Wyckoff Madness: A guide for the average Joe
Table of Contents
I. Introduction
Definition of the Wyckoff Pattern
Brief background on its creator, Richard D. Wyckoff
II. Overview of the Wyckoff Pattern
Description of the four stages: accumulation, markup, distribution, and markdown
Explanation of how these stages repeat in a cyclical manner
III. The Accumulation Stage
Characteristics of this stage (low volume, narrow price range)
Role of professional traders (smart money) in buying up securities
Stages of Accumulation
Indicators
The Golden Rules
IV. The Markup Stage
Characteristics of this stage (increased volume, widening price range)
Involvement of the public in pushing prices higher
V. The Distribution Stage
Characteristics of this stage (decreased volume, narrowing price range)
Professional traders selling positions to the public at higher prices
VI. The Markdown Stage
Characteristics of this stage (further decreased volume, widening price range)
Public panic selling causing prices to drop
VII. Key Principles of the Wyckoff Pattern
Concept of supply and demand
Use of chart patterns to confirm trade signals
VIII. Benefits and Applications of the Wyckoff Pattern
Particularly useful for long-term investors
Can be applied to different time frames (daily, weekly, monthly charts)
XI. Limitations and Risks
X. Mastering the Wyckoff Pattern: A Five-Step Approach to Stock Selection and Trade Entry"
I. "Step One: Market Analysis for Dummies"
II. Overview of the Wyckoff Method's Five Steps
Determine market trend and direction using bar and Point and Figure charts
Decide whether to enter market and take long or short positions
III. "Stocks That Aren't Total Duds"
Choose stocks that are stronger in uptrends and weaker in downtrends
Use bar charts to compare individual stocks to relevant market index
IV. "Setting Goals for Your Stocks"
Identify price targets using Point and Figure projections for long and short trades
Choose stocks under accumulation or re-accumulation with sufficient "cause" to meet objectives
V. "Is Your Stock Ready to Move Its Ass?"
Use nine tests to determine readiness to buy or sell
Use bar and Point and Figure charts to assess individual stocks
VI. "Let the Market Carry You to Victory"
Three-quarters or more of individual stocks move with the overall market
Use Wyckoff principles to anticipate market turns and put stop-loss in place
Trail stop-loss until closing out position.
I. Introduction
Wyckoff Pattern in trading - The Wyckoff Pattern is a trading strategy that was developed by Richard D. Wyckoff, a Wall Street trader and analyst who lived in the late 19th and early 20th centuries. The Wyckoff Pattern is based on the premise that market trends, whether bullish or bearish, follow a similar pattern of development. Traders may use the Wyckoff Pattern to identify market trends, determine the best times to enter or exit positions, and set price targets for their trades. It can also be used to identify market manipulation and understand the behavior of larger market participants, such as institutional investors.
The Wyckoff Pattern can be applied to various financial markets, including stocks, cryptocurrencies, and commodities. It is a widely used and well-respected trading strategy that can be a valuable tool for traders looking to improve their trading performance.. This pattern includes four macro stages: accumulation, markup, distribution, and markdown.
II. Overview of the Wyckoff Pattern
The accumulation stage is characterized by low volume and narrow price ranges. During this stage, professional traders, also known as "smart money," are quietly buying up a security in large quantities. The markup stage is marked by an increase in volume and a widening of the price range. This is the stage where the public becomes aware of the security and starts to buy it, pushing the price up further.
The distribution stage is characterized by a decrease in volume(after a heavy increase) and a narrowing of the price range. During this stage, the professional traders start to sell their positions to the public at increasingly higher prices. The markdown stage is marked by a further decrease in volume and a widening of the price range as the security's price starts to fall. This is the stage where the public starts to panic and sell their positions, causing the price to drop further.
The Wyckoff Pattern is based on the idea that these four stages are repeated in a cyclical manner, and that traders can use this knowledge to make informed decisions about when to buy and sell a security. This strategy is particularly useful for long-term investors, as it allows them to take advantage of the natural ebb and flow of the market.
One of the key principles of the Wyckoff Pattern is the concept of supply and demand. The accumulation and markup stages represent a surplus of demand, while the distribution and markdown stages represent a surplus of supply. By understanding these trends and analyzing the volume and price action of a security, traders can get a sense of where the market is in its cycle and make informed decisions about their trades.
Another important aspect of the Wyckoff Pattern is the use of chart patterns to confirm and validate trade signals. The most common chart patterns used in conjunction with the Wyckoff Pattern are the flag and the wedge. These patterns help traders identify key support and resistance levels and confirm whether a trade signal is valid or not.
In this article, we will thoroughly discuss the Wyckoff Method. By understanding the principles of supply and demand as they apply to long-term investing, traders can use the Wyckoff Method to make informed decisions about when to buy and sell securities.
III. The Accumulation Stage
The accumulation stage is an important part of the Wyckoff Pattern, a trading strategy developed by Wall Street trader and analyst Richard D. Wyckoff. The accumulation stage is characterized by low volume and narrow price ranges, and it is during this stage that professional traders, also known as "smart money," quietly buy up a security in large quantities.
The accumulation stage is typically marked by a lack of interest or attention from the general public, as prices remain relatively stable and volume remains low. This is the stage where professional traders, who are often better informed and have access to more resources, take the opportunity to accumulate positions in a security.
The accumulation stage is an important indicator of the potential future trend of a security, as it signals that professional traders believe the security is undervalued and has the potential to rise in price. By analyzing the volume and price action of a security during the accumulation stage, traders can get a sense of the strength of the "smart money" buyers and make informed decisions about their trades.
Disclaimer: It is important to note that the accumulation stage is just one part of the Wyckoff Pattern, and traders should always consider the overall market trend and use other indicators and studies in conjunction with the Wyckoff Pattern to make informed trades. However, understanding the characteristics and importance of the accumulation stage can provide valuable insight for traders looking to make long-term investments.
To recognize accumulation on a bar chart, traders should look for the following characteristics:
Low volume: During the accumulation stage, volume should be relatively low as professional traders quietly accumulate positions in a security.
Narrow price range: The price range, or the difference between the highest and lowest prices during a given time period, should be relatively narrow during the accumulation stage.
Stable or rising prices: Prices should remain stable or gradually rise during the accumulation stage, as professional traders believe the security is undervalued and has potential for future price appreciation.
Bullish chart patterns: Traders may also look for bullish chart patterns, such as uptrends or higher highs and higher lows, as these can indicate that professional traders are accumulating positions and expect the security to rise in price.
When it comes to identifying accumulation in a stock, forex or other asset, it is important to consider both the long-term trend and short-term price action. One way to determine if a security is being accumulated is to look for signs of a long-term uptrend, such as higher highs and higher lows on the price chart. However, it is important to note that this is not always a clear-cut indication, as there can be periods of consolidation or correction within an uptrend.
In addition to considering the long-term trend, traders can also look for specific candlestick patterns or technical indicators that may indicate accumulation. For example, a security with a rising on-balance volume (OBV) or accumulation/distribution (A/D) line may be a sign that professional traders are accumulating positions in the security.
It is worth noting that accumulation is not always a straightforward process, and there may be periods of confusion or conflicting signals. To make the most informed decisions, traders should consider a variety of indicators and factors, such as market trends, volume, and price action, and always use sound risk management practices.
Review:
The accumulation phase is characterized by a sideways and range-bound period that follows a prolonged downtrend. During this phase, larger players, also known as "smart money," try to build positions in a security. This is typically done quietly, with low volume and narrow price ranges.
Stages of Accumulation:
There are six distinct parts to the Wyckoff accumulation phase, each with an important function. The first part is the "Preliminary Support," which is the initial phase of the accumulation process. This is when smart money begins buying up the security, often at lower prices.
The second part is the "Selling Climax," which is characterized by a sharp price decline and high volume. This is a sign that the larger players are aggressively selling their positions, likely in an effort to shake out weaker hands.
Following the Selling Climax is the "Automatic Rally," which is a short-term price increase that occurs as the smart money starts buying back their positions at lower prices. This rally is typically marked by increased volume and a narrowing of the price range.
The fourth part of the accumulation phase is the "Secondary Test," which is a retest of the previous low prices. This is a key moment in the accumulation process, as it allows the smart money to gauge the strength of the security and make any necessary adjustments to their positions.
The fifth part of the accumulation phase is the "Spring," which is a strong price move higher that is often accompanied by high volume. This is a sign that the smart money is aggressively buying the security, likely in anticipation of a larger price move higher.
The final part of the accumulation phase is the "Last Point of Support," also known as the "Back-up" and "Sign of Strength." This is the final phase of the accumulation process, in which the smart money continues to buy up the security, pushing the price higher and establishing a new uptrend.
The "Preliminary Support" (PS)
Occurs after a prolonged down move
Signs of high volume and spreads widening
Indication that the selling may be coming to an end as buyers begin to show up
The "Selling Climax" (SC)
PS fails, and price begins to violently sell off
Panic selling phase
Prices may jump by more than their norm and spreads may widen to extremes
Price often closes far from the low and candlestick chart displays a large wick
The automatic rally (AR)
Late sellers punished as buyers cause price to reverse with same intensity as SC but in opposite direction
Result of short sellers covering positions
High of this point often defines upper range extreme for consolidation that follows
The secondary test (ST)
Price revisits lows of structure but in a controlled manner
Volume should not increase from sellers
Multiple secondary tests common
The spring
Hard test of low to mislead participants into believing trend is resuming downwards
Equivalent to a "swing failure pattern" or shakeout
May not always be required
Price should quickly reclaim prior structural level after spring
Last point of support, back up, and sign of strength (LPS, BU, SOS)
Clear shifts in price action from prior activity into beginning of range
Price begins to reclaim microstructural pivot points established earlier
Sign of strength may occur immediately after spring
Rapid, one-sided move that signifies buyers in total control
Volume at end of range should be high and result in significant ground covered
Marks the beginning of the mark up phase, where larger players take supply from smaller players.
Volume
Use Indicators
There are several indicators used on the TradingView platform that can be used to help assist in identifying accumulation. Some examples include:
On-Balance Volume (OBV): The OBV indicator uses volume data to measure buying and selling pressure. A rising OBV line can indicate accumulation, as it suggests that there is more buying than selling and that professional traders are accumulating positions in the security.
Chaikin Money Flow (CMF): The CMF indicator uses both price and volume data to measure buying and selling pressure. A positive CMF value can indicate accumulation, as it suggests that there is more buying than selling and that professional traders are accumulating positions in the security.
