Before making a trade or investment decision, the "prime chart" needs to know WHERE THE MARKET IS IN ITS TREND. Overbought markets are often at risk of a pullback; When you hold a position in overbought conditions, you will likely suffer short-term declines in your account, which can lead to certain inhibitions in psychology. Likewise, there will be rallies when the market is oversold, even when the main trend is down. Shorting when market conditions are oversold can also lead to a significant drop in the account and adversely affect the Risk / Reward ratio.

Wyckoff notes that the uptrend begins with an ACCUMULATE period and is confirmed by steady price increases (MARK-UP). There are five possible buy points in the whole uptrend (There are 5 main positions traders need to identify in an uptrend)
  1. First, aggressive traders can buy at Selling Climax or Spring where the big hands start getting involved. market). This sector offers the highest potential returns, but the risk of failure is above average as the downward trend has not officially reversed yet.
  2. The second buy point is when the price breaks above resistance levels, with confirmation of increased trading volume.
  3. The "manual chart" that misses the buy-break point sometimes still has a chance with the third buy point, which is when the price returns to the previously broken resistance, now turned into a pullback. Pullbacks don't always happen, so opportunities aren't always available for traders who have missed out on a second buy point.
  4. When a Markup period is shaped (Recovery after a pullback to support), "manual charts" must rely on corrections to be traded (These corrections are formed in the form of consolidation - sideways or retreat). Wyckoff calls a consolidation (sideways) in an uptrend a BACKGROUND REACTION period. A break above the resistance of this BUILT-UP ZONE signals the continuation of the bullish phase (Markup).
  5. In contrast to consolidation (re-accumulation), THAI LUI is a larger corrective decline, a partial pullback from the previous bullish move. For retracement, the "manual chart" should use support levels at trend lines, old resistance levels, or peaks of previous cumulative sessions to buy. Often Wyckoff will identify support or reversal points around the 50% retracement level of the previous bull move.

The uptrend consists of the 5 main positions highlighted above, corresponding to the 5 buy positions outlined above!

The downtrend begins with a DISTRIBUTION PERIOD and is confirmed by a steady decline (MARK-DOWN). Note that, Wyckoff does not shy away from short selling in a bear market. He always favors traders looking for opportunities to make money on both Up and Down Trends. As well as the accumulation and markup phase, there are five potential selling points in this Extended Bearish Trend:
  1. First, the lower high in the distribution pattern provides the opportunity to sell short before the actual support breakout takes place and the trend changes. This is a dynamic trading strategy that brings the greatest potential profits, but also runs the risk of failure because the downward trend has not officially started.
  2. The breakout point is a second point that can be used to short-sell, as long as it is confirmed by an increase in trading volume.
  3. After the price breaks and becomes oversold, the price is likely to return to the previously broken support, now turning into resistance (Throwback). This gives traders a third chance to sell down, although it is unlikely to happen at times.
  4. When the bearish period begins to be confirmed (Markdown), the "prime charts" should wait for sideways consolidation (redistribution) or corrections, bringing the market back to the oversold zone in the uptrend. . Wyckoff calls the consolidations phases of Redistribution. The breakout below consolidation zone support signals the continuation of the bearish phase, providing traders with a fourth-down opportunity to sell.
  5. In contrast to a consolidation, a rally that brings prices back to the oversold zone is a corrective rally that retraces part of the previous decline. The "prime chart" can sell down at resistance areas of the trend line, previous support levels, or previous consolidation zones. Wyckoff usually looks for resistance or signs of a reversal around the 50% correction of the nearest downside price step.


There are four steps we need to take to use the Wyckoff method:
Trend identification,
Confirmed top/bottom patterns,
Estimated price and target
Locate the trend.
These 4 steps are equivalent to 4 articles that we have gone through together, re-read them to be able to grasp them better. Correctly grasping the trend is taking 50% of the chance, as the majority of stocks move in line with the general market trend. This trend continues until a confirmed top or bottom pattern is formed. Aggressive traders can act before these reversal patterns are complete, but the trend hasn't officially reversed until the price breaks key support or resistance levels with trading volume. high (or relative). When the top or bottom is completed, the "prime charts" can use the Point and Figure (P&F) background count method to predict the length of the next rally or decrease to choose stocks with the estimation best price. A trend is considered ripe and reversible when the price hits these target areas. During a trend formation period, the "manual chart" may determine the POSITION OF the PRICE in the trend to ensure a good Risk / Reward ratio when opening positions. We should avoid opening long positions when the market is overbought and avoiding opening short positions when the market is oversold. As noted in the beginning, these are instructions for explaining market movements. The final decision is up to you!

