Richard D. Wyckoff His Method And Story
Richard D. WyckoffHis Method and Story““ all the fluctuations in the market and in all the various stocks should be studied as if they werethe result of one man’s operations. Let us call him the Composite Man, who, in theory, sits behindthe scenes and manipulates the stocks to your disadvantage if you do not understand the game ashe plays it; and to your great profit if you do understand it.(The Richard D. Wyckoff Course in Stock Market Science and Technique, section 9, p. 1-2)OUTLINEThe Wyckoff Method: A TutorialRichard D. WyckoffA Five-Step Approach to the MarketWyckoff's "Composite Man"Wyckoff Price CycleThree Wyckoff LawsAnalyses of Trading RangesWyckoff SchematicsAccumulation: Wyckoff EventsAccumulation: Wyckoff PhasesDistribution: Wyckoff EventsDistribution: Wyckoff PhasesSupply and Demand AnalysisComparative Strength AnalysisNine Buying/Selling TestsWyckoff Buying Tests for AccumulationWyckoff Selling Tests for DistributionWyckoff Point and Figure (P&F) Count GuideConclusionHenry O. Pruden Certificate ofProficiency in Wyckoff MethodBecome certified in Wyckoff Methodand understand the best practices intolaws, principles and techniques totrack and trade in harmony with thebig money, represented today bymajor institutions such as investmentbanks, hedge funds, and pension plans.BEGINNER-INTERMEDIATEWyckoff Trading Course(WTC) Part I:FUNDAMENTALS OF TRADINGLearn to trade in harmony withinstitutions using Price StructuralAnalysis, Supply and Demand, andRelative and Comparative Strength.Disclaimer: Much of this article was originally written by the Wyckoff Analytics team forthe ChartSchool at www.stockcharts.com. This material is reproduced here with the express permission of StockCharts.com.www.wyckoffanalytics.com
Richard Demille Wyckoff (1873–1934) was an early 20th-century pioneer in the technical approachto studying the stock market. He is considered one of the five “titans” of technical analysis, along with Dow,Gann, Elliott and Merrill. At age 15, he took a job as a stock runner for a New York brokerage.Afterwards, while still in his 20s, he became the head of his own firm. He also founded and, for nearly twodecades wrote, and edited The Magazine of Wall Street, which, at one point, had more than 200,000subscribers. Wyckoff was an avid student of the markets, as well as an active tape reader and trader. Heobserved the market activities and campaigns of the legendary stock operators of his time, including JPMorgan and Jesse Livermore. From his observations and interviews with those big-time traders, Wyckoffcodified the best practices of Livermore and others into laws, principles and techniques of tradingmethodology, money management and mental discipline.From his position, Mr. Wyckoff observed numerous retail investors being repeatedly fleeced.Consequently, he dedicated himself to instructing the public about “the real rules of the game” as played bythe large interests, or “smart money.” In the 1930s, he founded a school which would later become theStock Market Institute. The school's central offering was a course that integrated the concepts thatWyckoff had learned about how to identify large operators' accumulation and distribution of stock withhow to take positions in harmony with these big players. His time-tested insights are as valid today as theywere when first articulated.This article provides an overview of Wyckoff's theoretical and practical approaches to the markets,including guidelines for identifying trade candidates and entering long and short positions, analysis ofaccumulation and distribution trading ranges and an explanation of how to use Point and Figure charts toidentify price targets. Although this article focuses exclusively on stocks, Wyckoff's methods can beapplied to any freely-traded market in which large institutional traders operate, including commodities,bonds and currencies.A Five-Step Approach to the MarketThe Wyckoff Method involves a five-step approach to stock selection and trade entry, which can be summarizedas follows:1Determine the present position and probable future trend of the market.Is the market consolidating or trending? Does your analysis of market structure, supply anddemand indicate the direction that is likely in the near future? This assessment should help youdecide whether to be in the market at all and, if so, whether to take long or short positions. Useboth bar charts and Point and Figure charts of the major market indices for Step 1.2Select stocks in harmony with the trend.In an uptrend, select stocks that are stronger than the market. For instance, look for stocks thatdemonstrate greater percentage increases than the market during rallies and smaller decreasesduring reactions. In a downtrend, do the reverse – choose stocks that are weaker than the market.If you are not sure about a specific issue, drop it and move on to the next one. Use bar charts ofindividual stocks to compare with those of the most relevant market index for Step 2.Disclaimer: Much of this article was originally written by the Wyckoff Analytics team forthe ChartSchool at www.stockcharts.com. This material is reproduced here with the express permission of StockCharts.com.www.wyckoffanalytics.com