Accumulation/Distribution (A/D): The A/D indicator uses price and volume data to measure the flow of money into and out of a security. A rising A/D line can indicate accumulation, as it suggests that there is more buying than selling and that professional traders are accumulating positions in the security.
The Golden Rules
The market and individual securities never behave in exactly the same way twice, and the significance of price movements can only be understood in the context of past price behavior.
Context is everything in the financial markets, and the best way to evaluate current price action is to compare it to what has happened in the past.
Analyzing a single day's price action in isolation can lead to incorrect conclusions.
In addition to these rules, Wyckoff also identified three types of trends - up, down, and flat - and three time frames - short-term, intermediate-term, and long-term - and observed that trends can vary significantly depending on the time frame being analyzed. These rules can be used to help traders identify and analyze trends and make informed trading decisions.
IV. The Markup Stage
The markup stage is a crucial part of the Wyckoff Pattern, a trading strategy developed by Wall Street trader and analyst Richard D. Wyckoff. The markup stage is characterized by an increase in volume and a widening of the price range, and it is during this stage that the public becomes aware of a security and starts to buy it, pushing the price up further.
The markup stage typically follows the accumulation stage, during which professional traders, also known as "smart money," quietly accumulate positions in a security. As the professional traders start to build their positions and the security's price begins to rise, the public becomes aware of the security and starts to buy it as well. This increased buying activity drives the price up further and widens the price range.
One way to identify the markup stage on a price chart is to look for an increase in volume and a widening of the price range. This can be a sign that the public is becoming more interested in the security and is starting to buy it, pushing the price up further. The markup phase can be further measured by the slope of the new uptrend, with pullbacks to new support offering potential buying opportunities known as throwbacks, similar to modern buy-the-dip patterns. Re-accumulation phases may also interrupt the markup phase with small consolidation patterns, while steeper pullbacks known as corrections can also occur.
It is important to note that the markup stage is just one part of the Wyckoff Pattern, and traders should always consider the overall market trend and use other indicators and studies
V. The Distribution Stage
The distribution stage is characterized by a decrease in volume and a narrowing of the price range, and it is during this stage that professional traders start to sell their positions to the public at increasingly higher prices.
The distribution stage typically follows the markup stage, during which the public becomes aware of a security and starts buying it, pushing the price up further. As the price continues to rise, professional traders begin to sell their positions to the public at increasingly higher prices. This selling activity leads to a decrease in volume and a narrowing of the price range.
One way to identify the distribution stage on a price chart is to look for a decrease in volume and a narrowing of the price range. This can be a sign that professional traders are selling their positions to the public and that the security's price may be reaching a peak.
There are five parts to the Wyckoff distribution phase: the "Preliminary Supply," the "Buying Climax," the automatic reaction, the secondary test, and the spring.
The "Preliminary Supply" is the first sign that professional traders are starting to sell their positions. This is typically marked by an increase in volume and a widening of the price range.
The "Buying Climax" is a sign that the public is becoming aware of the security and is starting to buy it. This is typically marked by a further increase in volume and a further widening of the price range.
The automatic reaction is a short-term pullback in the security's price as professional traders continue to sell their positions. This is typically marked by a decrease in volume and a narrowing of the price range.
The secondary test is a retest of the low of the automatic reaction. This is typically marked by a further decrease in volume and a further narrowing of the price range.
The spring is a sharp, low-volume move up in the security's price as professional traders start to accumulate their positions again. This is typically marked by an increase in volume and a widening of the price range.
The Wyckoff distribution phase also includes three important terms: SOW, LPSY, and UTAD. SOW stands for "supply over whelming demand," LPSY stands for "last point of supply," and UTAD stands for "upthrust after distribution." These terms refer to specific points in the distribution phase where professional traders are particularly active in selling their positions.
The Distribution cycle is characterized by dominant traders selling off their positions when the price is high
The Distribution cycle has five phases: Preliminary Supply (PSY), Buying Climax (BC), Automatic Reaction (AR), Secondary Test (ST), and Sign of Weakness, Last Point of Supply, Upthrust After Distribution (SOW, LPSY, UTAD)
The Preliminary Supply phase occurs after a significant price rise and is marked by dominant traders selling off large portions of their positions
The Buying Climax phase is characterized by retail traders buying up positions, causing the price to continue rising
The Automatic Reaction phase is marked by a decrease in the number of traders buying up positions, resulting in a drop in price to the lower boundary of the Distribution cycle
The Secondary Test phase sees the price rise back to the range of the Buying Climax, as traders test the balance of supply and demand
The final phase, Sign of Weakness, Last Point of Supply, Upthrust After Distribution (SOW, LPSY, UTAD), is characterized by the asset's price falling near or below the initial boundaries of the Distribution cycle, indicating price weakness. The LPSY phase sees traders testing the support of the asset's price at these lower levels, and the UTAD phase, if it occurs, is marked by increased demand and a push to the upper price boundary of the entire cycle.
VI. The Markdown Stage
The markdown period, also known as the distribution stage, is a crucial part of the Wyckoff Cycle. It follows the markup stage, during which professional traders, or "smart money," start to build their positions and the security's price begins to rise. As the price continues to rise, the public becomes aware of the security and starts to buy it as well, driving the price up further and widening the price range.
However, as the price reaches its peak and the professional traders start to sell off their positions, the markdown period begins. This is characterized by a decrease in volume and a narrowing of the price range, as the professional traders sell off their positions to the public.
It is important to note that the markdown period is just one part of the Wyckoff Cycle, and traders should always consider the overall market trend and use other indicators and studies in conjunction with the Wyckoff Pattern to make informed trades. However, understanding the characteristics and importance of the markdown period can provide valuable insight for traders looking to make long-term investments.
VII. Key Principles of the Wyckoff Pattern
The Wyckoff Method, a trading strategy developed by Wall Street trader and analyst Richard D. Wyckoff, is based on three fundamental laws that provide insight into market trends and help traders make informed decisions. These laws are: the law of supply and demand, the law of cause and effect, and the law of effort vs. result.
The law of supply and demand is one of the most basic principles of financial markets, stating that prices rise when demand is greater than supply, and drop when the opposite is true. This law can be represented by the following equations: if demand is greater than supply, the price will rise; if demand is less than supply, the price will drop; if demand is equal to supply, there will be no significant price change (low volatility). Many investors who follow the Wyckoff Method use price action and volume bars to visualize the relationship between supply and demand and gain insights into potential market movements.
The law of cause and effect states that the differences between supply and demand are not random, but rather the result of specific events or periods of preparation. In Wyckoff's terms, a period of accumulation (cause) eventually leads to an uptrend (effect), while a period of distribution (cause) eventually results in a downtrend (effect). Wyckoff developed methods of defining trading targets based on periods of accumulation and distribution, allowing him to estimate the probable extension of a market trend after breaking out of a consolidation zone or trading range.
The law of effort vs. result states that the changes in an asset's price are a result of an effort, as represented by the trading volume. If the price action is in harmony with the volume, there is a good chance the trend will continue. However, if the volume and price diverge significantly, the market trend is likely to stop or change direction. For example, if the market experiences high volume but low volatility during a consolidation phase, this may indicate that the trend is coming to an end and a reversal is imminent.
In terms of benefits and applications, the Wyckoff Pattern is particularly useful for long-term investors who are looking to take advantage of the natural ebb and flow of the market. It can also be applied to different time frames, such as daily, weekly, or monthly charts. However, it is important to note that the Wyckoff Pattern is not without its risks and limitations. As a standalone strategy, it may not always provide reliable signals and should be used in conjunction with other indicators and studies.
One indicator that traders can use to help identify the markdown period is the relative volume indicator. This indicator compares the current volume of a security to its average volume over a certain period of time, helping traders to identify unusual changes in volume that may be indicative of a change in the market trend.
To use the relative volume indicator in TradingView, first select the security you are interested in and then click on the "Indicators" tab. From the list of indicators, select the "Volume" category and then choose the "Relative Volume" indicator. You can then customize the settings for the indicator, including the period of time over which you want to compare the volume.
Once the relative volume indicator is applied to the chart, you can use it to identify changes in volume that may be indicative of a change in the market trend. For example, if the relative volume is significantly higher than normal, it may be an indication that the markdown period is beginning, as professional traders start to sell off their positions. On the other hand, if the relative volume is significantly lower than normal, it may be an indication that the markdown period is coming to an end, as the professional traders have finished selling off their positions.
The Volume indicator in Tradingview is a useful tool for analyzing the volume of a security or asset over a specified time period. To access the Volume indicator in Tradingview, simply click on the "Indicators" tab in the chart menu and select "Volume" from the list of available indicators.
Once you have added the Volume indicator to your chart, you can customize its appearance and settings to suit your needs. For example, you can adjust the length of the moving average applied to the volume data, as well as the color and style of the volume bars.
To turn on the internal moving average for the Volume indicator, simply click on the "Settings" button in the indicator menu and check the box next to "Show MA." From here, you can also specify the length of the moving average by entering a value in the "MA Length" field.
Using the Volume indicator with an internal moving average can be helpful in identifying trends in volume over time. For example, if the volume is consistently rising over a period of several days or weeks, this may be a sign of increased interest in the security or asset. On the other hand, if the volume is declining over time, this could indicate a decrease in interest or liquidity.
In addition to the Volume indicator, you can also use the relative volume indicator in Tradingview to compare the volume of a security or asset to its average volume over a specified time period. To do this, simply add the relative volume indicator to your chart and customize its settings as needed.
Overall, the Volume and relative volume indicators can be valuable tools for traders and investors looking to analyze the volume of a security or asset and identify trends in liquidity over time.
One of the best tools I have personally found, created by LUXALGO (Thank you humbly for this!)
The Smart Money Concepts indicator is a technical analysis tool developed by Luxalgo that is used to identify the behavior of professional or "smart money" traders in the market. It is based on the principles of the Wyckoff Method, which suggests that market trends follow a similar pattern of development that includes four stages: accumulation, markup, distribution, and markdown.
To use the Smart Money Concepts indicator in Tradingview, follow these steps:
Open the Tradingview platform and select the asset you want to analyze.
Click on the "Indicators" tab in the chart toolbar and select "Add Indicator."
In the search bar, type in "Smart Money Concepts" and select the indicator from the list.
Adjust the indicator's settings to your preference. You can choose the length of the moving average, the color of the lines, and whether you want to show the accumulation and distribution lines on the chart.
Click "Apply" to add the indicator to your chart.
