represent excellent opportunities to initiate or add to profitable short positions. Anyone still in a long position during Phase D is asking for trouble.
Phase E: Phase E depicts the unfolding of the downtrend; the stock leaves the TR and supply is in control. Once TR support is broken on a major SOW, this breakdown is often tested with a rally that fails at or near support. This also represents a high-probability opportunity to sell short. Subsequent rallies during the markdown are usually feeble. Traders who have taken short positions can trail their stops as price declines. After a significant down-move, climactic action may signal the beginning of a re-distribution TR or of accumulation.
Wyckoff Distribution Schematics 1PSY—preliminary supply, where large interests begin to unload shares in quantity after a pronounced up-move. Volume expands and price spread widens, signaling that a change in trend may be approaching.
BC—buying climax, during which there are often marked increases in volume and price spread. The force of buying reaches a climax, with heavy or urgent buying by the public being filled by professional interests at prices near a top. A BC often coincides with a great earnings report or other good news, since the large operators require huge demand from the public to sell their shares without depressing the stock price.
AR—automatic reaction. With intense buying substantially diminished after the BC and heavy supply continuing, an AR takes place. The low of this selloff helps define the lower boundary of the distribution TR.
ST—secondary test, in which price revisits the area of the BC to test the demand/supply balance at these price levels. For a top to be confirmed, supply must outweigh demand; volume and spread should thus decrease as price approaches the resistance area of the BC. An ST may take the form of an upthrust (UT), in which price moves above the resistance represented by the BC and possibly other STs before quickly reversing to close below resistance. After a UT, price often tests the lower boundary of the TR.
SOW—sign of weakness, observable as a down-move to (or slightly past) the lower boundary of the TR, usually occurring on increased spread and volume. The AR and the initial SOW(s) indicate a change of character in the price action of the stock: supply is now dominant.
LPSY—last point of supply. After testing support on a SOW, a feeble rally on narrow spread shows that the market is having considerable difficulty advancing. This inability to rally may be due to weak demand, substantial supply or both. LPSYs represent exhaustion of demand and the last waves of large operators’ distribution before markdown begins in earnest.
UTAD—upthrust after distribution. A UTAD is the distributional counterpart to the spring and terminal shakeout in the accumulation TR. It occurs in the latter stages of the TR and provides a definitive test of new demand after a breakout above TR resistance. Analogous to springs and shakeouts, a UTAD is not a required structural element: the TR in Distribution Schematic #1 contains a UTAD, while the TR in Distribution Schematic #2 does not.
Wyckoff Accumulation Schematics 2Phase A: Phase A marks the stopping of the prior downtrend. Up to this point, supply has been dominant. The approaching diminution of supply is evidenced in preliminary support (PS) and a selling climax (SC). These events are often very obvious on bar charts, where widening spread and heavy volume depict the transfer of huge numbers of shares from the public to large professional interests. Once these intense selling pressures have been relieved, an automatic rally (AR), consisting of both institutional demand for shares as well as short-covering, typically ensues. A successful secondary test (ST) in the area of the SC will show less selling than previously and a narrowing of spread and decreased volume, generally stopping at or above the same price level as the SC. If the ST goes lower than that of the SC, one can anticipate either new lows or prolonged consolidation. The lows of the SC and the ST and the high of the AR set the boundaries of the TR. Horizontal lines may be drawn to help focus attention on market behavior, as seen in the two Accumulation Schematics above.
Sometimes the downtrend may end less dramatically, without climactic price and volume action. In general, however, it is preferable to see the PS, SC, AR and ST, as these provide not only a more distinct charting landscape but a clear indication that large operators have definitively initiated accumulation.
In a re-accumulation TR (which occurs during a longer-term uptrend), the points representing PS, SC and ST are not evident in Phase A. Rather, in such cases, Phase A resembles that more typically seen in distribution (see below). Phases B-E generally have a shorter duration and smaller amplitude than, but are ultimately similar to, those in the primary accumulation base.
Phase B: In Wyckoffian analysis, Phase B serves the function of “building a cause” for a new uptrend (see Wyckoff Law #2 – “Cause and Effect”). In Phase B, institutions and large professional interests are accumulating relatively low-priced inventory in anticipation of the next markup. The process of institutional accumulation may take a long time (sometimes a year or more) and involves purchasing shares at lower prices and checking advances in price with short sales. There are usually multiple STs during Phase B, as well as upthrust-type actions at the upper end of the TR. Overall, the large interests are net buyers of shares as the TR evolves, with the goal of acquiring as much of the remaining floating supply as possible. Institutional buying and selling imparts the characteristic up-and-down price action of the trading range.
Early on in Phase B, the price swings tend to be wide and accompanied by high volume. As the professionals absorb the supply, however, the volume on downswings within the TR tends to diminish. When it appears that supply is likely to have been exhausted, the stock is ready for Phase C.
Phase C: It is in Phase C that the stock price goes through a decisive test of the remaining supply, allowing the “smart money” operators to ascertain whether the stock is ready to be marked up. As noted above, a spring is a price move below the support level of the TR (established in Phases A and B) that quickly reverses and moves back into the TR. It is an example of a bear trap because the drop below support appears to signal resumption of the downtrend. In reality, though, this marks the beginning of a new uptrend, trapping the late sellers (bears). In Wyckoff's method, a successful test of supply represented by a spring (or a shakeout) provides a high-probability trading opportunity. A low-volume spring (or a low-volume test of a shakeout) indicates that the stock is likely to be ready to move up, so this is a good time to initiate at least a partial long position.
The appearance of a SOS shortly after a spring or shakeout validates the analysis. As noted in Accumulation Schematic #2, however, the testing of supply can occur higher up in the TR without a spring or shakeout; when this occurs, the identification of Phase C can be challenging.
Phase D: If we are correct in our analysis, what should follow is the consistent dominance of demand over supply. This is evidenced by a pattern of advances (SOSs) on widening price spreads and increasing volume, as well as reactions (LPSs) on smaller spreads and diminished volumes. During Phase D, the price will move at least to the top of the TR. LPSs in this phase are generally excellent places to initiate or add to profitable long positions.
Phase E: In Phase E, the stock leaves the TR, demand is in full control and the markup is obvious to everyone. Setbacks, such as shakeouts and more typical reactions, are usually short-lived. New, higher-level TRs comprising both profit-taking and acquisition of additional shares (“re-accumulation”) by large operators can occur at any point in Phase E. These TRs are sometimes called “stepping stones” on the way to even higher price targets.
Wyckoffian logicWhen you understand the Wyckoffian phases of the market, you can determine when to be in or out of the market. You begin to understand how the large accounts determining market the trend, change of trend and price action.
Wyckoff Phases of Accumulation
Phase A: In phase A, supply has been dominant and it appears that finally the exhaustion of supply is becoming evident. The approaching exhaustion of supply or selling is evidenced in preliminary support (PS) and the selling climax (SC) where a widening spread often climaxed and where heavy volume or panicky selling by the public is being absorbed by larger professional interests. Once these intense selling pressures have been expressed, and automatic rally (AR) follows the selling climax. A successful secondary test on the downside shows less selling that on the SC and with a narrowing of spread and decreased volume. A successful secondary test (ST) should stop around the same price level as the selling climax. The lows of the SC and the ST and the high of the AR set the boundaries of the trading range (TR). Horizontal lines may be drawn to help focus attention on market behavior.
It is possible that phase A will not include a dramatic expansion in spread and volume. However, it is better if it does, because the more dramatic selling will clear out more of the sellers and pave the way for a more pronounced and sustained markup.
Where a TR represents a reaccumulation (a TR within a continuing up-move), you will not have evidence of PS, SC, and ST. Instead, phase A will look more like phase A of the basic Wyckoff distribution schematic. Nonetheless, phase A still represents the area where the stopping of the previous trend occurs. Trading range phases B through E generally unfold in the same manner as within an initial base area of accumulation.
Phase B: The function of phase B is to build a cause in preparation for the next effect. In phase B, supply and demand are for the most part in equilibrium and there is no decisive trend. Although clues to the future course of the market are usually more mixed and elusive, some useful generalizations can be made.
In the early stages of phase B, the price swings tend to be rather wide, and volume is usually greater and more erratic. As the TR unfolds, supply becomes weaker and demand stronger as professionals are absorbing supply. The closer you get to the end or to leaving the TR, the more volume tends to diminish. Support and resistance lines usually contain the price action in phase B and will help define the testing process that is to come in phase C. The penetrations or lack of penetrations of the TR enable us to judge the quantity and quality of supply and demand.
Phase C:In phase C, the stock goes through testing. It is during this testing phase that the smart money operators ascertain whether the stock is ready to enter the markup phase. The stock may begin to come out of the TR on the upside with higher tops and bottoms or it may go through a downside spring or shakeout by first breaking previous supports before the upward climb begins. This latter test is preferred by traders because it does a better job of cleaning out the remaining supply of weak holders and creates a false impression as to the direction of the ultimate move.
A spring is a price move below the support level of a trading range that quickly reverses and moves back into the range. It is an example of a bear trap because the drop below support appears to signal resumption of the downtrend. In reality, though, the drop marks the end of the downtrend, thus trapping the late sellers, or bears. The extent of supply, or the strength of the sellers, can be judged by the depth of the price move to new lows and the relative level of volume in that penetration.
Until this testing process, you cannot be sure the TR is accumulation and hence you must wait to take a position until there is sufficient evidence that markup is about to begin. If we have waited and followed the unfolding TR closely, we have arrived at the point where we can be quite confident of the probable upward move. With supply apparently exhausted and our danger point pinpointed, our likelihood of success is good and our reward/risk ratio favorable.
Phase D:If we are correct in our analysis and our timing, what should follow now is the consistent dominance of demand over supply as evidenced by a pattern of advances (SOSs) on widening price spreads and increasing volume, and reactions (LPSs) on smaller spreads and diminishing volumes. If this pattern does not occur, then we are advised not to add to our position but to look to close out our original position and remain on the sidelines until we have more conclusive evidence that the markup is beginning. If the markup of your stock progresses as described to this point, then you’ll have additional opportunities to add to your position.
Your aim here must be to initiate a position or add to your position as the stock or commodity is about to leave the TR. At this point, the force of accumulation has built a good potential as measured by the Wyckoff point-and-figure method.
In phase D, the markup phase blossoms as professionals begin to move into the stock. It is here that our best opportunities to add to our position exist, just as the stock leaves the TR.
Phase E: Depicts the unfolding of the uptrend; the stock or commodity leaves the trading range and demand is in control. Sell offs are usually feeble.
Wyckoff Accumulation Events
PS: Preliminary support, where substantial buying begins to provide pronounced support after a prolonged down-move. Volume increases and price spread widens, signaling that the down-move may be approaching its end.
SC: Selling climax, the point at which widening spread and selling pressure usually climaxes, as heavy or panicky selling by the public is being absorbed by larger professional interests at or near a bottom. Often price will close well off the low in a SC, reflecting the buying by these large interests.
AR: Automatic rally, which occurs because intense selling pressure has greatly diminished. A wave of buying easily pushes prices up; this is further fueled by short covering. The high of this rally will help define the upper boundary of an accumulation TR.
ST: Secondary test, in which price revisits the area of the SC to test the supply/demand balance at these levels. If a bottom is to be confirmed, volume and price spread should be significantly diminished as the market approaches support in the area of the SC. It is common to have multiple STs after a SC.
Shakeouts: (and or Springs) usually occur late within a TR and allow the stock’s dominant players to make a definitive test of available supply before a markup campaign unfolds. A “spring” takes price below the low of the TR and then reverses to close within the TR; this action allows large interests to mislead the public about the future trend direction and to acquire additional shares at bargain prices. A terminal shakeout at the end of an accumulation TR is like a spring on steroids. Shakeouts may also occur once a price advance has started, with rapid downward movement intended to induce retail traders and investors in long positions to sell their shares to large operators. However, springs and terminal shakeouts are not required elements..
Test: Large operators always test the market for supply throughout a TR (e.g., STs and springs) and at key points during a price advance. If considerable supply emerges on a test, the market is often not ready to be marked up. A spring is often followed by one or more tests; a successful test (indicating that further price increases will follow) typically makes a higher low on diminished volume.
SOS: Sign of strength, a price advance on increasing spread and relatively higher volume. Often a SOS takes place after a spring, validating the analyst’s interpretation of the prior price action.
