Priceaction Waycoff

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20th September Price Action Analysis Using the

Wyckoff
Price Action Analysis Using the

Wyckoff Trading Method
As a trader, you should be familiar with some of the leading
theories concerning market structure and cycles. Some of the
more popular ones include the Elliott Wave Principle and the
Dow Theory. Nevertheless, today we will add one more
important type of market analysis to your trading arsenal. We
will be taking a deep dive into the price action based
methodology known as the Wyckoff trading method.
Who was Richard Wyckoff ?
Richard Wyckoff was a famous stock trader and investor who

was born in the late 19th century. Wyckoff was fascinated by
the stock market at an early age, and by the time he was in in
his mid 20’s he was able to open up his first brokerage firm.
Later, he authored several famous stock trading books, which
are still studied by today’s market players.
Two Rules of Richard Wyckoff
The Wyckoff theory is based primarily on price action and the

different cyclical stages the market falls in to. It is essential
that we discuss two important rules stated in his book
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“Charting the Stock Market”. These two essential rules are
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paraphrased below. …
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• The
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first rule of Richard Wyckoff states that the market
never behaves the same way. Price action will never create
a move in exactly the same way that it did in the past. The
market is truly unique.
• The second Richard Wyckoff rule is related to the first one.
It states that since every price move is unique, its
analytical importance comes when compared to previous
price behavior.
These two rules are essential for the information we will
discuss next – the Wyckoff Market Cycle theory.
Wyckoff Market Cycle Theory
Wyckoff developed a price action market theory which is still

a leading principle in today’s trading practice. The Wyckoff
method states that the price cycle of a traded instrument
consists of 4 stages – Accumulation, Markup, Distribution,
and Mark Down.
Accumulation Phase
The process of accumulation is the first stage of the Wyckoff

price cycle. The Accumulation stage is caused by increased
institutional demand. Bulls are slowing gaining power and as
a result, they are poised to push prices higher.
Although the Accumulation stage is related with the bulls
gaining authority, the price action on the chart is flat. In other
words, the process of accumulation is illustrated by a ranging
price structure on the chart.
Higher bottoms within the range is usually considered a
signal that the price action is currently in an Accumulation
phase.

Markup Phase
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The Markup is the second stage of the Wyckoff trading cycle.
Classic Bulls gain enough power to push the price through the upper
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level of the range. This is usually a signal that the price is
entering the second stage and that a bullish price trend is
emerging on the chart.
Distribution Phase
The Distribution process is the third stage of the Wyckoff

price cycle. This phase is where the bears are attempting to
regain authority over the market.
The price action on the chart at this stage is flat, just as with
the Accumulation process. One indication that the market is
in a Distribution stage will be the sustained failure of price to
create higher bottoms on the chart.
The price action creates lower tops which is an indication that
the market is currently experiencing a selloff.
Markdown Phase
The Markdown is the last stage of the Wyckoff price cycle.

The Markdown process comes as a downtrend begins after
the Distribution phase. It indicates that the bears have
gained enough power to push the market in the bearish
direction.
The Markdown is confirmed when the price action breaks the
lower level of the flat range of the horizontal distribution
channel on the chart.
Afterwards the entire process repeats starting from the first
stage – the Accumulation process.
Below you will find a sketch illustrating the concepts of the
Wyckoff Price Cycle:

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The blue lines indicate the Accumulation process on the chart.

Notice that the first two bottoms are increasing. This confirms
that the market might be accumulating at this point. The
breakout through the upper level of the Accumulation range
confirms the end of the Accumulation and the beginning of
the Markup (green).
Then the decreasing tops within the upper range signal that
the market might be entering a Distribution. The breakout
through the lower level of the Distribution range confirms the
end of the stage and the beginning of the Markdown (red).
Accumulation / Distribution Price Spring
You may have noticed something on our Wyckoff market cycle

sketch that we did not mention yet. Did you notice that the
price action dipped below the Accumulation channel and went
above the Distribution channel prior the creation of the real
breakout? This occurrence is called a Wyckoff spring, which is
essentially a false breakout. This is another strong
confirmation that the price action is following the Wyckoff
market cycle.

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The red circles on the image above show you how the spring
appears within the Wyckoff structure. The initial breakout
(Spring) opposite to the expected price move is used as a
confirmation of the cycle unfolding. The spring is often
associated with stop running, wherein institutions push prices
to obvious stop loss areas to find the required liquidity to
fulfill their orders.
Three Laws of Wyckoff
Richard Wyckoff emphasizes three laws which are a natural

cause of the Market Cycle.

Supply vs. Demand
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If there is greater selling pressure, caused by excess supply,
Classic we are likely to see a decrease in price. If there is a greater
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buying pressure, caused by excess demand, we are likely to
see an increase in price.
Effort vs. Result
Wyckoff says that every effort should lead to a result in the

financial markets. An example of the Effort vs. Result
relationship is the data on trading Volume. If there is an
unusually high trading volume, we may expect a big price
move. So, the big volume bar is the effort of the market
players to gain dominance. The big market move is the result
of that effort.
Cause vs. Effect
Wyckoff states that every cause in the market leads to a

proportional effect. Take for example the Accumulation and
Distribution stages. Accumulation leads to Markup and the
price increases, and the Distribution leads to Markdown and
the price decreases. The Accumulation is the cause, and the
Markup is the effect.
Wyckoff Volume Spread Analysis
Volume is of a great importance for the Wyckoff trader,

because it can provide valuable information into what is really
going on “behind the scenes”.
Wyckoff Volume Analysis provides confirmation of
progressing events during the Wyckoff Price Cycle. As we
pointed to earlier, high volumes can lead to sustained price
moves on the chart – the Result. However, this is not all.
Wyckoff Volume Spread Analysis also helps you identify
periods when the price is transitioning between the different
stages of the Wyckoff Price Cycle.
When the price moves through a key level during the Wyckoff
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Price Cycle, you should consider the move…valid if the trading
volumes are relatively high during the breakout. If the
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volumes are decreasing, then you are probably looking at a
spring (false breakout) rather than a real breakout. The chart
below provides an illustration of this phenomenon.
This is an example of an Accumulation stage of the Wyckoff