3Select stocks with a “cause” that equals or exceeds your minimum objective.A critical component of Wyckoff's trade selection and management was his unique method ofidentifying price targets using Point and Figure (P&F) projections for both long and short trades. InWyckoff's fundamental law of “Cause and Effect,” the horizontal P&F count within a trading rangerepresents the cause, while the subsequent price movement represents the effect. Therefore, if youare planning to take long positions, choose stocks that are under accumulation or re-accumulationand have built a sufficient cause to satisfy your objective. Step 3 relies on the use of Point andFigure charts of individual stocks.4Determine the stocks' readiness to move.Apply the nine tests for buying or for selling (described below). For instance, in a trading range aftera prolonged rally, does the evidence from the nine selling tests suggest that significant supply isentering the market and that a short position may be warranted? Or in an apparent accumulationtrading range, do the nine buying tests indicate that supply has been successfully absorbed, asevidenced further by a low-volume spring and an even lower-volume test of that spring? Use barcharts and Point and Figure charts of individual stocks for Step 4.5Time your commitment with a turn in the stock market index.Three-quarters or more of individual issues move in harmony with the general market, so youimprove the odds of a successful trade by having the power of the overall market behind it. SpecificWyckoff principles help you anticipate potential market turns, including a change of character ofprice action (such as the largest down-bar on the highest volume after a long uptrend), as well asmanifestations of Wyckoff's three laws (see below). Put your stop-loss in place and then trail it, asappropriate, until you close out the position. Use bar and Point and Figure charts for Step 5.Wyckoff's "Composite Man"Wyckoff proposed a heuristic device to help understand price movements in individual stocks and themarket as a whole, which he dubbed the “Composite Man.”““ all the fluctuations in the market and in all the various stocks should be studied as if theywere the result of one man’s operations. Let us call him the Composite Man, who, intheory, sits behind the scenes and manipulates the stocks to your disadvantage if you donot understand the game as he plays it; and to your great profit if you do understand it.(The Richard D. Wyckoff Course in Stock Market Science and Technique, section 9, p. 1-2)Disclaimer: Much of this article was originally written by the Wyckoff Analytics team forthe ChartSchool at www.stockcharts.com. This material is reproduced here with the express permission of StockCharts.com.www.wyckoffanalytics.com
Wyckoff advised retail traders to try to play the market game as the Composite Man played it. In fact, heeven claimed that it doesn't matter if market moves “are real or artificial; that is, the result of actualbuying and selling by the public and bona fide investors or artificial buying and selling by larger operators.”(The Richard D. Wyckoff Method of Trading and Investing in Stocks, section 9M, p. 2)Based on his years of observations of the market activities of large operators, Wyckoff taught that:The Composite Man carefully plans, executes and concludes his campaigns.The Composite Man attracts the public to buy a stock in which he has already accumulated a sizeableline of shares by making many transactions involving a large number of shares, in effect advertising hisstock by creating the appearance of a “broad market.”One must study individual stock charts with the purpose of judging the behavior of the stock and themotives of those large operators who dominate it.With study and practice, one can acquire the ability to interpret the motives behind the action that achart portrays. Wyckoff and his associates believed that if one could understand the market behaviorof the Composite Man, one could identify many trading and investment opportunities early enough toprofit from them.Wyckoff Price CycleAccording to Wyckoff, the market can be understood and anticipated through detailed analysis of supplyand demand, which can be ascertained from studying price action, volume and time. As a broker, he was ina position to observe the activities of highly successful individuals and groups who dominated specificissues; consequently, he was able to decipher, via the use of what he called vertical (bar) and figure (Pointand Figure) charts, the future intentions of those large interests. An idealized schematic of how heconceptualized the large interests' preparation for and execution of bull and bear markets is depicted inthe figure below. The time to enter long orders is towards the end of the preparation for a price markup orbull market (accumulation of large lines of stock), while the time to initiate short positions is at the end ofthe preparation for price markdown.Disclaimer: Much of this article was originally written by the Wyckoff Analytics team forthe ChartSchool at www.stockcharts.com. This material is reproduced here with the express permission of StockCharts.com.www.wyckoffanalytics.com