LPS: Last point of support, the low point of a reaction or pullback after a SOS. Backing up to an LPS means a pullback to support that was formerly resistance, on diminished spread and volume. On some charts, there may be more than one LPS, despite the ostensibly singular precision of this term.
BU: Back-up. This term is short-hand for a colorful metaphor coined by Robert Evans, one of the leading teachers of the Wyckoff method from the 1930s to the 1960s. Evans analogized the SOS to a “jump across the creek” of price resistance, and the “back up to the creek” represented both short-term profit-taking and a test for additional supply around the area of resistance. A back-up is a common structural element preceding a more substantial price mark-up, and can take on a variety of forms, including a simple pullback or a new TR at a higher level.
Wyckoff Phases of Distribution
Phase A: In Phase A, demand has been dominant and the first significant evidence of demand becoming exhausted comes at preliminary supply (PSY) and at the buying climax (BC). It often occurs in wide price spread and at climactic volume. This is usually followed by an automatic reaction (AR) and then a secondary test (ST) of the BC, usually upon diminished volume. This is essentially the inverse of phase A in accumulation.
As with accumulation, phase A in distribution price may also end without climactic action; the only evidence of exhaustion of demand is diminishing spread and volume.
Where redistribution is concerned (a trading range within a larger continuing down-move), you will see the stopping of a down-move with or without climactic action in phase A. However, in the remainder of the trading range (TR) for redistribution, the guiding principles and analysis within phases B through E will be the same as within a TR of a distribution market top.
Phase B: The building of the cause takes place during phase B. The points to be made here about phase B are the same as those made for phase B within accumulation, except clues may begin to surface here of the supply/demand balance moving toward supply instead of demand.
Phase C: One of the ways phase C reveals itself after the standoff in phase B is by the sign of weakness (SOW). The SOW is usually accompanied by significantly increased spread and volume to the downside that seem to break the standoff in phase B the SOW may or may not “fall through the ice,” but the subsequent rally back to a “last point of supply” (LPSY), is usually unconvincing for the bullish case and likely to be accompanied by less spread and/or volume.
Last point of supply gives you your last opportunity to exit any remaining longs and your first inviting opportunity to exit any remaining longs and your first inviting opportunity to take a short position. An even better place would be on the rally that tests LPSY, because it may give more evidence (diminished spread and volume) and/or a more tightly defined danger point.
An upthrust is the opposite of a spring. It is a price move above the resistance level of a trading range that quickly reverses itself and moves back into the trading range. An upthrust is a bull trap — it appears to signal a start of an uptrend but in reality marks the end of the up-move. The magnitude of the upthrust can be determined by the extent of the price move to new highs and the relative level of volume in that movement.
Phase C may also reveal itself by a pronounced move upward, breaking through the highs of the trading range. This is shown as an upthrust after distribution (UTAD). Like the terminal shakeout in the accumulation schematic, this gives a false impression of the direction of the market and allows further distribution at high prices to new buyers. It also results in weak holders of short positions surrendering their positions to stronger players just before the down-move begins. Should the move to new high ground be on increasing volume and relative narrowing spread, and price returns to the average level of closes of the TR, this would indicate lack of solid demand and confirm that the breakout to the upside did not indicate a TR of accumulation, but rather a formation of distribution.
Successful understanding and analysis of a trading range enables traders to identify special trading opportunities with potentially very favorable reward/risk parameters. When analyzing a trading range, we are first seeking to uncover what the law of supply and demand is revealing to us. However, when individual movements, rallies, or reactions are not revealing with respect to supply and demand, it is important to remember the law of effort versus result. By comparing rallies and reactions within the trading range to each other in terms of price spread, volume, and time, additional clues may be discovered as to the stock’s strength, position, and probable future course.
It will also be useful to employ the law of cause and effect. Within the dynamics of a trading range, the force of accumulation or distribution gives us the cause and the potential opportunity for substantial trading profits. The trading range will also give us the ability, with the use of point-and-figure charts, to project the extent of the eventual move out of the trading range and will help us determine if those trading opportunities favorably meet or exceed our reward/risk parameters.
Phase D: Phase D arrives and reveals itself after the tests in phase C show us the last gasps or the last hurrah of demand. In phase D, the evidence of supply becoming dominant increases either with a break through the ice or with a further SOW into the trading range after an upthrust.
In phase D, you are also given more evidence of the probable direction of the market and the opportunity to take your first or additional short positions. Your best opportunities are at rallies representing LPSYs before a markdown cycle begins. Your legging in of the set of positions taken within phases C and D represents a calculated approach to protect capital and maximize profit. It is important that additional short positions be added or pyramided only if your initial positions are in profit.
Phase E: Depicts the unfolding of the downtrend; the stock or commodity leaves the trading range and supply is in control. Rallies are usually feeble.
Wyckoff Distribution Events
PSY: Preliminary supply, where large interests begin to unload shares in quantity after a pronounced up-move. Volume expands and price spread widens, signaling that a change in trend may be approaching.
BC: Buying climax, during which there are often marked increases in volume and price spread. The force of buying reaches a climax, and heavy or urgent buying by the public is being filled by professional interests at prices near a top. A BC often occurs coincident with a great earnings report or other good news, since the large operators require huge demand from the public to sell their shares without depressing the stock price.
AR: Automatic reaction. With demand substantially diminished after the BC and heavy supply continuing, an AR takes place. The low of this selloff helps define the lower boundary of a distribution TR.
ST: Secondary test, in which price revisits the area of the BC to test the demand/supply balance at these price levels. If a top is to be confirmed, supply will outweigh demand, and volume and spread should decrease as price approaches the resistance area of the BC. A ST may take the form of an upthrust (UT), in which price moves above the resistance represented by the BC and possibly other STs, then quickly reverses to close below resistance. After a UT, price often tests the lower boundary of the TR.
SOW: Sign of weakness, observable as a down-move to (or slightly past) the lower boundary of the TR, usually occurring on increased spread and volume. The AR and the initial SOW(s) indicate a change of character in the price action of the stock: supply is now dominant.
LPSY: Last point of supply. After testing support on a SOW, a feeble rally on narrow spread shows that the market is having difficulty advancing. This inability to rally may be due to weak demand, substantial supply or both. LPSYs represent exhaustion of demand and the last waves of large operators’ distribution before markdown begins in earnest.
UTAD: Upthrust after distribution. A UTAD is the distributional counterpart to the spring and terminal shakeout in the accumulation TR. It occurs in the latter stages of the TR and provides a definitive test of new demand after a breakout above TR resistance. Analogous to springs and shakeouts, a UTAD is not a required structural element: the TR in Distribution.
AR - Automatic rally or reaction
BC - Buying Climax
BOI - Backing upto ice
BTI - Breaking the ice
BUEC - Backup to edge of creek
CREEK - Critical support
FTI - First time over ice
ICE - Critical resistance
JAC - Jumping across the creek (or JOC)
LPS - Last point of Support (Demand)
LPSY - Last point of Supply
MD - Mark down
MU - Mark up
PS - Preliminary support (Demand)
PSY - Preliminary supply
SOS - Sign of strength
SOW - sign of weakness
ST - Secondary test
TSO - Terminal shake out (Spring)
TUT - Terminal thrust
UTAD - Up thrust after distribution
SC - Selling Climax
TR - Trading Range
UT - Up thrust
Best regards
EXCAVO
Spread triple top and BottomThe normal triple top has no gaps between
the tops. The same philosophy applies in this pattern as in the triple top. In
each case, the stock rises to a certain price level and is repelled two times.
The third attempt at that price is successful by the stock’s moving through
the level shown by a column of X’s exceeding the point of resistance. since
the stock was repelled twice at that same level, there are apparently sell
orders there. The reason is not important. What is important is that there
are sellers at that particular level. The only way to know if demand can
overtake the selling pressure is to see how the stock negotiates the level
again. simply stated, if the stock is repelled again at this level of resistance,
the sellers are still there. You need not know any more. If the stock exceeds
that level, then demand has overcome the supply that previously caused it
to reverse. This is why we always wait for a particular level to be exceeded
before we make a long or short commitment in the stock.
Friends, I conduct training in an individual format and in a limited number of students, since a large number will interfere with my trading!
The training course includes :
The Wyckoff Method
Demark method
VSA
A trading method tailored to your psychotype
Psychology of trading
For details, write in a personal message
I can also introduce you to my own unique indicators , of my own design
Wykoff Zone (You determine the activity and zones of smart money and also gives buy and sell signals )
is a Demark indicator that has no analogues on the platform - since most of the indicator are far from the essence of the Demark technique and are too simplified , which violates the basics of the principle
For investors, I can shift a 2-week lazy investor course where you can learn how to invest correctly and in which stocks + the tic-tac-toe method
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with your own developments taking into account the imbalance of supply and demand
Wyckoff trading using the example of ADA/BTC Accumulation schemePay attention to the phases and letter designations on the graph that I showed on the ADA / BTC pair. (Cardano). A diagram of the accumulation phases is shown. Which are relevant for trading now. Several trading methods are combined on the chart:
1) Trading by the Wyckoff method.
2) Trade in horizontal channels.
3) Trade from important areas (price reversal points).
4) Trading in secondary local trends.
Now the price is at the important zone of the mirror level which, from the development of the situation, can act as support or resistance. Channel pitch 30%. You can work in two directions.
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About Wyckoff's trading method.
The forerunner of volume analysis (VSA) is Richard Wyckoff. Roughly speaking, the whole point of the method can be expressed - trade for a major market player. The creator of this technique himself was a man who had a system-forming influence on stock trading. It was not a poor theorist who got rich after publishing books! He was a very successful trader and earned impressive capital in his day. The very method that he was allowed to achieve and the entire 40 years of experience in trading, he published in his book in the public domain is already closer to his death Wall Street Ventures and Adventures Through Forty Years. At the end of his life's journey, Wyckoff became more altruistic, and decided to share the knowledge that led him to wealth. He died in 1934.
The Wyckoff trading method was developed in the early 1930s. It consists of a number of principles and strategies originally developed for traders and investors. Wyckoff devoted much of his life experience to studying market behavior, and his work still has an impact on much of modern technical analysis (TA). Currently, the Wyckoff method is applied to all types of financial markets, although initially it was focused only on stocks.
During the creation of his work, Wyckoff was inspired by the trading methods of other successful traders (especially Jesse Livermore). Today, he enjoys the same respect as other key figures such as Charles Dow and Ralph Nelson Elliott. But for example, unlike Elliot’s theory, which is good in theory, but not always applicable in practice, the Wyckoff method is many times more effective for making money not in theory, but in practice.
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According to Richard Wyckoff's trading method, there are 3 laws:
1) The law of supply and demand.
2) The law of causation.
3) The law of communication efforts and results.
The first law states that the value of assets begins to rise when demand exceeds supply, and accordingly falls in the reverse order. This is one of the most basic principles in the financial markets, which does not exclude Wyckoff in his work.
We can represent the first law in the form of three simple equations:
1) Demand> supply = price increases.
2) Demand <offer = price falls.
3) Demand = supply = no significant price change (low volatility).
The second law states that the differences between supply and demand are not a coincidence. Instead, they reflect preparatory actions resulting from certain events. In Wyckoff's terminology, the accumulation period (cause) ultimately leads to an uptrend (consequence). In turn, the distribution period (cause) provokes the development of a downtrend (consequence).
Wyckoff’s third law states that price changes are the result of common efforts that are displayed on the trading volume. In the case when the growth in the value of the asset corresponds to a high volume of trading, there is a high probability that the trend will continue to move. But if volumes are too small at a high price, growth is likely to stop and the trend may change direction.
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Wyckoff Price Cycles.
According to Wyckoff, the market can be understood and predicted using a detailed analysis of supply and demand. This can be done based on price action, volume and timeframe. By observing the behavior of large groups of investors, Wyckoff was able to learn to notice certain points during which preparations were made before a large price move. These moments were called accumulation (before the upward movement of prices) and distribution (before the fall of prices).
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“Composite person” (major player) and phases.
Wyckoff created the idea of a “composite man” (from the English composite man, composite operator), which embodies the imaginary personality of the market. He invited all investors and traders to study the stock market from the point of view if it were controlled by one subject, as this could facilitate their further following the trends.