Continuing from the Series, introducing the GENERAL and FRIENDS TRENDS:


Most stocks tend to move in harmony with the general market. Therefore, we - the "player chart" should know the directions and location of the general market first. With this in mind, Wyckoff developed a "Wave Chart", which is simply a composite average of five or more stocks. This Wyckoff "wave chart" resembles the Dow Jones Industrial Averages and the Dow Jones Transport Averages developed by Charles Dow. Although the Dow Industrials is the most well-known general index, today's "prime charts" can also choose a number of other indicators to analyze the general market. These include the S&P 500, S&P 100, Nasdaq, NY Composite, and Russell 2000.

Wyckoff used daily high, low, and close to create a series of price bars and construct a classic bar chart. His goal is to identify the underlying trend for the general market and to position the market in this trend. A trend is important because it tells us the "path" contains the least resistance to the majority of stocks. The position is important because it tells us where the current market is in this trend (Accumulate, Distribute or Mark up, Markdown, overbought, oversold). For example, position helps chartists to determine whether a market is overbought or oversold in order to make buying and selling decisions.

There are three possible trends: UP, DOWN, or UP with three different timeframes: short, medium, and long. For this article, a Daily chart is used for the medium-term trend. An uptrend occurs when the index forms a series of ascending highs and ascending lows. On the contrary, a downtrend appears when the index forms a series of descending peaks and decreasing troughs. A series of horizontal lows and horizontal highs form a trading range. The "manual chart" must wait for the price to break out of these ranges to determine the direction of the trend.

The above two charts show examples of a UP and a DOWN TREND. During a trend, the price can be positioned in an oversold position, an overbought position, or somewhere in the middle of the trend. POSITION of the market plays a very important role in determining the Risk / Reward ratio of a position. Ideally, manual charts should open long positions when the trend is up and the market position is in oversold territory, which means that pullbacks or corrections have occurred. The Risk / Reward ratio will be less attractive if we buy in an uptrend and the market falls into an overbought position. Similarly, the Risk / Reward ratio will also be less attractive if we sell in a downtrend and the market position is oversold. It is best to establish a short position when the market is overbought during a downtrend or in the middle of a downtrend.


During trend formation, general market indices form major peaks and troughs that reverse existing trends. Wyckoff noted that the top and bottom often appear different phenomena. PEOPLE markets are often time-long, attractive to buyers, while markets are relatively short in terms of time and act like ferocious beasts. Wyckoff identified specific features of tops and bottoms about 100 years ago, and these characteristics can still be found in today's market.

Bear markets often end with a "selling climax" or "spring", which is a failure to break support. First, the overall market index is in a downtrend as it has been falling to lower levels for a long time. With a quite negative sentiment, many investors started to become completely discouraged with increasing losses. At some point, they start to "raise the white flag" and sell their holdings. This causes prices to continue to plummet and regularly break important support levels. The price seems to be falling freely at this stage, but "smart" cash flow is waiting. The buying pressure of smart cash flow jumped into the market suddenly, reversing the previous free fall, causing the price to skyrocket while closing above the previous low.

Wyckoff used volume to confirm the validity of a reversal, a breakout, and a trend. Selling climax or spring is often accompanied by an increase in trading volume, exhibiting increasing participation with the most important force of large cash flows (i.e. institutions), which will support The market, being strengthened to help the index maintain (consolidate) in a downtrend. Meanwhile, low volume indicates limited participation and highlights the possibility of failure in a trend reversal.

The example above shows increasing trading volume on the "selling climax" and "spring" in early October 2011. Notice how the S&P 500 breaks support as selling pressure pushes the price below 1100 points. Prices continued to drop below the 1080 mark that day, but the bulls jumped in and pushed the index back up, and closed above 1120. Selling pressure (pushing the index to break out of previous support) was not sustained and a "Spring" came in with a large volume. This bullish signal was enough to send the S&P 500 soaring above its peak established at the end of August in late October.

As mentioned above, a market top is different from a market bottom. Peaks are usually formed over a long period of time with sideways movements in price, which is consolidation. This is also known as the distribution phase in which the smart cash flow (institutions) distributes stocks to the stupid cash flow (crowd of traders). In other words, smart coins sell their shares for stupid money just before the market crashes.