Three Wyckoff LawsWyckoff's chart-based methodology rests on three fundamental “laws” that affect many aspects of analysis. Theseinclude determining the market's and individual stocks' current and potential future directional bias, selecting thebest stocks to trade long or short, identifying the readiness of a stock to leave a trading range and projecting pricetargets in a trend from a stock’s behavior in a trading range. These laws inform the analysis of every chart and theselection of every stock to trade.Wyckoff Price Cycle312The law of supply anddemand determines theprice directionThe law of causeand effectThe law of effortThis principle is central toWyckoff's method of tradingand investing. When demandis greater than supply, pricesrise, and when supply isgreater than demand, pricesfall. The trader/analyst canstudy the balance betweensupply and demand bycomparing price and volumebars over time. This law isdeceptively simple, butlearning to accuratelyevaluate supply and demandon bar charts, as well asunderstanding theimplications of supply anddemand patterns, takesconsiderable practice.It helps the trader andinvestor set price objectivesby gauging the potentialextent of a trend emergingfrom a trading range.Wyckoff's “cause” can bemeasured by the horizontalpoint count in a Point andFigure chart, while the“effect” is the distance pricemoves corresponding to thepoint count. This law'soperation can be seen as theforce of accumulation ordistribution within a tradingrange, as well as how thisforce works itself out in asubsequent trend ormovement up or down. Pointand Figure chart counts areused to measure a cause andproject the extent of itseffect. (See “Point and FigureCount Guide” below for anillustration of this law.)It helps the trader andinvestor set price objectivesby gauging the potentialextent of a trend emergingfrom a trading range.Wyckoff's “cause” can bemeasured by the horizontalpoint count in a Point andFigure chart, while the“effect” is the distance pricemoves corresponding to thepoint count. This law'soperation can be seen as theforce of accumulation ordistribution within a tradingrange, as well as how thisforce works itself out in asubsequent trend ormovement up or down. Pointand Figure chart counts areused to measure a cause andproject the extent of itseffect. (See “Point andFigure Count Guide” belowfor an illustration of thislaw.)Disclaimer: Much of this article was originally written by the Wyckoff Analytics team forthe ChartSchool at www.stockcharts.com. This material is reproduced here with the express permission of StockCharts.com.www.wyckoffanalytics.com
Analyses of Trading RangesOne objective of the Wyckoff method is to improve market timing when establishing a position inanticipation of a coming move where a favorable reward/risk ratio exists. Trading ranges (TRs) are placeswhere the previous trend (up or down) has been halted and there is relative equilibrium between supplyand demand. Institutions and other large professional interests prepare for their next bull (or bear)campaign as they accumulate (or distribute) shares within the TR. In both accumulation and vdistributionTRs, the Composite Man is actively buying and selling - the difference being that, in accumulation, theshares purchased outnumber those sold while, in distribution, the opposite is true. The extent ofaccumulation or distribution determines the cause that unfolds in the subsequent move out of the TR.Wyckoff SchematicsA successful Wyckoff analyst must be able to anticipate and correctly judge the direction and magnitudeof the move out of a TR. Fortunately, Wyckoff offers time-tested guidelines for identifying and delineatingthe phases and events within a TR, which, in turn, provide the basis for estimating price targets in thesubsequent trend. These concepts are illustrated in the following four schematics; two depicting commonvariants of accumulation TRs, followed by two examples of distribution TRs.AccumulationWyckoff EventsPS—preliminary support , where substantial buying begins to provide pronounced support after aprolonged down-move. Volume increases and price spread widens, signaling that the down-move maybe approaching its end.SC—selling climax , the point at which widening spread and selling pressure usually climaxes andDisclaimer: Much of this article was originally written by the Wyckoff Analytics team forthe ChartSchool at www.stockcharts.com. This material is reproduced here with the express permission of StockCharts.com.www.wyckoffanalytics.com
AccumulationWyckoff Eventsheavy or panicky selling by the public is being absorbed by larger professional interests at or near abottom. Often price will close well off the low in a SC, reflecting the buying by these large interests.AR—automatic rally , which occurs because intense selling pressure has greatly diminished. A waveof buying easily pushes prices up; this is further fueled by short covering. The high of this rally willhelp define the upper boundary of an accumulation TR.ST—secondary test , in which price revisits the area of the SC to test the supply/demand balance atthese levels. If a bottom is to be confirmed, volume and price spread should be significantlydiminished as the market approaches support in the area of the SC. It is common to have multiple STsafter a SC.Test— Large operators always test the market for supply throughout a TR (e.g., STs and springs) andat key points during a price advance. If considerable supply emerges on a test, the market is often notready to be marked