cycle. Notice on the chart that the first two bottoms ( based on
closing prices ) are slightly increasing. This hints that the
market is likely in an accumulating stage. Suddenly, we see a
bearish breakdown through the lower level of the blue range.
However, the volume is decreasing during the breakdown
through the level, which suggests that this could be a false
break (Spring) before the real breakout actually takes place.
The price reverses right after the breakdown, creating a
couple of big bullish candles. At the same time, the trading
volume is increasing. This is a strong indication that the Price
Cycle is likely entering the second stage – the Markup.
Subsequently, price breaks the upper level of the range and
begins a sharp increase.
The bullish move slows down slightly during decreasing
volumes. This hints that the price action is likely to undergo a
corrective move, which is exactly what happens.
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The resumption of the bullish move comes … with the price
action breaks through the upper level of the corrective
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channel on increasing trading volume.
How to Profit with Wyckoff Trading in Forex
Traders can use the Wyckoff Price Cycle to recognize

upcoming price moves. For example, the end of an
Accumulation stage is the beginning of a Markup, which could
be traded to the long side. At the same time, the end of a
Distribution stage is the beginning of a Markdown, which
could be traded to the short side.
Understanding the different stages within the price cycle will
allow you to position for the next most likely price tendency.
We can try to buy as close to the beginning of a Markup and
try to hold it as close to its end as we can. The same practice is
in force for shorting Markdowns.
Wyckoff Trading Strategy
After performing your Wyckoff Analysis, you should recognize

the current market cycle. In order to take advantage of the
current cycle, we must have a trading plan in place that we
can execute on. So, let’s now discuss some rules around a
Wyckoff trading strategy, which will help you to initiate and
manage your trades within the price cycle.
Wyckoff Trade Entry
You should enter a trade when the price action is transiting

from Accumulation to Markup and from Distribution to
Markdown. First, you would need to confirm the current stage
when the Forex pair is ranging. It would help to identify
increasing bottoms for an Accumulation and decreasing tops
for Distribution. In addition, it would be useful to analyze the
previous price move for additional clues.
Another way you can attempt to confirm an Accumulation or
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Distribution stage is by identifying a Spring,
… which is the
transitional price action behavior that often occurs between
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the cycle stages.
Chart patterns can also be helpful in identifying Accumulation
and Distribution processes on the chart. The potential price
move out of a pattern could help you identify the transition to
a Markup or a Markdown.
The actual trade comes when the price action breaks the
range in the direction of the expected move. For example, you
could buy the currency pair when the price breaks the flat
range through the upper level. Contrary to this, you could sell
the currency pair when the price action breaks the lower
support level of the Distribution area.
Also, you should keep an eye on volume for additional clues
that confirm that your decision is correct.
Wyckoff Stop Loss Order
As you are well aware, there is no sure thing in Forex trading.

Therefore, you should always use a stop loss order when
opening a trade. If you are trading a Markup, your stop loss
order should be located below the lowest point of the
Accumulation stage. If you are trading a Markdown, then your
stop loss order should be positioned above the highest point
during the Distribution stage.
Wyckoff Take Profit
You can use price action analysis in order to manage your take
profit points. Let’s discuss a case where you trade a Markup.
One indication that the price is transiting from a Markup to a
Distribution is the presence of descending tops on the chart.
This event should make you aware that a possible selloff
might be taking place now.
Another exit signal on the chart would be a bearish spring on
the chart. If you spot it, then you would want to exit your
trade, because the price action has entered… thesearch
late stage of
the Distribution curve.
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The third manner in which you could manage your exit is by
keeping an eye out for developing chart patterns and
candlestick patterns. Spotting a reversal formation could be a
signal that the price may due for a correction or change of
trend.
One thing is for sure, Wyckoff analysis and the price action
techniques go hand and hand. Therefore, price action analysis
is a great way to initiate and manage trades within the
Wyckoff price cycle. You should always be flexible in your
analysis and open to what the market is doing at any given
time. Be ready to act in a manner that is in tune with the
current available market information as evidenced on your
price chart.
Wyckoff Trading Method Example
Now let’s show the Wyckoff market analysis in action, using

the trading strategy we discussed above. Have a look at this
image:

Above you see the H4 chart of the USD/CHF Forex pair for
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May – July, 2016. The image shows a Wyckoff… based technical
analysis approach for the currency pair.
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The image begins with the USD/CHF in a Distribution phase.
Suddenly, the price action breaks the upper level of the
Distribution range. However, the trading volumes at that time
are decreasing, which calls into question the authenticity of
the upside breakout. Therefore, we can reason that a Spring
pattern on the chart may be forming.
The price action reverses afterwards and breaks the lower
level of the Distribution channel on increasing volume. You
could sell the USD/CHF at this moment placing a stop loss
above the highest point of the Distribution range as shown on
the image.
See that the Markdown begins right after the selloff and the
price of the Swissy decreases more than 4% in less than a
week. Then we see a sideways movement, which hints that the
Markdown phase is probably completed. You would close
your trade when the price action begins to create increasing
tops on the chart (yellow line). We also have a Double Bottom
chart pattern created at the first two bottoms – another
reason to close the trade.
The price finishes the Markdown stage and starts an
Accumulation, which could be seen in the blue horizontal
channel. During the Accumulation, we see that the price
drops on decreasing volumes and breaks the blue channel
downwards. Since the volumes are decreasing, we anticipate a
Spring pattern rather than a valid breakout.
Notice the Volume bar in the green circle. It reverses the
decreasing volume tendency. At this moment, the price action
ends the Spring and starts an increase. A few periods later, we
see a breakout through the upper level of the Accumulation
channel. This is a strong buy signal, which you could use to go
long the USD/CHF pair. You should place your stop loss order
below the lowest point of the Accumulation process as shown
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on the image. …
The price action enters a Markup stage afterwards. The

