The Wyckoff Methodology in Depth: How to trade financial markets logically (Trading and Investing Course: Advanced Technical Analysis Book 1)

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What is the Wyckoff Methodology?

It is a Technical Analysis approach based on the study of supply and demand; that is, on the continuous interaction between buyers and sellers.

The approach is simple: when well-informed traders want to buy or sell, they carry out processes that leave their traces on the chart through price and volume.

The Wyckoff Methodology tries to identify that professional intervention to try to elucidate who is most likely to be in control of the market and enable us to pose judicious scenarios of where the price is most likely to go.

Why should you study this methodology, and why this book?

Unique theoretical conceptual framework

This is the cornerstone of the methodology, which makes it stand above any other form of technical analysis; and that is because it is the only one that informs us about what is really happening in the market in a logical manner.

This approach is based on a real underlying logic through its 3 fundamental laws:

  1. Law of Supply and Demand. It is the true engine of the market. You will learn to analyze the traces left by the interactions between the major traders.
  2. Law of Cause and Effect. The idea is that something cannot happen out of the blue; that for the price to develop a trend movement (effect) it must first have built a cause previously.
  3. Law of Effort and Result. It is about analyzing price and volume in comparative terms to conclude whether the market actions denote harmony or divergence.

It is a universal analysis approach, where its reading is applicable to any financial market and over any time frame.
It is recommended to analyze centralized markets such as stocks and futures where volume is genuine and representative; as well as assets with sufficient liquidity in order to avoid possible manipulation maneuvers.

Price and volume analytical tools

We will understand that markets do not move in a straight line but in waves of varying degrees, which create trends and ranges.

We will learn to also assess the health of the trend with the most useful analyses of price action (velocity, projection, depth) and gain much more valuable insight into the use of trend lines.

It provides context and roadmap

Thanks to the accumulation and distribution schemes we will be able to identify the professional’s participation as well as the general market sentiment up to the present moment, enabling us to pose truly objective scenarios.

The Events and Phases are unique elements of the methodology and help us to guide the development of the structures. This puts us in a position of what to expect the price to do following the occurrence of each of them, giving us a roadmap to follow at all times.

It determines high probability trading zones

The Methodology provides us with the exact zones on which we will act, as well as examples of triggers to enter the market, making it as easy as possible to know where to look for trades.

In addition, the book includes a section on position management where different configurations for setting stop losses and taking targets are discussed.

Finally, we include a section of case studies where we analyze real market examples in different assets and time frames.
I sincerely hope you enjoy it and find it valuable.


From the Publisher

richard wyckoffrichard wyckoff

Unique theoretical conceptual framework

This approach is based on a real underlying logic through its 3 fundamental laws:

Law of Supply and Demand. It is the true engine of the market. You will learn to analyze the traces left by the interactions between the major traders.
Law of Cause and Effect. The idea is that something cannot happen out of the blue; that for the market to develop a trend movement (effect) it must first have built a cause previously.
Law of Effort and Result. It is about analyzing market behavior in comparative terms to conclude whether the market actions denote harmony or divergence.

It is a universal analysis approach, where its reading is applicable to any financial market and over any time frame.

wycoff ciclewycoff cicle

Market behavior analytical tools

We will understand that markets do not move in a straight line but in waves of varying degrees, which create trends and trading ranges.
We will learn to also assess the health of the trend with the most useful analyses of market action (velocity, projection, depth) and gain much more valuable insight into the use of trend lines.

wyckoff phaseswyckoff phases

It provides context and roadmap

Thanks to the accumulation and distribution schemes we will be able to identify the professional’s participation as well as the general market sentiment up to the present moment, enabling us to pose truly objective scenarios.
The Events and Phases are unique elements of the methodology and help us to guide the development of the structures. This puts us in a position of what to expect the market to do following the occurrence of each of them, giving us a roadmap to follow at all times.

Events: Preliminary Stopping, Climax, Reaction, Test, Shakeout, Breakout and Confirmation.

Phases: Phase A: Preliminary trend stop, Phase B: Cause build, Phase C: Test, Phase D: Trend within range, Phase E: Trend out of range.

wyckoff zoneswyckoff zones

It determines high probability trading zones

The Methodology provides us with the exact zones on which we will act, as well as examples of triggers to enter the market, making it as easy as possible to know where to look for trades.
In addition, the book includes a section on position management where different configurations for setting stop losses and taking profits are discussed.

Theoretical conceptual framework

Analytical tools

Context and roadmap

High probability trading zones

EVENT AND PHASES

EVENT #1: PRELIMINARY STOP

The preliminary stop is the first attempt to stop the trend movement underway, the result of which will always fail. It is an early warning that the trend may be coming to an end.