On the price chart, a market top usually does not appear clearly until characteristic signs appear - often a failure to break Resistance. Failure to break Resistance is not something too negative until the price gets back to testing Support levels. Such a sharp drop shows that selling pressure has increased markedly. Following that, there were some attempts to bounce back from Support but form lower highs, indicating a gradual decline in buying power. Such phenomena are repeated until the reversal is completed with a break out of Ultimate Support accompanied by increased trading volume.

The example above shows the Dow Industrials peaking in 2007. Notice how the price has been moving sideways for about 7 months. There are 5 points on this graph that help us define the vertex process:
  1. The first point, which occurs in the second half of the process, when the Dow fails to stay above its previous high (The front peak is a red arrow, the legend box is quite small so down). There is nothing negative about this breakdown of failure until point (2) comes in.
  2. Prices fell back to August lows. This is the first sign that selling pressure (Supply) is increasing.
  3. Price bounced off support, but a lower high formed in early December. This is the next signal that buying pressure (Demand) is decreasing. Increasing selling pressure and decreasing buying pressure have begun to confirm the top formation
  4. The price broke out of support with a sharp drop in January 2008.
  5. The volume on the down days exceeded the volume for the up days for October and November.

Step 1. Determine current position ̣and possible future trends of the market. Is the market consolidating or trending? Analyzing the market structure, and examining whether supply and demand factors indicate a possible direction in the near future? This review will help you decide whether to enter the market and if so, whether to enter long or short positions. Use both candlestick charts and Point & Figure charts for major indices and industry indicators in this Step 1.

Step 2. Choose stocks that are in harmony with the trend. During an uptrend, choose stocks that are stronger than the market. For example, look for stocks that show a greater percentage gain than the general market in rallies and smaller declines in corrections. During a downtrend, do the opposite - choose stocks that are weaker than the market. If you are unsure about a particular issue, remove it and move on to the next issue. Use a separate candlestick chart of each stock and compare it with the chart of the best market indicator for Step 2.

Step 3. Select a stock that has "Cause" equal to or exceeding the minimum "Result" you want to achieve. A key component in Wyckoff's trading selection and management is the method of determining price targets, using Point & Figure (P&F) graphs for both buying and selling transactions. In Wyckoff's basic law of 'Cause and Effect', the horizontal background of the P&F graph represents the 'Cause', while the next price movement represents the 'Result' - Corresponding to H-count and V- count that I often use. Therefore, if you are intending to enter long positions, choose stocks that are accumulating or re-accumulating and that have sufficient cause to satisfy your outcome. In Step 3 we mainly use Point & Figure graphs for individual stocks.

Step 4. Determine the "ready" level of the stock. Applying 9 trials to buy and sell trials (this section will have 1 post). For example, in a trading range that emerged after a prolonged rally, see if the evidence from 9 sell trials shows that a significant amount of Supply is entering the market? If so, start selling. Or, within a clear cumulative trading range, 9 buying trials have indicated that Supply has been successfully absorbed, as evidenced by low volume Spring hits. If satisfied, start buying! Use candlestick charts and Point & Figure charts of individual stocks for Step 4.

Step 5. Control the order and determine when you no longer want to stick with the market. To improve trading probabilities, determine the strength of the overall market behind it. Wyckoff's specific principles help you predict potential market moves, including changing price action characteristics leading to trend changes (such as largest bearish bars on high volumes. after a long uptrend). Enter an order, place your stop loss at the specified position, and then progress it (traling), until your position is closed. Use candlestick charts and points and shapes for Step 5.

2. "DRIVING" IN THE WYCKOFF METHOD (Wyckoff's "Composite Man"):

Wyckoff used the EXPERIMENT method (based on the practical results) to help describe the price movement of individual stocks and the whole market, thereby giving the definition of “COMPOSITE MAN - COMPOSITE MAN ".

Based on years of observations of large institutions' market activities, Wyckoff points out that:
DRIVER carefully plans to then execute and end their campaigns.
PHE DRIVING attracts a crowd to buy stocks that he has amassed a large amount of before. The method he uses is "promoting" through the media - that "UP" is about to begin.
We must study the charts of individual stocks for the purpose of assessing the stock's behavior and the motivations of the large institutions that govern it.
With serious study and practice, we can gain the ability to interpret the motives behind the action depicted by the chart. Wyckoff and his associates believe that, if we can understand the market behavior of the DRIVER, we can identify opportunities and act early enough to profit from them.