Once you have the Smart Money Concepts indicator on your chart, you can use it to identify the behavior of smart money traders. The accumulation line represents the buying activity of professional traders, while the distribution line represents their selling activity. When the accumulation line is above the distribution line, it indicates that professional traders are buying more than they are selling, which may be a sign of bullish sentiment. Conversely, when the distribution line is above the accumulation line, it indicates that professional traders are selling more than they are buying, which may be a sign of bearish sentiment.
The SMC is designed to help traders accurately identify liquidity and find optimal points of interest in the market. It does this by displaying real-time market structure, order blocks, premium and discount zones, equal highs and lows, and more on the chart, allowing traders to automatically mark up their charts with widely used price action methodologies.
One of the key features of the SMC indicator is its ability to label internal and swing market structures in real-time, including Break of Structure (BOS) and Change of Character (CHoCH). These structures can provide insight into the behavior of institutional market participants and help traders determine where buy and sell side liquidity may be located.
The SMC indicator also includes alerts for the presence of swing structures and other relevant conditions, as well as options for styling the indicator to make it easier to display these concepts. It allows users to select between historical and present modes, and offers customization options for things like internal structure, swing structure, equal highs and lows, and fair value gap detection.
One of the benefits of using the SMC indicator is its ability to help traders filter out non-significant internal structure breakouts and fair value gaps using its confluence filter and auto threshold settings. It also allows users to display previous highs and lows from different timeframes, such as daily, weekly, and monthly, as significant levels.
You can also use the Smart Money Concepts indicator in combination with other technical analysis tools, such as trend lines and chart patterns, to help you make more informed trading decisions. For example, if the accumulation line is trending upwards and you see a bullish chart pattern forming on the chart, it may be a good time to consider entering a long position.
For more information and use cases please refer to the authors page:
Accumulation and Distribution Review and Memorization Tactic:
For the accumulation phase:
"P-S-C-A-R-S-L"
Preliminary Support (PS)
Selling Climax (SC)
Automatic Rally (AR)
Secondary Test (ST)
Spring (S)
Last Point of Support, Back Up, Sign of Strength (LPS, BU, SOS)
For the distribution phase:
"P-B-A-S-S"
Preliminary Supply (PSY)
Buying Climax (BC)
Automatic Reaction (AR)
Secondary Test (ST)
Sign of Weakness, Last Point of Supply, Upthrust After Distribution (SOW, LPSY, UTAD)
Reminder! Review the GOLDEN RULES ABOVE!
Finding Patterns
The key principles of the Wyckoff Pattern involve understanding the concept of supply and demand and using chart patterns to confirm trade signals.
When it comes to understanding supply and demand, the Wyckoff Pattern is based on the idea 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 a central concept in the Wyckoff Method. By analyzing price action and volume bars, traders can get a better sense of the relation between supply and demand and gain insight into potential market movements.
In addition to understanding supply and demand, traders using the Wyckoff Pattern also rely on chart patterns to confirm trade signals. Some of the most common chart patterns used in conjunction with the Wyckoff Pattern are the flag, the wedge, and the head and shoulders pattern.
Two of the most common chart patterns used in conjunction with the Wyckoff Pattern are the flag and the wedge. These patterns are typically formed when there is a sudden and sharp price move followed by a period of consolidation.
The flag pattern is formed when the price of an asset makes a sharp move in one direction, followed by a period of consolidation in a narrow range. The consolidation period is often referred to as the "flag" because it appears as a rectangular shape on the chart. The flag pattern is typically seen as a bullish pattern, as it suggests that the asset is likely to continue its uptrend after the consolidation period. To identify the flag pattern, traders should look for a sharp price move followed by a period of consolidation in a narrow range.
The wedge pattern is similar to the flag pattern, but it is formed when the price of an asset makes a sharp move in one direction followed by a period of consolidation in a gradually narrowing range. The consolidation period is often referred to as the "wedge" because it appears as a triangular shape on the chart. The wedge pattern can be either bullish or bearish, depending on the direction of the initial price move. To identify the wedge pattern, traders should look for a sharp price move followed by a period of consolidation in a gradually narrowing range.
Note that the flag and wedge patterns are just two of many chart patterns that traders can use in conjunction with the Wyckoff Pattern. Other common chart patterns include the head and shoulders, the double top and bottom, and the triangle. Traders should always consider
Head and Shoulders: This chart pattern is characterized by a series of three peaks, with the middle peak (the head) being the highest and the two peaks on either side (the shoulders) being lower. This pattern is often seen as a bearish reversal, indicating that the trend is likely to reverse from an uptrend to a downtrend.
Double Top: This chart pattern is characterized by two consecutive peaks at approximately the same price level, with a valley in between. This pattern is often seen as a bearish reversal, indicating that the trend is likely to reverse from an uptrend to a downtrend.
Double Bottom: This chart pattern is the opposite of the double top, and is characterized by two consecutive valleys at approximately the same price level, with a peak in between. This pattern is often seen as a bullish reversal, indicating that the trend is likely to reverse from a downtrend to an uptrend.
Triangle: This chart pattern is characterized by a series of peaks and valleys that converge towards a point, forming a triangular shape. There are three types of triangles: ascending, descending, and symmetrical. The direction of the breakout from the triangle can be used to confirm the direction of the trend.
Pennant: This chart pattern is similar to the triangle, but is characterized by a smaller price range and a faster time frame. It is typically seen as a continuation pattern, indicating that the trend is likely to continue in the same direction.
It is important to note that chart patterns should not be used in isolation, and should always be used in conjunction with other indicators and studies to confirm trade signals and make informed investment decisions
VIII. Benefits and Applications of the Wyckoff Pattern
The Wyckoff Pattern is a well-respected and widely-used trading strategy that has been used by traders for decades. It is particularly useful for long-term investors who are looking to make informed decisions about the direction of a security's price. Here are some of the benefits and applications of the Wyckoff Pattern:
Provides insight into market trends: The Wyckoff Pattern is based on the premise that market trends, whether bullish or bearish, follow a similar pattern of development. This pattern includes four stages: accumulation, markup, distribution, and markdown. By understanding these stages, traders can gain insight into the direction of a security's price and make informed trades.
Can be applied to different time frames: It can be applied to different time frames, such as daily, weekly, and monthly charts. This allows traders to use the pattern in conjunction with their preferred time frame and trade accordingly.
Helps traders confirm trade signals: Wyckoff can be used in conjunction with other chart patterns, such as flags and wedges, to confirm trade signals. By using multiple indicators, traders can increase the likelihood of making successful trades.
Useful for long-term investors: The Wyckoff Pattern is particularly useful for long-term investors who are looking to make informed decisions about the direction of a security's price. By understanding the different stages of the pattern, long-term investors can make informed decisions about when to buy and sell a security.
Can be used in conjunction with other strategies: It can be used in conjunction with other trading strategies, such as technical analysis and fundamental analysis. By combining multiple strategies, traders can increase their chances of making successful trades.
Overall, the Wyckoff Pattern is a useful tool for traders looking to make informed decisions about the direction of a security's price. By understanding the different stages of the pattern and using it in conjunction with other chart patterns and trading strategies, traders can increase their chances of making successful trades.
IX. Limitations and Risks
While the Wyckoff Pattern can be a valuable tool for traders looking to make long-term investments, it is important to note that it is not without its limitations and risks.
One potential limitation of the Wyckoff Pattern is that it is based on historical price and volume data, which may not always accurately predict future market movements. This means that traders should always consider other factors, such as economic news and analysis, when making investment decisions.
Another risk to be aware of when using the Wyckoff Pattern is the possibility of price manipulation. As mentioned earlier, traders should be aware of the potential for "pump and dump" schemes, in which unscrupulous traders or groups artificially inflate the price of a security through deceptive marketing tactics and then sell their positions at a profit. To protect themselves, traders should thoroughly research a security before buying and be aware of any red flags or warning signs that may indicate manipulation.
Additionally, the Wyckoff Pattern is a long-term investment strategy, which means that traders may have to hold their positions for extended periods of time. This can be risky, as market conditions can change quickly and traders may not always be able to exit their positions at the optimal time.
Finally, it is important to note that the Wyckoff Pattern is just one of many tools that traders can use to make informed investment decisions. While it can be a valuable resource, it should not be relied upon as a standalone strategy. Traders should always consider a variety of factors and use a variety of tools when making investment decisions.
X. Mastering the Wyckoff Pattern: A Five-Step Approach to Stock Selection and Trade Entry"
I. "Step One: Market Analysis for Dummies"
Mastering the Wyckoff Method requires a combination of technical analysis skills, market knowledge, and experience. Here are some tips on how to improve your Wyckoff identification skills:
Start by learning the basic principles of the Wyckoff Method. The Wyckoff Method is a technical analysis strategy developed by Richard D. Wyckoff in the early 20th century. It is based on the premise that market trends follow a similar pattern of development, including four stages: accumulation, markup, distribution, and markdown. Understanding these stages is essential to identifying Wyckoff patterns in the market.
Practice chart analysis. The Wyckoff Method relies heavily on analyzing price and volume charts to identify market trends and patterns. Therefore, it is important to develop your chart analysis skills. Start by familiarizing yourself with different chart types and indicators, such as moving averages and relative strength index. Practice analyzing charts for different assets and timeframes, and compare your analysis with real market movements.
Learn to identify key chart patterns. There are several chart patterns that are commonly used in conjunction with the Wyckoff Method, such as flags, wedges, and head and shoulders. Practice identifying these patterns on different charts and learn to recognize their characteristics and implications for market trends.
Use relative volume indicator. The relative volume indicator is a helpful tool for identifying Wyckoff patterns, as it shows the volume of a particular asset relative to its average volume. By comparing the current volume to the average volume, you can identify whether there is an unusual increase or decrease in volume, which can be a sign of accumulation or distribution.
Look for changes in market structure. The Wyckoff Method emphasizes the importance of market structure, or the relationship between supply and demand. Pay attention to changes in market structure, such as the formation of new support and resistance levels, and use this information to identify
II. Overview of the Wyckoff Method's Five Steps
Mastering the Wyckoff Method also involves a five-step approach to stock selection and trade entry. The first step is to conduct market analysis in order to determine the trend and direction of the market. This can be done using bar charts and Point and Figure charts to visualize the supply and demand dynamics in the market. The second step is to select stocks that are stronger in uptrends and weaker in downtrends, using bar charts to compare individual stocks to the relevant market index.
