The ULTIMATE Wyckoff Trading Course — Transcript

Learn the Wyckoff trading method to trade alongside large traders using supply and demand, market phases, and price action logic.

Key Takeaways

  • Retail traders should align with large traders rather than compete against them for better success.
  • Wyckoff methodology uses logical analysis of supply, demand, and price action footprints to anticipate market moves.
  • Market price moves in fractal waves through four phases: accumulation, uptrend, distribution, and downtrend.
  • Understanding market phases and psychology can help traders avoid losses and trade more effectively.
  • The method is an evolution of classical theories like Dow and Elliott Wave but offers more flexibility.

Summary

  • The course introduces the Wyckoff trading methodology focused on understanding large traders' actions and footprints in the market.
  • Wyckoff method helps retail traders trade with, not against, well-informed large traders who have more capital and experience.
  • The method is based on logical analysis of price action, supply and demand, and trading psychology.
  • Price movements are fractal and wave-like, with no fixed number of waves but a general structure of four phases.
  • The four key phases of price action are accumulation, uptrend, distribution, and downtrend, with possible re-accumulation phases.
  • Supply and demand laws explain market price movements and the path of least resistance concept guides trend directions.
  • Wyckoff's approach is more flexible compared to Dow Theory and Elliott Wave Theory and emphasizes market manipulation understanding.
  • The method empowers retail traders to avoid being prey to large traders by reading market footprints and phases.
  • Understanding accumulation and distribution phases helps anticipate market trends and reversals.
  • The course highlights the importance of trading psychology and logical reasoning in successful trading.