According to Wyckoff, markets can be understood and predicted through detailed supply and demand analysis. And that SUPPLY, DEMAND analysis can be ascertained through price, volume and time action.

Due to his previous "in-house" work as a "code runner" and broker, he was able to observe the overall performance of "superstructure" individuals and groups who governing important issues. From there, he can combine and decode market information through Bar, Number and Point (Point & Figure) charts, to know the future intentions of major interest groups. there.

The illustration above outlines an ideal diagram of how major interest groups are preparing and doing with both bull and bear markets. The time to enter buy orders is at the end of the preparation for a bull or bull market (accumulation of strong stocks), while the start of short positions is at the end of the distribution.

On the issue of how to date, we have to wait for the following lessons. In this section, we only know, the SIMPLE CYCLE in WYCKOFF METHOD includes: ERROR ANALYSIS> MARKUP> DISTRIBUTION> MARKDOWN


The methodology of the Wyckoff method is based on three basic "RULES" and they affect many aspects of the analysis so we need to understand these three laws. Aspects of the analysis include:

  • Identify the current trend, future, and potential of each stock in the market,
  • Choose the best stocks to buy or sell short,
  • Determines the willingness to leave the trading range of a security
  • Predict a trend-driven price target based on a security's behavior within a Trading Range.
The 3 RULES governing the above aspects are:

1. SUPPLY AND DEMAND RULES: SUPPLY DECIDES PRICE TREND. This rule is central to Wyckoff's trading and investing methods. When demand is greater than supply, price increases, and when supply is greater than demand, price falls. Traders can study the balance or imbalance between supply and demand by comparing the price bars and volume on the chart. This rule is simple, but to learn how to accurately assess supply and demand on bar charts, as well as understand the meaning of supply and demand patterns, we need to practice a considerable amount.

2. Cause and Effect Rule: This rule helps traders set estimated targets for future prices by assessing the "potential of a trend" coming from a trading range. Wyckoff's "Cause" is measured by the number of horizontal points (the number of horizontal plots) in a Point and Figure chart, while the "Outcome" is the distance the price moves in the future relative to the number of points that prices are cumulative. This rule can be roughly understood as: "The driver accumulates efforts for 2 years (Cause) so that after the price breaks from the price base, how much does the price increase (Result)". Here is a typical example of the law of Cause and Effect, also known as the law of Cause and Effect!

3. The Law of Force vs. Results: This rule provides traders with early warnings about a YES or NO trend is likely to change in the near future. The difference between volume and price often signals a change in price trend. Example: On a chart that appears some price bars with high volume (great effort) but they are of limited height (low result), which suggests that interest groups may be Stock distribution, it gives a forecast of a change in trend in the near future!


What the Wyckoff method aims to do is predict upcoming moves based on a trading range. Trading range analysis will help us improve our ability to time a position open by determining where the best Risk / Return ratio is. TRADE SCOPE (TR) is where the previous trend (bullish or bearish) has stalled and there is a relative balance between supply and demand. The institutions and groups of big hands are preparing for their next campaign as they continue to accumulate (or distribute) stock within this trading range. In both the cumulative and distributive trading range, the steering side is actively buying and selling - the difference is that, in the accumulation process, the number of shares bought in is more than the number of shares sold while in the distribution process is the opposite. The level of accumulation or distribution will "cause" the move out of the TR.


A successful user of the Wyckoff method must be able to accurately predict the direction and magnitude of the price breaking out of the TR. Fortunately, Wyckoff provides time-tested guidelines for identifying and outlining PHASE (PHA) and EVENTS inside the TR, which in turn provide a basis for estimating price targets. in the next trend. These concepts are illustrated in the four schemas below.