The third step in mastering the Wyckoff Method is to set goals for your stocks. This involves identifying price targets using Point and Figure projections for long and short trades, and choosing stocks that are under accumulation or re-accumulation with sufficient "cause" to meet these objectives. The fourth step is to determine whether a stock is ready to move, using nine tests to assess its readiness to buy or sell. These tests include evaluating the stock's market structure, volume, and price action, as well as its relationship to the overall market.
The final step in mastering the Wyckoff Method is to let the market carry you to victory. This involves recognizing that three-quarters or more of individual stocks move with the overall market, and using Wyckoff principles to anticipate market turns and put stop-loss in place. It is also important to trail stop-loss until closing out a position.
III. "Stocks That Aren't Total Duds"
Choose stocks that are stronger in uptrends and weaker in downtrends
Use bar charts or range candles to compare individual stocks to relevant market index
In the Wyckoff Method, it is important to choose stocks that are strong in uptrends and weak in downtrends. This means that when the overall market is trending upwards, these stocks will tend to outperform and when the market is trending downwards, these stocks will tend to underperform. One way to identify these types of stocks is by using bar charts to compare the performance of individual stocks to a relevant market index.
To do this in TradingView, you can start by creating a chart of the market index you want to compare your stocks to. For example, you may choose to compare your stocks to the S&P 500 index. Once you have the chart of the market index, you can add the individual stocks you are interested in to the same chart using the "Compare" feature. This will allow you to see how the performance of the individual stocks compares to the market index.
In addition to using bar charts to compare the performance of individual stocks to a market index, you can also use other technical indicators to help identify strong stocks. For example, you may want to look for stocks that are consistently above their moving averages, which can be a sign of strength. You can also use indicators like the relative strength index (RSI) to help identify stocks that are overbought or oversold.
It is important to keep in mind that no single indicator or analysis technique is perfect, and it is always a good idea to use multiple tools and approaches to help identify strong stocks. By using a combination of chart analysis and technical indicators, you can improve your chances of identifying stocks that are likely to perform well in different market environments.
Overall, the key to success in using the Wyckoff Method is to be proactive and disciplined in your approach to stock selection and trade entry. By following a structured process and using the right tools, you can improve
Using the number of stocks in the S&P 500 index that are above or below their 20-day and 50-day moving averages on larger time frames can be a useful tool for identifying potential trading opportunities. When the number of stocks above their 20-day moving average is increasing, it may indicate that the overall market trend is bullish and that there are more buyers in the market. On the other hand, if the number of stocks above their 50-day moving average is decreasing, it may signal that the market trend is bearish and that there are more sellers in the market.
Traders can use this information to make informed decisions about their own trades. For example, if the number of stocks above their 20-day moving average is increasing and the number of stocks above their 50-day moving average is also increasing, it may be a good time to consider taking a long position in the market. Conversely, if the number of stocks above their 20-day moving average is decreasing and the number of stocks above their 50-day moving average is also decreasing, it may be a good time to consider taking a short position in the market.
In addition to providing information about the overall market trend, tracking the number of stocks above or below their 20-day and 50-day moving averages can also help traders identify potential trading opportunities within individual stocks. For example, if a stock is consistently above its 20-day moving average but below its 50-day moving average, it may be a good candidate for a long trade. Similarly, if a stock is consistently below its 20-day moving average but above its 50-day moving average, it may be a good candidate for a short trade.
Overall, using the number of stocks in the S&P 500 index above or below their 20-day and 50-day moving averages on larger time frames can be a useful tool for identifying potential trading opportunities in both the overall market and individual stocks. By tracking this information and making informed decisions based on it, traders can potentially improve their chances of success in the markets.
IV. Setting Goals w/ X’s and O’s, I love you!
The Wyckoff Method emphasizes the importance of setting clear goals for your trades, as this can help guide your decision-making process and increase your chances of success. One way to set goals for your stocks is by using Point and Figure projections.
Point and Figure charts are a type of technical analysis tool that plot price movements without taking time into consideration. They are created by marking up a chart with X's when the price increases and O's when it decreases. These charts can be used to identify potential support and resistance levels, as well as to project potential price targets for long and short trades.
To use Point and Figure projections for setting goals, you first need to determine the current trend of the market and the direction in which you want to trade. If you are looking to take a long position, you will want to identify a target price that is above the current market price. On the other hand, if you are looking to take a short position, you will want to identify a target price that is below the current market price.
Once you have identified your target price, you can use Point and Figure projections to determine the likelihood of the stock reaching that price. This involves analyzing the number of X's and O's on the chart and identifying patterns that may indicate a potential trend. For example, if the chart shows a series of higher highs and higher lows, this may be an indication that the stock is in an uptrend and is likely to continue moving higher.
In addition to using Point and Figure projections, it is also important to choose stocks that are under accumulation or re-accumulation with sufficient "cause" to meet your objectives. "Cause" refers to the underlying factors that may be driving the stock's price action, such as changes in the company's financial performance or shifts in market conditions. By choosing stocks with strong "cause," you can increase your chances of success and achieve your price targets more easily.
Overall, setting clear goals for your trades and using Point and Figure projections and "cause" analysis can help you make more informed decisions and increase your chances of success in the market. By following the Wyckoff Method's principles for setting goals and identifying trade opportunities, you can improve your stock selection and trade entry strategies and achieve your financial objectives.
IV. "Setting Goals for Your Stocks"
By using Point and Figure projections, traders can establish realistic and achievable goals for both long and short trades.
There are a few key considerations to keep in mind when setting price targets using Point and Figure projections. Firstly, it is important to understand the underlying trend of the stock. Is the stock in an uptrend or a downtrend? This will help to establish the likely direction of price movement and inform the target levels you set.
In addition to the trend, it is also important to consider the current phase of the Wyckoff Cycle. Is the stock in an accumulation phase, where larger players are building positions? Or is it in a distribution phase, where larger players are selling off their positions? Choosing stocks that are in accumulation or re-accumulation phases with sufficient "cause" can help to increase the chances of meeting your objectives.
Another key factor to consider when setting price targets is the strength of the stock. Are there any clear levels of resistance or support that the stock is likely to encounter on its way to your target price? Understanding the stock's underlying strength can help you to refine your target levels and increase the chances of success.
Overall, setting price targets using Point and Figure projections is a key aspect of the Wyckoff Method. By carefully considering the trend, the phase of the Wyckoff Cycle, and the strength of the stock, traders can increase their chances of success and achieve their objectives.
To customize the stock scanner in TradingView to find stocks above/below the 20 day and 50 day moving averages:
Go to the stock scanner page in TradingView.
Under the "General" tab, select "Simple Moving Average" from the "Indicator" dropdown menu.
In the "Condition" field, choose "crosses above" or "crosses below" depending on your desired criteria.
In the "Value" field, enter the desired moving average value (e.g. 20 or 50).
Repeat steps 2-4 for the other moving average value.
Click the "Add Condition" button to add another condition.
Under the "Market" tab, select the desired market (e.g. S&P 500) from the "Market" dropdown menu.
Click the "Scan" button to run the scan.
To compare the findings to the heatmap using relative monthly volume as the sorting method:
Go to the heatmap page in TradingView.
Under the "Sort by" dropdown menu, select "Relative Monthly Volume".
In the "Group by" dropdown menu, select "Market".
Click the "Apply" button to update the heatmap.
Compare the stocks in the scan results to the heatmap to see which ones have relatively high monthly volume and are in the desired market.
www.tradingview.../heatmap/stock/?color=rela...
V.”is your stock ready to move its ass?”
The Wyckoff Method includes nine tests to determine whether a stock is ready to move in a particular direction, either upwards or downwards. These tests can be used in conjunction with bar and Point and Figure charts to assess the readiness of a stock and make informed trade decisions.
Trend: The trend of a stock should be evaluated to determine whether it is moving upwards or downwards. This can be done using bar charts or Point and Figure charts.
Volume: The volume of a stock should be analyzed to determine whether it is increasing or decreasing. Increasing volume can indicate that the stock is ready to move, while decreasing volume may indicate that the stock is not ready to move.
Range: The range of a stock, or the difference between its high and low prices, should be evaluated to determine whether it is expanding or contracting. Expanding ranges can indicate that the stock is ready to move, while contracting ranges may indicate that the stock is not ready to move.
Reactions: The reactions of a stock to price changes should be evaluated to determine whether it is moving in a bullish or bearish direction. Bullish reactions can indicate that the stock is ready to move upwards, while bearish reactions may indicate that the stock is ready to move downwards.
Tests: Tests of previous highs or lows can indicate whether a stock is ready to break out of its current range. A successful test of a previous high or low can indicate that the stock is ready to move in the opposite direction.
Stops: The placement of stops, or points at which traders will exit their positions if the stock moves in an undesirable direction, can indicate the readiness of a stock to move. If a large number of stops are placed at a particular price level, this can indicate that the stock is ready to move in the opposite direction.
Distribution: The distribution of a stock, or the process of selling off a large portion of a position, can indicate that the stock is ready to move in the opposite direction.
Accumulation: The accumulation of a stock, or the process of buying a large portion of a position, can indicate that the stock is ready to move in the same direction.
Selling Climax: A selling climax, or a period of panic selling, can indicate that the stock is ready to move in the opposite direction.
By carefully evaluating these nine tests, traders can make informed decisions about the readiness of a stock to move in a particular direction and take appropriate action.
VI. "Let the Market Carry You to Victory"
The Wyckoff Method emphasizes the importance of understanding market trends and identifying when a stock is ready to move. In order to maximize profits and minimize risk, it is essential to have a clear understanding of the market's direction and to know when to enter and exit a trade.
One key principle, as said before, of the Wyckoff Method is the idea that approximately three-quarters of individual stocks move with the overall market. This means that it is important to pay attention to the overall market trend and to use Wyckoff principles to anticipate market turns. This can help you determine when it is a good time to enter or exit a trade, and it can also help you set appropriate stop-loss levels.
To put stop-loss in place and trail it until closing out a position, it is important to use the Wyckoff Method's nine tests to determine readiness to buy or sell. These tests include analyzing the stock's price and volume patterns, as well as considering its trend, relative strength, and other factors. By carefully analyzing these factors, you can make informed decisions about when to enter and exit trades and minimize risk.
Overall, the Wyckoff Method's emphasis on market analysis and understanding market trends can be a valuable tool for stock traders looking to maximize profits and minimize risk. By following the principles of the Wyckoff Method, you can make informed, strategic decisions about when to enter and exit trades and take advantage of market trends.