At its core, the composite person represents the largest players (market makers), wealthy people and institutional investors. The behavior of a composite person is the opposite of most investors and traders that Wyckoff often observed, given their financial losses. This is the opposite of crowd action.
The cycle described in the Wyckoff method consists of four main phases:
1) Accumulation (accumulation).
2) Impulse or uptrend.
3) Distribution.
4) Markdown (correction, downtrend).
1 phase. Accumulation .
A composite person accumulates assets before most investors and traders begin to do so. This phase is usually marked by lateral movement. Accumulation occurs in a gradual manner to avoid significant price changes.
2 phase. Impulse or uptrend.
When a composite person takes possession of a sufficient amount of assets, while the sales force is depleted, he begins to push the market upward, forming an emerging trend that gradually attracts more and more new investors, which subsequently leads to an increase in demand.
3 phase. Distribution.
Then the “composite person” distributes the purchased assets. He begins to sell his profitable positions to those who enter the market at a late stage (“hamsters”).
4 phase. Markdown (correction, downtrend).
Shortly after the distribution phase, the market begins to fall. In other words, after the composite person has completed the sale of a significant amount of his position, he begins to push the market down. To repeat the cycle again. The hamster is not a mammoth - it will not die out. In the end, supply becomes much larger than demand, and a downtrend will follow.
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Approach to the Wyckoff market in five steps.
Wyckoff also developed a five-step approach to the market based on numerous principles and methods. Simply put, such an approach can be considered as the procedure for applying his work in practice.
S tep one: identify the current trend.
The primary task is to determine the current trend and a superficial assumption where and how far it can go, in connection with which the following questions arise: "what is the current trend?", "What is the relationship between supply and demand?".
Step two: determine the strength of the asset.
How strong is the asset in relation to the market? Does its value move with the market or the opposite of it?
Step three: find an asset with a reason for further growth.
Are there enough reasons to open a position? Is the reason good enough for the potential benefit (consequence) to justify the possible risks in the future?
Fourth step: determine the likelihood of cost increases.
Is the asset ready for the intended move? What is its position relative to the current trend? Does the price and volume of trades correspond to possible growth? This step often includes Wyckoff tests for the purchase and sale of the selected asset.
Step Five: Your Login Time.
The last step contains all the timing information. For the most part, this is due to the analysis of a trading instrument to compare their behavior with the main market. In cryptocurrency, for example, with bitcoin.
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Wyckoff Trading Schemes.
Accumulation and distribution schemes are the most popular part of Wyckoff’s work, at least among cryptocurrency communities. This model breaks down these two schemes into smaller sections of five phases (from A to E), as well as several events that are briefly described below.
Pay attention to the phases and letter designations on the graph that I showed on the ADA / BTC pair. A diagram of the accumulation phases is shown. Which are relevant for trading now
ACCUMULATION DIAGRAM
PS - preliminary support (initial support) the first resistance - appears after a significant decrease in the price, the volume increases, and the price accelerates the decrease over time.
SC - the culmination of sales - there is a sharp drop in prices for large volumes.
AR - automatic rally (automatic upward movement) appears because there are very few sellers in the market, and buyers quickly raise the price up.
ST- secondary test (repeated test) - occurs to check the forces of supply and demand. There may be several ST and SC. ST can even slightly break the price level set by SC.
Spring ("Spring") - does not always occur, in the late stages of accumulation. The logic of false breakdown.
Test - Occurs after Spring is formed and should be on a small volume. Usually above the low at a lower level.
SOS - a sign of strength (signs of strength) the price begins to rise and stands out from the price range TR (trading range) with an increased volume.
LPS - the last support point, the last resistance level, occurs after a breakdown (SOS), this is a return of prices in the vicinity of TR with low volume and low price dynamics.
BU (back up) - the return of prices to the accumulation channel, which follows the realization of the profit of short-term investors and is a demand test. It does not always happen, for obvious reasons.
Phase A.
The strength of sales decreases and the downtrend begins to slow down. This stage is usually marked by an increase in trading volume. Preliminary support (from the English preliminary support, abbr. PS) indicates that new customers are starting to appear, but this is still not enough to stop the downward movement.
The culmination of sales (from the English selling climax, abbr. SC) is formed through intense activity aimed at selling assets, as a result of which investors begin to capitulate. This often manifests itself as the highest point of volatility, when panic sales form high candles and wicks. A strong drop quickly develops into a jump or automatic rally (AR), due to the fact that buyers begin to absorb excess supply. Thus, the trading range (TR) of the accumulation scheme is determined as the distance between the minimum culmination of sales and the maximum of automatic rally.
A secondary test (ST) occurs when a drop in market prices crosses the sales climax (SC) to verify the validity of a downtrend. In this case, trading volume and market volatility are usually lower than usual. While the second test often forms a higher minimum relative to the culmination of sales, this does not always happen according to plan.
Phase B.
Based on the Wyckoff law of causation, phase B can be considered as a cause that leads to a certain effect.
Phase B is the consolidation phase in which a composite person accumulates the largest amount of assets. At this stage, the market tends to test various levels of resistance and support in the area of its trading range.
Numerous secondary tests (STs) may occur during phase B. In some cases, they show higher highs (bull traps) and lows (bear traps) with respect to the culmination of sales and the automatic rally, like phase A.
Phase C.
This phase is a typical period of asset accumulation. It is often the last bear trap before the market begins to show higher lows. During phase C, the composite person provides a small proposal, and in fact, those who were supposed to sell their assets have already done so.
During this phase, support levels begin to break through to stop traders and mislead investors. We can describe this as the last attempt to buy an asset at a lower price before the start of an uptrend. Thus, the bear trap encourages small investors to abandon the holding of their assets.
However, in some cases, support levels can be maintained, and the "spring" simply does not begin. In other words, there may be another accumulation scheme, which includes slightly different elements, but not “spring”. However, the overall structure of the circuit remains valid.
Phase D.
Phase D represents the transition between cause and effect. It is located between the accumulation zone (phase C) and the breakout of the trading range (phase E).
Typically, a significant increase in trading volume and volatility occurs during phase D. Usually it assumes the last point of support (from the English last point support, abbr. LPS), demonstrating a lower minimum before the market begins to move up. LPS often precedes breakthrough resistance levels, which in turn creates higher highs. This indicates the manifestation of signs of strength (from the English. Signs of strength, abbr. SOS), as the previous resistance levels become new levels of support.
Despite a somewhat confusing terminology, there may be several last points of support during this phase. They often increase trading volume when testing new zones. In some cases, the price may create a small consolidation zone before effectively breaking through a larger trading range and moving on to phase E.
Phase E.
Phase E is the last step in the accumulation pattern. It is marked by a clear penetration of the trading range due to increased demand in the market, which indicates the beginning of an uptrend.
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Volume in separate phases (VSA).
A key element in the analysis of the Wyckoff method is the preservation of volume at the individual stages of accumulation / distribution.
Phase A.
In this phase, dynamic movements of prices with an increased volume occur. We have new highs / lows and climax points, followed by automatic price rallies in the opposite direction, and then retest on a smaller volume. This phase forms the border of the TR (trading range) channel, in which the price will consolidate until the rebound in phase D and E
Stage B.
Here, large investors get rid of their last position from the previous trend and prepare for its reversal.
Phase C.
This is a very important phase, because in phase C it comes to the end of the current trend. Weak players leave the market for Spring (accumulation) or UTAD (distribution). If these formations do not exist, then we are dealing with LPS, where the inability to continue the current trend is visible, the price practically does not move.
Phase D.
With signs of weakness in the current trend from phase C, the time comes to show the strength of the adversary. The price breaks the level in the expected direction, with high dynamics and increased volume.
Phase E.
Confirmation of our assumptions and completion of the accumulation / distribution process. Price accelerates in the expected direction. If we were unable to join the movement during phase D, then further problems may already arise with this. And this deal will be less profitable.
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Conclusion on the Wyckoff trading method.
Almost a hundred years have passed since the publication of the work, but the Wyckoff method is still in demand to this day. By nature, the market does not always exactly follow similar trading patterns. In practice, accumulation and distribution patterns can occur in different ways. For example, in some cases, phase B can last much longer than expected. For this reason, spring, UTAD and other tests may simply be absent.
However, Wyckoff's work offers a wide range of reliable trading techniques that are based on numerous theories and principles. His work is certainly valuable to thousands of investors, traders and analysts around the world. The accumulation and distribution schemes described in this article may be suitable for understanding the general order of cycles in financial markets.
But recently, due to the widespread introduction of algorithmic trading and the use of it by large players, it has become increasingly difficult to notice a large player on highly liquid instruments, but it is possible. According to three schemes of dialing / resetting by the position algorithm.
This analysis method is more relevant for medium-liquid instruments, where fewer algorithms and highly professional traders are clearly hard to see. One person can hide his real work, and do fake trade for dozens of people. It is clear that with good preparation, it is possible to calculate and understand what will happen next, but naturally this is not an analysis of the schedule. Analysis of the schedule in the work of a truly successful trader in fact takes no more than 20-30% of the work.
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It is impossible to describe everything in one article. The Wyckoff method at first glance seems complicated, but it is not. The main thing is to understand the essence of the work and practice trading tools. To start, start trading with a symbolic amount.
Always remember, a theory without practice is zero.
Once again, the Wyckoff method works well on medium-liquid instruments such as cryptocurrencies, but not lower than the top 100.
Wyckoff trading using the example of ADA/BTC Accumulation schemePay attention to the phases and letter designations on the graph that I showed on the ADA / BTC pair. (Cardano). A diagram of the accumulation phases is shown. Which are relevant for trading now. Several trading methods are combined on the chart:
1) Trading by the Wyckoff method.
2) Trade in horizontal channels.
3) Trade from important areas (price reversal points).
4) Trading in secondary local trends.
Now the price is at the important zone of the mirror level which, from the development of the situation, can act as support or resistance. Channel pitch 30%. You can work in two directions.
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About Wyckoff's trading method.
The forerunner of volume analysis (VSA) is Richard Wyckoff. Roughly speaking, the whole point of the method can be expressed - trade for a major market player. The creator of this technique himself was a man who had a system-forming influence on stock trading. It was not a poor theorist who got rich after publishing books! He was a very successful trader and earned impressive capital in his day. The very method that he was allowed to achieve and the entire 40 years of experience in trading, he published in his book in the public domain is already closer to his death Wall Street Ventures and Adventures Through Forty Years. At the end of his life's journey, Wyckoff became more altruistic, and decided to share the knowledge that led him to wealth. He died in 1934.
The Wyckoff trading method was developed in the early 1930s. It consists of a number of principles and strategies originally developed for traders and investors. Wyckoff devoted much of his life experience to studying market behavior, and his work still has an impact on much of modern technical analysis (TA). Currently, the Wyckoff method is applied to all types of financial markets, although initially it was focused only on stocks.
During the creation of his work, Wyckoff was inspired by the trading methods of other successful traders (especially Jesse Livermore). Today, he enjoys the same respect as other key figures such as Charles Dow and Ralph Nelson Elliott . But for example, unlike Elliot’s theory, which is good in theory, but not always applicable in practice, the Wyckoff method is many times more effective for making money not in theory, but in practice.
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According to Richard Wyckoff's trading method, there are 3 laws:
1) The law of supply and demand .
2) The law of causation.
3) The law of communication efforts and results.
The first law states that the value of assets begins to rise when demand exceeds supply, and accordingly falls in the reverse order. This is one of the most basic principles in the financial markets, which does not exclude Wyckoff in his work.
We can represent the first law in the form of three simple equations:
1) Demand> supply = price increases.
2) Demand <offer = price falls.
3) Demand = supply = no significant price change (low volatility ).
The second law states that the differences between supply and demand are not a coincidence. Instead, they reflect preparatory actions resulting from certain events. In Wyckoff's terminology, the accumulation period (cause) ultimately leads to an uptrend (consequence). In turn, the distribution period (cause) provokes the development of a downtrend (consequence).
Wyckoff’s third law states that price changes are the result of common efforts that are displayed on the trading volume . In the case when the growth in the value of the asset corresponds to a high volume of trading, there is a high probability that the trend will continue to move. But if volumes are too small at a high price, growth is likely to stop and the trend may change direction.
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Wyckoff Price Cycles.