  • PS - preliminary support: Here comes a significant buying force that creates a pronounced support in the price action after a protracted price decline. The volume increases and the price range widens, signaling that the downtrend may be coming to an end.
  • SC - Selling climax: Price amplitude increased significantly and selling pressure reached a peak. This is the panicked crowd selling phase, and also where institutions or interest groups begin to absorb the stock. Typically, the price will close much higher than the lowest low in SC, reflecting the buying of these interest groups.
  • AR - Automatic rally: Occurs because strong selling pressure has decreased significantly. The wave of buying pushed prices up; The rallies further when the short sellers take profits (This is done by buying to cover the short position). The top of this rebound will help determine the PEOPLE of the cumulative price range area.
  • ST - Secondary test: Price retests SC (Sell High) to test the supply/demand balance in this zone. If a new bottom is confirmed, the price and volume amplitude at ST will decrease significantly relative to SC. Usually, there will be multiple STs after one SC.
Note: Recovery and shake-ups typically occur in the TR zone allowing a DRIVER to verify availability before their campaign begins. A "spring" brought prices below the lowest low of the TR and then reversed, closing in TR; This action allows large interest groups to deceive the crowd about future trends as well as buy more stocks at a bargain price. This is similar to Distribution.
  • Test: Interest groups use market retesting at the bottom of the TR to redefine supply (e.g. ST and spring) and at some point during the recovery. If substantial supply appears during a test, it means the market is often not ready to go up. The end of the test (which shows that the price will go up next) is often accompanied by higher lows, lower volume.
  • SOS - the sign of strength: Strong recovery is accompanied by high price bars and high trading volume. Usually, an SOS takes place after a Spring, validating the interpretation of the previous action.
  • LPS - last point of support, this is a shallow bottom or a slight retracement that appears before and after SOS. BU / LPS means a pullback of support that was previously resistant, these pullbacks are accompanied by small body bars or narrow price ranges and decreasing volume. In some cases, there may be more than one LPS, despite the term "FINAL".
  • BU - ERROR (back up). The term stands for a colorful metaphor coined by Robert Evans, one of the leading researchers of the Wyckoff method from the 1930s to the 1960s. Evans likens SOS to a "leap. channel breakout "- is the peak of TR and BU is a" return to the channel ", it represents short-term profit-taking as well as a retest of additional supply around resistance. A slight rollback is a common price action that occurs before a strong bull run and can take many different forms, including a simple pullback (Retreat then skyrocket) or a new small TR at a high. than. You can view the backup as reverse action or de-auto!

1. Stage A:

Phase A marks the stop of the previous downtrend. At this stage, SUPPLY still dominates. A decline in SUPPLY was confirmed when FIRST SUPPORT (PS) and a sell high (SC) formed. These events are usually very clearly represented on a bar chart (or candlestick chart), with large candles (wide price ranges) and large trading volume indicating the transfer of large numbers of stocks. from crowds of small traders to large institutions, or the driving force. As the selling pressure began to be absorbed, a CONSEQUENTIAL (AR) RESTORE appeared as a "consequence" of the demand for institutional shares as well as the faction's profit-taking action. short selling (buying to cover the position). A successful SUPPORT (ST) test is represented by the narrowing of the real body of the candlestick (price range) and decreasing volume, where the price usually forms a higher low than the bottom of the SC. If the ST is lower than SC, then the TR may not have started yet or the accumulation period will last longer. THE SC, ST, and ARRAY OF AR establish the boundary of the TR. Horizontal lines can be drawn to help you focus more attention on market behavior, as seen in the FLASHING CHART above.

Sometimes a downtrend can end more differently, without events and high volume confirmed. However, let us only trade under the full emergence of PS, SC, AR, and ST, as they not only provide clarity but are also a sign that large institutions have begun to accumulate. definitively.

For a BACKGROUND (which happens mid-way, in a long-term uptrend), the points representing PS, SC, and ST in Phase A usually occur not so clearly. B-E phases usually have a shorter duration and smaller amplitude, but in general, they also have the same characteristics as above.

2. Stage B:

In a market analysis by the Wyckoff method, Phase B plays the role of "building the cause" for a new uptrend (see Rule No. 2 of the Wyckoff method - "The Law of Cause and Effect"). In Phase B, institutions and large interest groups accumulate cheap stocks to anticipate the next bull run. This phase can take a long time (sometimes a year or more) and involves things like buying stocks at lower prices and re-examining DEMAND responses through short selling and this is also the stage. the longest paragraph in 5 stages. Often multiple STs will appear during Phase B, just as the "Upthrust" actions at the apex of the TR. In general, large interests will net buy stocks during this period, with the goal of acquiring as much of the remaining floating supply as possible. The buying and selling of these institutions and interest groups are represented by characteristic, steady, up, and down price actions.

At the beginning of phase B, the amplitude of price bars is usually wide (represented by large candles) with a large volume. However, when large organizations begin to absorb SUPPLY, mass tends to decrease gradually. When the SUPPLY begins to run out, Phase C is ready.