Table of Contents
I. Introduction
Definition of the Wyckoff Pattern
Brief background on its creator, Richard D. Wyckoff
II. Overview of the Wyckoff Pattern
Description of the four stages: accumulation, markup, distribution, and markdown
Explanation of how these stages repeat in a cyclical manner
III. The Accumulation Stage
Characteristics of this stage (low volume, narrow price range)
Role of professional traders (smart money) in buying up securities
Stages of Accumulation
Indicators
The Golden Rules
IV. The Markup Stage
Characteristics of this stage (increased volume, widening price range)
Involvement of the public in pushing prices higher
V. The Distribution Stage
Characteristics of this stage (decreased volume, narrowing price range)
Professional traders selling positions to the public at higher prices
VI. The Markdown Stage
Characteristics of this stage (further decreased volume, widening price range)
Public panic selling causing prices to drop
VII. Key Principles of the Wyckoff Pattern
Concept of supply and demand
Use of chart patterns to confirm trade signals
VIII. Benefits and Applications of the Wyckoff Pattern
Particularly useful for long-term investors
Can be applied to different time frames (daily, weekly, monthly charts)
XI. Limitations and Risks
X. Mastering the Wyckoff Pattern: A Five-Step Approach to Stock Selection and Trade Entry"
I. "Step One: Market Analysis for Dummies"
II. Overview of the Wyckoff Method's Five Steps
Determine market trend and direction using bar and Point and Figure charts
Decide whether to enter market and take long or short positions
III. "Stocks That Aren't Total Duds"
Choose stocks that are stronger in uptrends and weaker in downtrends
Use bar charts to compare individual stocks to relevant market index
IV. "Setting Goals for Your Stocks"
Identify price targets using Point and Figure projections for long and short trades
Choose stocks under accumulation or re-accumulation with sufficient "cause" to meet objectives
V. "Is Your Stock Ready to Move Its Ass?"
Use nine tests to determine readiness to buy or sell
Use bar and Point and Figure charts to assess individual stocks
VI. "Let the Market Carry You to Victory"
Three-quarters or more of individual stocks move with the overall market
Use Wyckoff principles to anticipate market turns and put stop-loss in place
Trail stop-loss until closing out position.
I. Introduction
Wyckoff Pattern in trading - The Wyckoff Pattern is a trading strategy that was developed by Richard D. Wyckoff, a Wall Street trader and analyst who lived in the late 19th and early 20th centuries. The Wyckoff Pattern is based on the premise that market trends, whether bullish or bearish, follow a similar pattern of development. Traders may use the Wyckoff Pattern to identify market trends, determine the best times to enter or exit positions, and set price targets for their trades. It can also be used to identify market manipulation and understand the behavior of larger market participants, such as institutional investors.
The Wyckoff Pattern can be applied to various financial markets, including stocks, cryptocurrencies, and commodities. It is a widely used and well-respected trading strategy that can be a valuable tool for traders looking to improve their trading performance.. This pattern includes four macro stages: accumulation, markup, distribution, and markdown.
II. Overview of the Wyckoff Pattern
The accumulation stage is characterized by low volume and narrow price ranges. During this stage, professional traders, also known as "smart money," are quietly buying up a security in large quantities. The markup stage is marked by an increase in volume and a widening of the price range. This is the stage where the public becomes aware of the security and starts to buy it, pushing the price up further.
The distribution stage is characterized by a decrease in volume(after a heavy increase) and a narrowing of the price range. During this stage, the professional traders start to sell their positions to the public at increasingly higher prices. The markdown stage is marked by a further decrease in volume and a widening of the price range as the security's price starts to fall. This is the stage where the public starts to panic and sell their positions, causing the price to drop further.
The Wyckoff Pattern is based on the idea that these four stages are repeated in a cyclical manner, and that traders can use this knowledge to make informed decisions about when to buy and sell a security. This strategy is particularly useful for long-term investors, as it allows them to take advantage of the natural ebb and flow of the market.
One of the key principles of the Wyckoff Pattern is the concept of supply and demand. The accumulation and markup stages represent a surplus of demand, while the distribution and markdown stages represent a surplus of supply. By understanding these trends and analyzing the volume and price action of a security, traders can get a sense of where the market is in its cycle and make informed decisions about their trades.
Another important aspect of the Wyckoff Pattern is the use of chart patterns to confirm and validate trade signals. The most common chart patterns used in conjunction with the Wyckoff Pattern are the flag and the wedge. These patterns help traders identify key support and resistance levels and confirm whether a trade signal is valid or not.
In this article, we will thoroughly discuss the Wyckoff Method. By understanding the principles of supply and demand as they apply to long-term investing, traders can use the Wyckoff Method to make informed decisions about when to buy and sell securities.
III. The Accumulation Stage
The accumulation stage is an important part of the Wyckoff Pattern, a trading strategy developed by Wall Street trader and analyst Richard D. Wyckoff. The accumulation stage is characterized by low volume and narrow price ranges, and it is during this stage that professional traders, also known as "smart money," quietly buy up a security in large quantities.
The accumulation stage is typically marked by a lack of interest or attention from the general public, as prices remain relatively stable and volume remains low. This is the stage where professional traders, who are often better informed and have access to more resources, take the opportunity to accumulate positions in a security.
The accumulation stage is an important indicator of the potential future trend of a security, as it signals that professional traders believe the security is undervalued and has the potential to rise in price. By analyzing the volume and price action of a security during the accumulation stage, traders can get a sense of the strength of the "smart money" buyers and make informed decisions about their trades.
Disclaimer: It is important to note that the accumulation stage is just one part of the Wyckoff Pattern, and traders should always consider the overall market trend and use other indicators and studies in conjunction with the Wyckoff Pattern to make informed trades. However, understanding the characteristics and importance of the accumulation stage can provide valuable insight for traders looking to make long-term investments.
To recognize accumulation on a bar chart, traders should look for the following characteristics:
Low volume: During the accumulation stage, volume should be relatively low as professional traders quietly accumulate positions in a security.
Narrow price range: The price range, or the difference between the highest and lowest prices during a given time period, should be relatively narrow during the accumulation stage.
Stable or rising prices: Prices should remain stable or gradually rise during the accumulation stage, as professional traders believe the security is undervalued and has potential for future price appreciation.
Bullish chart patterns: Traders may also look for bullish chart patterns, such as uptrends or higher highs and higher lows, as these can indicate that professional traders are accumulating positions and expect the security to rise in price.
When it comes to identifying accumulation in a stock, forex or other asset, it is important to consider both the long-term trend and short-term price action. One way to determine if a security is being accumulated is to look for signs of a long-term uptrend, such as higher highs and higher lows on the price chart. However, it is important to note that this is not always a clear-cut indication, as there can be periods of consolidation or correction within an uptrend.
In addition to considering the long-term trend, traders can also look for specific candlestick patterns or technical indicators that may indicate accumulation. For example, a security with a rising on-balance volume (OBV) or accumulation/distribution (A/D) line may be a sign that professional traders are accumulating positions in the security.
It is worth noting that accumulation is not always a straightforward process, and there may be periods of confusion or conflicting signals. To make the most informed decisions, traders should consider a variety of indicators and factors, such as market trends, volume, and price action, and always use sound risk management practices.
Review:
The accumulation phase is characterized by a sideways and range-bound period that follows a prolonged downtrend. During this phase, larger players, also known as "smart money," try to build positions in a security. This is typically done quietly, with low volume and narrow price ranges.
Stages of Accumulation:
There are six distinct parts to the Wyckoff accumulation phase, each with an important function. The first part is the "Preliminary Support," which is the initial phase of the accumulation process. This is when smart money begins buying up the security, often at lower prices.
The second part is the "Selling Climax," which is characterized by a sharp price decline and high volume. This is a sign that the larger players are aggressively selling their positions, likely in an effort to shake out weaker hands.
Following the Selling Climax is the "Automatic Rally," which is a short-term price increase that occurs as the smart money starts buying back their positions at lower prices. This rally is typically marked by increased volume and a narrowing of the price range.
The fourth part of the accumulation phase is the "Secondary Test," which is a retest of the previous low prices. This is a key moment in the accumulation process, as it allows the smart money to gauge the strength of the security and make any necessary adjustments to their positions.
The fifth part of the accumulation phase is the "Spring," which is a strong price move higher that is often accompanied by high volume. This is a sign that the smart money is aggressively buying the security, likely in anticipation of a larger price move higher.
The final part of the accumulation phase is the "Last Point of Support," also known as the "Back-up" and "Sign of Strength." This is the final phase of the accumulation process, in which the smart money continues to buy up the security, pushing the price higher and establishing a new uptrend.
The "Preliminary Support" (PS)
Occurs after a prolonged down move
Signs of high volume and spreads widening
Indication that the selling may be coming to an end as buyers begin to show up
The "Selling Climax" (SC)
PS fails, and price begins to violently sell off
Panic selling phase
Prices may jump by more than their norm and spreads may widen to extremes
Price often closes far from the low and candlestick chart displays a large wick
The automatic rally (AR)
Late sellers punished as buyers cause price to reverse with same intensity as SC but in opposite direction
Result of short sellers covering positions
High of this point often defines upper range extreme for consolidation that follows
The secondary test (ST)
Price revisits lows of structure but in a controlled manner
Volume should not increase from sellers
Multiple secondary tests common
The spring
Hard test of low to mislead participants into believing trend is resuming downwards
Equivalent to a "swing failure pattern" or shakeout
May not always be required
Price should quickly reclaim prior structural level after spring
Last point of support, back up, and sign of strength (LPS, BU, SOS)
Clear shifts in price action from prior activity into beginning of range
Price begins to reclaim microstructural pivot points established earlier
Sign of strength may occur immediately after spring
Rapid, one-sided move that signifies buyers in total control
Volume at end of range should be high and result in significant ground covered
Marks the beginning of the mark up phase, where larger players take supply from smaller players.
Volume
Use Indicators
There are several indicators used on the TradingView platform that can be used to help assist in identifying accumulation. Some examples include:
On-Balance Volume (OBV): The OBV indicator uses volume data to measure buying and selling pressure. A rising OBV line can indicate accumulation, as it suggests that there is more buying than selling and that professional traders are accumulating positions in the security.
Chaikin Money Flow (CMF): The CMF indicator uses both price and volume data to measure buying and selling pressure. A positive CMF value can indicate accumulation, as it suggests that there is more buying than selling and that professional traders are accumulating positions in the security.