According to Wyckoff, the market can be understood and predicted using a detailed analysis of supply and demand . This can be done based on price action, volume and timeframe. By observing the behavior of large groups of investors, Wyckoff was able to learn to notice certain points during which preparations were made before a large price move. These moments were called accumulation (before the upward movement of prices) and distribution (before the fall of prices).
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“Composite person” (major player) and phases.
Wyckoff created the idea of a “composite man” (from the English composite man, composite operator), which embodies the imaginary personality of the market. He invited all investors and traders to study the stock market from the point of view if it were controlled by one subject, as this could facilitate their further following the trends.
At its core, the composite person represents the largest players (market makers), wealthy people and institutional investors. The behavior of a composite person is the opposite of most investors and traders that Wyckoff often observed, given their financial losses. This is the opposite of crowd action.
The cycle described in the Wyckoff method consists of four main phases:
1) Accumulation (accumulation).
2) Impulse or uptrend.
3) Distribution.
4) Markdown (correction, downtrend).
1 phase. Accumulation.
A composite person accumulates assets before most investors and traders begin to do so. This phase is usually marked by lateral movement. Accumulation occurs in a gradual manner to avoid significant price changes.
2 phase. Impulse or uptrend.
When a composite person takes possession of a sufficient amount of assets, while the sales force is depleted, he begins to push the market upward, forming an emerging trend that gradually attracts more and more new investors, which subsequently leads to an increase in demand.
3 phase. Distribution.
Then the “composite person” distributes the purchased assets. He begins to sell his profitable positions to those who enter the market at a late stage (“hamsters”).
4 phase. Markdown (correction, downtrend).
Shortly after the distribution phase, the market begins to fall. In other words, after the composite person has completed the sale of a significant amount of his position, he begins to push the market down. To repeat the cycle again. The hamster is not a mammoth - it will not die out. In the end, supply becomes much larger than demand, and a downtrend will follow.
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Approach to the Wyckoff market in five steps.
Wyckoff also developed a five-step approach to the market based on numerous principles and methods. Simply put, such an approach can be considered as the procedure for applying his work in practice.
Step one: identify the current trend.
The primary task is to determine the current trend and a superficial assumption where and how far it can go, in connection with which the following questions arise: "what is the current trend?", "What is the relationship between supply and demand?".
Step two: determine the strength of the asset.
How strong is the asset in relation to the market? Does its value move with the market or the opposite of it?
Step three: find an asset with a reason for further growth.
Are there enough reasons to open a position? Is the reason good enough for the potential benefit (consequence) to justify the possible risks in the future?
Fourth step: determine the likelihood of cost increases.
Is the asset ready for the intended move? What is its position relative to the current trend? Does the price and volume of trades correspond to possible growth? This step often includes Wyckoff tests for the purchase and sale of the selected asset.
Step Five: Your Login Time.
The last step contains all the timing information. For the most part, this is due to the analysis of a trading instrument to compare their behavior with the main market. In cryptocurrency, for example, with bitcoin .
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Wyckoff Trading Schemes.
Accumulation and distribution schemes are the most popular part of Wyckoff’s work, at least among cryptocurrency communities. This model breaks down these two schemes into smaller sections of five phases (from A to E), as well as several events that are briefly described below.
Pay attention to the phases and letter designations on the graph that I showed on the ADA / BTC pair. A diagram of the accumulation phases is shown. Which are relevant for trading now
ACCUMULATION DIAGRAM
PS - preliminary support (initial support) the first resistance - appears after a significant decrease in the price, the volume increases, and the price accelerates the decrease over time.
SC - the culmination of sales - there is a sharp drop in prices for large volumes.
AR - automatic rally (automatic upward movement) appears because there are very few sellers in the market, and buyers quickly raise the price up.
ST- secondary test (repeated test) - occurs to check the forces of supply and demand . There may be several ST and SC . ST can even slightly break the price level set by SC .
Spring - does not always occur, in the late stages of accumulation. The logic of false breakdown.
Test - Occurs after Spring is formed and should be on a small volume . Usually above the low at a lower level.
SOS - a sign of strength (signs of strength) the price begins to rise and stands out from the price range TR (trading range) with an increased volume .
LPS - the last support point, the last resistance level , occurs after a breakdown (SOS), this is a return of prices in the vicinity of TR with low volume and low price dynamics.
BU (back up) - the return of prices to the accumulation channel, which follows the realization of the profit of short-term investors and is a demand test. It does not always happen, for obvious reasons.
Phase A.
The strength of sales decreases and the downtrend begins to slow down. This stage is usually marked by an increase in trading volume . Preliminary support (from the English preliminary support, abbr. PS) indicates that new customers are starting to appear, but this is still not enough to stop the downward movement.
The culmination of sales (from the English selling climax, abbr. SC ) is formed through intense activity aimed at selling assets, as a result of which investors begin to capitulate. This often manifests itself as the highest point of volatility , when panic sales form high candles and wicks. A strong drop quickly develops into a jump or automatic rally (AR), due to the fact that buyers begin to absorb excess supply. Thus, the trading range ( TR ) of the accumulation scheme is determined as the distance between the minimum culmination of sales and the maximum of automatic rally.
A secondary test ( ST ) occurs when a drop in market prices crosses the sales climax ( SC ) to verify the validity of a downtrend. In this case, trading volume and market volatility are usually lower than usual. While the second test often forms a higher minimum relative to the culmination of sales, this does not always happen according to plan.
Phase B.
Based on the Wyckoff law of causation, phase B can be considered as a cause that leads to a certain effect.
Phase B is the consolidation phase in which a composite person accumulates the largest amount of assets. At this stage, the market tends to test various levels of resistance and support in the area of its trading range.
Numerous secondary tests ( STs ) may occur during phase B. In some cases, they show higher highs (bull traps) and lows (bear traps) with respect to the culmination of sales and the automatic rally, like phase A.
Phase C.
This phase is a typical period of asset accumulation. It is often the last bear trap before the market begins to show higher lows. During phase C, the composite person provides a small proposal, and in fact, those who were supposed to sell their assets have already done so.
During this phase, support levels begin to break through to stop traders and mislead investors. We can describe this as the last attempt to buy an asset at a lower price before the start of an uptrend. Thus, the bear trap encourages small investors to abandon the holding of their assets.
However, in some cases, support levels can be maintained, and the "spring" simply does not begin. In other words, there may be another accumulation scheme, which includes slightly different elements, but not “spring”. However, the overall structure of the circuit remains valid.
Phase D.
Phase D represents the transition between cause and effect. It is located between the accumulation zone (phase C) and the breakout of the trading range (phase E).
Typically, a significant increase in trading volume and volatility occurs during phase D. Usually it assumes the last point of support (from the English last point support, abbr. LPS ), demonstrating a lower minimum before the market begins to move up. LPS often precedes breakthrough resistance levels, which in turn creates higher highs. This indicates the manifestation of signs of strength (from the English. Signs of strength, abbr. SOS), as the previous resistance levels become new levels of support.
Despite a somewhat confusing terminology, there may be several last points of support during this phase. They often increase trading volume when testing new zones. In some cases, the price may create a small consolidation zone before effectively breaking through a larger trading range and moving on to phase E.
Phase E.
Phase E is the last step in the accumulation pattern. It is marked by a clear penetration of the trading range due to increased demand in the market, which indicates the beginning of an uptrend.
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Volume in separate phases (VSA).
A key element in the analysis of the Wyckoff method is the preservation of volume at the individual stages of accumulation / distribution.
Phase A.
In this phase, dynamic movements of prices with an increased volume occur. We have new highs / lows and climax points, followed by automatic price rallies in the opposite direction, and then retest on a smaller volume . This phase forms the border of the TR (trading range) channel, in which the price will consolidate until the rebound in phase D and E
Stage B.
Here, large investors get rid of their last position from the previous trend and prepare for its reversal.
Phase C.
This is a very important phase, because in phase C it comes to the end of the current trend. Weak players leave the market for Spring (accumulation) or UTAD (distribution). If these formations do not exist, then we are dealing with LPS , where the inability to continue the current trend is visible, the price practically does not move.
Phase D.
With signs of weakness in the current trend from phase C, the time comes to show the strength of the adversary. The price breaks the level in the expected direction, with high dynamics and increased volume .
Phase E.
Confirmation of our assumptions and completion of the accumulation / distribution process. Price accelerates in the expected direction. If we were unable to join the movement during phase D, then further problems may already arise with this. And this deal will be less profitable.
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Conclusion on the Wyckoff trading method.
Almost a hundred years have passed since the publication of the work, but the Wyckoff method is still in demand to this day. By nature, the market does not always exactly follow similar trading patterns. In practice, accumulation and distribution patterns can occur in different ways. For example, in some cases, phase B can last much longer than expected. For this reason, spring, UTAD and other tests may simply be absent.
However, Wyckoff's work offers a wide range of reliable trading techniques that are based on numerous theories and principles. His work is certainly valuable to thousands of investors, traders and analysts around the world. The accumulation and distribution schemes described in this article may be suitable for understanding the general order of cycles in financial markets.
But recently, due to the widespread introduction of algorithmic trading and the use of it by large players, it has become increasingly difficult to notice a large player on highly liquid instruments, but it is possible. According to three schemes of dialing / resetting by the position algorithm.
This analysis method is more relevant for medium-liquid instruments, where fewer algorithms and highly professional traders are clearly hard to see. One person can hide his real work, and do fake trade for dozens of people. It is clear that with good preparation, it is possible to calculate and understand what will happen next, but naturally this is not an analysis of the schedule. Analysis of the schedule in the work of a truly successful trader in fact takes no more than 20-30% of the work.
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It is impossible to describe everything in one article. The Wyckoff method at first glance seems complicated, but it is not. The main thing is to understand the essence of the work and practice trading tools. To start, start trading with a symbolic amount.
Always remember, a theory without practice is zero.
Once again, the Wyckoff method works well on medium-liquid instruments such as cryptocurrencies, but not lower than the top 100.
Basic of WyckoffWhat is the Wyckoff Method?
The Wyckoff Method was developed by Richard Wyckoff in the early 1930s. It consists of a series of principles and strategies initially designed for traders and investors. Wyckoff dedicated a significant part of his life teaching, and his work impacts much of modern technical analysis (TA). While the Wyckoff Method was originally focused on stocks, it is now applied to all sorts of financial markets.
A lot of Wyckoff’s work was inspired by the trading methods of other successful traders (especially Jesse L. Livermore). Today, Wyckoff is held in the same high regard as other key figures, such as Charles H. Dow, and Ralph N. Elliott.
Wyckoff did extensive research, which led to the creation of several theories and trading techniques. This article gives an overview of his work. The discussion includes:
Three fundamental laws;
The Composite Man concept;
A methodology for analyzing charts (Wyckoff’s Schematics);
A five-step approach to the market.
Wyckoff also developed specific Buying and Selling Tests, as well as a unique charting method based on Point and Figure (P&F) charts. While the tests help traders spot better entries, the P&F method is used to define trading targets. However, this article won’t dive into these two topics.
The three laws of Wyckoff
The Law of Supply and Demand
The first law states that prices rise when demand is greater than supply, and drop when the opposite is true. This is one of the most basic principles of financial markets and is certainly not exclusive to Wyckoff’s work. We may represent the first law with three simple equations:
Demand > Supply = Price rises
Demand < Supply = Price drops
Demand = Supply = No significant price change (low volatility)
In other words, the first Wyckoff law suggests that an excess of demand over supply causes prices to go up because there are more people buying than selling. But, in a situation where there is more selling than buying, the supply exceeds demand, causing the price to drop.
Many investors who follow the Wyckoff Method compare price action and volume bars as a way to better visualize the relation between supply and demand. This often provides insights into the next market movements.
The Law of Cause and Effect
The second law states that the differences between supply and demand are not random. Instead, they come after periods of preparation, as a result of specific events. In Wyckoff's terms, a period of accumulation (cause) eventually leads to an uptrend (effect). In contrast, a period of distribution (cause) eventually results in a downtrend (effect).
Wyckoff applied a unique charting technique to estimate the potential effects of a cause. In other terms, he created methods of defining trading targets based on the periods of accumulation and distribution. This allowed him to estimate the probable extension of a market trend after breaking out of a consolidation zone or trading range (TR).
The Law of Effort vs. Result
The third Wyckoff law states that the changes in an asset’s price are a result of an effort, which is represented by the trading volume. If the price action is in harmony with the volume, there is a good chance the trend will continue. But, if the volume and price diverge significantly, the market trend is likely to stop or change direction.