up. A spring is often followed by one or more tests; a successful test (indicatingthat further price increases will follow) typically makes a higher low on lesser volume.SOS—sign of strength , a price advance on increasing spread and relatively higher volume. Often aSOS takes place after a spring, validating the analyst’s interpretation of that prior action.LPS—last point of support, the low point of a reaction or pullback after a SOS. Backing up to an LPSmeans a pullback to support that was formerly resistance, on diminished spread and volume. On somecharts, there may be more than one LPS, despite the ostensibly singular precision of this term.BU—”back-up”. This term is short-hand for a colorful metaphor coined by Robert Evans, one of theleading teachers of the Wyckoff method from the 1930s to the 1960s. Evans analogized the SOS to a“jump across the creek” of price resistance, and the “back up to the creek” represented both short-termprofit-taking and a test for additional supply around the area of resistance. A back-up is a commonstructural element preceding a more substantial price mark-up, and can take on a variety of forms,including a simple pullback or a new TR at a higher level.Note:Springs or shakeouts usually occur late within a TR and allow the stock’s dominant players to make adefinitive test of available supply before a markup campaign unfolds. A “spring” takes price below the lowof the TR and then reverses to close within the TR; this action allows large interests to mislead the publicabout the future trend direction and to acquire additional shares at bargain prices. A terminal shakeout atthe end of an accumulation TR is like a spring on steroids. Shakeouts may also occur once a price advancehas started, with rapid downward movement intended to induce retail traders and investors in longpositions to sell their shares to large operators. However, springs and terminal shakeouts are not requiredelements: Accumulation Schematic 1 depicts a spring, while Accumulation Schematic 2 shows a TRwithout a spring.Disclaimer: Much of this article was originally written by the Wyckoff Analytics team forthe ChartSchool at www.stockcharts.com. This material is reproduced here with the express permission of StockCharts.com.www.wyckoffanalytics.com
AccumulationWyckoff PhasesPhase A: Phase A marks the stopping of the prior downtrend. Up to this point, supply has been dominant.The approaching diminution of supply is evidenced in preliminary support (PS) and a selling climax (SC).These events are often very obvious on bar charts, where widening spread and heavy volume depict thetransfer of huge numbers of shares from the public to large professional interests. Once these intenseselling pressures have been relieved, an automatic rally (AR), consisting of both institutional demand forshares as well as short-covering, typically ensues. A successful secondary test (ST) in the area of the SCwill show less selling than previously and a narrowing of spread and decreased volume, generally stoppingat or above the same price level as the SC. If the ST goes lower than that of the SC, one can anticipateeither new lows or prolonged consolidation. The lows of the SC and the ST and the high of the AR set theboundaries of the TR. Horizontal lines may be drawn to help focus attention on market behavior, as seen inthe two Accumulation Schematics above.Sometimes the downtrend may end less dramatically, without climactic price and volume action. Ingeneral, however, it is preferable to see the PS, SC, AR and ST, as these provide not only a more distinctcharting landscape but a clear indication that large operators have definitively initiated accumulation.In a re-accumulation TR (which occurs during a longer-term uptrend), the points representing PS, SC andST are not evident in Phase A. Rather, in such cases, Phase A resembles that more typically seen indistribution (see below). Phases B-E generally have a shorter duration and smaller amplitude than, but areultimately similar to, t
Richard Demille Wyckoff (1873–1934) was an early 20th-century pioneer in the technical approach to studying the stock market. He is considered one of the five “titans” of technical analysis, along with Dow, Gann, Elliott and Merrill. At age 15,
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VOLUME SPREAD ANALYSIS The foundations for volume spread analysis were laid by R.Wyckoff way back in the early 1930s. Wyckoff was supposed to have made fortunes with his principles. Wyckoff stared with a premise that price / volume / Time could provide a picture of the demand and supply from smart money (he called the smart money 'composite
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– Wyckoff notation gives you a quick way to check if stoichiometry is correctly preserved when you create a crystal structure – you can deduce z, the number of molecules per unit cell, from the Wyckoff notation (z 4 for ZrO 2) Atom Wyckoff Site x y z B iso sof Zr 4a 0 0 0 1.14 1 O 8c 0.25 0
EXERCISES Problem 2.22 Consider the special Wyckoff positions of the the space group P4mm. Determine the site-symmetry groups of Wyckoff positions 1a and 1b. Compare the results with the listed ITA data The coordinate triplets (x,1/2,z) and (1/2,x,z), belong to Wyckoff
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