Full Transcript — Download SRT & Markdown

00:00
Speaker A
Welcome to the ultimate Wyckoff trading course. In this course, you will learn the basics of this trading approach. If you're new to the channel, please consider clicking the like button and subscribing right now, as this helps support the channel. We start by
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Speaker A
realizing that in trading the odds of success are not particularly great for the vast majority of people the small retail Trader is competing in a way with other large traders who have much more knowledge more experience more capital
00:29
Speaker A
realizing that in trading, the odds of success are not particularly great for the vast majority of people. The small retail trader is competing in a way with other large traders who have much more knowledge, more experience, more capital,
00:47
Speaker A
against the uninformed retail Traders it's an asymmetric game to say the least the logical step for the retail Trader is to trade with the large Traders rather than against them the Wyckoff methodology is based on the identification of what the large Traders
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Speaker A
better trading tools, better access to information, not to mention a greater capacity to analyze this information. Perhaps more importantly, for the purposes of this course, large well-informed traders have a deeper understanding of trading psychology and the capacity to use this understanding
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Speaker A
methodology is the use of logic to understand the actions and Footprints of well-informed traders in the market it is also a more flexible trading approach in comparison to the Dell Theory and the elite wave theory for example before we dive into the method it's
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Speaker A
against the uninformed retail traders. It's an asymmetric game, to say the least. The logical step for the retail trader is to trade with the large traders rather than against them. The Wyckoff methodology is based on the identification of what the large traders
01:49
Speaker A
market could be anticipated through its own action because the steps of large Traders would leave footprints in the charts and tape Richard Wyckoff became a Wall Street Superstar after his success with his own methodology the method is based on a logical
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Speaker A
are doing using a logical approach, which can empower the retail trader to avoid being an easy prey for the large traders and to be on the right side of the market along with the well-informed traders. The hallmark of the Wyckoff
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Speaker A
of Market manipulation is the true key for the Trader's evolution that said let's begin learning the Wyckoff method with the four phases of price action most of what we are going to see later is built on this first idea
02:35
Speaker A
methodology is the use of logic to understand the actions and footprints of well-informed traders in the market. It is also a more flexible trading approach in comparison to the Dow Theory and the Elliott Wave Theory, for example. Before we dive into the method, it's
02:51
Speaker A
repeats inside itself at multiple degrees in the Wyckoff method however there is no rule about how many waves a trend should have precisely there is however a guideline about the general structure of how Market waves develop this leads us to the idea of four phases
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Speaker A
important we understand where it came from first. Richard Wyckoff was born in 1873. During the time he worked as a broker, he was able to observe how large traders behaved by watching the charts and the tape. According to Wyckoff, the movements of the
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Speaker A
buyers will accumulate positions until they are certain that there is no significant Supply in their way that way they can create the uptrend more freely when there is sufficient accumulation the path of least resistance is to the upside
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Speaker A
market could be anticipated through its own action because the steps of large traders would leave footprints in the charts and tape. Richard Wyckoff became a Wall Street superstar after his success with his own methodology. The method is based on a logical
03:55
Speaker A
phase according to the Wyckoff methodology one important detail here is that an uptrend is not necessarily followed by a distribution there is the possibility of a re-accumulation phase where buyers will accumulate positions in order to free space to the upside so that the uptrend
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Speaker A
approach to reading the markets, and it relies on ideas like supply and demand, cause and effect, effort and result, in a detailed account of how the well-informed traders act in the market. The enthusiasts of the Wyckoff method believe that understanding the mechanics
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Speaker A
we can state that the Wyckoff methodology is to some degree an evolution of the doubt Theory a distribution phase happens when buyers believe that the uptrend has gone too far and how sellers will become the dominant player the logic is exactly the same for the
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Speaker A
of market manipulation is the true key for the trader's evolution. That said, let's begin learning the Wyckoff method with the four phases of price action. Most of what we are going to see later is built on this first idea.
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Speaker A
the downtrend to continue further the accumulation and distribution are arranging Market phases while the uptrend and downtrend are trending Market phases there are mainly three types of scenarios the uptrend the downtrend and the sideways Market an uptrend is characterized by higher
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Speaker A
We start with the idea that price action moves in waves. These waves have a fractal nature, meaning that up and down movements repeat inside themselves across all scales. This is the same idea built in the Elliott Wave Theory, where the 5-3 wave pattern
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Speaker A
accumulation a re-accumulation a distribution a redistribution or a random range which is just a sideways Market that doesn't necessarily function as an accumulation or distribution let's now study the fundamental laws behind the Wyckoff method which are of great importance for the comprehension
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Speaker A
repeats inside itself at multiple degrees. In the Wyckoff method, however, there is no rule about how many waves a trend should have precisely. There is, however, a guideline about the general structure of how market waves develop. This leads us to the idea of four phases
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Speaker A
ultimate beginner's guide to supplying demand in the video card or video description the law Supply demand states that the market price will always seek an equilibrium state which is the point where the supply and demand curves intersect let's observe a hypothetical
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of price action. The four phases are accumulation, uptrend, distribution, downtrend, and the mechanics behind these four phases is explained by supply and demand and the concept of path of least resistance. An accumulation happens at the beginning of an uptrend.
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apples for example the law of demand states that the higher the price of something the less buyers will be willing to get it in the graph we have price on the vertical axis and the quantity on the horizontal axis as the price of Apple's
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Speaker A
Buyers will accumulate positions until they are certain that there is no significant supply in their way. That way, they can create the uptrend more freely. When there is sufficient accumulation, the path of least resistance is to the upside.
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Speaker A
in our example the higher the price of apples the more sellers will be willing to sell it in order to make a greater profit so the supply curve is up sloping notice that there is always a tension between supply and demand as they have
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Speaker A
Note that the expression path of least resistance simply means the easiest path. When there is too much demand and not a lot of supply, the easiest path that price can take is up. That is what creates an uptrend after an accumulation
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Speaker A
agreement can be represented by a price to understand how prices might rise or fall we need to observe what happens when there is a shift in demand or a shift in Supply for example imagine that a scientific paper is published claiming that apples
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Speaker A
phase, according to the Wyckoff methodology. One important detail here is that an uptrend is not necessarily followed by a distribution. There is the possibility of a re-accumulation phase where buyers will accumulate positions in order to free space to the upside so that the uptrend
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Speaker A
demand curve going to the right this movement of the demand curve to the right causes the point of equilibrium to move up along the supply curve to meet the new intersection this is what ultimately makes price rise since the new point of equilibrium is
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can continue. This means that there isn't a set number of waves in an uptrend like there is in the Elliott Wave Theory. Notice also that this idea of accumulation and distribution is the same found in the Dow Theory.
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shift to the right forces the point of equilibrium to move down along the demand curve to meet the new intersection this is what ultimately makes price fall since the new point of equilibrium is below the previous one notice that price can rise due to an
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Speaker A
We can state that the Wyckoff methodology is to some degree an evolution of the Dow Theory. A distribution phase happens when buyers believe that the uptrend has gone too far and now sellers will become the dominant player. The logic is exactly the same for the
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of buyers and sellers in the market it's a function of their integrated power for example 10 powerful buyers can generate more demand than 1 000 weak sellers can generate Supply that's why powerful Traders can influence the market in certain
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downtrend. Sellers will sell until there is no significant demand in their way. This ensures that the path of least resistance for price is to the downside. Just like there exists the possibility of a re-accumulation, there is the possibility of a redistribution only for
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passive supplier demand aggressive supplier demand is what can in fact generate price movement passive supplier demand cannot generate price movements but it can stop it or slow it down so for price to move up buyers have to display the initiative to buy at
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the downtrend to continue further. The accumulation and distribution are ranging market phases, while the uptrend and downtrend are trending market phases. There are mainly three types of scenarios: the uptrend, the downtrend, and the sideways market. An uptrend is characterized by higher
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display the initiative to sell at Market the limit orders from buyers can only slow down this process but they cannot bring price up take a look at this table this is called the order book here we can see the buy and sell orders
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highs and higher lows. A downtrend is characterized by lower highs and lower lows. A sideways market is characterized by flat highs and flat lows. The sideways market can be subdivided into five types. Flat highs and flat lows can mean an
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Speaker A
for price to move up to 51 buyers have to absorb all these sell orders at fifty dollars which in this case is equal to 49. the same logic also works on the opposite direction if sellers want to drive the market down they need to
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accumulation, a re-accumulation, a distribution, a redistribution, or a random range, which is just a sideways market that doesn't necessarily function as an accumulation or distribution. Let's now study the fundamental laws behind the Wyckoff method, which are of great importance for the comprehension
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there will be the same happens on the way down the lower the price the greater the perception of an oversold market so the greater the buying pressure by observing limit orders in the bid and S Columns of the order book we can
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of market context. One of the fundamental laws used in the Wyckoff methodology is the law of supply and demand, which is one of the most reliable economic principles. If you want to go deeper into the study of supply and demand, you can watch the
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Speaker A
sellers occurs when the number of orders in the ask column is generally smaller in multiple levels than the levels in the bidi column it's important to realize that for every buy order there must be a counterpart on the other side
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ultimate beginner's guide to supply and demand in the video card or video description. The law of supply and demand states that the market price will always seek an equilibrium state, which is the point where the supply and demand curves intersect. Let's observe a hypothetical
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scenario that is worth knowing called absorption which is when one side of the market blocks another using limit orders for example for price to move up buyers have to aggressively Place Market orders and it can only go up if it consumes the
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example of supply and demand curves to develop a geometric intuition about why price rises when there is more demand and why price falls when there is more supply. Imagine, for simplicity's sake, that we are talking about a simple good like
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for example take a look at this scenario from the 50 to 54 dollars price level there's a lack of selling interest which would create a path of least resistance to the upside however price levels 55 and 56 there's a
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apples, for example. The law of demand states that the higher the price of something, the less buyers will be willing to get it. In the graph, we have price on the vertical axis and the quantity on the horizontal axis. As the price of apples
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points notice that price levels with large number of orders inevitably create high volume and narrow range in the price chart here you can see a hypothetical example of Supply absorption notice how in the highlighted market levels there is an unusually large
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Speaker A