For instance, imagine that the Bitcoin market starts to consolidate with a very high volume after a long bearish trend. The high volume indicates a big effort, but the sideways movement (low volatility) suggests a small result. So, there is a lot of Bitcoins changing hands, but no more significant price drops. Such a situation could indicate that the downtrend may be over, and a reversal is near.
The Composite Man
Wyckoff created the idea of the Composite Man (or Composite Operator) as an imaginary identity of the market. He proposed that investors and traders should study the stock market as if a single entity was controlling it. This would make it easier for them to go along the market trends.
In essence, the Composite Man represents the biggest players (market makers), such as wealthy individuals and institutional investors. It always acts in his own best interest to ensure he can buy low and sell high.
The Composite Man’s behavior is the opposite of the majority of retail investors, which Wyckoff often observed losing money. But according to Wyckoff, the Composite Man uses a somewhat predictable strategy, from which investors can learn from.
Let’s use the Composite Man concept to illustrate a simplified market cycle. Such a cycle consists of four main phases: accumulation, uptrend, distribution, and downtrend.
Accumulation
The Composite Man accumulates assets before most investors. This phase is usually marked by a sideways movement. The accumulation is done gradually to avoid the price from changing significantly.
Uptrend
When the Composite Man is holding enough shares, and the selling force is depleted, he starts pushing the market up. Naturally, the emerging trend attracts more investors, causing demand to increase.
Notably, there may be multiple phases of accumulation during an uptrend. We may call them re-accumulation phases, where the bigger trend stops and consolidates for a while, before continuing its upward movement.
As the market moves up, other investors are encouraged to buy. Eventually, even the general public become excited enough to get involved. At this point, demand is excessively higher than supply.
Distribution
Next, the Composite Man starts distributing his holdings. He sells his profitable positions to those entering the market at a late stage. Typically, the distribution phase is marked by a sideways movement that absorbs demand until it gets exhausted.
Downtrend
Soon after the distribution phase, the market starts reverting to the downside. In other words, after the Composite Man is done selling a good amount of his shares, he starts pushing the market down. Eventually, the supply becomes much greater than demand, and the downtrend is established.
Similar to the uptrend, the downtrend may also have re-distribution phases. These are basically short-term consolidation between big price drops. They may also include Dead Cat Bounces or the so-called bull traps, where some buyers get trapped, hoping for a trend reversal that doesn’t happen. When the bearish trend is finally over, a new accumulation phase begins.
Wyckoff’s Schematics
The Accumulation and Distribution Schematics are likely the most popular part of Wyckoff’s work - at least within the cryptocurrency community. These models break down the Accumulation and Distribution phases into smaller sections. The sections are divided into five Phases (A to E), along with multiple Wyckoff Events, which are briefly described below.
Accumulation Schematic
Wyckoff method accumulation schematic
Phase A
The selling force decreases, and the downtrend starts to slow down. This phase is usually marked by an increase in trading volume. The Preliminary Support (PS) indicates that some buyers are showing up, but still not enough to stop the downward move.
The Selling Climax (SC) is formed by an intense selling activity as investors capitulate. This is often a point of high volatility, where panic selling creates big candlesticks and wicks. The strong drop quickly reverts into a bounce or Automatic Rally (AR), as the excessive supply is absorbed by the buyers. In general, the trading range (TR) of an Accumulation Schematic is defined by the space between the SC low and the AR high.
As the name suggests, the Secondary Test (ST) happens when the market drops near the SC region, testing whether the downtrend is really over or not. At this point, the trading volume and market volatility tend to be lower. While the ST often forms a higher low in relation to the SC, that may not always be the case.
Phase B
Based on Wyckoff’s Law of Cause and Effect, Phase B may be seen as the Cause that leads to an Effect.
Essentially, Phase B is the consolidation stage, in which the Composite Man accumulates the highest number of assets. During this stage, the market tends to test both resistance and support levels of the trading range.
There may be numerous Secondary Tests (ST) during Phase B. In some cases, they may produce higher highs (bull traps) and lower lows (bear traps) in relation to the SC and AR of the Phase A.
Phase C
A typical Accumulation Phase C contains what is called a Spring. It often acts as the last bear trap before the market starts making higher lows. During Phase C, the Composite Man ensures that there is little supply left in the market, i.e., the ones that were to sell already did.
The Spring often breaks the support levels to stop out traders and mislead investors. We may describe it as a final attempt to buy shares at a lower price before the uptrend starts. The bear trap induces retail investors to give up their holdings.
In some cases, however, the support levels manage to hold, and the Spring simply does not occur. In other words, there may be Accumulation Schematics that present all other elements but not the Spring. Still, the overall scheme continues to be valid.
Phase D
The Phase D represents the transition between the Cause and Effect. It stands between the Accumulation zone (Phase C) and the breakout of the trading range (Phase E).
Typically, the Phase D shows a significant increase in trading volume and volatility. It usually has a Last Point Support (LPS), making a higher low before the market moves higher. The LPS often precedes a breakout of the resistance levels, which in turn creates higher highs. This indicates Signs of Strength (SOS), as previous resistances become brand new supports.
Despite the somewhat confusing terminology, there may be more than one LPS during Phase D. They often have increased trading volume while testing the new support lines. In some cases, the price may create a small consolidation zone before effectively breaking the bigger trading range and moving to Phase E.
Phase E
The Phase E is the last stage of an Accumulation Schematic. It is marked by an evident breakout of the trading range, caused by increased market demand. This is when the trading range is effectively broken, and the uptrend starts.
Distribution Schematic
In essence, the Distribution Schematics works in the opposite way of the Accumulation, but with slightly different terminology.
Wyckoff method distribution schematic
Phase A
The first phase occurs when an established uptrend starts to slow down due to decreasing demand. The Preliminary Supply (PSY) suggests that the selling force is showing up, although still not strong enough to stop the upward movement. The Buying Climax (BC) is then formed by an intense buying activity. This is usually caused by inexperienced traders that buy out of emotions.
Next, the strong move up causes an Automatic Reaction (AR), as the excessive demand is absorbed by the market makers. In other words, the Composite Man starts distributing his holdings to the late buyers. The Secondary Test (ST) occurs when the market revisits the BC region, often forming a lower high.
Phase B
The Phase B of a Distribution acts as the consolidation zone (Cause) that precedes a downtrend (Effect). During this phase, the Composite Man gradually sells his assets, absorbing and weakening market demand.
Usually, the upper and lower bands of the trading range are tested multiple times, which may include short-term bear and bull traps. Sometimes, the market will move above the resistance level created by the BC, resulting in an ST that can also be called an Upthrust (UT).
Phase C
In some cases, the market will present one last bull trap after the consolidation period. It’s called UTAD or Upthrust After Distribution. It is, basically, the opposite of an Accumulation Spring.
Phase D
The Phase D of a Distribution is pretty much a mirror image of the Accumulation one. It usually has a Last Point of Supply (LPSY) in the middle of the range, creating a lower high. From this point, new LPSYs are created - either around or below the support zone. An evident Sign of Weakness (SOW) appears when the market breaks below the support lines.
Phase E
The last stage of a Distribution marks the beginning of a downtrend, with an evident break below the trading range, caused by a strong dominance of supply over demand.
Does the Wyckoff Method work?
Naturally, the market doesn’t always follow these models accurately. In practice, the Accumulation and Distribution Schematics can occur in varying ways. For example, some situations may have a Phase B lasting much longer than expected. Or else, the Spring and UTAD Tests may be totally absent.
Still, Wyckoff’s work offers a wide range of reliable techniques, which are based on his many theories and principles. His work is certainly valuable to thousands of investors, traders, and analysts worldwide. For instance, the Accumulation and Distribution schematics may come handy when trying to understand the common cycles of financial markets.
Wyckoff’s five-step approach
Wyckoff also developed a five-step approach to the market, which was based on his many principles and techniques. In short, this approach may be seen as a way to put his teaching into practice.
Step 1: Determine the trend.
What is the current trend and where it is likely to go? How is the relation between supply and demand?
Step 2: Determine the asset’s strength.
How strong is the asset in relation to the market? Are they moving in a similar or opposite fashion?
Step 3: Look for assets with sufficient Cause.
Are there enough reasons to enter a position? Is the Cause strong enough that makes the potential rewards (Effect) worth the risks?
Step 4: Determine how likely is the move.
Is the asset ready to move? What is its position within the bigger trend? What do the price and volume suggest? This step often involves the use of Wyckoff’s Buying and Selling Tests.
Step 5: Time your entry.
The last step is all about timing. It usually involves analyzing a stock in comparison to the general market.
For example, a trader can compare the price action of a stock in relation to the S&P 500 index. Depending on their position within their individual Wyckoff Schematic, such an analysis may provide insights into the next movements of the asset. Eventually, this facilitates the establishment of a good entry.
Notably, this method works better with assets that move together with the general market or index. In cryptocurrency markets, though, this correlation isn’t always present but definitely you can find a lot of wyckoff pattern in Crypto.
Mastering The Wyckoff Method of Technical Analysis Introduction:
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In the time period of April in 2021 Bitcoin reached its local high of roughly US $65,000 per coin, shortly after when May came along many social channels quickly lit up with the now infamous “Wyckoff Distribution Schematic” (This was one popular video that described it here: www.youtube.com), and shortly after BTC came crashing down back to the $30,000 region playing this schematic almost perfectly. I myself was trading Bitcoin using the Wyckoff Method at this time, and I was introduced to a plethora of new traders and investors trying to understand the complicated Wyckoff method, but the fact of the matter was, many were sharing or educating others in incorrect ways to use this method. From this day I took more of an interest in educating others in the Wyckoff Method, and below I am going to pick apart, introduce and help you master some of the key concepts used in this method of analysis.
Bitcoins Chart March-May 2021
Read more about the Crash in 2021:
www.aljazeera.com
Who is “Wyckoff”?:
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Richard Demille Wyckoff (November 2, 1873 – March 7, 1934) was considered one of the five “titans” of technical analysis, along with Dow, Gann, Elliott and Merrill. At age 15, he took a job as a stock runner for a New York brokerage. Afterwards, while still in his 20s, he became the head of his own firm. He also founded and, for nearly two decades wrote, and edited The Magazine of Wall Street, which, at one point, had more than 200,000 subscribers.
Wyckoff was an avid student of the markets, as well as an active tape reader and trader. He observed the market activities and campaigns of the legendary stock operators of his time, including JP Morgan and Jesse Livermore. From his observations and interviews with those big-time traders, Wyckoff codified the best practices of Livermore and others into laws, principles and techniques of trading methodology, money management and mental discipline.
Wyckoff's research claimed many common characteristics among the greatest winning stocks and market campaigners of the time. Wyckoff also has techniques he believed offered advantages when markets were rising or falling (bullish and bearish). Wyckoff offered a detailed analysis of the "trading range", a posited ideal price bracket for buying or selling a stock. One tool that Wyckoff provides is the concept of the Composite Operator , another is Volume based analysis .
Who is the Composite Operator / The Composite Man?:
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“…all the fluctuations in the market and in all the various stocks should be studied as if they were the result of one man’s operations. Let us call him the Composite Man, who, in theory, sits behind the scenes and manipulates the stocks to your disadvantage if you do not understand the game as he plays it; and to your great profit if you do understand it.” (The Richard D. Wyckoff Course in Stock Market Science and Technique, section 9, p. 1-2)
Based on his years of observations of the market activities of large operators, Wyckoff taught that:
The Composite Man carefully plans, executes and concludes his campaigns.
-The Composite Man attracts the public to buy a stock (financial asset) in which he has already accumulated a sizable line of shares by making many transactions involving a large number of shares, in effect advertising his stock by creating the appearance of a “broad market.”
-One must study individual stock charts with the purpose of judging the behaviour of the stock and the motives of those large operators who dominate it.
-With study and practice, one can acquire the ability to interpret the motives behind the action that a chart portrays. Wyckoff and his associates believed that if one could understand the market behaviour of the Composite Man, one could identify many trading and investment opportunities early enough to profit from them.
Above excerpt from: school.stockcharts.com
Many traders and investors who follow the Wyckoff Method treat the Composite man as a real entity, for Cryptocurrency holders this might be seen as a whale who controls the price. Wyckoff himself did not find it necessary to define a importance between the Composite man being an imaginary being, a creation of one's own mind or a real entity, but defined an importance towards “Thinking” like the Composite Man, by thinking like a “Large Operator” we change our Psychology.