Accumulation/Distribution (A/D): The A/D indicator uses price and volume data to measure the flow of money into and out of a security. A rising A/D line can indicate accumulation, as it suggests that there is more buying than selling and that professional traders are accumulating positions in the security.
The Golden Rules
The market and individual securities never behave in exactly the same way twice, and the significance of price movements can only be understood in the context of past price behavior.
Context is everything in the financial markets, and the best way to evaluate current price action is to compare it to what has happened in the past.
Analyzing a single day's price action in isolation can lead to incorrect conclusions.
In addition to these rules, Wyckoff also identified three types of trends - up, down, and flat - and three time frames - short-term, intermediate-term, and long-term - and observed that trends can vary significantly depending on the time frame being analyzed. These rules can be used to help traders identify and analyze trends and make informed trading decisions.
IV. The Markup Stage
The markup stage is a crucial part of the Wyckoff Pattern, a trading strategy developed by Wall Street trader and analyst Richard D. Wyckoff. The markup stage is characterized by an increase in volume and a widening of the price range, and it is during this stage that the public becomes aware of a security and starts to buy it, pushing the price up further.
The markup stage typically follows the accumulation stage, during which professional traders, also known as "smart money," quietly accumulate positions in a security. As the professional traders start to build their positions and the security's price begins to rise, the public becomes aware of the security and starts to buy it as well. This increased buying activity drives the price up further and widens the price range.
One way to identify the markup stage on a price chart is to look for an increase in volume and a widening of the price range. This can be a sign that the public is becoming more interested in the security and is starting to buy it, pushing the price up further. The markup phase can be further measured by the slope of the new uptrend, with pullbacks to new support offering potential buying opportunities known as throwbacks, similar to modern buy-the-dip patterns. Re-accumulation phases may also interrupt the markup phase with small consolidation patterns, while steeper pullbacks known as corrections can also occur.
It is important to note that the markup stage is just one part of the Wyckoff Pattern, and traders should always consider the overall market trend and use other indicators and studies
V. The Distribution Stage
The distribution stage is characterized by a decrease in volume and a narrowing of the price range, and it is during this stage that professional traders start to sell their positions to the public at increasingly higher prices.
The distribution stage typically follows the markup stage, during which the public becomes aware of a security and starts buying it, pushing the price up further. As the price continues to rise, professional traders begin to sell their positions to the public at increasingly higher prices. This selling activity leads to a decrease in volume and a narrowing of the price range.
One way to identify the distribution stage on a price chart is to look for a decrease in volume and a narrowing of the price range. This can be a sign that professional traders are selling their positions to the public and that the security's price may be reaching a peak.
There are five parts to the Wyckoff distribution phase: the "Preliminary Supply," the "Buying Climax," the automatic reaction, the secondary test, and the spring.
The "Preliminary Supply" is the first sign that professional traders are starting to sell their positions. This is typically marked by an increase in volume and a widening of the price range.
The "Buying Climax" is a sign that the public is becoming aware of the security and is starting to buy it. This is typically marked by a further increase in volume and a further widening of the price range.
The automatic reaction is a short-term pullback in the security's price as professional traders continue to sell their positions. This is typically marked by a decrease in volume and a narrowing of the price range.
The secondary test is a retest of the low of the automatic reaction. This is typically marked by a further decrease in volume and a further narrowing of the price range.
The spring is a sharp, low-volume move up in the security's price as professional traders start to accumulate their positions again. This is typically marked by an increase in volume and a widening of the price range.
The Wyckoff distribution phase also includes three important terms: SOW, LPSY, and UTAD. SOW stands for "supply over whelming demand," LPSY stands for "last point of supply," and UTAD stands for "upthrust after distribution." These terms refer to specific points in the distribution phase where professional traders are particularly active in selling their positions.
The Distribution cycle is characterized by dominant traders selling off their positions when the price is high
The Distribution cycle has five phases: Preliminary Supply (PSY), Buying Climax (BC), Automatic Reaction (AR), Secondary Test (ST), and Sign of Weakness, Last Point of Supply, Upthrust After Distribution (SOW, LPSY, UTAD)
The Preliminary Supply phase occurs after a significant price rise and is marked by dominant traders selling off large portions of their positions
The Buying Climax phase is characterized by retail traders buying up positions, causing the price to continue rising
The Automatic Reaction phase is marked by a decrease in the number of traders buying up positions, resulting in a drop in price to the lower boundary of the Distribution cycle
The Secondary Test phase sees the price rise back to the range of the Buying Climax, as traders test the balance of supply and demand
The final phase, Sign of Weakness, Last Point of Supply, Upthrust After Distribution (SOW, LPSY, UTAD), is characterized by the asset's price falling near or below the initial boundaries of the Distribution cycle, indicating price weakness. The LPSY phase sees traders testing the support of the asset's price at these lower levels, and the UTAD phase, if it occurs, is marked by increased demand and a push to the upper price boundary of the entire cycle.
VI. The Markdown Stage
The markdown period, also known as the distribution stage, is a crucial part of the Wyckoff Cycle. It follows the markup stage, during which professional traders, or "smart money," start to build their positions and the security's price begins to rise. As the price continues to rise, the public becomes aware of the security and starts to buy it as well, driving the price up further and widening the price range.
However, as the price reaches its peak and the professional traders start to sell off their positions, the markdown period begins. This is characterized by a decrease in volume and a narrowing of the price range, as the professional traders sell off their positions to the public.
It is important to note that the markdown period is just one part of the Wyckoff Cycle, and traders should always consider the overall market trend and use other indicators and studies in conjunction with the Wyckoff Pattern to make informed trades. However, understanding the characteristics and importance of the markdown period can provide valuable insight for traders looking to make long-term investments.
VII. Key Principles of the Wyckoff Pattern
The Wyckoff Method, a trading strategy developed by Wall Street trader and analyst Richard D. Wyckoff, is based on three fundamental laws that provide insight into market trends and help traders make informed decisions. These laws are: the law of supply and demand, the law of cause and effect, and the law of effort vs. result.
The law of supply and demand is one of the most basic principles of financial markets, stating that prices rise when demand is greater than supply, and drop when the opposite is true. This law can be represented by the following equations: if demand is greater than supply, the price will rise; if demand is less than supply, the price will drop; if demand is equal to supply, there will be no significant price change (low volatility). Many investors who follow the Wyckoff Method use price action and volume bars to visualize the relationship between supply and demand and gain insights into potential market movements.
The law of cause and effect states that the differences between supply and demand are not random, but rather the result of specific events or periods of preparation. In Wyckoff's terms, a period of accumulation (cause) eventually leads to an uptrend (effect), while a period of distribution (cause) eventually results in a downtrend (effect). Wyckoff developed methods of defining trading targets based on periods of accumulation and distribution, allowing him to estimate the probable extension of a market trend after breaking out of a consolidation zone or trading range.
The law of effort vs. result states that the changes in an asset's price are a result of an effort, as represented by the trading volume. If the price action is in harmony with the volume, there is a good chance the trend will continue. However, if the volume and price diverge significantly, the market trend is likely to stop or change direction. For example, if the market experiences high volume but low volatility during a consolidation phase, this may indicate that the trend is coming to an end and a reversal is imminent.
In terms of benefits and applications, the Wyckoff Pattern is particularly useful for long-term investors who are looking to take advantage of the natural ebb and flow of the market. It can also be applied to different time frames, such as daily, weekly, or monthly charts. However, it is important to note that the Wyckoff Pattern is not without its risks and limitations. As a standalone strategy, it may not always provide reliable signals and should be used in conjunction with other indicators and studies.
One indicator that traders can use to help identify the markdown period is the relative volume indicator. This indicator compares the current volume of a security to its average volume over a certain period of time, helping traders to identify unusual changes in volume that may be indicative of a change in the market trend.
To use the relative volume indicator in TradingView, first select the security you are interested in and then click on the "Indicators" tab. From the list of indicators, select the "Volume" category and then choose the "Relative Volume" indicator. You can then customize the settings for the indicator, including the period of time over which you want to compare the volume.
Once the relative volume indicator is applied to the chart, you can use it to identify changes in volume that may be indicative of a change in the market trend. For example, if the relative volume is significantly higher than normal, it may be an indication that the markdown period is beginning, as professional traders start to sell off their positions. On the other hand, if the relative volume is significantly lower than normal, it may be an indication that the markdown period is coming to an end, as the professional traders have finished selling off their positions.
The Volume indicator in Tradingview is a useful tool for analyzing the volume of a security or asset over a specified time period. To access the Volume indicator in Tradingview, simply click on the "Indicators" tab in the chart menu and select "Volume" from the list of available indicators.
Once you have added the Volume indicator to your chart, you can customize its appearance and settings to suit your needs. For example, you can adjust the length of the moving average applied to the volume data, as well as the color and style of the volume bars.
To turn on the internal moving average for the Volume indicator, simply click on the "Settings" button in the indicator menu and check the box next to "Show MA." From here, you can also specify the length of the moving average by entering a value in the "MA Length" field.
Using the Volume indicator with an internal moving average can be helpful in identifying trends in volume over time. For example, if the volume is consistently rising over a period of several days or weeks, this may be a sign of increased interest in the security or asset. On the other hand, if the volume is declining over time, this could indicate a decrease in interest or liquidity.
In addition to the Volume indicator, you can also use the relative volume indicator in Tradingview to compare the volume of a security or asset to its average volume over a specified time period. To do this, simply add the relative volume indicator to your chart and customize its settings as needed.
Overall, the Volume and relative volume indicators can be valuable tools for traders and investors looking to analyze the volume of a security or asset and identify trends in liquidity over time.
One of the best tools I have personally found, created by LUXALGO (Thank you humbly for this!)
The Smart Money Concepts indicator is a technical analysis tool developed by Luxalgo that is used to identify the behavior of professional or "smart money" traders in the market. It is based on the principles of the Wyckoff Method, which suggests that market trends follow a similar pattern of development that includes four stages: accumulation, markup, distribution, and markdown.
To use the Smart Money Concepts indicator in Tradingview, follow these steps:
Open the Tradingview platform and select the asset you want to analyze.
Click on the "Indicators" tab in the chart toolbar and select "Add Indicator."
In the search bar, type in "Smart Money Concepts" and select the indicator from the list.
Adjust the indicator's settings to your preference. You can choose the length of the moving average, the color of the lines, and whether you want to show the accumulation and distribution lines on the chart.
Click "Apply" to add the indicator to your chart.
