Wyckoff Flashcards
What are the three fundamental laws of the Wyckoff strategy?
- The law of supply and demand determines price direction
- The law of cause and effect
- The law of effort vs result
Explain phase A of the Wyckoff strategy: (Accumulation)
Marks the stopping of previous down trend, Contains the PS, SC, AR and ST.
Explain phase A of the Wyckoff strategy: (Distribution)
Marks the stopping of previous up trend, Contains the PSY, BC, AR and ST.
What does PS stand for in the Wyckoff strategy?
Preliminary support. Where substantial buying begins to provide pronounced support after a prolonged down-move. Volume increases and price spread widens, signaling that the down-move may be approaching its end.
What does PSY stand for in the Wyckoff strategy?
Preliminary supply. Where large interests begin to unload shares in quantity after a pronounced up-move. Volume expands and price spread widens, signaling that a change in trend may be approaching.
What does SC/BC stand for in the Wyckoff strategy?
Selling climax, widening spread and heavy volume signal transfer of large amounts of shares or contracts from retail to institutional traders. Buying climax in distribution cycle.
What does AR stand for in the Wyckoff strategy?
Automatic rally, after intense selling pressures relieved, an automatic rally ensues (institutional demand / short covering.) Automatic reaction in distribution cycle (institutional supply / long covering)
What does ST stand for in the Wyckoff strategy?
Secondary test. After AR market will again retest SC, this time with less spread and volume generally stopping at or above SC.
Which levels usually set the trend range in the Wyckoff strategy?
Lows of SC/BC and ST and highs of the AR
Explain phase B in the Wyckoff strategy: (Accumulation)
“Building a cause” for a new uptrend. Institutions and large professional interests are accumulating relatively low-priced inventory in anticipation of the next markup.
Explain phase B in the Wyckoff strategy: (Distribution)
“Building a cause” for a new downtrend. Institutions and large professional interests are distributing relatively high-priced inventory in anticipation of the next markdown.
What is the characteristic of volume in phase B in the Wyckoff strategy? (Accumulation)
Wide swings accompanied by high volume. As the professionals absorb the supply, the volume on downswings within the TR tends to diminish. When it appears supply is likely to have been exhausted, the stock is ready for Phase C.
What is the characteristic of volume in phase B in the Wyckoff strategy? (Distribution)
Wide swings accompanied by high volume. As the professionals absorb the demand, the volume on upswings within the TR tends to diminish. When it appears demand is likely to have been exhausted, the stock is ready for Phase C.
Explain phase C in the Wyckoff strategy: (Accumulation)
A “check” of remaining supply, allowing “smart money” to ascertain whether price is ready for markup.
Explain phase C in the Wyckoff strategy: (Distribution)
A “check” of remaining demand, allowing “smart money” to ascertain whether price is ready for markdown.
Explain phase D in the Wyckoff strategy: (Accumulation)
Consistent dominance of demand over supply
Explain phase D in the Wyckoff strategy: (Distribution)
Consistent dominance of supply over demand
Explain phase E of accumulation in the Wyckoff strategy
Price leaves TR, at this point markup is obvious. LPS and subsequent higher TR for re-accumulation/distribution can happen at any point in phase E.
What is LPS?
Last Point of Support. Final attempt by smart money to buy assets before the markup phase, usually on diminished spread and volume. Follows accumulation. A strong upward movement usually follows the LPS.
What is the four stages of Wyckoff price cycle?
- Accumulation (oversold)
- Markup (demand > supply)
- Distribution (overbought)
- Mark down (supply > demand)
What is LPSY?
Last Point of Supply. Final attempt by smart money to sell their remaining assets before the markdown phase, usually on diminished spread and volume. Occurs after a prolonged distribution. Often followed by a swift downward movement.
Who is Wyckoff?
Richard Demille Wyckoff (1873–1934) was an early 20th-century pioneer in the technical approach to studying the stock market. He is considered one of the five “titans” of technical analysis, along with Dow, Gann, Elliott, and Merrill. At age 15, he worked as a stock runner for a New York brokerage. Afterward, while still in his 20s, he became the head of his firm. He also founded and, for nearly two decades, wrote and edited The Magazine of Wall Street, which, at one point, had more than 200,000 subscribers.
When is the best time to enter long positions?
Towards the end of the accumulation with SOS and LPS in preparation for a price markup
When is the best time to enter short positions?
At the end of the distribution with SOW and LPSY in preparation for price markdown
What is SOS?
Sign of Strength, a price advance on increasing spread and relatively higher volume. Often a SOS takes place after a spring, validating the analyst’s interpretation of that prior action.
What is SOW?
Sign of Weakness, observable as a down-move to (or slightly past) the lower boundary of the TR, usually occurring on increased spread and volume. The AR and the initial SOW(s) indicate a change of character in the price action of the stock: supply is now dominant.
What is the concept of a “spring” in the Wyckoff strategy?
They usually occur late within a TR and allow the stock’s dominant players to make a definitive test of available supply/demand before a price campaign unfolds. Takes price beyond TR and then reverses to close within the TR.