But what does this mean?
In the book titled, “The Compound Effect” by Darren Hardy (Founder of Success Magazine) there is a section titled “Find Your Fight” in Chapter 3, in this section Darren describes how hate is often as strong as a motivating force as love, but why is this relevant?
A person who is in love may do crazy things, but so will a person who is consumed by hate, as both are powerfully motivating forces. By creating a “Enemy” (Someone to hate) our mindset changes to a defensive manner, we are now in “Battle” with our Enemy. Here is a quote from the book, which is one of my favourites:
“Contrary to social correctness, it can be good to hate. Hate disease, hate injustice, hate ignorance, hate complacency, and so on. Sometimes identifying an enemy lights your fire.Some of my greatest motivation, determination, and dogged persistence came when I had an enemy to fight. In history, the most transformation stories and political revolutions came about as a result of fighting an enemy. David had Goliath, America had the British. Luke had Darth Vader…”
And as traders; we have The Composite Man…
A great article on the Composite Man can be located here for further education:
www.wyckoffanalytics.com
Wyckoff's "Five Step Approach":
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The Wyckoff Method involves a five-step approach to stock selection and trade entry, which can be summarized as follows:
1. Determine the present position and probable future trend of the market.
Determine what the current characteristics of the price structure and Supply & Demand are, (are we in a Uptrend, Downtrend or Sideways) by getting a general idea of the Price Structure, Sentiment & Supply and Demand we can determine if we want to be in a long or short trade, or no trade at all, and what the probable future direction of the market may be. Refer to Section “Market Phases & Cycles” below to understand this further.
2. Select stocks in harmony with the trend. In an uptrend, select stocks that are stronger than the market.
By selecting assets moving with the Primary Trend, we are increasing chances of success. (For example, if the dominant asset in Crypto, Bitcoin is on a strong uptrend is it fair to assume that you are going to have more success trying to long other Cryptocurrencies which are highly “correlated” and likely to follow in that direction. Financial Assets that “decorrelate” and show stronger increases during uptrends and smaller decreases on pull backs may be showing signs of being stronger then the market as a whole (long position), for shorts we are looking for Assets that are showing weakness and stronger decreases then the market as a whole.
3. Select stocks with a “cause” that equals or exceeds your minimum objective.
Every action, has a reaction, every cause, has an effect, this statement basically means that if you are going to enter the market and take a position, look for assets that have a rational and reasonable cause for you to reach your target objective. A great example is using Price Target Measurements when trading Chart Patterns, each Chart Pattern is the cause, and the Price Target is the effect. If there is a Cause, but no Effect, then it is a potential sign of weakness. Please see “Wyckoff Laws” below for more information.
4. Determine the stocks' readiness to move.
Use a pre determined system to determine how close assets are to entering the Mark Up or Mark Down Phases. Find the right system to see when a asset is about to Uptrend or Downtrend. Use the 9 Buying & Selling tests, aswell as the Wyckoff Schematics explained below to understand this concept further.
5. Time your commitment with a turn in the stock market index.
Financial Markets are highly correlated, this means that we want to be timing our investments and trades with the Leading Market Assets or Index’s (A Index is basically a grouping of the Top Stocks or Companies in that Industry, for example, SP500, AU200). Why do we want to time? Lets use Bitcoin as a example. Sometimes Bitcoin is almost correlated to 80-90% of the Stock Market, that means the price moves almost in sync, so by watching the price movements and analyzing the Stock Market we can also get clues on the direction of the asset we are trading. If Bitcoin is moving up, but the Stock Market is heading down, and the correlation is HIGH, we can assume that the upside move may not be likely to continue.
Market Phases & Cycles:
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According to Wyckoff, the market can be understood and anticipated through detailed analysis of supply and demand, An idealized schematic of how he conceptualized the large interests' preparation for and execution of bull and bear markets is depicted in the figure above. The time to enter long orders is towards the end of the preparation for a price markup or bull market (accumulation of large lines of stock), while the time to initiate short positions is at the end of the preparation for price markdown. Also note the different Phases of the Market.
Before we continue below, please click on the image below for my basic introduction to Market Phases & Cycles, which is an important topic to have an understanding of before continuing onto Wyckoff Schematics. This is also relevant to understand Cause & Effect mentioned below. Notice how each Cause has an Effect!
To simplify the concept - Markets move in cyclical patterns, with a full cycle usually having Accumulation > Reaccumulation > Distribution >Redistribution, there can also be Micro trends within the cycle. Uptrends (HH, HL), Downtrends (LL, LH) and Sideways movements form the price structures which make up the Phases of the market, which in turn create the Cycles.
Three Laws of Wyckoff
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Wyckoff Analysis is fundamentally based off the Three Laws of Wyckoff, which can be found and recognized across many different types of Analysis, the Laws help give insight to our analysis and choice of buying/selling.
1. Supply vs. Demand
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Wyckoff states when demand is greater than supply, prices rise, and when supply is greater than demand, prices fall.
When sellers outweigh the buyers, the market is dominated by Supply, a large supply of an asset to sell, means greater selling pressure and a higher probability of a decrease in price. A sign of Demand (Buying Pressure) is a shortage of Supply, in a Cryptocurrencies case it would mean that the demand of buyers on exchanges outweighs the supply available for purchase on exchanges. As the amount up for purchase quickly falls to a low number the greed of participants drives them to want to pay higher prices for an asset.
When buyers outweigh sellers, the latter occurs with a higher probability of increase in prices. A sign of Supply (Selling Pressure) is a shortage of Demand, in a Cryptocurrencies case it would mean that the demand of buyers on exchanges under weighs the supply available, institutional investors and funds hold majority share of the SUPPLY and with no interest in buying from the retail participants we see investors (sometimes impatient or fearful) become sellers in anticipation of there being no increase in price in the short term (relative to their perspective).
Using this secondary chart below, we can clearly see the "Demand (Green)" and "Supply (Red)" areas of Siacoin SC.
We can see that both the Demand & Supply areas are respected and have strong reactions, and with patience we will see if the dominating factor on Siacoin right now is Supply or Demand, but considering some of the points I will go into below so far its looking like it is shifting into the favour of demand currently with a visit to the 0.5 (50%) of the Trading Range. Take note of the small abbreviations at the start of the TR (Trading Range) for now - see Wyckoff Schematics section later.
Other ways to analyze Supply & Demand in Cryptocurrencies are more literal - for example you can literally go onto the Blockchain and see the wallets of coins, how many each holds, what % of the Supply is owned by Siacoin itself, the amount of wallet holders, I will not go into this type of analysis in a detailed manner as it is not my expertise.
2. Effort vs. Result
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Wyckoff states that every effort should lead to a result in the financial markets.
Here is a example of a “Effort Vs Result” in a Trading Range (Parallel Channel) using Volume & Price Analysis (Please Click the Image, for Further Educational Idea)
This statement is applied to our charts by using data on Trading Volume. When we see abnormally large trading volume at key areas on the chart, we can usually expect a continued move in that direction, if the Effort produces no result though, that abnormally large trading volume can give us a sign that the participants betting on the market to move in that direction have not gathered enough momentum to do so (Marked in Light Blue), which leads to them being trapped (Marked in Dark Blue) and then a reverse in the opposite direction in price (Marked in Purple).
Effort Vs Result can also be interpreted in a number of ways, lets analyse the above Siacoin SC chart using this concept:
In the first image, the Trading Range is created, once at the lower range, volume decreased (this was not just a singular occurrence, with the whole Crypto market having similar low volume and "choppiness" but within this low volume area we can see there was two larger red volume bars, these two bars showed us a increase in sellers in this area, (An effort) but no Result (further Decrease on the next candles) this gives us a sign that the sellers may not be the dominant force now (A “Divergence) leading us to test the previous dominant force area above as supply.
This then led us to test the upper Trading Range, where the exactly same thing happened in the opposite.
In the 3rd image, we can finally see that the effort of the buyers is now leading to zero result, the trading range is starting to drag out and the volume of sellers is dropping off, in a REAL breakout the volume should continue to increase with the prices. We can see below that never happens here. As the images progress the Supply is obviously Dominant.
This leads us to the current chart, where we can see that now the sellers are losing momentum and the buyers have just stepped in. (See the volume?)
In the current trading range on SC (Siacoin) we can see quite a lot of abnormally large green bars at the upper range, this shows us that even though a large amount of buyers did in fact come into play here, the upper ranges dominant force was the Supply, and prices then headed towards the lower range.We are now in the process of “Testing” that lower range for Demand. So far the circled Red Bars (in the First chart, the original chart of this post) show us the sellers may be trapped locally.
3. Cause vs. Effect
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Wyckoff states that every cause in the market leads to a proportional effect.
The market has phases, such as Accumulation, Reaccumulation, Distribution and Redistribution. Each phase should have a "Effect" to match the cause, Accumulation has a Markup, aswell as Reaccumulation, And Distribution and Redistribution are followed by a Mark Down. The phase is the cause, the mark up is the effect.
Click on this link for a quick infographic on the Market Phases (Consider each phase as a Cause) which then should have an Effect (Mark Up or Mark Down Phase), this creates the “Market Cycle” and all markets move in cycles: ibb.co
This is similar to how a Bull Flag has a target measurement (Mark Up) and a Bear Flag has a target measurement for the downside (Mark Down). For more information on Flag Patterns click the below image, notice on the bottom right picture how the Flag has a measurement which is represented by a extended line, the previous line and the Flag is the Cause, the extended line pointing upwards is the Effect in this case:
In this case, if we see a breakout to the upside of this current trading range on SC Siacoin (the Cause) we can assume the Effect will be a strong breakout above the range leading to Mark Up Phase, otherwise the Cause has no Effect, in this situation meaning the range might fail and break downwards.
This is similar in a way to Effort vs Result explained earlier, For every Effort, there should be a Result, for every Cause, there should be an effect.
Wyckoff Schematics
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A trading range (Sideways Movement, Zig Zag) shows us an equilibrium between buyers and sellers, and the Wyckoff Theory & Schematics give us clues to which probable direction the price may head out of the horizontal moving price structure.
Each Trading Range can be an important Phase in the larger Market Cycle, giving us potential clues and hints within the overall trend.
The Wyckoff Schematics help us identify the different between Accumulation and Distribution Trading Ranges (Or Reaccumulation or Redistribution) - In a Trading Range the price Zig Zags up and down until eventually a breakout occurs, using the Wyckoff Accumulation Schematic we can see there are some clues in the similarities of the chart and the schematic that tell us Siacoin may be ready to at least test of the upper bounds of the Trading Range.
It is important to note that most Trading Ranges start with obvious characteristics, which we will delve into further below, the first characteristics of the Trading Range (TR) help us identify that we are now moving in a sideways trend:
When paired with the Wyckoff 9 Buying and Selling Tests - the Wyckoff Schematics are a great tool to help measure potential entries, exits, risk and to read the price movement in general.
There are four types: Accumulation , Reaccumulation , Distribution & Redistribution.
And each Trading Range is Analysed in 5 key phases:
By splitting our Schematics into 5 key phases, the characteristics become easier to recognize and identify.Remember this when moving forward in this section.
Phase A: The trading range (TR) is created (example above)
Phase B: The Supply & Demand of the TR is tested
Phase C: Deviation outside TR or Final point before reversal
Phase D: The new trend begins
Phase E: The trend continues
In phase D & E, the obvious “Change of Trend” is evident, refer to this infographic below and you can see how a trend contains Higher Highs, Higher Lows (HH, HL) or Lower Lows, Lower Highs (LL, LH); we will come back to this soon:
1. Accumulation :
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In accumulation, the shares purchased outnumber those sold.
There are roughly 9 characteristics of an Accumulation Range:
1. PS (Preliminary Support) the first Support area that was lost, creating the upper bound of the TR.
2. SC (Selling Climax) the climactic action that is bought up quickly creating the lower bound of the TR. It is a strong example of Effort vs Result usually, with abnormally large selling volume, but no further downside.
3. AR (Automatic Rally) a low volume, quick reaction visiting the other side of the TR, usually indicating short covering.