3. Stage C:

During phase C, the share price undergoes a decision test to determine if there is still plenty of SUPPLY left, allowing "smart cash flow" to determine whether the stock is ready to go up in price. At this stage, a "Spring" will appear to act as a test of supply instead of STs like in phase B. Spring is the phenomenon where the price moves below the support level - the bottom of the TR ( established in Stages A and B), quickly reversing and moving back to the TR. This is a prime example of a bear trap as a drop below support appears to be a bullish signal. However, in practice, this marks the start of a new uptrend that traps sellers into the late market (bears). A low volume (or "test of a shakeout" with low volume) offers good trading opportunities with high probability. is willing to increase, so now is a good time to start buying, at least partially.

The appearance of an SOS immediately following a "Spring" or "Shakeout" confirms our previous analysis is in the right direction. However, as noted in the FLOW CHART, the SUPPLY check can be completed without "Spring" or "Shakeout" appearing; when this happens, defining this as Phase C can be very challenging.

4. Stage D:

If our analysis is correct, we still need to review the relationship between SUPPLY and DEMAND during this period. Specifically, phase D is represented by events that show SIGNALS OF STRENGTH (SOS) when candles with large bodies (or bars with large amplitudes) are formed and trading volume increases, goes away. accompanied by small corrections to FINAL SUPPORT (LPS) with narrow body candlesticks (The price bar has small amplitude) and decreasing trading volume. During Phase D, the price will move up to the top of the TR. LPS during this period are usually excellent points to initiate open positions or add to positions if you have previously bought in "Spring".

5. Stage E:

During Phase E, stock price breaks TR in an uptrend, DEMAND begins to take full control of the market and bulls are very clear to everyone. Corrections are usually only short-lived. Small TRs formed during this phase E represent profit-taking and re-accumulation behavior by large organizations and interest groups. These TRs are called "stepping stones" on the way to conquer the price target. At phase E we would also buy, but the volume should be down relative to periods C and D when the price breaks out of the small "Rebound" zones!

Together we will go through the events within the distribution. These events include:

PSY - preliminary supply: This is the position where large interest groups begin to take profit from a large number of stocks after a sharp uptrend. The volume of the trade spiked and the price range widened (represented by large-bodied candles or bars), signaling that a change in trend might be imminent.

BC - buying climax: This is an event that often comes with a marked increase in trading volume and price amplitude. Purchasing power peaks, this is a time when retail traders buy heavily, with supply supported by large interest groups at near-peak prices. BC often coincides with the time great earnings come out or other good news. Large organizations and interest groups often use such events to sell their shares without devaluing the stock.

AR - automatic reaction: When the buying power of the crowd of small traders starts to drop significantly while the large supply remains, AR will take place. The bottom of this sell-off helps identify TR's lower support (TR's Bottom)

ST - secondary test: At this event, the price returns to BC to check the supply-demand balance. We can confirm that price peaked when supply> demand; this means that the volume and amplitude decrease as the price approaches the resistance zone of BC, represented by small real body candles or bars. An ST can have 2 forms:
  • Upthrust (UT) - price moves above the resistance line crossed from the top of BC before quickly reversing direction to close below the resistance or,
  • A normal form of ST - Price has risen but has not yet reached the top of BC and has turned down.
After a UT, the price often verifies the bottom of the TR - stretched horizontally from the bottom of the AR. There can be more than one ST or UT in the distribution.

SOW - the sign of weakness: This is the event where the price moves down (or slightly crosses) the bottom of the TR, usually occurs with an increase in price band and trading volume. AR and the SOW indicate a change in the stock's price action: supply is now dominant.

LPSY - last point of supply: After verifying the support levels at AR and SOW, a weak recovery with a narrow price range (price bars, small candles) showed that the market is having trouble. in maintaining an uptrend. The cause of this phenomenon can be due to weak demand, strong supply, or both. LPSY shows the exhaustion of demand and the final deliveries of the big beneficial organizations and groups that occur before the downtrend begins. Note: There can be more than one "Final Distribution Point", even though its name is "final".

UTAD - upthrust after distribution: UTAD opposes Spring in an accumulation phase. Some brothers will wonder why it is "After distribution" while the distribution phase has not ended. The reason is that the distribution mainly takes place in stages A and B, from stage B onwards, we will only have LPSYs, meaning small distribution points. UTAD comes in the later stage of TR and provides a sure test of demand by breaking above the TR resistance, if the price breaks down sharply and closes above TR in large volume, the distribution process has may not be ready, but maybe just re-accumulation, and vice versa, if the price turns to close inside the TR, this is a confirmation of the distribution. Similar to Spring or Shakeout in accumulation, UTAD is not a required structural component: the TR in Distribution Schema # 1 contains UTAD, while the TR in Distribution Schema # 2 does not.