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USD/CHF Forex pair rises creating higher highs. After a
3.67% increase the price action starts to range. The purple
triangle shows that the price action exits its green bullish
trend and creates a sideways movement. The downside break
through the green bullish trend line is a signal that the
Markup stage is probably completed and the new Distribution
stage is on its way. Suddenly, the upper level of the triangular
range gets broken on decreasing volumes. This is another
Spring pattern on the chart. You could close your long
position there on the assumption that the price will reverse
and enter a Markdown stage.
Wyckoff Schematics
A successful Wyckoff analyst must be able to anticipate and

correctly judge the direction and magnitude of the move out of a
TR. Fortunately, Wyckoff offers time-tested guidelines for
identifying and delineating the phases and events within a TR,
which, in turn, provide the basis for estimating price targets in
the subsequent trend. These concepts are illustrated in the
following four schematics; two depicting common variants of
accumulation TRs, followed by two examples of distribution
TRs.

Accumulation: Wyckoff Events
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• PS—preliminary support, where substantial buying begins

to provide pronounced support after a prolonged down-
move. Volume increases and price spread widens, signaling
that the down-move may be approaching its end.
• SC—selling climax, the point at which widening spread and
selling pressure usually climaxes and heavy or panicky
selling by the public is being absorbed by larger professional
interests at or near a bottom. 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 wave of buying easily
pushes prices up; this is further fueled by short covering.
The high of this rally will help 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 at these levels. If a
bottom is to be confirmed, volume and price spread should
be significantly diminished as the market approaches

support in the area of the SC. It is common to have multiple
STs after a SC. … search
Note: Springs or shakeouts usually occur late within a TR and

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allow the stock’s dominant players to make a definitive test of
available supply before a markup campaign unfolds. A “spring”
takes price below the low of the TR and then reverses to close
within the TR; this action allows large interests to mislead the
public about the future trend direction and to acquire additional
shares at bargain prices. A terminal shakeout at the end of an
accumulation TR is like a spring on steroids. Shakeouts may
also occur once a price advance has started, with rapid
downward movement intended to induce retail traders and
investors in long positions to sell their shares to large operators.
However, springs and terminal shakeouts are not required
elements: Accumulation Schematic 1 depicts a spring, while
Accumulation Schematic 2 shows a TR without a spring.
• Test—Large operators always test the market for supply

throughout a TR (e.g., STs and springs) and at key points
during a price advance. If considerable supply emerges on a
test, the market is often not ready to be marked up. A spring
is often followed by one or more tests; a successful test
(indicating that 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 a SOS 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 LPS means a
pullback to support that was formerly resistance, on
diminished spread and volume. On some charts, 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 the search
leading
teachers of the Wyckoff method from the 1930s to the
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1960s. Evans analogized the SOS to a “jump across the
creek” of price resistance, and the “back up to the creek”
represented both short-term profit-taking and a test for
additional supply around the area of resistance. A back-up is
a common structural 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.
Accumulation: Wyckoff Phases
Phase 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
the transfer of huge numbers of shares from the public to large
professional interests. Once these intense selling pressures
have been relieved, an automatic rally (AR), consisting of both
institutional demand for shares as well as short-covering,
typically ensues. A successful secondary test (ST) in the area of
the SC will show less selling than previously and a narrowing of
spread and decreased volume, generally stopping at or above
the same price level as the SC. If the ST goes lower than that of
the SC, one can anticipate either new lows or prolonged
consolidation. The lows of the SC and the ST and the high of
the AR set the boundaries of the TR. Horizontal lines may be
drawn to help focus attention on market behavior, as seen in the
two Accumulation Schematics above.
Sometimes the downtrend may end less dramatically, without
climactic price and volume action. In general, however, it is
preferable to see the PS, SC, AR and ST, as these provide not
only a more distinct charting landscape but a clear indication
that large operators have definitively initiated accumulation.
In a re-accumulation TR (which occurs during … asearchlonger-term
uptrend), the points representing PS, SC and ST are not
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evident in Phase A. Rather, in such cases, Phase A resembles
that more typically seen in distribution (see below). Phases B-E
generally have a shorter duration and smaller amplitude than,
but are ultimately similar to, those in the primary accumulation
base.
Phase B: In Wyckoffian analysis, Phase B serves the function
of “building a cause” for a new uptrend (see Wyckoff Law #2 –
“Cause and Effect”). In Phase B, institutions and large
professional interests are accumulating relatively low-priced
inventory in anticipation of the next markup. The process of
institutional accumulation may take a long time (sometimes a
year or more) and involves purchasing shares at lower prices
and checking advances in price with short sales. There are
usually multiple STs during Phase B, as well as upthrust-type
actions at the upper end of the TR. Overall, the large interests
are net buyers of shares as the TR evolves, with the goal of
acquiring as much of the remaining floating supply as possible.
Institutional buying and selling imparts the characteristic up-
and-down price action of the trading range.
Early on in Phase B, the price swings tend to be wide and
accompanied by high volume. As the professionals absorb the
supply, however, the volume on downswings within the TR
tends to diminish. When it appears that supply is likely to have
been exhausted, the stock is ready for Phase C.
Phase C: It is in Phase C that the stock price goes through a
decisive test of the remaining supply, allowing the “smart
money” operators to ascertain whether the stock is ready to be
marked up. As noted above, a spring is a price move below the
support level of the TR (established in Phases A and B) that
quickly reverses and moves back into the TR. It is an example
of a bear trap because the drop below support appears to signal
resumption of the downtrend. In reality, though, this marks the
beginning of a new uptrend, trapping
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Wyckoff's method, a successful test of supply represented by a
spring (or a shakeout) provides a high-probability
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trading
opportunity. A low-volume spring (or a low-volume test of a
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shakeout) indicates that the stock is likely to be ready to move
up, so this is a good time to initiate at least a partial long
position.
The appearance of a SOS shortly after a spring or shakeout
validates the analysis. As noted in Accumulation Schematic #2,
however, the testing of supply can occur higher up in the TR
without a spring or shakeout; when this occurs, the identification
of Phase C can be challenging.
Phase D: If we are correct in our analysis, what should follow is
the consistent dominance of demand over supply. This is
evidenced by a pattern of advances (SOSs) on widening price
spreads and increasing volume, as well as reactions (LPSs) on
smaller spreads and diminished volumes. During Phase D, the
price will move at least to the top of the TR. LPSs in this phase
are generally excellent places to initiate or add to profitable long
positions.
Phase E: In Phase E, the stock leaves the TR, demand is in full
control and the markup is obvious to everyone. Setbacks, such
as shakeouts and more typical reactions, are usually short-
lived. New, higher-level TRs comprising both profit-taking and
acquisition of additional shares (“re-accumulation”) by large
operators can occur at any point in Phase E. These TRs are
sometimes called “stepping stones” on the way to even higher
price targets.
Distribution: Wyckoff Events
PSY—preliminary supply, where large interests begin to