4. ST (Secondary Test) a secondary test of the initial Demand Area created by the SC.
5. Spring (Fake Out) & Test or LPS (Last point of Support). Spring is usually a great example of Effort vs Result. Spring is then confirmed by a test of Support. LPS (Last Point of Support) occurs when price revisits the recent Demand (Support) area, usually a former Resistance. The term may be used in a plural manner, with multiple LPS forming the Higher Lows that make up the basis of a market trend.
6. JAC (Jump Across the Creek) the Creek is an imaginary line created by the previous downtrend (similar to a Moving Average), we want to see the price “Jump” across the creek.
7. LPS (Last Point of Support) occurs when price revisits the recent Demand (Support) area, usually a former Resistance. The term may be used in a plural manner, with multiple LPS forming the Higher Lows that make up the basis of a market trend.
8. SOS (Sign of Strength) is an abnormally large volume signature upwards price movement which confirms the Spring or LPS.
9. BU/LPS (Back Up / Last Point of Support) occurs when price revisits the recent Demand (Support) area, usually a former Resistance. The term may be used in a plural manner.The SOS & LPS together form the Basis of a Uptrend, see this image for reference: ibb.co . The final LPS before leaving the Trading Range should start the Uptrend.The LPS can sometimes move to the 50% of the Trading Range.
We should then enter the Mark Up phase as described at the start of this article. Remember; Accumulation is the Cause, Markup is the Effect.
Examples & Links :
Accumulation Schematic #1:
school.stockcharts.com
In this schematic, the Spring is located in the end of the TR, showing trapped sellers.
Accumulation Schematic #2:
school.stockcharts.com
In this schematic, there is no Spring action, instead the price starts moving upwards from the LPS Area (Last Point of Support), the Spring (in this case, ST) is located at the middle of the TR, showing trapped buyers.
Example of Accumulation #1 Analysis (Click image, press play to see the result!):
Example of Accumulation #2 Analysis:
2. Reaccumulation :
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After Accumulation, comes Reaccumulation. Where after a extended upside move, a repeated sideways movement occurs which leads to another extended upside move.
ReAccumulation is known also as a Trend Continuation.
The characteristics are almost identical to Accumulation, except the previous price movement leading up to the trading range is upwards :
Here are the characteristics explained :
1. PS (Preliminary Supply) the first selling area creating the Trading Range.
2. BC (Buying Climax) the climactic action that is sold up quickly creating the upper bound of the TR. It is a strong example of Effort vs Result usually, with abnormally large buying volume, but no further upside.
3. Shakeout (Fake Out to the downside trapping sellers) (I have marked this as SC, to simplify the process as a Shakeout is quite similar in its characteristic.
4. AR (Automatic Rally) a low volume, quick reaction visiting the other side of the TR, usually indicating short covering.
5. ST Area (Secondary Test Area) a secondary test of the initial Demand Area created by the Shakeout.
6. Spring (Fake Out) or LPS (Last point of Support) A Spring occurs when price falls underneath the Trading Range, triggering stop losses and usually inducing investors to Panic Sell, (this is the most profitable area to buy). Spring is then confirmed by a test of Support. Spring is usually a great example of Effort vs Result. LPS (Last Point of Support) occurs when price revisits the recent Demand (Support) area, usually a former Resistance. The term may be used in a plural manner, with multiple LPS forming the Higher Lows that make up the basis of a market trend.
7. JAC (Jump Across the Creek) is when the price “Jumps” across the Trading Range, giving us a final clue before the breakout occurs. The “Creek” is an imaginary line formed from the projected path of the previous price swing highs, this can be used similar to a Moving Average.
8. SOS (Sign of Strength) is an abnormally large volume signature upwards price movement which confirms the Spring or LPS.
9. LPS (Last Point of Support) occurs when price revisits the recent Demand (Support) area, usually a former Resistance. The term may be used in a plural manner.The SOS & LPS together form the Basis of a Uptrend, see this image for reference: ibb.co . The final LPS before leaving the Trading Range should start the Uptrend.The LPS can sometimes move to the 50% of the Trading Range.
We should then enter the Mark Up phase as described at the start of this article. Reaccumulation = Cause, Mark Up = Effect
Examples & Links :
It is important to note that Reaccumulation can appear as Accumulation, in the image below we can see that MANAUSDT looked like Accumulation Schematic #2, yet was actually Reaccumulation due to the previous uptrend.
And in this example Reaccumulation looked exactly like Schematic #1 of Accumulation!
Reaccumulation Schematic #1:
ibb.co
In this schematic, the Spring is located at the end of the TR, showing trapped sellers.
Reaccumulation Schematic #2:
ibb.co
In this schematic, the ST (or Spring) is located at the middle of the TR, showing trapped buyers.
Traditional Reaccumulation Schematics:
ibb.co
(Credit: Roman Bogomazov / www.wyckoffanalytics.com)
Example of Traditional Reaccumulation #2 Analysis: (Press Play!):
3. Distribution :
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Above we learnt that in accumulation, the shares purchased outnumber those sold while, in distribution, the opposite is true. The shares sold outnumber those purchased.
In a Distribution Trading Range two of the key characteristics are the UTAD/UT (Upwards Thrust / Upwards Thrust & Distribution) above the Trading Range, and the SoW's Signs Of Weaknesses with strong volume at the bottom end of the range. The start of the trading range should be easily identified by a BC (Buying Climax). The extent of accumulation or distribution determines the cause that unfolds in the subsequent move out of the TR .
There are roughly 9 characteristics of an Distribution Range:
1. PS (Preliminary Supply) is the first selling area creating the Trading Range.
2. BC (Buying Climax) is the climactic action that is sold up quickly creating the upper bound of the TR. It is a strong example of Effort vs Result usually, with abnormally large buying volume, but no further upside.
3. AR (Automatic Rally) is a low volume, quick reaction visiting the other side of the TR, usually indicating long covering.
4. ST (Secondary Test) a secondary test of the initial Supply Area created by the BC.
5. SOW (Sign of Weakness) are strong moves to the lower bounds of the Trading Range (or Underneath) with strong volume signature.
6. UT or UTAD (Upwards Thrust) in a UT (Upwards Thrust) a significant amount of buyers enter the market, “Buying the Breakout”, but their Effort, leads to no Result and this variation of a “Bull Trap” is the most significant characteristic of the Distribution TR. A UTAD (Upwards Thrust and Distribution) forms within the middle or end of the Trading Range; there is an obvious lack of Result vs Effort, with abnormally large buying volume signature, yet price fails to get back above this area again. It can look similar to a miniature Trading Range (Distribution).
7. UTAD or LPSY (Last Point of Supply) In Schematic #1 we have the UTAD at the end, in Schematic #2 we have it in the middle (simplified). If the /UT is found in the middle then we are looking for the LPSY to confirm the Resistance, when price revisits the initial Supply area created at the start of the Trading Range, and then successfully decreases from that area.
8. SOW (Sign of Weakness, Fall under the Ice) just like how in Accumulation we Jump Across the creek, in Distribution we do the latter and Fall Under the Ice. SOW (Sign of Weakness) are strong moves to the lower bounds of the Trading Range (or Underneath) with strong volume signature.
9. LPSY (Last Point of Supply) instead of revisiting the initial Supply area created at the start of the Trading Range, in LPSY (Last Point of Supply) revisits the recent Supply (Resistance) area, usually a former Support. The term may be used in a plural manner, with multiple LPSY forming the Lower Highs (LH’s) that make up the basis of a market trend.
We should then enter the Mark Down phase as described at the start of this article. Distribution is the Cause, and Mark Down is the Effect.
Examples & Links :
Distribution Schematic #1:
school.stockcharts.com
In this schematic, the UTAD is located at the end of the TR, showing trapped buyers.
Distribution Schematic #2:
school.stockcharts.com
In this schematic, the UTAD is located in the middle of the TR, showing trapped buyers.
Example of Distribution #1 Analysis (Press Play!):
Example of Distribution # 2 Analysis (Press Play!):
4. Redistribution :
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After Distribution, Comes Redistribution. Where after a extended down move, a repeated sideways movement occurs which leads to another extended downwards move.
Redistribution is also known as a Downtrend Continuation. Redistribution is said to be difficult to analyse, so my general advice is to treat Redistribution as a method to spot an additional Distribution Schematic after a Distribution Schematic and a Mark Down has already occurred previously recently on the chart (Similar to a Bear Flag Pattern after a Distribution).
The characteristics are almost identical to Distribution sometimes, except the previous price movement leading up to the trading range is upwards :
Here are the characteristics explained :
1. PS (Preliminary Support) the first Support area that was lost, creating the upper bound of the TR.
2. SC (Selling Climax) the climactic action that is bought up quickly creating the lower bound of the TR. It is a strong example of Effort vs Result usually, with abnormally large selling volume, but no further downside.
3. AR (Automatic Rally) is a low volume, quick reaction visiting the other side of the TR, usually indicating long covering + (UT/UA Upwards Thrust / Action) The Upwards Action or Upwards Thrust takes out the Supply above the AR area, before heading back down.
4. ST (Secondary Test) a secondary test of the initial Demand Area created by the SC.
5. UT or UTAD (Upwards Thrust, or Upwards Thrust And Distribution), in a UT (Upwards Thrust) a significant amount of buyers enter the market, “Buying the Breakout”, but their Effort, leads to no Result and this variation of a “Bull Trap” is the most significant characteristic of the Distribution TR. A UTAD is basically a UT (Upwards Thrust) with a Distribution also (miniature Bearish Trading Range) that usually forms within the middle or end of the TR.
6. LPSY + Test (Last Point of Supply) is when price revisits the initial Supply area created at the start of the Trading Range, and then successfully decreases from that area, the test confirmed by tapping the upper Supply Area before heading into the TR again.
7. SOW (Sign of Weakness) *sometimes* with a potential UTAD (Upwards Thrust and Distribution): Signs of Weakness are strong moves to the lower bounds of the Trading Range (or Underneath) with strong volume signature.
8. SOW (Sign of Weakness, Fall under the Ice) just like how in Accumulation we Jump Across the creek, in Distribution we do the latter and Fall Under the Ice.
9. LPSY (Last Point of Supply) instead of revisiting the initial Supply area created at the start of the Trading Range, in this LPSY we are visiting the Supply area created near the bottom of the Trading Range.
We should then enter the Mark Down phase as described at the start of this article. Redistribution is the Cause, Mark Down is the Effect.
Examples & Links :
It is important to note that Redistribution can appear as Distribution just like Accumulation as Reaccumulation as mentioned earlier, here is a example on ETHUSDT:
Redistribution Schematic #1:
ibb.co
In this schematic, the UTAD is located at the end of the TR, showing trapped buyers.
Redistribution Schematic #2:
ibb.co
In this schematic, the UTAD is located in the middle of the TR, showing trapped buyers.
Example of Redistribution #1 Analysis (Press Play!):
Example of Redistribution #2 Analysis (Press Play!):
5. Failure of Schematic :
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Wyckoff based trades can also fail.
It is also important to note that Wyckoff Schematics are not a guarantee, more so a system for you to analyse the market and know potential lower risk areas to position your trades.
In this example below (Click+Press Play!) we can see that the Accumulation on BATUSDT did have a strong breakout, but never entered into a correct markup phase and then "failed" when the price came back inside of the TR (Trading Range):
Nine Buying/Selling Tests:
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Whereas the three Wyckoff laws provide a big-picture foundation for the Wyckoff method, the nine buying and selling tests are a set of narrower, specific principles to help guide trade entry. These tests help delineate when a trading range is drawing to a close and a new uptrend (markup) or downtrend (markdown) is about to begin.
In the book, by Hank Pruden, named "The Three Skills of Top Trading" , as well as the following article by Jack K Hutson the Nine Buying and Selling Tests of Wyckoff are discussed and outlayed similar to the above image:
These nine tests can be difficult to understand, or even apply to your charts, so I have summarised them and modernised these tests for a purely candlestick chart and simplified point of view.
Alot of analysts beforehand made use of P&F (Point & Figure Charts). At the top of your Tradingview chart, you can see a small icon, if you click it you can see the different types of charts available, we are currently on Candlesticks, Point & Figure is another option that was used for some Wyckoff Analysis, but in my simplified version we are just using Candlesticks:
ibb.co
Here are my simplified Buying & Selling Tests explained with images
1. Buying Tests :
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I am using the chart of ZILUSDT as a example.
