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0:00 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 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 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
0:45 the capacity to use this understanding 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 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 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
1:32 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 in the tape according to wykov the movements of the 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 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
2:18 believe that understanding the mechanics 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 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 LA wave theory where the 5 3 wave pattern 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
3:04 develop this leads us to the idea of four phases of price action the four phases are accumulation uptrend distribution downtrend and the mechanics Behind these four phases is explained by the supply and demand and the concept of path of least resistance an accumulation happens at the beginning of an uptrend 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 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
3:50 price can take is up that is what creates an uptrend after an accumulation 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 can continue this means that there isn't a set number of waves in an uptrend like there is on the Elliott wave theory notice also that this idea of accumulation and distribution is the same found in the dowel Theory we can state that the Wyckoff methodology is to some degree an evolution of the doubt Theory a distribution phase happens when buyers
4:35 believe that the uptrend has gone too far and how sellers will become the dominant player the logic is exactly the same for the 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 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 highs and higher lows
5:23 a downtrend is characterized by lower highs and lower lows in a sideways Market is characterized by flat highs in flat lows the sideways Market can be subdivided into five types flat highs and flat lows can mean an 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 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
6:09 if you want to go deeper into the study of supply and demand you can watch the 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 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 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
6:55 horizontal axis as the price of Apple's rise 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 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 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 agreement can be represented by a price
7:43 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 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 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 above the previous one following the same logic an increase in supply for whatever reason will cause
8:30 the supply curve to move to the right since sellers will be willing to sell more apples at the same given price the 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 increase in demand or a decrease in Supply and fall due to an increase in Supply or a decrease in demand this is the mechanics behind price movement the asymmetry between supply and demand is not exactly a function of the number 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
9:15 sellers can generate Supply that's why powerful Traders can influence the market in certain situations at this point it's useful to differentiate between two different types of Supply or demand there are aggressive orders which are basically Market orders they represent aggressive Supply or demand there are also passive orders which are limit orders they represent 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 Market the limit orders from sellers can only slow down this process but they cannot
10:00 bring price down in other words if the aggressive demand is greater than the passive Supply the market will rise for a price to move down sellers have to 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 at the different price levels on the left we have buy orders in the bid column and on the right we have the sell orders in the ask column right now this hypothetical Market is currently priced at 50 dollars 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
10:47 49. the same logic also works on the opposite direction if sellers want to drive the market down they need to observe the demand on the way down notice that the higher the price the larger the number of sell orders this is logical because the higher the price the more overbought the market will be so the more selling pressure 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 identify lack of Interest a lack of interest of buyers occurs when the number of orders in the bid column is generally smaller in multiple levels than the levels in the ask column
11:33 by the same token a lack of interest of 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 the same is true for a sell order for orders to be executed buyers and sellers have to agree with the current price recall that the market can move up or down by an aggressive approach from buyers or sellers there's another 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
12:19 available Supply in each price level sellers can absorb the demand by placing limited orders to block the possibility of price going up the opposite scenario where buyers absorb Supply to block a downward movement is also possible of course 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 large number of limit orders if buyers want to drive the market up they will have to consume this unusually large Supply this is one of the ways the large Traders can act in the market they can observe Supply or demand in strategic points notice that price levels with large
13:05 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 number of orders on the demand side if sellers want to drive the market down past these levels they will need a lot of aggressive Supply so this is an attempt to block sellers by using passive demand in the Wyckoff method we use price 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 this will be outlined later in the
13:51 course for now let's move on to the second fundamental law which is the law of cause and effect another fundamental law of the Wyckoff methodology is the law of cause and effect which is the idea of determinism 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 uptrend a short distribution causes a short downtrend in a long distribution causes a long downtrend this is useful for the projection of the trend duration based on how long the
14:36 previous accumulation or distribution has been these four phases of accumulation 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 sometimes these phases simply don't occur there are scenarios where the market simply reverses direction through water called Fast patterns which come in four types the climax the double top or bottom the pullback and the boar bear trap the climax is a fast reversal pattern marked by the complete absence of accumulation or distribution phases
15:23 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 top patterns the second fast pattern is the double top or double bottom which are two famous reversal chart patterns the double bottom the market will produce two lows at the same price level and then reverse to an uptrend 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 considered an accumulation or a distribution the pullback is similar to the double top or bottom but the second Drive fails
16:09 to reach the same level of the first one the bullish pullback is marked by two higher lows while the bearish pullback 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 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 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
16:55 the bearish reversal pattern is called bull trap because the market surpasses the previous High giving the impression 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 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 means price action the reason for this is that price action should reflect the corresponding volume action this is known as the harmony or
17:42 convergence of price and volume there are times however when price action doesn't reflect volume which is 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 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 simplicity's sake the wide range and narrow range candlesticks and the high volume and low volume bars
18:27 when there is Convergence or Harmony High Volume results in a wide range candle in low volume results in a narrow range candle 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 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 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
19:14 Harmony meaning a wide range candle created with high volume on the right we 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 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 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
20:00 harmonic relationship between a narrow ranged candle created with low volume 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 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 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
20:47 convergence if a high volume wide range bearish Candlestick leads to a rising price we 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 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 relative to their function in the trend a price movement in the direction of the trend should display an increase in
21:32 volume while price movement against the trend should display a decrease in volume when that happens there is harmony 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 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 harmonic scenario for a downtrend meaning an increase in volume on the impulse movement and a decrease in
22:18 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 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 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 Divergent scenario is marked by higher
23:04 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 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 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
23:50 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 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 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
24:36 accumulation and the distribution we have to realize that the Wyckoff method 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 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 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
25:23 game of information meaning that the 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 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 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