EVENT #2: CLÍMAX

This is the culmination movement of the preceding trend. After having covered a great distance, the market will reach an extreme condition that will provoke the appearance of the great professional.

EVENT #3: REACTION

It is the first great signal that suggests the change of sentiment in the market. We go from a market in control by either of the two forces to a market in balance.

EVENT #4: TEST

This event has different readings depending on the location where it takes place. In general terms it tries to evaluate the commitment or absence of it on the part of the traders in a certain moment and direction.

EVENT #5: SHAKING

Key moment for the structure analysis. It is the last deception developed by the professional before initiating the trend movement in favor of the least resistance.

EVENT #6: BREAKOUT

It is the greatest proof of commitment that the professional has to assume. If you have done a good previous work of absorption, you will break relatively easily the structure in order to continue the movement out of it.

EVENT #7: CONFIRMATION

If the analysis is correct, a rupture test will be developed which will confirm that the professional is positioned in that direction and supports the movement.

PHASE A: STOPPING THE TREND

The main function of this Phase is to stop the previous trend movement and return the market to a state of balance between the forces of supply and demand, or between buyers and sellers. We move from a trend context to a range context.

PHASE B: BUILDING THE CAUSE

After the Secondary Test the Phase B begins, whose intention is the construction of the cause with the goal of preparing the subsequent effect.

PHASE C: TEST

In this Phase the large professional checks the level of interest that the rest of the market participants have on certain market levels.

PHASE D: TREND WITHIN RANGE

The beginning of this Phase is after the end of the shock test and until the confirmation event is fully developed. Without opposition to sight, the path of least resistance is clear. The market is in imbalance and this is observed in the graph through the development of the Break event.

PHASE E: TREND OUT OF RANGE

This Phase starts after the confirmation event. If the test after the break was successful and no traders appeared in the opposite direction, it can definitely be confirmed that one side has absolute control of the market and therefore we should only seek to trade in that direction.

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Accumulation structure

accumulation structureaccumulation structure

An accumulation range is a lateral movement of the market preceded by a bearish movement on which an absorption manoeuvre is carried out by the large traders with the goal of accumulating stock in order to be able to sell it at higher levels in the future and make a profit from the difference.
The preparation of an important movement takes considerable time. A large trader cannot buy everything he wants all at once because if he executes an order with all the quantity he wants, he would get worse quote due to the displacement his own order would generate.
In the accumulation process, large traders create an environment of extreme weakness. The news at this point is likely to be bad and many will be influenced to enter the wrong side of the market. By means of various manoeuvres, they manage to make themselves little by little with all the available offer.
When there is no longer any stock to be absorbed, a turning point takes place. Value control is in the hands of the strong and they will only get rid of their positions at much higher level. A slight increase in demand now would provoke a sudden upward movement in quotes, initiating the upward trend.

Common characteristics of the accumulation ranges:

Decrease in volume and volatility as the range develops.
Tests to the high zone of the range without volume.
Springs to previous lows.
Wider and smoother upward movements and bars than downward movements.
Development of rising highs and lows.

Distribution structure

distribution wyckoffdistribution wyckoff

A distribution range is a lateral movement of the market which manages to stop an upward movement and in which there is a process of selling stock by well-informed professionals, who have interests at lower quotes. They try to store a great position in order to get rid of it at lower levels and get a return for it.
It is in these range conditions where we see in trading the law of cause and effect so common in the world of trading; which tells us that for there to be an effect, there must first be a cause that originates it; and that the effect will be in direct proportion to the cause.
In the distribution range, as in the accumulation range, we will be presented with the fundamental event of the shock. While it is true that not all structures will see this action before starting the trend movement, the fact of its presence adds great strength to the scenario. In the case of a bullish shock, the Wyckoff methodology calls it “Upthrust”. This is a sudden upward movement which breaks the resistance level of the range and with which large traders are used to carry out a triple function:

Reach the stops loss of those traders who were well positioned on the short side
Induce in buy to ill-informed traders who think in the continuation of the bullish movement
Profit from such movement.

Common characteristics of the distribution ranges:

High volume and volatility during range development.
Tests to the lower zone of the range without volume.
Upward Shakes to previous highs.
Wider and more fluid movements and down bars than up movements and up bars.
Development of lower highs and lows.

Trading Zones

spring wyckoff

spring wyckoff

wyckoff trading

wyckoff trading

wyckoff accumulation

wyckoff accumulation

In Phase C

Entry into the shock
Entry into the shock test

In Phase D

Entry into the trend movement within the range
Entry in the test after the breakout

In Phase E

Entry into the out-of-range trend movement

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