unload shares in quantity after a pronounced up-move. Volume
expands and price spread widens, signaling that a change in
trend may be approaching.
BC—buying climax, during which there are often marked
increases in volume and price spread. The force of buying
reaches a climax, with heavy or urgent buying … bysearch
the public
being filled by professional interests at prices near a top. A BC
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often coincides with a great earnings report or other good news,
since the large operators require huge demand from the public
to sell their shares without depressing the stock price.
AR—automatic reaction. With intense buying substantially
diminished after the BC and heavy supply continuing, an AR
takes place. The low of this selloff helps define the lower
boundary of the distribution TR.
ST—secondary test, in which price revisits the area of the BC
to test the demand/supply balance at these price levels. For a
top to be confirmed, supply must outweigh demand; volume and
spread should thus decrease as price approaches the
resistance area of the BC. An ST may take the form of an
upthrust (UT), in which price moves above the resistance
represented by the BC and possibly other STs before quickly
reversing to close below resistance. After a UT, price often tests
the lower boundary of the TR.
SOW—sign of weakness, observable as a down-move to (or
slightly past) the lower boundary of the TR, usually occurring on
increased spread and volume. The AR and the initial SOW(s)
indicate a change of character in the price action of the stock:
supply is now dominant.
LPSY—last point of supply. After testing support on a SOW, a
feeble rally on narrow spread shows that the market is having
considerable difficulty advancing. This inability to rally may be
due to weak demand, substantial supply or both. LPSYs
represent exhaustion of demand and the last waves of large
operators’ distribution before markdown begins in earnest.
UTAD—upthrust after distribution. A UTAD is the
distributional counterpart to the spring and terminal shakeout in
the accumulation TR. It occurs in the latter stages of the TR and
provides a definitive test of new demand after a breakout above
TR resistance. Analogous to springs and shakeouts, a UTAD is
not a required structural element:
Dynamic Views theme.the TRbyinBlogger.
Powered Distribution
Schematic #1 contains a UTAD, while the TR in Distribution
Schematic #2 does not. … search
Classic Distribution:
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Phase A: Phase A in a distribution TR marks the stopping of the

prior uptrend. Up to this point, demand has been dominant and
the first significant evidence of supply entering the market is
provided by preliminary supply (PSY) and the buying climax
(BC). These events are usually followed by an automatic
reaction (AR) and a secondary test (ST) of the BC, often upon
diminished volume. However, the uptrend may also terminate
without climactic action, instead demonstrating exhaustion of
demand with decreasing spread and volume; less upward
progress is made on each rally before significant supply
emerges.
In a redistribution TR within a larger downtrend, Phase A may
look more like the start of an accumulation TR (e.g., with
climactic price and volume action to the downside). However,
Phases B through E of a re-distribution TR can be analyzed in a
similar manner to the distribution TR at the market top.
Phase B: The function of Phase B is to build a cause in
preparation for a new downtrend. During this time, institutions
and large professional interests are disposing of their long
inventory and initiating short positions in anticipation
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markdown. The points about Phase B in distribution are similar

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to those made for Phase B in accumulation, except that the
large interests are net sellers of shares as the TR evolves, with
the goal of exhausting as much of the remaining demand as
possible. This process leaves clues that the supply/demand
balance has tilted toward supply instead of demand. For
instance, SOWs are usually accompanied by significantly
increased spread and volume to the downside.
Phase C: In distribution, Phase C may reveal itself via an
upthrust (UT) or UTAD. As noted above, a UT is the opposite of
a spring. It is a price move above TR resistance that quickly
reverses and closes in the TR. This is a test of the remaining
demand. It is also a bull trap—it appears to signal the
resumption of the uptrend but in reality is intended to “wrong-
foot” uninformed break-out traders. A UT or UTAD allows large
interests to mislead the public about the future trend direction
and, subsequently, sell additional shares at elevated prices to
such break-out traders and investors before the markdown
begins. In addition, a UTAD may induce smaller traders in short
positions to cover and surrender their shares to the larger
interests who have engineered this move.
Aggressive traders may wish to initiate short positions after a
UT or UTAD. The risk/reward ratio is often quite favorable.
However, the “smart money” repeatedly stops out traders who
initiate such short positions with one UT after another, so it is
often safer to wait until Phase D and an LPSY.
Often demand is so weak in a distribution TR that price does
not reach the level of the BC or initial ST. In this case, Phase
C's test of demand may be represented by a UT of a lower high
within the TR.
Phase D: Phase D arrives after the tests in Phase C show us
the last gasps of demand. During Phase D, price travels to or
through TR support. The evidence that supply is clearly
dominant increases Dynamic
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a clear break
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decline below the mid-point of the TR after a UT or UTAD.
There are often multiple weak rallies within…Phase search
D; these
LPSYs represent excellent opportunities to initiate or add to
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profitable short positions. Anyone still in a long position during
Phase D is asking for trouble.
Phase E: Phase E depicts the unfolding of the downtrend; the
stock leaves the TR and supply is in control. Once TR support
is broken on a major SOW, this breakdown is often tested with a
rally that fails at or near support. This also represents a high-
probability opportunity to sell short. Subsequent rallies during
the markdown are usually feeble. Traders who have taken short
positions can trail their stops as price declines. After a
significant down-move, climactic action may signal the
beginning of a re-distribution TR or of accumulation.
Conclusion
• Richard Wyckoff was a famous stock trader and investor,

