54 Questions
What is the critical component of Wyckoff's trade selection and management?
Identifying price targets using Point and Figure (P&F) projections
What type of charts should be used for Step 1 of the Wyckoff Method?
Bar charts and Point and Figure charts of the major market indices
In an uptrend, which stocks should be selected according to the Wyckoff Method?
Stocks that are stronger than the market
What does the assessment in Step 1 of the Wyckoff Method help to decide?
Whether to be in the market at all and, if so, whether to take long or short positions
What should be used to compare individual stocks with the most relevant market index for Step 2 of the Wyckoff Method?
Bar charts
What method did Wyckoff use to identify price targets for long and short trades?
Point and Figure (P&F) projections
What is the defining characteristic of the accumulation phase in Wyckoff method?
Intense selling pressures followed by automatic rally and successful secondary test
What occurs during Phase C in Wyckoff method?
A decisive test of remaining supply, including a spring to trap late sellers and indicate a new uptrend
What is the purpose of the secondary test (ST) in Wyckoff method?
To test the demand/supply balance and confirm a top
What marks the beginning of the distribution phase in Wyckoff method?
Preliminary supply (PSY) and buying climax (BC)
What is the key characteristic of Phase E in Wyckoff method?
Stock leaving the trading range with demand in full control and short-lived setbacks
What is the primary focus of Wyckoff method in stock market analysis?
Identifying the behavior of large operators and the balance of supply and demand
According to Wyckoff's fundamental law of 'Cause and Effect,' what represents the cause and effect?
Horizontal P&F count represents the cause, while the subsequent price movement represents the effect
What does Wyckoff recommend for taking long positions?
Choose stocks that are under accumulation or re-accumulation and have built a sufficient cause
What is the purpose of Step 4 in Wyckoff's methodology?
Determine the stocks' readiness to move and apply the nine tests for buying or selling
According to Wyckoff, when should one time their commitment with a turn in the stock market index?
Towards the end of the preparation for a price markup or bull market
What is the role of the 'Composite Man' in Wyckoff's methodology?
To help understand price movements in individual stocks and the market as a whole
According to Wyckoff, what determines price direction?
The law of supply and demand
According to Wyckoff, what represents the cause and effect in trading?
Horizontal P&F count and subsequent price movement
What is the focus of Step 3 in Wyckoff's trading method?
Using Point and Figure charts of individual stocks
What is the significance of the 'Composite Man' in Wyckoff's methodology?
He is a heuristic device to understand price movements in individual stocks and the market as a whole
What does Wyckoff emphasize as crucial for timing commitment with a turn in the stock market index?
Three-quarters or more of individual issues move in sync with the overall market
What is the primary focus of understanding the market behavior of the Composite Man according to Wyckoff?
Identifying trading and investment opportunities early enough to profit from them
What forms the basis of Wyckoff's chart-based methodology?
Three fundamental 'laws' affecting many aspects of analysis
What is the function of Phase B in distribution according to the Wyckoff method?
To build a cause in preparation for a new downtrend
What does a Last Point of Supply (LPSY) represent in the Wyckoff method?
Exhaustion of demand and the last waves of large operators’ distribution before markdown begins
What is the purpose of an Upthrust After Distribution (UTAD) in the Wyckoff method?
To provide a definitive test of new demand after a breakout above TR resistance
What does Phase E depict in the Wyckoff method?
The unfolding of the downtrend; the stock leaves the TR and supply is in control
What does a Sign of Weakness (SOW) indicate in the Wyckoff method?
Observable as a down-move to (or slightly past) the lower boundary of the TR, usually occurring on increased spread and volume
What represents the evidence that supply is clearly dominant in Phase D of the Wyckoff method?
Price travels to or through TR support, often with multiple weak rallies and LPSYs
What is the purpose of the Wyckoff method?
To identify and anticipate the direction and magnitude of the move out of a trading range
What does the term 'selling climax' refer to in the context of the Wyckoff method?
The point at which selling pressure usually climaxes and heavy selling is absorbed by larger professional interests at or near a bottom
What is the significance of a 'sign of strength' (SOS) in the Wyckoff method?
It represents a price advance on increasing spread and relatively higher volume, often validating the analyst's interpretation of prior actions
What is the purpose of a 'secondary test' (ST) in the Wyckoff method?
To revisit the area of the selling climax to test the supply/demand balance at those levels
What is the role of 'springs' and 'shakeouts' in the Wyckoff method?
To mislead the public about the future trend direction and to allow large interests to acquire additional shares at bargain prices
What does the 'last point of support' (LPS) indicate in the Wyckoff method?
The low point of a reaction or pullback after a sign of strength (SOS)
What is the purpose of the 'back-up' in the Wyckoff method?
To represent both short-term profit-taking and a test for additional supply around the area of resistance
What is the significance of springs and terminal shakeouts in the Wyckoff method?
They allow large interests to mislead the public about the future trend direction and acquire additional shares at bargain prices
What does the law of effort versus result indicate in the Wyckoff method?
It provides an early warning of a possible trend change in the near future
What is the primary focus of Point and Figure chart counts in the Wyckoff method?
To measure a cause and project the extent of its effect
What is the purpose of signs of strength (SOS) and last points of support (LPS) in the Wyckoff method?
To mark important phases and test the market for supply
What is the role of the Composite Man in accumulation and distribution trading ranges according to the Wyckoff method?
Actively buying and selling, with accumulation involving more shares being purchased than sold and distribution the opposite
What is the purpose of the Last Point of Supply (LPSY) in the Wyckoff Method?
It represents exhaustion of demand and the last waves of large operators’ distribution before markdown begins
What does Phase B in the Wyckoff Method involve?