Phase A: Phase A in distribution marks the slowdown of the previous uptrend. At this stage, demand still dominates and the first evidence that SUPPLY force begins to enter the market is the first distribution point (PSY) events and the buying climax (BC). These events are usually followed by an effective correction (AR) and the second test of resistance (ST) at the top of BC, and the volume of transactions is decreasing. However, the uptrend can also end quickly without climactic action, instead of showing signs of exhaustion of demand such as decreasing price amplitude and volume; increases with decreasing amplitude before significant supply appears.

During a redistribution of a major downtrend, Phase A may look like the beginning of an accumulation period (for example, high price range and decreasing trading volume). However, the periods from B to E are different, so when analyzing, we need to wait for the signals of phase B to appear before deciding to trade!

Phase B: The function of Phase B is to build up the "cause" in preparation for a new downtrend. During this period, institutions and large interest groups are liquidating their stocks and starting to open short positions in anticipation of further declines. Major events during Phase B distribution are similar to major events in Phase B of accumulation, except that the major interest groups are net sellers of the stock, with the goal of making As much as possible, the remaining demand is exhausted. This process often leaves clues that the balance is inclined to SUPPLY. For example, SOW is often accompanied by an increase in price amplitude and volume (bearish candles and bars have large bodies).

Phase C: During delivery, Phase C can be identified by events such as Upthrust (UT) or post-distribution UPTHRUST (UTAD). As noted in the previous post, UT is the opposite of Spring. This is a move where the price breaks up above the top of TR before quickly reversing and closing inside TR. This is a move to re-check the remaining demand, if the demand is still large, the large organizations will continue to Distribution. It is also a bull trap - signaling the continuation of the uptrend but is in fact aimed at misleading traders based on breakouts. UT or UTAD allows large interest groups to deceive the crowd of retail traders about the future trend while selling additional stocks at high prices to investors and traders before the downtrend catches. head. Additionally, UTAD may cause smaller traders to open short positions to buy to cover their positions (stop loss).

Active traders can open short positions after UT or UTAD. The risk/return ratio is usually quite large if we sell here. However, the continuous “smart cash flow” makes it “difficult” for traders to open short positions by creating lots of UTs, causing us to stop loss. So for more safety, you should wait until Stage D and LPSY.

Often the demand force during distribution will be so weak that the price does not reach the top of BC or ST. That is why UTs in phase C will form lower highs in the TR.

Phase D: Phase D comes after the Phase C DEM tests are finished (DEMAND is exhausted). During Phase D, the price moves toward the support - the bottom of the TR and through this support. The evidence that SUPPLY is dominant is that the price breaks support or falls below the midpoint of the TR after the appearance of a UT or UTAD. Phase D often appears weak recovery waves; These LPSYs are a great opportunity to open or add profitable short positions. If you're still holding long positions during Phase D, you're in trouble.

Phase E: Phase E is the beginning of a downtrend; stock prices leave TR and SUPPLY controls the market with SOW. This phase often occurs when retesting resistance (previous support) and all fail. These tests are also a chance to sell short with a high probability of winning. Subsequent rallies are often very weak. Traders who have opened short positions can move their stops when the price falls above these rallies. After a significant down move, selling highs appear, which could signal the beginning of redistribution or an accumulation and the start of a new cycle.

Wyckoff's stock selection process always involves analyzing the correlation strength between stocks and the general market. To identify candidates for long positions, he looks for stocks or industry groups that are outperforming the general market, both during trend formation and within the trading range. Meanwhile, for short positions, he looks for stocks that are underperforming. All the charts he uses, including bar charts, Point and Figure Charts (P&F), are drawn by hand so he can easily analyze the relative strength of a stock. shares and market share, or between one stock and other stocks in the same industry group, by placing one chart below another, as in the example below. Wyckoff compares each wave or step-by-step price in each chart, examining the strength or weakness of each wave in relation to previous waves on the same chart (Peaks vs. previous peaks or lows with the previous bottom) and with corresponding points on the comparison chart. One variation of this approach is to identify key high and low levels and note them on both charts. Then, evaluate the strength of a stock by comparing the current price against previous high or low level (s) and do the same thing on the comparison chart.