who developed a market theory based on Price Cycles.
• There are two important Wyckoff rules you should
remember:
• Price moves are never the same. The market is unique
and has its own mindset creating different price moves
every time.
• The importance of a price move comes when it is being
compared with previous price behavior.
• The Wyckoff Price Cycle states that there are four stages in
a market:
• Accumulation
• Markup
• Distribution
• Markdown

• The Spring pattern is a sharp price move which breaks a
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ranging channel in the direction opposite
… to the real
expected breakout. This false break appears during low
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volumes and often gets reversed to send the price to the
next stage.
• There are three important Wyckoff rules:
• Supply vs. Demand
• Effort vs. Result
• Cause vs. Effect
• Volumes are important when trading the Wyckoff Price
Cycle.
• Authentic breakouts appear on increasing and high
trading volumes.
• If volumes are decreasing at a breakout, then the
likelihood of a real breakout is reduced.
• Wyckoff Trading Strategy:
• Open a trade when the price transitions from
Accumulation to Markup or from Distribution to
Markdown.
• Put a stop loss at the other side of the range.
• Stay in the trade until the price action and/or the
volume indicator give you an opposite signal.
Posted 20th September by LQzone Forex
Labels: Price Action Analysis Using the Wyckoff
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7th September 3 Drives Up/Down
3 Drives Up/Down
EUR/JPY 4H "3 Drives Down"

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[http://3.bp.blogspot.com/-
TIz5gnavm68/UK8Rxtu0RUI/AAAAAAAAANc/bo9CzyTffnw/s1600/EJ+4H+3DD.jpg]
EUR/CAD 4H "3 Drives Up"
[http://4.bp.blogspot.com/-Q-
PZqqKoNuw/UK8X5xAIbmI/AAAAAAAAANs/VjCW1ME6w24/s1600/EC+4H+3DU.jpg]
3 Taps into SD

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Labels: 3 Drives Up/Down
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7th September Bull/Bear Trap
Bull/Bear Trap
When a support level such as a swing low or a trendline is breached,
the market often attracts fresh interest from buyers and sellers. The
buy low crowd come in looking for value at previously cheap levels,
while the breakout following crowd sell the breakout looking for an
extension of the decline. If the downside break fails to see follow-
through selling, frustrated short sellers cover their positions bidding the
market up creating a whipsaw. The market advance is exacerbated by
the 'wait and see' crowd who come in after most of the cards have been
played.
Some examples of the Bull and Bear Trap:

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[http://3.bp.blogspot.com/-TuTFsqXbF38/ULCH-EkjK4I/AAAAAAAAAN8/rHwzoQ5fI-
I/s1600/UC+Bull+Trap.jpg]

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Vt3dO3kyPUA/USDhovj3aFI/AAAAAAAAAUw/7bRYfRxVxuk/s1600/AF+Bear+Trap.jpg]

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Labels: Bull/Bear Trap
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7th September Whipsaw Engulfing
Whipsaw Engulfing
[Bearish Whipsaw Engulfing]
1. Cluster (where supply and demand are balanced) near supply.

2. Cluster resolves north and becomes demand. Many novice breakout
traders go long without knowing that they are going right into supply.
3. Cluster is engulfed south by big sellers in supply. Ignored cluster now
becomes supply.
4. Need to go short when/if price retraces to cluster. You may find DBD
in Sell Zone in lower timeframe to refine your short entry.

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[http://3.bp.blogspot.com/-1ko9Tq80Bvw/USJZ1e9bfoI/AAAAAAAAAVQ/uz9nMFLRaBE/s16
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Labels: Whipsaw Engulfing
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7th September THE FAKEOUT
THE FAKEOUT
For a better understanding of liquidity please refer to the Order Flow and Liquidity Gap articles.
What is a Fakeout?
Fakeout is also known as False Breakout, Shakeout, Sellers/Buyers/Bull/Bear Trap, Stop Run, Stop Hunt and Liquidity Spike.
It’s a search of liquidity followed by a change in direction.
Why does it happen?
There are different scenarios and situations of why it happens. However, the main reason behind it is to create liquidity in an
illiquid market - by big funds, to test a level’s strength.
To elaborate more on that, a short example is required:
Let’s say price of a financial instrument is rising to a value of significant history at 100 (resistance level) where the majority of
traders will either buy a breakout with stops below 100 or sell on rebound with stops above 100. The price moves higher to