Building a cause in preparation for a new downtrend, with large interests disposing of long inventory
How can the presence of supply be identified according to the Wyckoff Method?
High-volume price bars with wide spread closing at a low
What is the significance of Phase E in the Wyckoff Method?
It depicts the unfolding of the downtrend, with supply in control after a breakdown of TR support
What is the primary focus of the Wyckoff Method in stock market analysis?
Analysis of supply and demand through examination of volume and price movements
What does an upthrust after distribution (UTAD) indicate in the Wyckoff Method?
It provides a definitive test of new demand after a breakout above TR resistance
What does a Last Point of Supply (LPSY) represent in the Wyckoff method?
Exhaustion of demand and the last waves of large operators’ distribution before markdown begins
What occurs during Phase E in the Wyckoff method?
Unfolding of the downtrend, with supply in control after a breakdown of TR support
What is the primary focus of Wyckoff method in stock market analysis?
Examination of volume and price movements
What is the role of 'springs' and 'shakeouts' in the Wyckoff method?
To deceive uninformed break-out traders in Phase C
What is the function of Phase B in distribution according to the Wyckoff method?
To build a cause in preparation for a new downtrend, with large interests disposing of long inventory
What represents the evidence that supply is clearly dominant in Phase D of the Wyckoff method?
Last gasps of demand and price traveling to or through TR support
Study Notes
Wyckoff Method for Stock Market Analysis
- Wyckoff method involves analyzing stock market behavior through phases such as accumulation, re-accumulation, and distribution
- Accumulation phase involves intense selling pressures followed by automatic rally and successful secondary test
- Re-accumulation phase occurs during a longer-term uptrend and resembles distribution in Phase A
- Phase B involves institutions and large professional interests accumulating low-priced inventory, with multiple secondary tests and upthrust-type actions
- Phase C is a decisive test of remaining supply, including a spring to trap late sellers and indicate a new uptrend
- Phase D shows consistent dominance of demand over supply, with advances and reactions indicating initiation or addition of long positions
- Phase E marks the stock leaving the trading range, with demand in full control and short-lived setbacks
- Distribution phase includes events such as preliminary supply (PSY), buying climax (BC), automatic reaction (AR), and secondary test (ST) to confirm a top
- PSY and BC mark the beginning of distribution, with intense volume and price spread signaling a change in trend
- AR follows BC, with diminished intense buying and heavy supply, defining the lower boundary of the distribution trading range
- ST involves price revisiting the area of BC to test the demand/supply balance and confirm a top
- Wyckoff method is based on chart analysis to identify the behavior of large operators and the balance of supply and demand in the stock market
Wyckoff Method for Market Analysis
- The Wyckoff method involves the analysis of trading ranges to improve market timing and anticipate favorable reward/risk ratios.
- In accumulation and distribution trading ranges, the Composite Man is actively buying and selling, with accumulation involving more shares being purchased than sold and distribution the opposite.
- The extent of accumulation or distribution within a trading range determines the cause that unfolds in the subsequent move out of the range.
- Wyckoff offers guidelines for identifying and delineating the phases and events within a trading range, providing the basis for estimating price targets in the subsequent trend.
- Accumulation involves events like preliminary support (PS), selling climax (SC), automatic rally (AR), and secondary test (ST), with springs or shakeouts occurring late within the range.
- Springs and terminal shakeouts are not required elements, but they allow large interests to mislead the public about the future trend direction and acquire additional shares at bargain prices.
- Large operators always test the market for supply throughout a trading range and at key points during a price advance, with signs of strength (SOS) and last points of support (LPS) marking important phases.
- The "back-up" is a common structural element preceding a more substantial price mark-up, representing both short-term profit-taking and a test for additional supply around the area of resistance.
- Phase A marks the stopping of the prior downtrend, with the approaching diminution of supply evidenced in preliminary support (PS) and a selling climax (SC).
- The law of effort versus result provides an early warning of a possible trend change in the near future, with divergences between volume and price often signaling a change in the direction of a price trend.
- Point and Figure chart counts are used to measure a cause and project the extent of its effect, illustrating the operation of the law of accumulation and distribution within a trading range.
- A successful Wyckoff analyst must be able to anticipate and correctly judge the direction and magnitude of the move out of a trading range, using time-tested guidelines for identifying and delineating the phases and events within a trading range.
Wyckoff Method for Supply and Demand Analysis
- Short-term (ST) may take the form of upthrust (UT), moving above resistance before quickly reversing
- Price often tests the lower boundary of the trading range (TR) after upthrust
- Sign of weakness (SOW) is observable as a down-move to or slightly past the lower boundary of the TR
- Last point of supply (LPSY) represents exhaustion of demand and the last waves of large operators’ distribution before markdown begins
- Upthrust after distribution (UTAD) provides a definitive test of new demand after a breakout above TR resistance
- Phase A in a distribution TR marks the stopping of the prior uptrend and provides evidence of supply entering the market
- Phase B builds a cause in preparation for a new downtrend, with large interests disposing of long inventory
- Phase C may reveal itself via an upthrust (UT) or UTAD, testing the remaining demand and often misleading uninformed break-out traders
- Phase D arrives after the tests in Phase C show the last gasps of demand and price travels to or through TR support
- Phase E depicts the unfolding of the downtrend, with supply in control after a breakdown of TR support
- Analysis of supply and demand through examination of volume and price movements is central to the Wyckoff method
- Price bars with wide spread, closing at a high accompanied by higher-than-average volume, suggest the presence of demand, while high-volume price bars with wide spread closing at a low suggest the presence of supply
Test your knowledge of the Wyckoff Method for stock market analysis with this quiz. Explore the principles, phases, and strategies involved in understanding stock market behavior, supply and demand dynamics, and the influence of the "Composite Man" in shaping market movements.
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