Let's take an example with the chart of the stock ticker AAPL and the NASDAQ Composite Index ($ COMPX) above. The AAPL is making a lower high at point # 3 (versus point # 1), while $ COMPX is making a higher high at that point. This shows that AAPL is underperforming compared to the general market at # 3 point. This picture changed in February when AAPL started to outperform the general market, as evidenced by APPL forming a higher high at # 5 (versus point # 3) and a higher low at # 6 (vs. point # 4). Meanwhile, the overall market is making a lower high at # 5 (vs # 3) and a lower low at # 6 (vs # 4). When selecting stocks to trade, Wyckoff will open long positions against stocks that show stronger correlation strength than the general market, while also meeting other criteria, as discussed in Nine Buy / Sell Trials we will study in the following lessons. In the example above, we would go buy when APPL's ​​share price breaks out of the range since the stock has outperformed the general market during the previous period.

9 BUY / SELL TEST (Part II - Lesson 9)


While the three rules of the Wyckoff method provide a great foundation for the method, the 9 trials of buying and selling are a narrower set of specific principles to help guide the transaction. These tests help to discern when a trading range is about to end and a new uptrend or downtrend is POSSIBLY about to begin. In other words, these nine tests help us identify price zones with the least resistance/support on the chart.

Here is a list of 9 buy and 9 sell trials, including references to which chart type to be used:


The price is considered ready to increase if the following 9 are fulfilled:
  1. Finished Price Target-Use P&F Graph
  2. Preliminary support, selling climax, secondary test have been completed - Use Candlesticks and P&F charts
  3. There are Bullish signs (increased volume on ascending and descending price actions in corrective price actions) - use a candlestick chart
  4. Bear Trend Broken (ie Supply lines or Bear trend lines are broken) - Using Candlestick or P&F chart, review previous supply-demand analysis!
  5. Price forming higher lows - Use a Candlestick or P&F chart
  6. Price Forming Higher Highs - Use a Candlestick or P&F chart
  7. Stocks are stronger than the general market (i.e. they react faster than the general market in an uptrend and are better supported than the general market index during a downtrend) - Use Candlestick chart, review previous correlation analysis!
  8. Base price (horizontal accumulation zone) - Use a Candlestick or P&F chart
  9. The increased profit potential is estimated to at least triple the loss if the initial stop loss is triggered - Use Candlestick and P&F charts

The price is considered ready for reduction if the following 9 are fulfilled:
  1. Finished Price Target-Use P&F Graph
  2. Bearish Signs (Volume decreases as prices rebound up and rise during bearish moves) - use candlestick and P&F charts
  3. Preliminary supply, buying climax is completed - Uses the Candlestick and P&F charts
  4. Stocks are weaker than the general market (i.e. rise faster than the general market when the trend is bearish, slower than the general market when the trend is up) - use the Candlestick chart, review correlation analysis before.
  5. The Uptrend Is Broken (means the Demand Line or the Up Trend Line Has Been Broken) - Use a Candlestick or P&F chart
  6. Price forming lower highs - Use a Candlestick or P&F chart
  7. Price forming lower lows - Use a Candlestick or P&F chart
  8. Price forming a "Crown" (upper horizontal range area of the chart, shaped like a crown) - Use a Candlestick or P&F chart
  9. The estimated downside profit potential is at least three times the risk if the initial stop loss is triggered - Use Candlestick and P&F charts.
The AAPL chart below illustrates a 2 to 8 BUY TEST:

The downtrend in this example ends with PS - first support, SC - selling climax, AR - Consequence rebound, and ST - 2nd support test, these are signs of test satisfaction. buy # 2 (Test # 2). Trading volume decreases during range formation and prices begin to form higher highs - this shows a decrease and absorbs supply, despite a decrease in demand. Once the supply is exhausted, the price can rise despite the lower demand than we can expect. These are the signs of satisfaction with Buy Test # 3 (Test # 3). The downtrend channel is broken and the price is consolidating within a range area - buy test # 4 (Test # 4) is satisfied. From February to April 2009, AAPL made higher market highs> Meet the buy tests # 5, # 6, # 7 (Test # 5, # 6, # 7). The stock has taken 6 months to consolidate and has built a sufficient cause for a significant boost into the future. The background area is complete, meets test # 8 (Test # 8)

Note: Buying tests # 1 and # 9 (Test # 1 and # 9) can only be known through the use of P&F graphs to estimate goals. Guidelines for estimating a target based on a transaction range are discussed in the article that follows this article.