Wyckoff Buying Tests for Accumulation (Simplified Version)
1. Downside price target complete or close to complete of any previous Bearish Patterns
(Bear Flag Pattern used for Target Measurement: www.thepatternsite.com )
2. PS, SC, and AR/ST on chart (Remember our first chart above, with Supply & Demand? ON the left we can see creation of the trading range with the Selling Climax (SC), Automatic Rally (AR), and Support Test (ST) we also covered this in the chart below (The 2nd below is showing that on ZILUSDT):
3. Bullish Signs (volume or price increases on rallies and diminishes during reactions)
4. Diagonal Resistance Broken
5. Higher lows & 6. Higher highs
7. Asset stronger than the market (more responsive on rallies and more resistant to reactions than the market index or other dominant assets)
8. Base forming (horizontal price line)
(It can resemble a Flat Base Pattern: www.thepatternsite.com)
9. Estimated upside profit potential is at least three times the loss if the initial stop-loss were hit (Risk to Reward; 3:1)
We can now see we have completed all 9 Buying Tests:
And for the final images, we can see that ZIL has a massive upside move, moving to the Mark Up phase from our Buying Tests Analysis:
Aswell as starting to complete a larger Accumulation #1 Structure as desribed above.
2. Selling Tests :
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I am using the chart of XTZBTC as a example.
If you missed it above, dont forget to see the original 9 Selling Tests:
ibb.co
Wyckoff Buying Tests for Distribution (Simplified Version)
1. Upside price objective complete of any previous Bullish Patterns on higher timeframes, or close to complete
(Bull Flag Pattern used for Target Measurement: www.thepatternsite.com )
2. Bearish Signs (volume decreases on rallies and increases on reactions)
3. Preliminary supply, buying climax (PSY, BC)
We also covered this in the chart below (The 2nd below is showing that on XTZBTC):
4. Asset weaker than the market (more responsive than the market on reactions and sluggish on rallies)
XTZ was a perfect example of Selling Test #4, as you can see it was much weaker than Bitcoin at the time, which was leading the market.
5. Diagonal Support Broken
6. Lower Highs & 7. Lower Lows
8. Crown forming
(It can resemble a ugly Double Top Pattern: www.thepatternsite.com)
9. Estimated downside profit potential is at least three times the loss if the initial stop-loss were hit (Risk to Reward; 3:1), we have now completed all 9 Selling Tests!
And for the final images, we can see that XTZBTC has a massive downside move, moving to the Mark Down phase from our Selling Tests Analysis:
As well as starting to complete a larger Distribution #2 Structure as described above. Refer to your schematics above if your confused.
Conclusion:
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Not only does the Wyckoff Method teach the novice Investor/Trader the techniques, foundations and methods needed to analyse the market, it also helps create a system and mindframe towards observing and timing the market, which allows the trader to be much more rationalised and organised in their train of thought as well as much more risk averse.
By using the Wyckoff based analysis on Siacoin we can clearly see this token has potential for more upside, although we do need to be cautious as a significant pullback on Bitcoin could easily “Fail” the “Spring” action of the TR (Trading Range) in the original analysis image above.
What would a successful accumulation breakout look like on Siacoin?
Refer to the original chart at the start of the post. I have made a small drawing, describing the characteristics we need to see for this to progress further. You can use that drawing along with the next below to get a rough idea of what a successful breakout will look like, compare with the Accumulation Schematics you studied above.
What would a failure of accumulation look like on Siacoin?
I will give two examples:
1. Failure of Spring
2. Failure of Phase E (Uptrend)
I hope you enjoyed my explanation of the Wyckoff Method - Thank you and if you found this writeup insightful, educational and informative don't forget to hit Subscribe, Like & Comment so others can also potentially see and benefit from this post, if you wish to see these concepts in action, I recommend visiting my signature as well.
Other Resources & References:
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Websites:
Wyckoff Analytics: wyckoffanalytics.com
Wyckoff SMI: wyckoffsmi.com
Videos:
Wyckoff Youtube: www.youtube.com
Wyckoff SMI Youtube: www.youtube.com
Stockcharts.com Youtube: www.youtube.com
(I didnt cover volume much in this article, check out the above video for a Volume Tutorial)
Articles:
school.stockcharts.com
school.stockcharts.com
school.stockcharts.com
www.wyckoffanalytics.com
www.wyckoffanalytics.com
Magazine of Wall Street Database:
(Founded by Wyckoff)
shorturl.at
Books:
www.amazon.com
www.amazon.com
References:
en.wikipedia.org
school.stockcharts.com
The Laws of Wyckoff: Effort Vs ResultIntroduction:
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Richard Demille Wyckoff (November 2, 1873 – March 7, 1934) was considered one of the five “titans” of technical analysis , along with Dow, Gann , Elliott and Merrill.
Wyckoff was an avid student of the markets, as well as an active tape reader and trader. He observed the market activities and campaigns of the legendary stock operators of his time, including JP Morgan and Jesse Livermore. From his observations and interviews with those big-time traders, Wyckoff codified the best practices of Livermore and others into laws, principles and techniques of trading methodology, money management and mental discipline.
Laws of Wyckoff
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Wyckoff Analysis is fundamentally based off the Three Laws of Wyckoff, which can be found and recognized across many different types of Analysis, the Laws help give insight to our analysis and choice of buying/selling.
The Three Laws of Wyckoff are:
Supply & Demand
Effort vs. Result
Cause & Effect
Law #2: Effort vs. Result
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Wyckoff states that every effort should lead to a result in the financial markets.
The above example describes the concept of Effort vs Result in a Trading Range (Parallel Channel) using Volume & Price Based Analysis
This statement is applied to our charts by using data found on Trading View from the Volume Indicator. When we see abnormally large trading volume at key areas on the chart, such as a defined "TR (Trading Range)" we can usually expect a continued move in that direction, this is called the Breakout of the range.
But if buyers cannot gather enough momentum to continue the Breakout action, they may become trapped, and as prices fall back inside of the defined area, their Effort has produced no Result. That abnormally large trading volume can give us a potential sign that the participants betting on the market to move in that direction failed to gather enough momentum to do so (Light Blue), which leads to them being trapped (Dark Blue) and then a reverse in the opposite direction in price (Purple).
This kind of Analysis is not just "fixed" to the bottom or top of a Trading Range, Effort vs Result can be interpreted a number of ways, for example in the below image we can see that the Effort in this case was not outside of the range, but a failure from the buyers to hold prices INSIDE the range:
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Combining wyckoff's theory with ONCHAIN data"This is a hypothesis that needs more testing to be more precise."
Wyckoff's theory t is one of the most influential theories of market expression, and the most important components of which are lateral movement areas and trends. This theory turns the graph into something like Dots and lines (stations and paths). But it is not as easy to use as written in books. After getting acquainted with Wyckoff's theory, I read several books on the subject, hoping that they could help me identify this area of lateral movement, the area of accumulation, or distribution. But there was a fundamental drawback. It is challenging to diagnose this issue. In fact, the rules discussed in these books are highly interpretive and subjective, and two different individual traders may come to exactly opposite conclusions based on their interpretation.
But as I became more familiar with the onchain analysis, an idea came to my mind that might be useful for more objectively recognizing charts based on Wyckoff's theory.
Composite Man: Wyckoff proposed a theory to help understand price movements in stocks. this is the “Composite Man” theory. (The same concept of whales or strong hands.)
he said: “…all the fluctuations in the market and in all the various stocks should be studied as if they were the result of one man’s operations. Let us call him the Composite Man, who, in theory, sits behind the scenes and manipulates the stocks to your disadvantage if you do not understand the game as he plays it; and to your great profit if you do understand it.” (The Richard D. Wyckoff Course in Stock Market Science and Technique, section 9, p. 1-2)
In fact, composite Man is a hypothetical man who has so much money and stocks that when he wants he can gradually increase the price by buying stocks and creating demand, and when the price goes high enough he selles his stock and lower the price. The composite man is the main player in the market. Wyckoff says that if you want to make a good profit from the market, figure out what a composite man game is.
In fact, having a way of showing us where the Composite Man is in the market, can help us understand future trends
Who are the strong hands in the cryptocurrency market? (I use the strong hand word here instead of the composite man)
There are those who buy or sell more per capita than other market participants (retailers).
To understand this in the bitcoin market, I have used 3 charts and concepts:
1- Sending Addresses: The number of coins addresses making inflow transactions to the exchange.
Indicates the number of sellers' wallets (number of sellers)
2- buyers Addresses: The number of coins addresses making outflow transactions from the exchange.
Indicates the number of buyers' wallets (number of buyers)
3- Pay attention to this issue: the volume of transactions shows both the volume of sales and the buy (Volume of buy and sale is equal in the market)
Considering the above 3 issues, it can be concluded:
- If the number of Receiving Addresses is higher than the Sending Addresses (the number of people who bought compared to the number of those who sold), it indicates that more people bought and fewer people sold (given that the volume of sales and buys are the same) So the sellers were stronger hands. In such a situation, the composite man is on the sales side.
- If the number of Sending Addresses is higher than the Receiving Addresses (number of people who have sold more than the number of people who have bought), it indicates that more people have been sellers and fewer people have been buyers (given that the volume of sales and buys are the same) so the buyers were stronger hands. In such a situation, the Composite man is on the buying side.
To do this, the oscillator at the bottom of the chart divides the Number of Receiving Addresses by the Number of Sending Addresses. Numbers above 1.2 indicate that the Composite man is on the side of the sellers and should expect a price reduction in the future.
Values below 1 (or 1.2) indicate that the Composite man is on the buyers side. And we should expect price increases in the future.
XAUUSD Wyckoff Accumulation - Don't get caught out!Illustrated above is a break out of an accumulation set up which should see gold recapturing the price levels it fell through last week. The immediate upside price objectives are 1802,1811 and 1828.
Last weeks decline found preliminary support (PS) at 1794. This temporary relief is usually followed by what is known as a selling climax (SC) which took gold down to 1786. We saw first signs of exhaustion at this stage confirmed by the automatic rally (AR) back towards the preliminary support (PS) , before a secondary test (ST) saw price retracing back towards the climax lows. What follows next usually leaves an asset temporarily range-bound and is characterised by several rallies and secondary tests; the highest and lowest price points outlining the support and resistance levels for the range.
An initial a sign of strength (SOS) signified that a bottom had occurred with buyers emerging. This was subsequently followed by another sell off which often breaks the selling climax (SC) lows briefly. A key indicator to look out for at this stage is volume. Lower volume than during the initial selling climax (SC) indicates a possible (Spring) with confirmation of the Spring being further strengthened by another attempted sell off to the last point of support (LPS) which witnesses price bouncing back off the support line identified during the earlier stages. From this point onwards, price is expected to retrace back up and break out of the range targeting previous levels of distribution.
Whilst the longer term technicals and sentiment remain bearish, bulls have the near-term technical advantage. A daily close below 1785 will be required to change this near-term outlook. We can expect for gold to retest the 1828-1834 price level again. A successful break of this could lead bulls back up to the 1855-1860 level.
I hope you found this useful, do leave your thoughts in a comment below.
As always, a 'like' and 'follow' provides encouragement to share further ideas.
Thank you for taking the time.
BeyondEdge
Your Edge Is Your Perception. Go Beyond.
Part 2 - How to identify Trend Reversal | SMCPart 1 of this Educational content we looked at Market Structural behavior in reversal of trends. Part 2, we are going to take a look at SMCs.
Important things to know about Wyckoff’s Schematics are.
Always start of plotting Supply and Demand zones on HTF.
Accumulation and Distribution should take place within HTF Supply and Demand zones.
An excess of demand over supply causes prices to go up because there are more people buying than selling. But, in a situation where there is more selling than buying, the supply exceeds demand, causing the price to drop.
1. Demand > Supply = Price rises
2. Demand < Supply = Price drops
3. Demand = Supply = No significant price change (low volatility)
Re-Accumulation and Re-Distribution takes place in LTF Supply and Demand zones. These moves are done to provide more liquidity and to take out liquidity from them market. As market moves from liquidity to liquidity. In other words, Transfer of weak hands into strong hands taking place.
It's not important to identify all the phases of Wyckoff’s Schematics as long as you understand the basic and important laws and principles.
This is just the summary of the entire thing, and if you find it useful leave a comment below. And I will be doing a Part 3 , where we will look at how to make entries and how to set possible targets.