rises, the quantity demanded of apples will decrease, so the demand curve is downsloping. Make sure you truly understand that before moving forward. The law of supply states that the higher the price, the more sellers will be willing to sell it.
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action and volume in order to understand what's happening between buyers and sellers aggressive and passive supply and demand Maneuvers like we can see in the hypothetical order book examples in here are reflected in the analysis of price and volume
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In our example, the higher the price of apples, the more sellers will be willing to sell it in order to make a greater profit, so the supply curve is upsloping. Notice that there is always a tension between supply and demand as they have
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in the context of the method the range is a cause and the trend that follows is the effect unimportant detail is that effects are proportional to the size of causes so a short accumulation causes a short trend in a long accumulation causes a long
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opposite interests. The law of supply and demand states that a market will always seek an equilibrium, which is the point where the supply and demand curves intersect. This is the point of agreement between buyers and sellers. This point of
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Speaker A
uptrend distribution and downtrend from what is called the Wyckoff cycle an accumulation leads to an uptrend then the market displays a distribution which leads to a downtrend however the market doesn't always change direction after an accumulation or distribution necessarily
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Speaker A
agreement can be represented by a price. To understand how prices might rise or fall, we need to observe what happens when there is a shift in demand or a shift in supply. For example, imagine that a scientific paper is published claiming that apples
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Speaker A
marked by the complete absence of accumulation or distribution phases the market simply goes from an uptrend directly to a downtrend or from a downtrend directly to an uptrend without much warning this is analogous to the V bottom and V
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are good for people's health in a way that has not been anticipated before. This will cause buyers to be willing to buy more apples for the same price. In other words, there will be a shift in demand. Geometrically, this is represented by the
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Speaker A
in the double top the market will produce two Highs at the same price level and then reverse to a downtrend notice that the double top or double bottom pattern has more sideways motion than a climax but not enough to be
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demand curve going to the right. This movement of the demand curve to the right causes the point of equilibrium to move up along the supply curve to meet the new intersection. This is what ultimately makes prices rise.
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is marked by two lower highs in the bullish pullback the fact that the market fails to meet the previous low is an indication of buying pressure while in the bearish pullback the fact that the market fails to meet the
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previous high is an indication of selling pressure the fourth fast reversal pattern is the bull or bear trap the bullish reversal pattern is called bear trap because the market surpasses the previous low giving the impression that it will continue to the downside
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only to reverse significantly to the upside right after in other words sellers are tricked into believing that the market will fall hence the name bear trap the bearish reversal pattern is called bull trap because the market surpasses the previous High giving the impression
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that it will continue to the upside only to reverse significantly to the downside right after in other words buyers are tricked into believing that the market will rise hence the name bull trap let's now look at another fundamental
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law in the Wyckoff method which is the law of effort and result similar to the idea that causes precede effects the Wyckoff method also states that effort precedes results in the context of the method the term effort means volume and the term result
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means price action the reason for this is that price action should reflect the corresponding volume action this is known as the harmony or convergence of price and volume there are times however when price action doesn't reflect volume which is
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known as Divergence one of the keys of the Wyckoff method is that the action of large Traders can be detected through volume effort and result have a proportional relationship in the same way that cause and effect does we can look at effort and result or
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volume and price in a few different ways the first is to observe the volume associated with each Candlestick which is also known as volume spread analysis or VSA can identify basically two types of candlesticks in two types of volume for
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simplicity's sake the wide range and narrow range candlesticks and the high volume and low volume bars when there is Convergence or Harmony High Volume results in a wide range candle in low volume results in a narrow range candle
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Divergence occurs when high volume produces a narrow range candle or when low volume produces a wide range candle a wide range candle with low volume means that there is a lack of interest in one side of the market through the
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entire range of that candle so it's easy for one of the sides of the market to absorb the other a narrow range candle with high volume means that there might be an absorption going on there's a high volume of orders being
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traded in a narrow price range let's observe these scenarios with illustrations so it becomes easier to understand on the left we have an example of Harmony meaning a wide range candle created with high volume on the right we
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have an example of Divergence meaning a wide range candle created with low volume in this other illustration we have a narrow range candle created with low volume which is denominated as Harmony and on the right we have a narrow range
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candle created with high volume which is a Divergent scenario these are the four possible cases for when the market is rising when the market is falling price action is inverted but the volume bars are equal in this illustration we can see the
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Speaker A
harmonic relationship between a wide range candle created with high volume and the Divergent relationship between a wide range candle created with low volume in this other image we can see the harmonic relationship between a narrow ranged candle created with low volume
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and the Divergent relationship between a narrow range candle created with high volume the second way of analyzing effort and result is to observe what happens in the subsequent shift which is the price movement after a given Candlestick being
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analyzed for example a high volume wide range bullish Candlestick should lead to a rising price in the subsequent candles if price indeed goes up there is harmony or convergence if a high volume wide range bullish Candlestick leads to a falling price
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there is Divergence a high volume wide range bearish Candlestick should lead to a falling price in the subsequent candles that would be an example of Harmony or convergence if a high volume wide range bearish Candlestick leads to a rising price we
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have a case of Divergence this illustration we can see a high volume wide range candle leading to a rising prices which represents a harmonic subsequent shift on the right we can see a high volume wide range candle leading to a falling
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price which represents a Divergent subsequent shift in this other image we can see the harmonic and Divergent subsequent shifts for bearish high volume wide range candles the Third Way of analyzing effort and result is by looking at Price movements
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relative to their function in the trend a price movement in the direction of the trend should display an increase in volume while price movement against the trend should display a decrease in volume when that happens there is harmony
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when a price movement in the direction of the trend displays a decrease in volume and the price movement against the trend displays an increase in volume there is Divergence between effort and results in this image we can see the harmonic
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scenario of an uptrend the impulse movement increases in volume and the corrective movement decreases in volume here we can see the Divergent scenario for an uptrend Impulse movement decreases in volume and the corrective movement increases in volume in this other illustration we can see a
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Speaker A
harmonic scenario for a downtrend meaning an increase in volume on the impulse movement and a decrease in volume on the corrective movement and finally the Divergent scenario for a downtrend is to observe a decrease in volume on the impulse movement in an
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increase in volume on the corrective movement the fourth and broader mode of analyzing effort and results spikenberry the non-adjacent price movements as we just saw impulse movements should have higher volume than corrective movements for harmony to take place
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otherwise there is Divergence beyond that with each impulse movement volume should generate progressively higher Peaks when it doesn't it's a Divergent scenario for an uptrend the harmonic scenario occurs when each new high produces a higher peak in volume while the
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Divergent scenario is marked by higher highs in price with lower highs in volume for a downtrend the harmonic scenario is marked by lower lows in price and higher peaks in volume in the Divergent scenario the lower lows in price create
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lower peaks in volume the fifth way of analyzing effort and result is by observing what happens when price is about to break a significant level of support and resistance sloped line or dynamic line like a moving average for example
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Harmony occurs when price breaks the level in question with high volume and doesn't lose the level afterwards Divergence happens when price breaks a level with high volume only to create a false breakout right after for Upward price movements harmonic
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scenarios occurs when price zooms a resistance line turning it into support which holds price action right after in the Divergent scenario the support would not be able to hold price rendering the scenario as a false Breakout for dollar price movements a harmonic
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scenario occurs when the price zooms a support line turning into resistance which holds price action right after the Divergent scenario the resistance will not be able to hold price rendering the scenario as a false Breakout we must now move on to the study of the
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accumulation and distribution processes in Greater detail into the comprehension of the seven logical events outlined by the Wyckoff method before we move on to the details of accumulation and the distribution we have to realize that the Wyckoff method
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was developed for the stock market in a time when more complex financial instruments did not exist that means that the process of accumulation and distribution is based on the absorption of a limited number of stocks floating around in today's markets more refined
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financial instruments like derivatives change this paradigm in the Futures market for example the number of contracts that can be traded is infinite so the accumulation and distribution processes are based on the interest or in the lack of interest of
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buyers and sellers nowadays most retail Traders have the notion that there are different types of Market participants with different degrees of power in the market it's useful to realize that trading is a game of information meaning that the
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success of a market participant is not precisely a function of capital but a function of information in that sense we can separate the market into two types of players the well-informed and the uninformed large Traders are well informed and more
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than capable of understanding the flow of the market while retail Traders are mostly uninformed meaning that they are predominantly confused about what the market will do next well-informed Traders are always ahead of the informed Traders that's why Capital flows constantly from the hands
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of the uninformed to the hands of the well-informed once again this is a matter of information not capital if large Traders can purposefully trigger stop orders in certain places of the chart you can avoid being a victim of such a
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maneuver by understanding its mechanics in other words the limiting factor for retail Traders is not just Capital it's information earlier in the course we talked about some of the fast reversal patterns that might appear in the market the climax the double top or bottom the
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pullback and the bull or bear trap however these are the exceptions in the Wyckoff method in the normal Wyckoff cycle the trend changes through a slow pattern which is the main object of analysis of this method the reason for that is that Trend
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changing campaigns take some time to develop well-informed Traders have to slowly act in order to effectively turn the market it's time now to take a closer look at the nuances of the accumulation and distribution processes more carefully let's begin with the accumulation
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process the accumulation is a ranging Market that precedes an uptrend in other words the accumulation is the market phase where large Traders will absorb Supply which we can see as the cause of the uptrend that will follow known as the
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effect it logically means that if large Traders create the accumulation the downtrend that precedes it is in control of uninformed small Traders as the market is driven down by the uninformed Traders large well-informed Traders gradually absorb Supply in order