105 triggering on its way seller’s stops and buyer’s orders, but price doesn’t get any higher and reverses back to 100 before
dropping lower to 80. … search
So what has happened here?…Big funds were planning to sell from 100, but, due to significance of the level, so were the other
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participants. So if the whole market is selling at 100 then there are no buyers (lack of liquidity). If pro money sold at
100 they would get a bad fill as price would quickly move away from their entry. In order to get buyers for their sells, they
must create liquidity, by moving price a bit higher above 100, to induce buyers to jump in as well as triggering seller’s stops
which add to the buying pressure. This will help fill their mass sell orders.
At the same time they’re able to test if the level holds against the buying pressure. The presence of other bullish big funds
would’ve moved price up with momentum.
When pro money started selling, price fell below the 100 triggering buyer’s stops and new sellers jumped in, all adding to the
selling momentum.
Where does it happen?
Around significant areas where stops are placed, and breakout traders await to buy/sell, at unconsumed Supply/Demand
Zones, at Stacked Supply/Demand Zones, and at the end of a Compression into Supply or Demand.
How to identify a Fakeout?
It can be identified in different ways, such as candle close (or close of two combined candles) in relation to a previous Swing
High/Low, or a Support/Resistance, or a Key Level.
Now let’s go through some examples showing the different ways to identify a Fakeout:
At [1] price created a swing low then moved up and returned back at [2] in a curvy shape breaking through the swing low level
but failed to close below and this is a Fakeout, next price consolidated above the level retesting if level will hold then moved
up.
At [3] another swing low and a return at [4], considering the space and time price took to return at [4] and the acceptable
curved shape, price created a Fakeout followed by a retest and a second Fakeout before moving up.
At [5] a swing high and the return at [6] wasn’t a good acceptable curvy shape, the Fakeout at [6] was to test if level will hold
and eventually it was broken.

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[http://2.bp.blogspot.com/-CtctDShNgqs/UrIWk-
QdmyI/AAAAAAAAAOs/e2MIUxDdcwY/s1600/A1.jpg]
You can see two Fakeouts, one of a swing high level and another of a swing low level. Both cases had an acceptable curvy
return to test the swing levels and without having to retest the Fakeouts price has changed direction at both levels.

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[http://2.bp.blogspot.com/-NNGH-DRckMg/UrIXC2d4h-I/AAAAAAAAAO0/Q25pwTh-
JMc/s1600/A2.jpg]
Before continuing the examples let’s first elaborate more about the curvy shape. The main factors in a curvy shape to be
taken into consideration are time & space which price took to return to a swing point. The efficiency of the shape itself could
vary from a perfect arc to a triangle. Here are some examples of a perfect curvy shape;
[http://4.bp.blogspot.com/-3Gwt5iV04TM/UrIXTKfNpJI/AAAAAAAAAO8/K-
CWLhfAwpc/s1600/D1.jpg]

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[http://2.bp.blogspot.com/-9HqI09-
0BOk/UrIXmQO73EI/AAAAAAAAAPQ/bP3ztuyi4GY/s1600/D3.jpg]

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SalzxiXkqwE/UrIX9bCcGjI/AAAAAAAAAPU/d4DW0eW94fo/s1600/D4.jpg]
Now to continue with the Fakeout examples;
Price created a supply zone at [1] and returned at [2] creating a lower high before dropping and returning in a curvy shape for a
2nd visit at [3] creating a Fakeout of preceded swing high from [2] and into the supply followed by a drop in price.
Considering the time frame; the move down was effective until it flipped from an S/R flip level and an ignored supply DP
(Decision Point).

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Price came back in a great curvy shape for a 2nd visit into demand at [2] creating a Fakeout of preceded swing low from [1]
and a retest followed by a rally in price.

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[http://4.bp.blogspot.com/-8Z4EbuuZFXw/UrIYmRRKpwI/AAAAAAAAAPk/2_IXzxwwusQ/s1
600/B2.jpg]
The same example zoomed out to the next higher time frame for a better visual of the DP (RBR) demand zone.
ZfXhG5jyoSo/UrIY10XCBaI/AAAAAAAAAPs/d3Dy_x3OBuI/s1600/B3.jpg]
A demand zone at [1] and a 1st visit at [3] and a Fakeout of a preceded swing low from [2] followed by a change in direction.
Notice the space and time between [2] & [3], not so big but still the curvy shape from [2] to [3] is considerable.

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[http://3.bp.blogspot.com/-E-iCET7TFlI/UrIZDkV4x-
I/AAAAAAAAAP0/K4STm1qG_9g/s1600/B4.jpg]
The same example zoomed out to the next higher time frame to show the difference between time frames when spotting the
curvy shape.
bvheaVnuSs0/UrIZN3qKdTI/AAAAAAAAAP8/G_Q3mffHrlU/s1600/B5.jpg]
In the following two examples you’ll notice additional ways to identify a Fakeout:

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At [1] a demand zone that was ignored thus becoming supply, price dropped forming a support at [2] and an ignored demand
pocket followed by a drop and retest of broken support becoming S/R flip and a Fakeout at [3] into ignored demand followed
by another drop in price.
At [4] a demand zone was created followed by another demand at [5] and a rally to [2] a 1st visit to the ignored demand from
[1] (now supply) then price compressed down into the fresh demand at [5] creating a Fakeout at [6] followed by a retest and a
rally to [7] for a 2nd visit into supply and a Fakeout of the preceded swing high from [2] followed by a retest of the Fakeout
and change in direction. Note that ignored demand at [1] is totally consumed now and [7] is a fresh supply zone.
At [8] we have a swing high and at [9] a DP (RBR) demand followed by a rally to [10] and a 1st visit into supply from [7],
price moved down to [11] into demand from [9] creating a Fakeout into support from [8] followed by a move up to [12] back
into supply for a 2nd visit and a Fakeout of the preceded swing high at [10] followed by a change in direction.

At [13] price returned back to the demand from [4] digging deep into it and the spike that broke through the zone with a close
inside was a clear sign of consumption. … search
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In this example we’ll speed up the process and point directly at the Fakeouts;
At [2] a support point and a DBD (supply) followed by a drop in price to [3] creating a swing low and a Fakeout (the curvy
shape could be seen on a lower time frame). Price returned to supply at [4] creating a Fakeout of the broken support point from
[2] followed by a change in direction.
At [9] a Fakeout of the support from [7] and into a LTF DP (RBR) from [6] followed by a change in direction.
At [10] a Fakeout of preceded swing high at [8] and into supply from [2] followed by a retracement.
At [12] a tiny Fakeout of preceded swing low and into demand from [5] followed by a compression up. Note here that recent
price reaction to demand from [5] makes of it a stacked demand above the lower demand from [1].