Once you have the Smart Money Concepts indicator on your chart, you can use it to identify the behavior of smart money traders. The accumulation line represents the buying activity of professional traders, while the distribution line represents their selling activity. When the accumulation line is above the distribution line, it indicates that professional traders are buying more than they are selling, which may be a sign of bullish sentiment. Conversely, when the distribution line is above the accumulation line, it indicates that professional traders are selling more than they are buying, which may be a sign of bearish sentiment.
The SMC is designed to help traders accurately identify liquidity and find optimal points of interest in the market. It does this by displaying real-time market structure, order blocks, premium and discount zones, equal highs and lows, and more on the chart, allowing traders to automatically mark up their charts with widely used price action methodologies.
One of the key features of the SMC indicator is its ability to label internal and swing market structures in real-time, including Break of Structure (BOS) and Change of Character (CHoCH). These structures can provide insight into the behavior of institutional market participants and help traders determine where buy and sell side liquidity may be located.
The SMC indicator also includes alerts for the presence of swing structures and other relevant conditions, as well as options for styling the indicator to make it easier to display these concepts. It allows users to select between historical and present modes, and offers customization options for things like internal structure, swing structure, equal highs and lows, and fair value gap detection.
One of the benefits of using the SMC indicator is its ability to help traders filter out non-significant internal structure breakouts and fair value gaps using its confluence filter and auto threshold settings. It also allows users to display previous highs and lows from different timeframes, such as daily, weekly, and monthly, as significant levels.
You can also use the Smart Money Concepts indicator in combination with other technical analysis tools, such as trend lines and chart patterns, to help you make more informed trading decisions. For example, if the accumulation line is trending upwards and you see a bullish chart pattern forming on the chart, it may be a good time to consider entering a long position.
For more information and use cases please refer to the authors page:
![Smart Money Concepts (SMC) [LuxAlgo]](https://s3.tradingview.com/c/CnB3fSph_big.png)
Accumulation and Distribution Review and Memorization Tactic:
For the accumulation phase:
"P-S-C-A-R-S-L"
Preliminary Support (PS)
Selling Climax (SC)
Automatic Rally (AR)
Secondary Test (ST)
Spring (S)
Last Point of Support, Back Up, Sign of Strength (LPS, BU, SOS)
For the distribution phase:
"P-B-A-S-S"
Preliminary Supply (PSY)
Buying Climax (BC)
Automatic Reaction (AR)
Secondary Test (ST)
Sign of Weakness, Last Point of Supply, Upthrust After Distribution (SOW, LPSY, UTAD)
Reminder! Review the GOLDEN RULES ABOVE!
Finding Patterns
The key principles of the Wyckoff Pattern involve understanding the concept of supply and demand and using chart patterns to confirm trade signals.
When it comes to understanding supply and demand, the Wyckoff Pattern is based on the idea 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 a central concept in the Wyckoff Method. By analyzing price action and volume bars, traders can get a better sense of the relation between supply and demand and gain insight into potential market movements.
In addition to understanding supply and demand, traders using the Wyckoff Pattern also rely on chart patterns to confirm trade signals. Some of the most common chart patterns used in conjunction with the Wyckoff Pattern are the flag, the wedge, and the head and shoulders pattern.
Two of the most common chart patterns used in conjunction with the Wyckoff Pattern are the flag and the wedge. These patterns are typically formed when there is a sudden and sharp price move followed by a period of consolidation.
The flag pattern is formed when the price of an asset makes a sharp move in one direction, followed by a period of consolidation in a narrow range. The consolidation period is often referred to as the "flag" because it appears as a rectangular shape on the chart. The flag pattern is typically seen as a bullish pattern, as it suggests that the asset is likely to continue its uptrend after the consolidation period. To identify the flag pattern, traders should look for a sharp price move followed by a period of consolidation in a narrow range.
The wedge pattern is similar to the flag pattern, but it is formed when the price of an asset makes a sharp move in one direction followed by a period of consolidation in a gradually narrowing range. The consolidation period is often referred to as the "wedge" because it appears as a triangular shape on the chart. The wedge pattern can be either bullish or bearish, depending on the direction of the initial price move. To identify the wedge pattern, traders should look for a sharp price move followed by a period of consolidation in a gradually narrowing range.
Note that the flag and wedge patterns are just two of many chart patterns that traders can use in conjunction with the Wyckoff Pattern. Other common chart patterns include the head and shoulders, the double top and bottom, and the triangle. Traders should always consider
Head and Shoulders: This chart pattern is characterized by a series of three peaks, with the middle peak (the head) being the highest and the two peaks on either side (the shoulders) being lower. This pattern is often seen as a bearish reversal, indicating that the trend is likely to reverse from an uptrend to a downtrend.
Double Top: This chart pattern is characterized by two consecutive peaks at approximately the same price level, with a valley in between. This pattern is often seen as a bearish reversal, indicating that the trend is likely to reverse from an uptrend to a downtrend.
Double Bottom: This chart pattern is the opposite of the double top, and is characterized by two consecutive valleys at approximately the same price level, with a peak in between. This pattern is often seen as a bullish reversal, indicating that the trend is likely to reverse from a downtrend to an uptrend.
Triangle: This chart pattern is characterized by a series of peaks and valleys that converge towards a point, forming a triangular shape. There are three types of triangles: ascending, descending, and symmetrical. The direction of the breakout from the triangle can be used to confirm the direction of the trend.
Pennant: This chart pattern is similar to the triangle, but is characterized by a smaller price range and a faster time frame. It is typically seen as a continuation pattern, indicating that the trend is likely to continue in the same direction.
It is important to note that chart patterns should not be used in isolation, and should always be used in conjunction with other indicators and studies to confirm trade signals and make informed investment decisions
VIII. Benefits and Applications of the Wyckoff Pattern
The Wyckoff Pattern is a well-respected and widely-used trading strategy that has been used by traders for decades. It is particularly useful for long-term investors who are looking to make informed decisions about the direction of a security's price. Here are some of the benefits and applications of the Wyckoff Pattern:
Provides insight into market trends: The Wyckoff Pattern is based on the premise that market trends, whether bullish or bearish, follow a similar pattern of development. This pattern includes four stages: accumulation, markup, distribution, and markdown. By understanding these stages, traders can gain insight into the direction of a security's price and make informed trades.
Can be applied to different time frames: It can be applied to different time frames, such as daily, weekly, and monthly charts. This allows traders to use the pattern in conjunction with their preferred time frame and trade accordingly.
Helps traders confirm trade signals: Wyckoff can be used in conjunction with other chart patterns, such as flags and wedges, to confirm trade signals. By using multiple indicators, traders can increase the likelihood of making successful trades.
Useful for long-term investors: The Wyckoff Pattern is particularly useful for long-term investors who are looking to make informed decisions about the direction of a security's price. By understanding the different stages of the pattern, long-term investors can make informed decisions about when to buy and sell a security.
Can be used in conjunction with other strategies: It can be used in conjunction with other trading strategies, such as technical analysis and fundamental analysis. By combining multiple strategies, traders can increase their chances of making successful trades.
Overall, the Wyckoff Pattern is a useful tool for traders looking to make informed decisions about the direction of a security's price. By understanding the different stages of the pattern and using it in conjunction with other chart patterns and trading strategies, traders can increase their chances of making successful trades.
IX. Limitations and Risks
While the Wyckoff Pattern can be a valuable tool for traders looking to make long-term investments, it is important to note that it is not without its limitations and risks.
One potential limitation of the Wyckoff Pattern is that it is based on historical price and volume data, which may not always accurately predict future market movements. This means that traders should always consider other factors, such as economic news and analysis, when making investment decisions.
Another risk to be aware of when using the Wyckoff Pattern is the possibility of price manipulation. As mentioned earlier, traders should be aware of the potential for "pump and dump" schemes, in which unscrupulous traders or groups artificially inflate the price of a security through deceptive marketing tactics and then sell their positions at a profit. To protect themselves, traders should thoroughly research a security before buying and be aware of any red flags or warning signs that may indicate manipulation.
Additionally, the Wyckoff Pattern is a long-term investment strategy, which means that traders may have to hold their positions for extended periods of time. This can be risky, as market conditions can change quickly and traders may not always be able to exit their positions at the optimal time.
Finally, it is important to note that the Wyckoff Pattern is just one of many tools that traders can use to make informed investment decisions. While it can be a valuable resource, it should not be relied upon as a standalone strategy. Traders should always consider a variety of factors and use a variety of tools when making investment decisions.
X. Mastering the Wyckoff Pattern: A Five-Step Approach to Stock Selection and Trade Entry"
I. "Step One: Market Analysis for Dummies"
Mastering the Wyckoff Method requires a combination of technical analysis skills, market knowledge, and experience. Here are some tips on how to improve your Wyckoff identification skills:
Start by learning the basic principles of the Wyckoff Method. The Wyckoff Method is a technical analysis strategy developed by Richard D. Wyckoff in the early 20th century. It is based on the premise that market trends follow a similar pattern of development, including four stages: accumulation, markup, distribution, and markdown. Understanding these stages is essential to identifying Wyckoff patterns in the market.
Practice chart analysis. The Wyckoff Method relies heavily on analyzing price and volume charts to identify market trends and patterns. Therefore, it is important to develop your chart analysis skills. Start by familiarizing yourself with different chart types and indicators, such as moving averages and relative strength index. Practice analyzing charts for different assets and timeframes, and compare your analysis with real market movements.
Learn to identify key chart patterns. There are several chart patterns that are commonly used in conjunction with the Wyckoff Method, such as flags, wedges, and head and shoulders. Practice identifying these patterns on different charts and learn to recognize their characteristics and implications for market trends.
Use relative volume indicator. The relative volume indicator is a helpful tool for identifying Wyckoff patterns, as it shows the volume of a particular asset relative to its average volume. By comparing the current volume to the average volume, you can identify whether there is an unusual increase or decrease in volume, which can be a sign of accumulation or distribution.
Look for changes in market structure. The Wyckoff Method emphasizes the importance of market structure, or the relationship between supply and demand. Pay attention to changes in market structure, such as the formation of new support and resistance levels, and use this information to identify
II. Overview of the Wyckoff Method's Five Steps
Mastering the Wyckoff Method also involves a five-step approach to stock selection and trade entry. The first step is to conduct market analysis in order to determine the trend and direction of the market. This can be done using bar charts and Point and Figure charts to visualize the supply and demand dynamics in the market. The second step is to select stocks that are stronger in uptrends and weaker in downtrends, using bar charts to compare individual stocks to the relevant market index.