26:09 trigger stop orders in certain places of the chart you can avoid being a victim of such a 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 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 changing campaigns take some time to develop well-informed Traders have to slowly act
26:55 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 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 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 to create a reversal the fundamental maneuver in an
27:41 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 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 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 don't miss out on the opportunity their
28:27 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 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 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 downside and supply has been mostly absorbed let's look at the basic characteristics of an accumulation
29:13 as the accumulation range develops there is the tendency for volume and volatility to decline generally speaking this happens because as time passes by 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 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 since well-informed Traders will be observing Supply constantly the bullish candlesticks will tend to be wider than the bearish ones
29:59 in the final stages of the accumulation the formation of higher highs and higher lows inside the accumulation will occur 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 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 known as the effect it logically means that if large Traders create the distribution the uptrend that precedes it is in control of uninformed
30:45 Traders as the market is driven up by uninformed Traders large well-informed Traders gradually absorb demand in order to 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 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 long position in other words and these stops are triggered large well-informed
31:31 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 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 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 this is something that you as an observer of this process should pay
32:18 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 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 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 Traders large Traders will create what
33:03 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 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 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 accumulation and distribution structures
33:49 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 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 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
34:36 called preliminary support 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 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 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
35:22 downtrend is still in effect so it's usually not the lowest point in the 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 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 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
36:09 the other side of the trend in the distribution the rationale is the 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 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 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
36:55 scenario where a large Shadow appears is a little more explicit 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 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 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
37:40 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 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 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
38:28 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 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 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
39:14 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 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 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
40:01 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 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 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
40:48 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 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 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
41:34 automatic reaction establishes the lower limit of the range or the support 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 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 to expect in different Market scenarios the secondary test is the fourth logical event and it is characterized as a price
42:20 movement aiming to test the level of the climax but with lower volume and narrow candle ranges sometimes price will fall short of the 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 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 accumulation structure and in this other illustration you can
43:06 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 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 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 of the upper limit which is a secondary
43:52 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 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 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
44:38 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 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 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
45:24 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 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 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
46:09 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 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 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 one two or several candlesticks
46:56 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 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 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
47:44 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 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 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
48:30 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 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 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 happen more or less in the way the method suggests the other sign is the absence of a false
49:15 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 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 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 chart that's because the large Traders already absorbed all Supply and are now ready to
50:00 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 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 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 sign of strength or jump across the
50:47 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 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 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 breakout with high volume where the
51:33 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 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 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 and that's critical for the
52:18 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 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 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
53:04 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 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 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 phases according to the wike of
53:49 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 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 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
54:35 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 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 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
55:20 in a general sense phase a will provide 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 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 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
56:06 had a position the reason for this is logical phase 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 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 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 market
56:51 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 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 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
57:37 just for the sake of illustration phase a in an accumulation process looks like 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 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 to pay attention to effort and results at the upper and lower limits of the accumulation or distribution processes
58:23 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 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 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 range in the time duration of the phase it should be greater than phase a as a guideline however not a rule
59:10 in this illustration we can see the textbook version of phase B in an accumulation structure recall that in an 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 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 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
59:56 thrust after distribution in the distribution phase C is known as the test and it is 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 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 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
1:00:42 direction does fade the large Traders campaign will be successful in the market will reverse Direction This is 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 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 price can Meander after the breakout with some hesitation to confirm and produce the new trend
1:01:28 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 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 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 trending outside the range this phase will be composed by the
1:02:14 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 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 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 it's important that you have the seven
1:03:00 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 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 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 corresponding phases there are two
1:03:46 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 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 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 phases of an accumulation structure
1:04:32 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 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 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
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