At [13] compression into ignored demand from [11] turned supply and a Fakeout of resistance (LQ Spike) followed by a
change in direction. … search
At [14] another visit to stacked demand zones and a spike into the lower demand zone as well as a Fakeout of the swing low
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from [5]Pages
followed by a change in direction.
Proof of market manipulation from the Market Wizards Book:
Ref: Market Wizards - Paul Tudor interview;
That sounds like a general character-building lesson. What about specifics regarding trading?
"Tullis taught me about moving volume. When you are trading size, you have to get out when the market lets you out, not
when you want to get out.
He taught me that if you want to move a large position, you don't wait until the market is in new high or low ground because
very little volume may trade there if it is a turning point.
One thing I learned as a floor trader was that if, for example, the old high was at 56.80, there are probably going to be a lot of
buy stops at 56.85. If the market is trading 70 aid, 75 offered, the whole trading ring has a vested interest in buying the market,
touching off those stops, and liquidating into the stops—that is a very common ring practice. As an upstairs trader, I put that
together with what Eli taught me. If I want to cover a position in that type of situation, I will liquidate half at 75, so that I won't
have to worry about getting out of the entire position at the point where the stops are being hit. I will always liquidate half my
position below new highs or lows and the remaining half beyond that point."
Ref: Market Wizards - Monroe Trout interview;
What else did you learn on the floor?
I learned about where people like to put stops.
Where do they like to put stops?
Right above the high and below the low of the previous day.
One tick above the high and one tick below the low?
Sometimes it might be a couple of ticks, but in that general area.
Basically, is it fair to say that markets often get drawn to these points? Is a concentration of stops at a certain area like waving
a red flag in front of the floor brokers?

the stops search
Right. That's the way a lot of locals make their money. They try to figure out where … are, which is perfectly fine as
long as they don't do it in an illegal way.
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Given that experience, now that you trade off the floor, do you avoid using stops?
I don't place very many actual stops. However, I use mental stops. We set beepers so that when we start losing money, a
warning will go off, alerting us to begin liquidating the position.
What lesson should the average trader draw from knowing that locals will tend to move markets toward stop areas?
Traders should avoid putting stops in the obvious places. For example, rather than placing a stop 1 tick above yesterday's high,
put it either 10 ticks below the high so you're out before all that action happens, or10 ticks above the high because maybe the
stops won't bring the market up that far. If you're going to use stops, it's probably best not to put them at the typical spots.
Nothing is going to be 100 percent fool proof, but that's a generally wise concept.
Ref: Market Wizards - Richard Dennis interview;
Can you give me an example of how the lack of real world experience would hurt the researcher?
As an example, assume I develop a mechanical system that often signals placement of stops at points where I know there will
tend to be a lot of stops, in the real world, it is not too wise to have your stop where everyone else has their stop. Also, that
system is going to have above-average skids. If you don't understand that and adjust the results accordingly, you are going to
get a system that looks great on paper, but is going to do consistently poorer in the real world.
Ref: Market Wizards - Bruce Kovner interview;
Let's say you do buy a market on an upside breakout from a consolidation phase, and the price starts to move against you—
that is, back into the range. How do you know when to get out? How do you tell the difference between a small pullback and a
bad trade?
Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I'm getting out before
I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis. For example, if
the market is in the midst of a trading range, it makes no sense to put your stop within that range, since you are likely to be
taken out. I always place my stop beyond some technical barrier.
Don't you run into the problem that a lot of other people may be using the same stop point, and the market may be drawn to
that stop level?
I never think about that, because the point about a technical barrier—and I've studied the technical aspects of the market for a
long time—is that the market shouldn't go there if you are right. I try to avoid a point that floor traders can get at easily.
Sometimes I may place my stop at an obvious point, if I believe that it is too far away search
…or too difficult to reach easily.
To take an actual example, on a recent Friday afternoon, the bonds witnessed a high-velocity breakdown out of an extended
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range. As far as I could tell, this price move came as a complete surprise. I felt very comfortable selling the bonds on
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the premise that if I was right about the trade, the market should not make it back through a certain amount of a previous
overhead consolidation. That was my stop. I slept easily in that position, because I knew that I would be out of the trade if that
happened.
Talking about stops, I assume because of the size that you trade, your stops are always mental stops, or is that not necessarily
true?
Let's put it this way: I've organized my life so that the stops get taken care of. They are never on the floor, but they are not
mental.
By FX.Sniffer
Labels: THE FAKEOUT
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7th September KEY LEVELS & PRICE ACTION
KEY LEVELS & PRICE ACTION

What is a price level?
A price level on chart could be defined by plotting a horizontal line, but in fact the level is an area or zone and not a specific
price value.
What is a key level?
Key level is a level that has a great history acting as support and resistance, in other words “a level of flip between support and
resistance”.
Are there any other terms for Key levels?
Yes, it’s also known as Pivot Zone, S/R Flip and Swap Zone.
Are there different types of key levels?
Yes, there is a major key level and a minor key level depending on clarity and efficiency of the level.
How do we locate key levels on chart?

A picture worth a thousand words, the first type of key levels are the major key levels which you can locate easily from the
… showssearch
first glimpse at any chart by defining swing highs and swing lows. The following chart daily major key levels for the
pair EUR/USD, some prefer to set levels at the nearest round number if possible.
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[http://1.bp.blogspot.com/-FXKUwMkekHM/UrIROTuD-
zI/AAAAAAAAANM/0cvNSdACtfE/s1600/Major+Key+Levels.jpg]
If it’s still not clear how to locate these levels, then don’t worry because the next chart has the same levels with added
coloured markers to indicate the key areas above and below the levels. Each group of pointers of same colour is assigned to
one level.