The third step in mastering the Wyckoff Method is to set goals for your stocks. This involves identifying price targets using Point and Figure projections for long and short trades, and choosing stocks that are under accumulation or re-accumulation with sufficient "cause" to meet these objectives. The fourth step is to determine whether a stock is ready to move, using nine tests to assess its readiness to buy or sell. These tests include evaluating the stock's market structure, volume, and price action, as well as its relationship to the overall market.
The final step in mastering the Wyckoff Method is to let the market carry you to victory. This involves recognizing that three-quarters or more of individual stocks move with the overall market, and using Wyckoff principles to anticipate market turns and put stop-loss in place. It is also important to trail stop-loss until closing out a position.
III. "Stocks That Aren't Total Duds"
Choose stocks that are stronger in uptrends and weaker in downtrends
Use bar charts or range candles to compare individual stocks to relevant market index
In the Wyckoff Method, it is important to choose stocks that are strong in uptrends and weak in downtrends. This means that when the overall market is trending upwards, these stocks will tend to outperform and when the market is trending downwards, these stocks will tend to underperform. One way to identify these types of stocks is by using bar charts to compare the performance of individual stocks to a relevant market index.
To do this in TradingView, you can start by creating a chart of the market index you want to compare your stocks to. For example, you may choose to compare your stocks to the S&P 500 index. Once you have the chart of the market index, you can add the individual stocks you are interested in to the same chart using the "Compare" feature. This will allow you to see how the performance of the individual stocks compares to the market index.
In addition to using bar charts to compare the performance of individual stocks to a market index, you can also use other technical indicators to help identify strong stocks. For example, you may want to look for stocks that are consistently above their moving averages, which can be a sign of strength. You can also use indicators like the relative strength index (RSI) to help identify stocks that are overbought or oversold.
It is important to keep in mind that no single indicator or analysis technique is perfect, and it is always a good idea to use multiple tools and approaches to help identify strong stocks. By using a combination of chart analysis and technical indicators, you can improve your chances of identifying stocks that are likely to perform well in different market environments.
Overall, the key to success in using the Wyckoff Method is to be proactive and disciplined in your approach to stock selection and trade entry. By following a structured process and using the right tools, you can improve
Using the number of stocks in the S&P 500 index that are above or below their 20-day and 50-day moving averages on larger time frames can be a useful tool for identifying potential trading opportunities. When the number of stocks above their 20-day moving average is increasing, it may indicate that the overall market trend is bullish and that there are more buyers in the market. On the other hand, if the number of stocks above their 50-day moving average is decreasing, it may signal that the market trend is bearish and that there are more sellers in the market.
Traders can use this information to make informed decisions about their own trades. For example, if the number of stocks above their 20-day moving average is increasing and the number of stocks above their 50-day moving average is also increasing, it may be a good time to consider taking a long position in the market. Conversely, if the number of stocks above their 20-day moving average is decreasing and the number of stocks above their 50-day moving average is also decreasing, it may be a good time to consider taking a short position in the market.
In addition to providing information about the overall market trend, tracking the number of stocks above or below their 20-day and 50-day moving averages can also help traders identify potential trading opportunities within individual stocks. For example, if a stock is consistently above its 20-day moving average but below its 50-day moving average, it may be a good candidate for a long trade. Similarly, if a stock is consistently below its 20-day moving average but above its 50-day moving average, it may be a good candidate for a short trade.
Overall, using the number of stocks in the S&P 500 index above or below their 20-day and 50-day moving averages on larger time frames can be a useful tool for identifying potential trading opportunities in both the overall market and individual stocks. By tracking this information and making informed decisions based on it, traders can potentially improve their chances of success in the markets.
IV. Setting Goals w/ X’s and O’s, I love you!
The Wyckoff Method emphasizes the importance of setting clear goals for your trades, as this can help guide your decision-making process and increase your chances of success. One way to set goals for your stocks is by using Point and Figure projections.
Point and Figure charts are a type of technical analysis tool that plot price movements without taking time into consideration. They are created by marking up a chart with X's when the price increases and O's when it decreases. These charts can be used to identify potential support and resistance levels, as well as to project potential price targets for long and short trades.
To use Point and Figure projections for setting goals, you first need to determine the current trend of the market and the direction in which you want to trade. If you are looking to take a long position, you will want to identify a target price that is above the current market price. On the other hand, if you are looking to take a short position, you will want to identify a target price that is below the current market price.
Once you have identified your target price, you can use Point and Figure projections to determine the likelihood of the stock reaching that price. This involves analyzing the number of X's and O's on the chart and identifying patterns that may indicate a potential trend. For example, if the chart shows a series of higher highs and higher lows, this may be an indication that the stock is in an uptrend and is likely to continue moving higher.
In addition to using Point and Figure projections, it is also important to choose stocks that are under accumulation or re-accumulation with sufficient "cause" to meet your objectives. "Cause" refers to the underlying factors that may be driving the stock's price action, such as changes in the company's financial performance or shifts in market conditions. By choosing stocks with strong "cause," you can increase your chances of success and achieve your price targets more easily.
Overall, setting clear goals for your trades and using Point and Figure projections and "cause" analysis can help you make more informed decisions and increase your chances of success in the market. By following the Wyckoff Method's principles for setting goals and identifying trade opportunities, you can improve your stock selection and trade entry strategies and achieve your financial objectives.
IV. "Setting Goals for Your Stocks"
By using Point and Figure projections, traders can establish realistic and achievable goals for both long and short trades.
There are a few key considerations to keep in mind when setting price targets using Point and Figure projections. Firstly, it is important to understand the underlying trend of the stock. Is the stock in an uptrend or a downtrend? This will help to establish the likely direction of price movement and inform the target levels you set.
In addition to the trend, it is also important to consider the current phase of the Wyckoff Cycle. Is the stock in an accumulation phase, where larger players are building positions? Or is it in a distribution phase, where larger players are selling off their positions? Choosing stocks that are in accumulation or re-accumulation phases with sufficient "cause" can help to increase the chances of meeting your objectives.
Another key factor to consider when setting price targets is the strength of the stock. Are there any clear levels of resistance or support that the stock is likely to encounter on its way to your target price? Understanding the stock's underlying strength can help you to refine your target levels and increase the chances of success.
Overall, setting price targets using Point and Figure projections is a key aspect of the Wyckoff Method. By carefully considering the trend, the phase of the Wyckoff Cycle, and the strength of the stock, traders can increase their chances of success and achieve their objectives.
To customize the stock scanner in TradingView to find stocks above/below the 20 day and 50 day moving averages:
Go to the stock scanner page in TradingView.
Under the "General" tab, select "Simple Moving Average" from the "Indicator" dropdown menu.
In the "Condition" field, choose "crosses above" or "crosses below" depending on your desired criteria.
In the "Value" field, enter the desired moving average value (e.g. 20 or 50).
Repeat steps 2-4 for the other moving average value.
Click the "Add Condition" button to add another condition.
Under the "Market" tab, select the desired market (e.g. S&P 500) from the "Market" dropdown menu.
Click the "Scan" button to run the scan.
To compare the findings to the heatmap using relative monthly volume as the sorting method:
Go to the heatmap page in TradingView.
Under the "Sort by" dropdown menu, select "Relative Monthly Volume".
In the "Group by" dropdown menu, select "Market".
Click the "Apply" button to update the heatmap.
Compare the stocks in the scan results to the heatmap to see which ones have relatively high monthly volume and are in the desired market.
www.tradingview.../heatmap/stock/?color=rela...
V.”is your stock ready to move its ass?”
The Wyckoff Method includes nine tests to determine whether a stock is ready to move in a particular direction, either upwards or downwards. These tests can be used in conjunction with bar and Point and Figure charts to assess the readiness of a stock and make informed trade decisions.
Trend: The trend of a stock should be evaluated to determine whether it is moving upwards or downwards. This can be done using bar charts or Point and Figure charts.
Volume: The volume of a stock should be analyzed to determine whether it is increasing or decreasing. Increasing volume can indicate that the stock is ready to move, while decreasing volume may indicate that the stock is not ready to move.
Range: The range of a stock, or the difference between its high and low prices, should be evaluated to determine whether it is expanding or contracting. Expanding ranges can indicate that the stock is ready to move, while contracting ranges may indicate that the stock is not ready to move.
Reactions: The reactions of a stock to price changes should be evaluated to determine whether it is moving in a bullish or bearish direction. Bullish reactions can indicate that the stock is ready to move upwards, while bearish reactions may indicate that the stock is ready to move downwards.
Tests: Tests of previous highs or lows can indicate whether a stock is ready to break out of its current range. A successful test of a previous high or low can indicate that the stock is ready to move in the opposite direction.
Stops: The placement of stops, or points at which traders will exit their positions if the stock moves in an undesirable direction, can indicate the readiness of a stock to move. If a large number of stops are placed at a particular price level, this can indicate that the stock is ready to move in the opposite direction.
Distribution: The distribution of a stock, or the process of selling off a large portion of a position, can indicate that the stock is ready to move in the opposite direction.
Accumulation: The accumulation of a stock, or the process of buying a large portion of a position, can indicate that the stock is ready to move in the same direction.
Selling Climax: A selling climax, or a period of panic selling, can indicate that the stock is ready to move in the opposite direction.
By carefully evaluating these nine tests, traders can make informed decisions about the readiness of a stock to move in a particular direction and take appropriate action.
VI. "Let the Market Carry You to Victory"
The Wyckoff Method emphasizes the importance of understanding market trends and identifying when a stock is ready to move. In order to maximize profits and minimize risk, it is essential to have a clear understanding of the market's direction and to know when to enter and exit a trade.
One key principle, as said before, of the Wyckoff Method is the idea that approximately three-quarters of individual stocks move with the overall market. This means that it is important to pay attention to the overall market trend and to use Wyckoff principles to anticipate market turns. This can help you determine when it is a good time to enter or exit a trade, and it can also help you set appropriate stop-loss levels.
To put stop-loss in place and trail it until closing out a position, it is important to use the Wyckoff Method's nine tests to determine readiness to buy or sell. These tests include analyzing the stock's price and volume patterns, as well as considering its trend, relative strength, and other factors. By carefully analyzing these factors, you can make informed decisions about when to enter and exit trades and minimize risk.
Overall, the Wyckoff Method's emphasis on market analysis and understanding market trends can be a valuable tool for stock traders looking to maximize profits and minimize risk. By following the principles of the Wyckoff Method, you can make informed, strategic decisions about when to enter and exit trades and take advantage of market trends.