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to create a reversal the fundamental maneuver in an accumulation process is the bear trap which is the nominated as spring in the Wyckoff terminology the spring is characterized by a sharp movement to the downside which breaks the lower limit or support of the
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accumulation range the motivation for this maneuver is threefold trigger the stop lost orders of traders who managed to enter good long positions at the lower limit of the accumulation range the stop loss of a lung position is a
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short position in other words when these tops are triggered large well-informed Traders can take the counterpart and buy at low prices the spring maneuver can induce uninformed traders to the downside when Traders see price breaking and support they are tempted to sell so they
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don't miss out on the opportunity their sell orders provide liquidity to the large well-informed traders who just want to buy at these low prices and last but not least the spring also served as a way for well-informed Traders to lock
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profits from the short positions resulting from the prior downtrend large Traders will absorb Supply until they are assured that the path of least resistance is to the upside they can perform certain Maneuvers in order to test if that's the case
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this is something that you as an observer of this process should pay attention to if large Traders observe that downward price movements don't grab the attention of sellers showing low volume it's a sign that there is lack of interest to the
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downside and supply has been mostly absorbed let's look at the basic characteristics of an accumulation as the accumulation range develops there is the tendency for volume and volatility to decline generally speaking this happens because as time passes by
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enlarged Traders absorb Supply it will be progressively less interest to the downside volume will increase before price breaks out of the accumulation range which is one of the signs that can be used to anticipate the uptrend in the attempt to
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manipulate uninformed Traders large Traders will create what is called a spring which is a false bearish breakout intended to induce uninformed traders to sell at lower prices just so that well-informed Traders can buy more at an extremely good price
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since well-informed Traders will be observing Supply constantly the bullish candlesticks will tend to be wider than the bearish ones in the final stages of the accumulation the formation of higher highs and higher lows inside the accumulation will occur
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to initiate the uptrend the accumulation will finally end when well-informed Traders absorb enough Supply so that selling interest is very low this will create a path of least resistance to the upside and the uptrend will start let's now take a look at the
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details of the distribution the distribution is a ranging Market that precedes a downtrend in other words the distribution is the market phase where large Traders will absorb demand which we can see as the cause of the downtrend that will follow
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known as the effect it logically means that if large Traders create the distribution the uptrend that precedes it is in control of uninformed Traders as the market is driven up by uninformed Traders large well-informed Traders gradually absorb demand in order to
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create a lack of interest to the upside the fundamental maneuver in a distribution process is the bull trap which is denominated as up thrust in the Wyclef terminology the up thrust is characterized by a sharp movement to the upside which
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breaks the upper limits or resistance of the distribution range the motivation for this maneuver is threefold triggers the stop-loss orders of traders who managed to enter good short positions at the upper limit of the distribution range the stop loss of a short position is a
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long position in other words and these stops are triggered large well-informed Traders can take the counterpart and sell at high prices the up thrust maneuver can induce uninformed traders to the upside and Traders see price breaking and resistance they are tempted to buy so
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they don't miss out on the opportunity their buy orders provide liquidity to the large well-informed traders who just want to sell at these high prices last but not least the up thrust also serves as a way for well-informed
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Traders to lock profits from the long positions resulting from the prior uptrend large Traders will observe demand until they are assured that the path of least resistance is to the downside they can perform certain Maneuvers in order to test if that's the case
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this is something that you as an observer of this process should pay attention to if large Traders observe the Upper price movements don't grab the attention of buyers showing low volume it's a sign that there is lack of interest to the
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upside and demand has been mostly absorbed let's look at the basic characteristics of a distribution as the distribution range develops there is the tendency for volume and volatility to decline generally speaking this happens because as time passes by a
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large Traders observe demand there will be progressively less interest to the upside volume will increase before price breaks out of the distribution range which is one of the signs that can be used to anticipate the downtrend in the attempt to manipulate uninformed
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Traders large Traders will create what is called an upper thrust which is a false bullish breakout intended to induce uniformed traders to buy at higher prices just so that well-informed Traders can sell more at an extremely good price
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Speaker A
since well-informed Traders will be observing demand constantly the bearish candlesticks will tend to be wider than the bullish ones in the final stages of the distribution the formation of lower highs and lower lows inside the distribution will occur
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Speaker A
to initiate a downtrend the distribution will finally end when well-informed Traders observe enough demand so that buying interest is very low this will create a path of least resistance to the downside and the downtrend will start even these basic characteristics of
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Speaker A
accumulation and distribution structures it's time now to move on to the seven logical events outlined by the Wyckoff method the Wyckoff methodology outlined seven logical events to help the trader read the market more accurately the main advantage in this is that the
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Speaker A
trader knows what to expect in each market scenario which can help reduce some of the uncertainty of trading these events are the preliminary stop the climax the reaction the secondary test the false breakout the breakout and the confirmation next we'll examine each
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Speaker A
of these seven events more carefully starting with the preliminary stop the preliminary stop is the first sign that the trend might be near its end when we are talking about an accumulation the preliminary stop is called preliminary support
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Speaker A
and when we are talking about a distribution the preliminary stop is called preliminary Supply the main characteristic of a preliminary stop is the first entrance of large traders in the opposite direction of the main trend this is usually displayed in two
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Speaker A
different forms with narrow range candles that have high volume which is a form of Divergence in volume spread analysis or with a candle that has a large tail and high volume in other words the preliminary stop is the first large
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Speaker A
Trader's attempt to absorb orders let's observe hypothetical examples of that both in accumulation and distribution processes starting with the accumulation first the preliminary support occurs when the downtrend is still in effect so it's usually not the lowest point in the
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Speaker A
trend it's just a first appearance of large well-informed Traders starting to absorb Supply as I said previously the preliminary support will appear mainly in two forms either as a set of narrow range candles with constant high volume across them
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Speaker A
whereas a candle with a prominent large Shadow and high volume high volume across the set of narrow range candles means that the supply from uninformed Traders is badly with the demand from well-informed Traders the result is a high level of activity in a
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Speaker A
narrow price range the other scenario where a large Shadow appears is a little more explicit the large Shadow is a clear sign of entrance from well-informed Traders on the other side of the trend in the distribution the rationale is the
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Speaker A
same but upside down the preliminary Supply occurs when the uptrend is still in effect so it's usually not the highest point in the trend it's just a first appearance of large well-informed Traders starting to absorb demand as I said previously the preliminary
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Speaker A
Supply will appear mainly in two forms either as a set of narrow range candles with constant high volume across them whereas I can do with prominent large Shadow and high volume the high volume across the set of narrow
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Speaker A
ranged candles means that the demand from uninformed Traders is battling the supply from the well-informed Traders the result is a high level of activity in a narrow price range the other scenario where a large Shadow appears is a little more explicit
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Speaker A
the large Shadow is a clear sign of interest from well-informed Traders on the other side of the trend for the Trader following the Wyckoff method the preliminary stop has two main uses it serves as an indication that is no
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Speaker A
longer a good idea to trade in the direction of the current trend and the current price level might be a good place to take profits assuming a position was taken at the beginning of the current trend there's the possibility of a trend
37:27
Speaker A
having multiple preliminary stops before transitioning to a sideways Market due to the inertial movement of a trend trying to stop a strong trend is like trying to stop a cargo ship a lot of power is necessary so one preliminary
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Speaker A
stop might not be enough to transition the market into a sideways movement the climax is the second event in the Wyckoff method coming right after the preliminary stop and it is marked by a wide range candle in the trend Direction
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Speaker A
with climatic volume It's usually the highest high before a distribution or the lowest low before an accumulation in the case of an accumulation the climax is denoted as a selling Climax and in the case of a distribution it is
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Speaker A
denoted as a buying climax as the event name suggests the climax will usually appear as a wide range candle with high volume but not necessarily the climax might also appear in similar structures to the preliminary stop any a set of narrow range candles with
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Speaker A
high volume or a Candlestick with large tail and high volume in this illustration you can see the textbook version of the buying and selling climaxes the confirmation for the climax can only come from event number three and four
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Speaker A
which we'll study next in the overall sense the climax comes after the preliminary stop in the case of an accumulation the selling climax will come after the preliminary support as you can see in this illustration in the case of a distribution buying
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Speaker A
climax will come after the preliminary Supply the uses of the climax are similar to the preliminary stop it's an indication that trades in the direction of the main Trend should not be taken anymore even though what happens after the climax
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Speaker A
will determine if the trend will continue or not second it's probably the last chance to take profits from the current Trend trade assuming there was one it's also important to know that a trend might not always end with climatic
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Speaker A
volume in that case instead of buying or selling climax there will be a buying or selling exhaustion which is the gradual decrease in volume at the end of a trend a decrease in volume simply means a lack of interest from one of the sides of the
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Speaker A
market buying or selling exhaustions represent a type of Divergent relationship between price and volume or effort and results using Wyckoff terminology a climax is not confirmed until the third event which is called reaction which is characterized by a sharp
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Speaker A
movement in the opposite direction of the climax in the case of an accumulation structure the reaction is called automatic rally and in distribution structures the reaction is called automatic reaction this is a critical event because it not only confirms the climax but it also
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Speaker A
represents what is called a change of character in The Wyckoff terminology in other words the reaction signals the end of the current Trend in the beginning of the sideways movement this change of character itself must be confirmed by the next logical event
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Speaker A
the degree of the reaction is a key factor in determining if the market will indeed reverse after the sideways Market or if it will resume the direction of the prior trend a strong reaction suggests that a reversal might take
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Speaker A
place while a weak reaction with low volume suggests a re-accumulation or redistribution generally speaking the reaction will begin with high volume and end with low volume in this illustration you can see an example of an automatic rally meaning
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Speaker A
the reaction after a selling climax in this other illustration you can see an example of an automatic reaction after a buying climax there are three main uses for the reaction event the first is to be used as one of the
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Speaker A
boundaries for the accumulation or distribution ranges in the case of an accumulation the automatic rally establishes the upper limit of the range or the resistance in the case of a distribution the automatic reaction establishes the lower limit of the range or the support
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Speaker A
the second use of the reaction is to confirm the climax the automatic rally will confirm a selling climax while the automatic reaction will confirm a buying climax the third use of the reaction is to provide context in other words if the reaction confirms
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Speaker A
the climax now Traders know that they should expect a secondary test at the level of the climax this is very useful because it eliminates some of the uncertainty in other words using a method like Wyckoff has the benefit of knowing what
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Speaker A
to expect in different Market scenarios the secondary test is the fourth logical event and it is characterized as a price movement aiming to test the level of the climax but with lower volume and narrow candle ranges sometimes price will fall short of the
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Speaker A
climax sometimes it will test it exactly and sometimes it will surpass the level of the climax these different situations are indications of the underlying strength of Market players the secondary test is characteristic after the reaction and it will Mark the end of what is called
42:46
Speaker A
phase a however other secondary tasks can occur in Phase B and they represent the challenge to Traders using the Wyckoff methodology because they sometimes produce minor false breakouts in this illustration you can see the example of a secondary test in an
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Speaker A
accumulation structure and in this other illustration you can see the example of a secondary test in a distribution structure when we talk about accumulation or re-accumulation processes the minor false breakout of the upper limit which is actually a secondary test is labeled
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Speaker A
a Thrust action if price remains in a sideways motion above the upper limit of the range for a while before returning that action is labeled as a minor sign of strength recall that in this context strength relates to demand and weakness
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Speaker A
relates to supply not to the power behind the movements a breakout of the lower limit of the range is labeled as secondary test as sign of weakness in the context of a distribution or redistribution the minor false breakout
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Speaker A
of the upper limit which is a secondary test is labeled simply as upthrust in a minor false breakout of the lower limit is labeled as minor sign of weakness don't get too worried about the correct labels though because we can
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Speaker A
only be certain about them once we know which direction price will Trend next what's important here is the perception of a minor false Breakout beyond the secondary test the method also outlines what is called a generic test in key moments of the accumulation or
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Speaker A
distribution process a valid test will display low volume while failed tests would display relatively high volume the reason for low volume in a valid test is that the well-informed Traders have absorbed all the orders and the market is now ready to start a new trend
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Speaker A
in the failed test volume is still high because uninformed Traders are still trying to push price in One Direction so the well-informed Traders must keep absorbing orders which inevitably increases volume we have to analyze tests in terms of volume spread analysis
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Speaker A
in other words to know if a test is successful or not we need to analyze price in alignment with volume in this context we are looking for what are called No demand candle or no Supply candle a no demand candle is a narrow range
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Speaker A
bullish candle with lower volume than the last two candles no Supply candle is a narrow range bearish candle with lower volume than the last two candles the no demand candle in the no Supply candle basically means a lack of
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Speaker A
interest in the corresponding Direction the false breakout is considered to be the most important event of all since it represents the best trading opportunity with the greatest risk reward ratio in the Wyckoff method it represents the ultimate point of the
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Speaker A
manipulation maneuver in the case of an accumulation the false breakout is called Spring and in the case of a distribution the false breakout is called of thrust this event marks the end of the cause and the beginning of the effect
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Speaker A
the false breakout happens because at the extremes of the range different types of Traders place a lot of orders which in the wake of terminology creates what is called a liquidity Zone these zones turn out to be an extremely good
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Speaker A
place for large traders to absorb a lot of Supply or demand depending on what direction we are talking about in a false breakout large Traders make it look like the market will indeed continue in One Direction in order to
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Speaker A
attract uninformed traders to trade in that direction this is only a trick to generate liquidity so that large Traders can enter in the opposite side the key factor while analyzing a market scenario like this is to look for signs
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Speaker A
of rejection Bryce needs to break a certain level and then show some sign of rejection to that breakout right after that's how we know well-informed Traders are entering on the opposite side of that Breakout this display of rejection can occur in
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Speaker A
one two or several candlesticks each case is a little different so each market scenario must be analyzed individually for example in an accumulation the false breakout is called Spring and it will induce sellers to the downside by a
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Speaker A
breakout of the accumulation support when uninformed sellers see the support being broken they start to sell with the fear of missing out the opportunity to make a profit meanwhile the large Traders are aggressively absorbing Supply in order to enter long positions at a low price
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Speaker A
because of the significant absorption of Supply price action will display signs of rejection like leaving prominent lower Shadows at the accumulation support for example that's the well-informed Trader's footprint at the spring in a distribution the false breakout is
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Speaker A
called up thrust and you will induce buyers to the upside by a breakout of the distribution resistance when uninformed buyers see the resistance being broken they start to buy with the fear of missing out the opportunity to make a profit meanwhile the
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Speaker A
well-informed Traders are aggressively absorbing this demand in order to enter short positions at a very high price because of the significant absorption of Demand right section will display signs of rejection by leaving prominent upper Shadows at the distribution resistance
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Speaker A
for example that's the well-informed Traders footprint at the up thrust there are three main uses of the false breakout the most obvious one is to drive the breakout Traders out of the market these are the traders that believe it's
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Speaker A
a good idea to buy or sell on a clear breakout in the chart this is perhaps the primary source of liquidity for the well-informed Traders the second is to trigger the stop-loss orders of other traders who happen to
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Speaker A
dwell in the liquidity Zone third is to stop out the traders who were smart enough to anticipate the direction the well-infirmed Traders want to trade but entered the market too soon in the Wyckoff method there are two main
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Speaker A
signs Traders should look for in the anticipation of a false Breakout the first sign is that the prior events must develop in a certain proportion in other words it's important that all the events leading up to the false breakout
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Speaker A
happen more or less in the way the method suggests the other sign is the absence of a false breakout in the other direction it's interesting to note that there are different degrees in which false breakouts can develop and there is an inverse relationship
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Speaker A
between the apparent aggressiveness of the false breakout and its true power for example in an accumulation a spring that breaks the support with more violence is called terminal ShakeOut However the fact that price traveled more in the direction against the
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Speaker A
well-informed Traders denotes that uninformed Traders were also powerful so the well-informed had to work harder to observe all the supply in a spring that only penetrates the support a little bit denotes more power even though it looks subtler in the
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Speaker A
chart that's because the large Traders already absorbed all Supply and are now ready to initiate the new trend this is analogous to the Divergent relationship between a narrow range candle with high volume the candle looks unimportant but the fact that there is
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Speaker A
high volume implies something useful the breakout is the sixth event and it represents a true breakout of an accumulation or distribution so according to the Wyckoff method this is the second change of character a change of character happens when the
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Speaker A
market goes from training to ranging mode or vice versa in the reaction the climax is confirmed and the market goes from trending to ranging in the breakout the market goes from ranging to trending a true breakout of an accumulation is denominated as
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Speaker A
sign of strength or jump across the creek a true breakout of a distribution is denominated as sign of weakness or fall through the ice notice that strength and weakness these context are not related to the power of the movement but to its direction
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Speaker A
strength is analogous to the upside and weakness is analogous to the downside this is a reflection of Bryce starting to move in the path of least resistance after the large well-informed Traders have absorbed all the supply or demand
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Speaker A
depending on what direction we are talking about the breakout is where Traders should look for the harmonic relationship between price and volume in comparison to a support or resistance level that was pre-established by the reaction but Traders should look for is a
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Speaker A
breakout with high volume where the broken level holds price observing if the broken level will in fact hold price is absolutely critical because if it doesn't it might be in the face of a false breakout which would completely change the situation
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Speaker A
in this illustration you can see the breakout event in the accumulation structure also known as a sign of strength or jump across the creek in this other illustration you can see the breakout event in a distribution structure also known as a side note
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Speaker A
weakness or fall through the ice the last event is the confirmation which is a final necessary step because it validates the Breakout this is important because in real time it's always difficult to know if we are dealing with a true or false breakout
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Speaker A
and that's critical for the decision-making process in the case of an accumulation the breakout of the range is called sign of strength or jump across the creek the seven events the confirmation is called the last point of support
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Speaker A
in the case of a distribution the breakout of the range is called sign of weakness or fall through the ice the seven events the confirmation is called last point of supply the confirmation is usually a clear event in the chart at this point the
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Speaker A
trend will be in effect and this is where the harmonic relationship between impulse and corrective price movements is expected an increase in volume on impulse movements and a decrease in volume on corrective movements in an accumulation the critical moment
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Speaker A
is to wait for a confirmation formed by a no Supply candle testing the support formed by the reaction then after that seeing a sign of strength candle being a medium-range bullish candle with high volume net distribution the critical moment is
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Speaker A
to wait for a confirmation formed by a no demand candle testing the resistance formed by the reaction and then after that seeing a sign of weakness candle meaning a medium range bearish candle with high volume this concludes the seven logical events
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Speaker A
proposed by the Wyckoff methodology keep in mind that these events don't always occur exactly like this there's a lot of room for variation so it's important to keep an open mind about that We Begin now with the study of Market
53:47
Speaker A
phases according to the wike of methodology the seven logical events outlined by the Wyckoff method form five different Market phases the identification of these phases has the main goal of providing context for the Trader in other words the trader who
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Speaker A
uses the Wyckoff method knows what to expect in each of the different phases which is of great use because it Narrows down the possibilities and makes the analysis more objective to a certain degree there are five phases labeled from a to
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Speaker A
e in the Wyckoff method face a represents the stop of the previous trend phase B represents the construction of the cause phase C represents the test phase D represents the trend inside the range and phase e represents the trend
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Speaker A
outside the range or the effect so to speak the Wyckoff phase analysis is based on the premise that generally speaking the market reverses through a slow pattern meaning that the well-informed Traders need some time to absorb orders and
54:50
Speaker A
effectively create a path of least resistance to the opposite side beyond that the slow pattern outlined by the method provides repeatable patterns that if correctly identified in real time can provide an edge to the trader let's now explore each of the five Market
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Speaker A
phases more carefully we'll begin with phase a which represents the stop of the previous trend phase a is composed by the first four logical events the preliminary stop the climax the reaction and the secondary test in a general sense phase a will provide
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Speaker A
the signs that the market is transitioning from a trend to a ranging Market the preliminary stop will provide a first indication that the well-informed Traders have entered in the opposite side of the trend the climax will create one of the boundaries of the range
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Speaker A
the reaction will provide further indication that there is greater interest to the counter Trend Direction and the opposite boundary of the range in the secondary task we'll finish phase a Trader is not supposed to look for trade opportunities in Phase a Trader must
55:55
Speaker A
observe the four logical events from a distance and understand that they might lead to trade opportunities in the near future phase a is useful for taking profits from the prior Trend assuming the trader had a position the reason for this is logical phase a
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Speaker A
means that the market is transitioning from training mode to ranging mode makes sense to lock in the profit from the trending mode especially because the market more reverse and start to eat the profits that have been made already
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Speaker A
One Challenge here is that the trader will not be able to tell if the market is in fact in Phase a until the secondary test there are three quick signs a Trader should pay attention to in order to
56:35
Speaker A
avoid a problem of incorrectly identifying phase a number one look for a climatic volume either in the preliminary stop or the climax that is an indication that the well-informed Traders are in fact starting a campaign to reverse the
56:50
Speaker A
market number two pay attention to the reaction event the reaction will provide further confirmation about the subtle signs of counter Trend volume founding the preliminary stop in Climax the reaction move tends to look qualitatively different than the previous counter Trend boost
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Speaker A
number three what ultimately confirms phase a is Phase B so the trader must wait for the development of phase B before looking for trade opportunities even when the first four logical events appear to provide clear trade setups for example you might be tempting to
57:27
Speaker A
look for a trade after the end of the reaction Amy for the secondary test at the climax even though that's possible it's not what the methodology proposes just for the sake of illustration phase a in an accumulation process looks like
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Speaker A
this preliminary support followed by the selling climax than an automatic rally and finally a secondary test in a distribution process phase a starts with the preliminary Supply followed by the buying climax then an automatic reaction and finally a secondary test
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Speaker A
phase B can be a challenge because it is composed by successive secondary tests at both limits of the range that's a challenge because these secondary tests might easily be mistaken by a breakout of the range so it's key
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Speaker A
to pay attention to effort and results at the upper and lower limits of the accumulation or distribution processes the key factor to pay attention to in Phase B is time in ideal scenarios phase B should be longer than phase a in terms of time
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Speaker A
the shorter the time duration of phase B the more we approach the fast reversal patterns by waiting for phase B to have a longer time duration than phase a a Trader will usually avoid entering the market too soon
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Speaker A
when phase B becomes longer than a a Trader can also increase his level of alertness while looking for a false breakout in other words two keys in Phase B are the careful analysis of volume and price at the limits of the
59:02
Speaker A
range in the time duration of the phase it should be greater than phase a as a guideline however not a rule in this illustration we can see the textbook version of phase B in an accumulation structure recall that in an
59:17
Speaker A
accumulation the upper minor false breakout in the form of a secondary test is called up thrust action in the lower minor false breakout is called secondary test as a sign of weakness phase B ends just before the spring in
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Speaker A
an accumulation in this other illustration we can see the textbook version of phase b in a distribution structure recall that in a distribution the upper minor false breakout in the form of a secondary test is simply called up
59:47
Speaker A
thrust in the lower minor false breakout in the form of a secondary test is called minor sign of weakness phase B it will end just before they up thrust after distribution in the distribution phase C is known as the test and it is
60:03
Speaker A
composed by the false breakout event which is perhaps the most important of all logical events in the ultimate point of the market manipulation maneuver this is where well-informed Traders will attempt to induce uninformed traders to one side of the market with the sole
60:19
Speaker A
purpose of generating liquidity to the opposite side this is also a way that large Traders have to test if the interest in the prior Trend Direction has faded if the interest in the prior Trend Direction doesn't fade enough the large
60:33
Speaker A
Traders Campaign Will Fail and the movement after the range will be a re-accumulation or a redistribution if the interest in the prior Trend direction does fade the large Traders campaign will be successful in the market will reverse Direction This is
60:50
Speaker A
mainly why phase C is denominated as the test in an accumulation structure Facey will simply be the spring as you can see in this illustration in a distribution structure phasee will simply be the up thrust after distribution which is the mirror image
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Speaker A
of the spring phase D is composed by the last two logical events which are the breakout and the confirmation there are mainly three possibilities in this phase price can create a clear breakout in confirmation which is what Traders will expect
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Speaker A
price can Meander after the breakout with some hesitation to confirm and produce the new trend or price can create another false breakout and restart phase d once again all these things cannot be really anticipated we have to look for
61:38
Speaker A
the signs of volume and price or effort and result using Wyckoff terminology in order to assess what is really going on in an accumulation structure phase D will be composed by the jump across the creek followed by the last point of
61:53
Speaker A
support event as you can see in this illustration in a distribution phase D will be composed by the fall through the ice followed by the last point of Supply event as you can see in this other illustration in Phase e price will be in fact
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Speaker A
trending outside the range this phase will be composed by the impulse and corrective movements where the harmonic relationship between price and volume is expected phase e will provide opportunities to enter the market in the direction of the main Trend as long as we don't see signs
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Speaker A
that the trend might be losing its strength like the appearance of a preliminary stop for example in an accumulation phase e will be marked by impulse movements labeled as sign of strength and corrective movements labeled as last point of
62:42
Speaker A
support as you can see in this illustration in a distribution phase e will be marked by impulse movements labeled as sign of weakness and corrective movements labeled as last point of Supply as you can see in this other illustration
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Speaker A
it's important that you have the seven logical advance in the corresponding Market phases clear in your mind before moving on to the study of structures you should be able to tell what each of the logical events represent in which
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Speaker A
phase they belong to otherwise the study of structures will become very confusing the study of Market structures begins with a warning even though we can study the theory of how structures should develop in real markets these structures never occur in the same way twice the
63:28
Speaker A
key takeaway here is to analyze these things with some flexibility in mind we'll begin the study by looking at horizontal structures both in accumulation and distribution processes let's start with the accumulation process first seven logical events and its
63:45
Speaker A
corresponding phases there are two important things to pay attention to one is the creek which is the High produced by the automatic rally after the selling climax this is important because it's the level we want to see price break out of
63:59
Speaker A
the expression Jump across the creek is precisely that the other thing to pay attention to is the presence of changes of character many moments where the market transitions from trending to ranging or vice versa the first change of character occurs in
64:16
Speaker A
Phase a when the market goes from a downtrend to a side of its Market in the second change of character occurs in phases C and D when the market goes from a sideways move into an uptrend let's quickly review the events and
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Speaker A
phases of an accumulation structure phase a will be composed by the preliminary support the first attempt of well-informed traders to absorb Supply selling climax which is the climatic selling volume that ends the downtrend the automatic rally which is an upward
64:47
Speaker A
price movement that is qualitatively different than the previous counter Trend moves and shows a new interest to the opposite direction of the current trend in the secondary test which will test the degree of Supply at the same price
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Speaker A
level of the selling climax the secondary task closes phase a and opens phase B recall that phase a establishes the first change of character phase B is the construction of the cause the sideways movement that precedes the new trend or the effect as the Wyckoff
65:20
Speaker A
method calls it in the case of an accumulation we have the up thrust action which is the test of the upper limit of the range established by the peak of the automatic rally in the secondary test as a sign of
65:33
Speaker A
weakness which is the test of the lower limit of the range established by the trough of the sailing climax in the case of an accumulation phase c will begin with the spring this is the false bearish breakouts or
65:47
Speaker A
bear trap that violates the lows produced in Phase A and B when the spring produces a violent movement to the downside it is called a terminal ShakeOut phase C which is composed only by the spring is the beginning of the second
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Speaker A
change of character after the spring face D begins and it is composed by the true breakouts which in the case of an accumulation is called sign of strength or jump across the creek in the confirmation event which in this
66:17
Speaker A
context is called last point of support this confirmation event can also be called back up to the edge of the creek this is the final nail in the coffin of the second change of character now the market is indeed trending
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Speaker A
upwards phase e is marked by successive signs of strength and less points of support in the harmonic relationship between volume and price for effort and result this generates the characteristic higher highs and higher lows of an uptrend this
66:48
Speaker A
is the complete horizontal accumulation structure according to the Wyckoff methodology in a distribution structure instead of the creek we have the ice which is the price level formed by the low of the automatic reaction the other thing to pay attention is the
67:05
Speaker A
presence of changes of character many moments where the market transitions from trending to ranging or vice versa the first change of character occurs in Phase a when the market goes from enough Trend to a sideways market and the second
67:19
Speaker A
change of character occurs in phases c and d and the market goes from the sideways move to a downtrend let's quickly review the events and phases of the distribution phase 8 will be composed by the preliminary Supply the first attempt of
67:34
Speaker A
well-informed traders to absorb demand the buying climax which is the climatic buying volume that ends the uptrend the automatic reaction which is a downward price movement that is qualitatively different than the previous counter Trend moves and shows a new interest to the opposite
67:51
Speaker A
direction of the current trend in the secondary test which will test the degree of demand at the same price level of the buying climax the secondary test closes phase a and opens phase B recall that face a establishes the first
68:07
Speaker A
change of character phase B is the construction of the cause the sideways movement that precedes the new trend or the effect as the Wyckoff method determines in the case of a distribution we have the up thrust which is the test of the
68:22
Speaker A
upper limit of the range established by the peak of the buying climax in the minor sign of weakness which is the test of the lower limit of the range established by the trough of the automatic reaction in the case of a distribution phase c
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Speaker A
will begin with the up thrust after distribution this is the false bullish breakout or bull trap that violates the highs produced in Phase A and B after the up thrust after distribution phase D begins and it is composed by the
68:53
Speaker A
true breakout which in the case of a distribution is called sign of weakness or fall through the eyes in the confirmation event which in this context is called last point of supply this is the final nail in the coffin of
69:07
Speaker A
the second change of character how the market is indeed trending downwards face e is marked by successive signs of weakness and less points of Supply in the harmonic relationship between price and volume or effort and results this generates the characteristic lower
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Speaker A
highs and lower lows of a downtrend this is the complete horizontal distribution structure according to the Wyckoff methodology until now we dealt with the accumulation and distribution structures as if they always developed in a perfect horizontal motion but in the real Market that's not always
69:44
Speaker A
the case this leads us to the idea of sloping structures there are two rules to keep in mind first is that sloping structures follow the exact same logical events and phases of horizontal structures second an upward sloppy structure
70:00
Speaker A
generally means that buyers have more strengths than Sellers and now aren't sloping structures generally mean that sellers have more power than buyers that means there are four possible types of sloping structures the upsloping accumulation the downsloping accumulation the up sloping
70:18
Speaker A
distribution and the dial sloping distribution the events in Phase a are critical for the determination of horizontal or sloping structures paying attention to phase a also allows the trader using the Wyckoff method to know where to ground Channel lines which
70:34
Speaker A
is often a challenge to most traders who have too many options in that regard let's begin by analyzing the up sloping accumulation structure first an accumulation is a structure that precedes an uptrend the fact that it is upsloping denotes power from buyers
70:50
Speaker A
in other words an up sloping accumulation is stronger than a horizontal accumulation there is one critical detail that must be taken into account when dealing with an upsloping accumulation since the construction of the cause will be tilted upwards the
71:05
Speaker A
spring event will not necessarily break all the previous lows from phases A and B it will probably break some of the previous lows but not all of them unless we are talking about a terminal ShakeOut event which is a deeper spring
71:19
Speaker A
the key point to remember here is to look for the breakout of some lows but also to look for the breakout of the lower channel line that will provide another perspective about the spring remember that an upsloping accumulation
71:33
Speaker A
implies an already existing advantage to buyers so the spring event will probably not be so dramatic in the case of a downsloping accumulation we also have a peculiar situation a downsloping market implies weakness and it will inevitably create lower
71:49
Speaker A
highs and lower lows that means it can be difficult to spot the spring event since the previous lows will be broken already the key Point here is that the spring event will have to be dramatic in order to create liquidity to the upside once
72:03
Speaker A
again it's important to keep an eye on the boundaries of the channel because that will help cage whether or not we are dealing with a simple secondary test or with the spring event the mirror image of these last two
72:16
Speaker A
situations is what occurs in sloping distribution structures let's begin with the downsloping distribution in this case we'll be looking for the up thrust after distribution event to break some of the previous highs but since the construction of the cause is downsloping
72:32
Speaker A
the up thrust after distribution will probably not break off the previous highs especially because there is already an advantage to sellers the key is to look for some highs to be broken and then pay attention to the upper boundary of the channel to gauge
72:47
Speaker A
whether or not we are dealing with enough thrust after distribution or simply enough thrust in the case of an upsloping distribution the construction of the cause will naturally produce higher highs that means it will be difficult to detect the
73:02
Speaker A
up thrust after distribution events if the trader doesn't pay attention to the boundaries of the channel and of course the relationship between effort and results which is the main thing in the Wyclef method in this case the up thrust after
73:17
Speaker A
distribution event will be characterized as an over extension in relation to the upper boundary of the channel it's important that you know what each of these events and phases represent without thinking too much about them in other words it should become second
73:32
Speaker A
nature to you note that the Wyckoff method is a phase analysis method meaning that we want to understand which phase the market is in the Elliott wave method for example is also a form of phase analysis by understanding how price goes from an
73:48
Speaker A
upward movement to a downward movement and vice versa we can add an extra layer in the analysis another way of looking at this is that we should be able to observe this price reversal method between the events of
74:00
Speaker A
the week of cycle first and foremost we need to establish what sign of strength and sign of weakness candles are a sign of strength Scandal is a medium to wide range bullish Candlestick with medium to high volume in other words it's a candle that shows
74:16
Speaker A
intent to the upside remember once again that in the context of the Wyckoff method strength means upside and weakness means downside rather intuitively a sign of weakness candle is a medium to wide range bearish candle with a medium to high volume
74:33
Speaker A
in other words it's a candle that shows intent to the downside a sign of strength scandal in an upward price movement marks a point of control of buyers and a sign of weakness candle in a downward price movement marks a
74:47
Speaker A
point of control of sellers when we are in an upward price movement and we are trying to anticipate a reversal to the downside we'll mark the extremes of the latest sign of strength candle to confirm a reversal to the downside we
75:02
Speaker A
want to see a sign of weakness candle that closes below the lower extreme of the latest sign of strength candle in the same way when we are in a downward price movement and we are trying to anticipate a reversal to the upside we
75:15
Speaker A
will Mark the extremes of the latest sign of weakness candle to confirm a reversal to the upside we want to see a sign of strength candle that closes above the upper extreme of the latest sign of weakness candle
75:28
Speaker A
that's an objective way of verifying if the market has reversed according to the Wyckoff method the optimal way of using this technique is to align it with the knowledge of Market context provided by the Wyckoff method one problem that arises in the wykef
75:43
Speaker A
method is that not all Market scenarios develop the textbook version of the Wyckoff cycle so if the trader tries to identify all the events and phases in the order they appear the trader might be frustrated a lot of the times
75:57
Speaker A
it's necessary to realize that if it's not possible to recognize the textbook Wyckoff cycle in a real price chart it doesn't mean that the method cannot be used by understanding how supply and demand and volume spread analysis work and the
76:11
Speaker A
fact that an uptrend is preceded by an accumulation and a downtrend is preceded by a distribution we can adapt the method to find trade opportunities in the last parts of the course we have seen examples of structures where either
76:25
Speaker A
the spring or the up thrust after distribution is present but there can be exceptions the absence of a spring or up thrust after distribution is possible and in this case the situation is called structural failure the rationale here is simple
76:42
Speaker A
once we identify two limits of a ranging market and at some point price fails to reach one of them and then produces a breakout in confirmation on the other direction we are facing a structural failure note that this structural
76:56
Speaker A
failure can happen in sloping structures as well as we have been doing so far in the course when price fails to reach a resistance line we have weakness when price fails to reach a support we have strength one common problem in the
77:10
Speaker A
Wyckoff method is to differentiate between an accumulation and distribution structure there is no guaranteed way of distinguishing between an accumulation and distribution structure in real time otherwise profiting with the Wyckoff method would be easy we cannot know for sure until the effect
77:27
Speaker A
occurs but at the same time we need to make trading decisions before the effect occurs in other words there will always be uncertainty about whether we are dealing with an accumulation or distribution structure with that said there's a checklist of
77:44
Speaker A
things you can pay attention to in order to eliminate some of this uncertainty number one the location of the secondary test in Phase a price level where the secondary test in Phase a occurs can be an indication of
77:58
Speaker A
who's in control of the market a secondary test Landing in the middle of the range implies neutrality a secondary test Landing in the upper third of the range implies an imbalance in favor of buyers in a secondary test Landing in the lower
78:14
Speaker A
part of the range implies an imbalance in favor of sellers number two tests in Phase B just like it's useful to observe the secondary test in Phase a we can derive meaningful information by observing the tests in Phase B
78:30
Speaker A
when price tests the upper limit of the range we have a sign of strength when price tests the lower part of the range we have a sign of weakness remember also that price failing to test one of the limits of the range is also
78:43
Speaker A
assigned as we saw before with the structural failures the most important thing is to analyze if these tests are being used as minor false breakouts by observing volume spread analysis number three the false breakout in Phase C this is the most important moment in the
79:02
Speaker A
Wyckoff method recall that a false breakout must be followed by a movement in the other direction that breaks the range and produces a confirmation otherwise we are not talking about a false breakout event anymore number four effort and result in Phase d
79:20
Speaker A
ideally after a false breakout event the trader wants to see candlesticks increasing their range in the opposite direction and volume starting to increase also that's an indication that price will indeed break the opposite end of the false Breakout
79:35
Speaker A
for example after a spring the trader wants to see sign of strength candles and volume picking up after enough thrust after distribution the trader wants to see sign of weakness candles and volume picking up number five volume pattern during the cause
79:52
Speaker A
although the volume pattern during the development of the cause is relatively the same in both accumulation and distribution structures meaning that volume will decrease or stay relatively the same before increasing during phase d there can be slight differences in
80:07
Speaker A
volume between accumulation and distribution decreasing volume during the construction of the cause is more common during accumulation structures constant volume and or unusual volume patterns during the construction of the cause is more common in distribution structures simply because the urge to
80:25
Speaker A
sell is usually greater than the urge to buy it's time now to start combining everything that we learned so far into a more integrated trading approach We Begin this study by realizing that the theory you have studied so far about
80:39
Speaker A
the seven logical events the market phases and the relationship between price and volume will provide a contextual framework for the Trader using the Wyckoff method this framework can be the difference between being on the right side of the market or not and
80:53
Speaker A
liking other methods of phase analysis such as the Elliott wave theory there is a sense that the trader is no longer lost when looking at the price chart another interesting aspect that we haven't talked about yet but it
81:05
Speaker A
certainly adds to the Wyckoff method is the use of other volume twos beyond the volume histogram like the volume profile in the view app the volume profile is a way to analyze Market activity at different price levels while the volume histogram shows
81:20
Speaker A
Market activity in the temporal Dimension the view up is a type of averaging that is commonly used in the institutional domain and it's nothing more than a moving average adjusted for volume we can base The View up on sessions
81:34
Speaker A
weeks months or anchor it in specific highs and lows which is an interesting alternative volume analysis can be a whole course on its own so focus on the most basic elements with that said we can move on to the
81:47
Speaker A
guidelines of how Wyckoff Traders should look for opportunities in the market according to the wike of methodology the trader should only look for trade opportunities in phases C D and E in other words in the false breakout of
82:02
Speaker A
phase C in the trend inside the range of phase d and or in the trend outside the range of phase e notice that the highest quality trade opportunity of all lies in Phase C because of its risk reward potential
82:17
Speaker A
is the highest quality trait but it's also the more difficult one to catch in real time let's look at the possibilities in each of these three Market phases phase C there are mainly two ways of entering the trade in Phase C
82:31
Speaker A
the trader can enter in the false breakout itself where he can enter in the test of the false breakout which happens right after and it's a slightly less uncertain type of trade any spring the test will be slightly
82:45
Speaker A
above the extreme produced by the spring and in the up thrust after distribution the test will be slightly below the level produced by the up thrust after distribution mechanics of the false breakout entry in a false breakout there will usually
83:01
Speaker A
be a wide range candle and in that context we want to observe the different ways of analyzing effort and result or volume and price the first thing to pay attention here is that wide range candle in a false
83:14
Speaker A
breakout should have low volume that's a sign of Divergence according to VSA since wide range candles usually have high volume to confirm their Direction the second thing is to observe the subsequent shift in a Divergent subsequent shift price
83:29
Speaker A
will start to change direction right after a wide range candle during the appearance of the Divergent subsequent shifts there might be a sign of weakness or sign of strength candle in the opposite direction of the false breakout indicating that a trade can be opened
83:43
Speaker A
let's first take the example of an accumulation structure in this case we'll see a low volume wide range candle breaking the lower limit of the range as the first Divergent signal the second Divergent signal happens with the subsequent shift one of the common
84:00
Speaker A
triggers is to wait for a sign of strength candle to appear indicating that sellers have been maneuvered by the spring and all price is truly added to the upside in the case of a distribution we have the same situation but upside down
84:15
Speaker A
we'll see a low volume wide range candle breaking the upper limit of the range that's the first Divergent signal the second Divergent signal happens with the subsequent shift one of the common triggers is to wait for a sign of weakness candle to appear
84:30
Speaker A
indicating that buyers have been maneuvered by the up thrust after distribution and now price is truly added to the downside if you don't remember what a Divergent subsequent shift or the patterns of volume spread analysis check out part 1
84:44
Speaker A
of the course in the YouTube card mechanics of the test after the false breakout entry in addition to everything that was outlined in the false breakout entry in the test that can occur right after we want to pay attention to support and
85:00
Speaker A
resistance breakout analysis in the context of VSA meaning that we should look for the appearance of no Supply or no demand candles depending on whether we are talking about an accumulation or a distribution structure we want to see
85:13
Speaker A
the main breakout level being respected another possibility is a narrow range candle with high volume at the support or resistance which means that the line indeed represents a barrier for price ideally the trader wants to wait for the
85:27
Speaker A
appearance of a sign of strength in the direction of the effect in the case of an accumulation we want to see everything we have seen in the first type of trigger meaning the wide range low volume Candlestick in a
85:40
Speaker A
Divergent subsequent shift now I want to see price retracing to the support notice that either low volume or high volume can confirm the support in this case the key here is observing how price action behaves in relation to the
85:55
Speaker A
support line you want to see a lower tail representing some sort of reaction to the support in a sign of strength candle after to Signal a trigger to the upside in the case of a distribution we want to
86:07
Speaker A
see everything we have seen in the first type of trigger meaning the wide range low volume Candlestick and the Divergent subsequent shift now we want to see price retracing to the resistance notice that either low volume or high
86:21
Speaker A
volume can confirm the resistance in this case the key here is observing how price action behaves in relation to the resistance line he wants to see an upper tail representing some sort of reaction to the resistance in a sign of weakness
86:36
Speaker A
candle after to Signal a trigger to the downside entries in Phase d in Phase D there are a couple of opportunities to enter the market one will be in the trend movement that occurs inside the range right after the
86:51
Speaker A
test after the false breakout and the second opportunity would be in the last logical event the test right after price breaks out of the range mechanics of the entry inside the range the main way we look for an entry in the
87:07
Speaker A
trending part inside the range in Phase D is to look for the appearance of intent candles after a minor extreme for example in an accumulation structure we want to see a sign of strength candle right after a minor low
87:21
Speaker A
in the distribution structure we want to see a sign of weakness candle right after a minor High in this illustration you can see a textbook example of an entry inside a range observe how the trigger occurs after a
87:34
Speaker A
sinus strength candle appears right after a minor low in this next illustration you can see an example of an entry inside range observe how the trigger occurs after a sign of weakness candle appears right after a minor High
87:50
Speaker A
mechanics of the entry at the test since we are dealing with price hitting and support or resistance line in this case we want to observe volume spread carefully we want to see price respecting the line either with no Supply or no demand
88:06
Speaker A
candles or with high volume narrow range candles interestingly enough low and high volume work well in this case after that we want to see price moving in the trend Direction with an intent candle that's the trigger for the trade
88:22
Speaker A
in this illustration you can see an example of an entry at the seventh logical event in the case of an accumulation structure in this next illustration you can see an example of an entry at the seventh logical event in the case of a
88:37
Speaker A
distribution structure face e in Phase e the types of entries are the same as the ones found in Phase d the difference is that in Phase e since we'll be in the stage where the trend has developed to some degree already
88:53
Speaker A
the risk reward ratios might not be so attractive in the case of an uptrend we want to observe the Divergent relationship between effort and result forming a less point of support and then observe price resuming trend Direction with a sign of
89:09
Speaker A
strength Scandal ideally in the case of a downtrend we want to observe the Divergent relationship between effort and result forming a less point of supply and then observe price resuming trend Direction with a sign of weakness candle ideally
89:24
Speaker A
this can be done until sides of a preliminary stuff begin to appear in terms of money management all the entries suggested by the Wyckoff method occur near a significant high or low so the stop loss can be placed in there
89:38
Speaker A
for example if we are talking about an entry after the false breakout the stop loss can be placed just below the lowest point of the spring or just above the highest point of the up thrust after distribution in most cases the trade will be
89:53
Speaker A
triggered with the sign of strength or sign of weakness candle that happens right after a low or a high the trader can use these recent lows or highs to place a safe stop loss order in terms of take profit targets if the
90:07
Speaker A
reading of the market is correct the idea is to ride the trend until the market begins to display signs that the trend might start to reverse soon in a Wyckoff method this sign is the preliminary stop the best rate possible Under The Wack of
90:21
Speaker A
method is to enter at the false breakout and only get out after the trend or the effect has fully developed and preliminary stops begin to appear that will ensure a massive risk reward ratio but that's an ideal scenario of
90:36
Speaker A
course it will not happen all the time in this illustration you can see the ideal scenario when it comes to stop loss and take profit orders in an accumulation structure the red lines represent the stop-loss placement levels in the green rectangle
90:51
Speaker A
represents the ideal take profit area assuming that is the area where preliminary stops begin to appear in this other illustration you can see the optimal levels in a distribution structure one thing that should be clear to you is
91:05
Speaker A
that the deeper into the effect you enter the market the less reliable the trade because the higher the chance of entering near a preliminary stop therefore yielding a lower risk reward potential with these illustrations it also becomes clear why the entry at the
91:20
Speaker A
spring or of thrust after distribution is the best rate you can take it has a very small stop-loss order and it captures most of the effect therefore yielding a great risk reward potential money management can also be a whole
91:34
Speaker A
course on its own in this course I will leave it at just showing the optimal places to put stop and take profit orders or there are many different techniques you can apply here in order to maximize your results like trailing stops or risk
91:48
Speaker A
collapsing for example but that's for another day it's time now to see how all these ideas and Concepts about the Wyckoff method play out in real price charts when it comes to the financial markets the gap between theory and practice can
92:02
Speaker A
be quite significant in these examples you will notice how you shouldn't take these specific rules of the week of methodology so seriously meaning that you should only pay attention to the general aspect of the theory a similar effect happens with the
92:17
Speaker A
Elliott wave theory if you take all the rules too seriously the method becomes too hard to apply in real markets it works best when you take the most powerful rules into account with a decent dose of flexibility we begin with an example of a horizontal
92:34
Speaker A
distribution structure in the three-minute chart of the Euro USD on the left of the chart I Mark the preliminary stop in an exhaustion event the first detail here is the prominent upper tail in the preliminary stop as it
92:49
Speaker A
was demonstrated in the theoretical part of the course that's an early sign that the well-informed Traders are getting on the opposite side of the main trend in other words in this example this is an early indication that the
93:02
Speaker A
well-informed Traders are starting to absorb demand notice how after this preliminary stop the uptrend angle becomes less steep which is a sign that the trend is slowing down the uptrend produces a higher high after a while but with lower volume
93:18
Speaker A
that represents the Divergence between effort and result and in this case it's more of an exhaustion rather than a climatic event a higher high should produce a higher peak in volume if the momentum behind the trend was intact but that is not the
93:33
Speaker A
case the market then starts to produce what would be the automatic reaction event and it goes back to the last significant load that occurred right after the preliminary stop something peculiar happens in this distribution structure which is the fact
93:47
Speaker A
that the market has a hard time testing both ends of the range determined by the exhaustion and the automatic reaction eventually price starts to go in the direction of the level determined by the exhaustion event and breaks that level
94:00
Speaker A
with a wide range bullish candle notice that there is an increase in volume in this candle but not as much as you would expect given its wide range this is one of the signs of an up thrust after distribution event
94:13
Speaker A
a wide range bullish candle with low volume inducing uninformed buyers to the upside right after this candle we have a Divergent subsequent shift notice how price begins to fall immediately after it breaks out of the range see how volume also starts to pick up
94:31
Speaker A
after this this is the most important event in the distribution price goes directly into the level determined by the automatic reaction but it doesn't break it and right after that it goes back to test the level determined by the
94:46
Speaker A
exhaustion by this time we already have enough thrust after distribution so we can think about a short trade at the test of this line this is the highest quality trade according to the Wyckoff method price eventually falls through the ice
95:02
Speaker A
and then comes back to produce the last event in the textbook wikoff cycle which provides another opportunity to enter the market the takeaway here is to observe that the seven logical events don't usually develop in their textbook version
95:15
Speaker A
there is a lot of room for variation now we are going to see an example of accumulation structure in the one hour time frame of the British pound versus the US dollar once again we have a real Market example
95:28
Speaker A
developing with some degree of variation in comparison to the textbook version of the slow reversal pattern outlined in the Wyckoff method on the left we have a preliminary stop recall that a preliminary stop is called preliminary Supply in a distribution
95:44
Speaker A
structure and a preliminary support in an accumulation structure but both are forms of preliminary stops notice the prominent lower shadow of the Candlestick that forms the low which indicates some sort of Supply absorption from the well-informed Traders notice also the increase in volume in
96:02
Speaker A
this area notice how the increase in volume is greater than the reaction in price denoting that well-informed Traders have absorbed some Supply in a narrow price range due to a liquidity pool next we have a climax event marked by a
96:18
Speaker A
very wide range bearish candle and a spike in volume the climax event is usually one of the easiest ones to spot due to the violence of the movement the automatic rally and the climax form the upper and lower extremes of the
96:32
Speaker A
accumulation structure respectively from now on the unconventional part of the accumulation structure begins we have a series of secondary tests as sign of weakness which could easily be mistaken by a spring event the first secondary test as a sign of
96:49
Speaker A
weakness does serve the purpose of inducing sellers to the downside so that well-informed Traders go along but in this case this is not the spring event yet the series of secondary tests form a few laws that will be used later in the real
97:03
Speaker A
spring event in the spring event price comes back down and breaks two lows which would trigger sellers to the downside again just so that well-informed Traders could enter in Long positions once again notice that at this time there is a wide
97:18
Speaker A
range bullish candle with a prominent lower Shadow and a huge spike in volume this volume Spike comes from two things the uninformed sellers going to the downside due to the breakdown of some important lows and perhaps most importantly from the well-informed
97:34
Speaker A
buyers absorbing all of this Supply and making the market turn to the upside but trade can be taken at this point or after price comes back to the climax level after testing the automatic rally after the spring observe that the most important thing in
97:49
Speaker A
this method is to pay attention to volume spread analysis memorizing the names of each event in phase is secondary let's now move on to a few conclusions about the Wyckoff method the Wyckoff method is attractive to a lot of Traders because it provides a
98:06
Speaker A
roadmap for the market very much like the elite wave theory does the feeling of no longer being lost among many highs and lows in the chart is certainly appealing to all Traders but it comes with a caveat like in the Elliott wave theory the
98:22
Speaker A
rules of the Wyckoff method tend to be too specific in my opinion and that diminishes the reliability of the method any method that attempts to box the market into a set of rules will always be unreliable the correct step is to use a method that
98:37
Speaker A
reacts to whatever the market does instead of trying to claim what the market should do in each situation you will notice that in the Wyckoff method it is very difficult to find market scenarios that fit this low reversal pattern in the way that is
98:50
Speaker A
suggested the real Market does Endless variations of such slope reversal pattern for this reason I believe it's much better to pay attention to volume spread analysis alone instead of trying to identify which phase the market is in or
99:05
Speaker A
which event of the Wyckoff cycle the market is in volume spread analysis is a method that can be applied much more easily and reliably in basically all price movements with that said the notion of how the well-informed Traders interact with the
99:20
Speaker A
uninformed Traders and how supply and demand absorption works is indeed useful and can be applied to all markets in all time frames this concludes the lack of trading course I hope you are able to learn something useful with this video
99:35
Speaker A
if you enjoyed it please help support the channel by clicking the like button subscribing to the channel activating the notifications button sharing the video and leaving your feedback Below in the comment section if you wish to learn how to trade check
99:50
Speaker A
out my website fractalflowpro.com or send me an email at support fractalflowpro.com I offer a series of different courses and ebooks for beginners and advanced Traders thank you very much for watching and take care
Topics:Wyckoff MethodTrading StrategiesSupply and DemandPrice ActionMarket PhasesAccumulationDistributionRetail TradingTrading PsychologyFractal Waves

Frequently Asked Questions

What is the main goal of the Wyckoff trading methodology?

The main goal is to help retail traders trade alongside large, well-informed traders by understanding their actions and footprints in the market using logical analysis of price action and supply-demand dynamics.

What are the four phases of price action in the Wyckoff method?

The four phases are accumulation, uptrend, distribution, and downtrend, with the possibility of re-accumulation phases where buyers accumulate positions to continue an uptrend.

How does the Wyckoff method differ from Dow Theory and Elliott Wave Theory?

Wyckoff's method is more flexible, does not prescribe a fixed number of waves, and focuses on logical interpretation of market footprints and supply-demand, whereas Dow and Elliott Wave theories have more rigid wave structures.

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