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jkjdZxDAX4Q/UrIRq_pQcUI/AAAAAAAAANQ/PAip7Zi5ZOw/s1600/Major+Key+Levels+with
+markers.jpg]
The second type of key level is the minor key level, which in some cases acts as a second option for a major key level and
when combined together they form a key zone, although they have a less significant history compared to major key levels, and
could cut through a wide range of candles. In the following chart minor key levels were added, using a different colour to
differentiate them from major levels.

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PUdfEg02JUA/UrIR3QnQKXI/AAAAAAAAANY/HwBk2OmJxxU/s1600/Major+++Minor+Key
+Levels.jpg]
Once again, the next chart with added coloured markers for a better visual explanation.

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[http://4.bp.blogspot.com/-ToKKoQzcY9A/UrISD7vPhGI/AAAAAAAAANg/qtURsS-
XVLg/s1600/Major+++Minor+Key+Levels+with+markers.jpg]
_________________________________________________________________________
________________________________
Price Action:
We have taken the chart which has both major and minor key levels and we divided it into two sides by a vertical black line.
From the left side of the chart to the divider shall be considered as history and the right side as present time. The location of
the separator was intentionally chosen because the same levels could have been located up to this stage without the existence
of the right side.
[http://1.bp.blogspot.com/-0Usw3qP0J2Q/UrISQYmCFAI/AAAAAAAAANo/-
GI0QC4DPmI/s1600/Major+++Minor+Key+Levels+with+numbers.jpg]
Now, we will study the candle closes in relation to the key levels starting from the orange pointer where is written "start":
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Price was moving above the lowest major key level then it moved up breaking through the higher major level with momentum
and closed above it [1], the next candle retested the level and closed above the higher minor level [2] followed by multiple
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retests of the same level without any close below the level, later it tested the next minor level and failed to close above. Price
consolidated in between the two minor levels [3]. When the decision was made price broke through the upper minor level and
the next major level with high momentum and closed above the two levels and below the next major level [4], third candle
broke through the major level closing above it and below the next minor level, followed by a retest of major level and a close
above the higher minor level [5], the next candle broke through the higher minor level and closed slightly above it and retested
with the second candle[6] before moving up with momentum breaking through the next major level and closing above it [7].
Price failed to break the higher minor level and broke down through the major level with a close below followed by a retest
and drop [8]. Price continued dropping breaking through lower levels till [9] where it failed to break the major level and closed
above it, this was the first retest of this historical major level after a long time and we can see price bounced from it to [10].
Now we'll speed up the process a bit and concentrate on bigger moves. At [11] price had another retest of the same major level
failing to close below it and it went up to [12] where it broke through the major level with a close above, but the next candle
broke through the same level in the opposite direction and closed below, after a retest price declined to [13] where it closed
above the major level and this was a fresh retest of a historical major level, a retest was done by the fourth candle and price
rallied up to [14] and this is where we stop. I think now you can see the importance of key levels and candle closes, I left
enough candles for you to read by yourself.
Conclusion:
Key levels are highly respected by price, and if price breaks through it and close above or below then it’s a sign of where price
will go next, in most cases it will travel to the next level.
More often price will give another chance for entry when it retests the strength of broken level before moving to the next.
When price breaks through a level with high momentum and closes above or below without a retest then it’s a sign of big
buying/selling.
By FX.Sniffer
Labels: KEY LEVELS & PRICE ACTION
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20th September Price Action Analysis Using the

Price Action Analysis Using the

Who was Richard Wyckoff ?

Richard Wyckoff was a famous stock trader and investor who

Two Rules of Richard Wyckoff

The Wyckoff theory is based primarily on price action and the

Wyckoff Market Cycle Theory

Wyckoff developed a price action market theory which is still

The process of accumulation is the first stage of the Wyckoff

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The Distribution process is the third stage of the Wyckoff

The Markdown is the last stage of the Wyckoff price cycle.

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The blue lines indicate the Accumulation process on the chart.

Accumulation / Distribution Price Spring

You may have noticed something on our Wyckoff market cycle

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Three Laws of Wyckoff

Richard Wyckoff emphasizes three laws which are a natural

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Effort vs. Result

Wyckoff says that every effort should lead to a result in the

Cause vs. Effect

Wyckoff states that every cause in the market leads to a

Wyckoff Volume Spread Analysis

Volume is of a great importance for the Wyckoff trader,

This is an example of an Accumulation stage of the Wyckoff

How to Profit with Wyckoff Trading in Forex

Traders can use the Wyckoff Price Cycle to recognize

Wyckoff Trading Strategy

After performing your Wyckoff Analysis, you should recognize

Wyckoff Trade Entry

You should enter a trade when the price action is transiting

Wyckoff Stop Loss Order

As you are well aware, there is no sure thing in Forex trading.

Wyckoff Take Profit

Wyckoff Trading Method Example

Now let’s show the Wyckoff market analysis in action, using

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The price action enters a Markup stage afterwards. The

A successful Wyckoff analyst must be able to anticipate and

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• PS—preliminary support, where substantial buying begins

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Note: Springs or shakeouts usually occur late within a TR and

• Test—Large operators always test the market for supply

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Accumulation: Wyckoff Phases

Phase A: Phase A marks the stopping of the prior downtrend.

Distribution: Wyckoff Events

PSY—preliminary supply, where large interests begin to

Phase A: Phase A in a distribution TR marks the stopping of the

markdown. The points about Phase B in distribution are similar

• Richard Wyckoff was a famous stock trader and investor,

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7th September 3 Drives Up/Down

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Posted 7th September by LQzone Forex

7th September Bull/Bear Trap

Some examples of the Bull and Bear Trap: