WYCKOFF

METHOD

VOLUME 2
5-STEP APPROACH

QUANTUM STONE
CAPITAL
TABLE OF CONTENTS
1 DETERMINE TREND BIAS

2 IN HARMONY WITH THE TREND

3 CAUSE THAT EXCEEDS OBJECTIVE

4 DETERMINE WHEN TO TRADE

5 TIMEFRAME
 1 D E T E R M I N E TR E ND B IA S

Determine where the market currently sits and project

its future trend. Is the market consolidating or trending?

Does your analysis of market structure, supply and

demand indicate the direction that is likely in the near
future? This is a major thing to consider as without
these factors we are ideally trading a blind range.

This leading onto the reasoning on this being the first

step in the 5-step approach we take to the market. This
assessment should help you to decide whether to be in
the market at all and if so, whether to take long or short
positions.

Determine Quantum Stone

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 2 IN H A R M ONY W ITH
THE TREND

In an uptrend we would select stocks that are stronger

than the market. For instance, we would choose stocks
that demonstrate greater percentage increases than the
overall stock market during rallies and smaller
decreases during reactions. In a downtrend, the reverse
– stocks that are weaker than the overall stock market.

Look at markets that demonstrate clear trend. In an

uptrend, look at markets that are correctively making
higher highs and higher lows; upon entry we will take
the trade with the trend not against it. In a downtrend,
do the reverse – choose markets that are making lower
highs and lower lows continuously.

In Forex, we do not have equivalent of stock market

index for all currency pairs. Therefore, one option we
have is to use Dollar Index for when we decide to trade
USD/XXX or XXX/USD pairs.

If you are not sure about a specific issue, drop it and

move on to the next one. There is never a point in
trading a market that is not in sync with current
momentum or isn’t in harmony with the trend.

In Harmony With Quantum Stone

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 3 C A U S E T H A T E X C E E DS
OBJECTIVE

Select markets with a “cause” that equals or exceeds

your minimum objective. A critical component of
Wyckoff's trade selection and management was his
unique method of identifying price targets using Point
and Figure (P&F) projections for both long and short
trades.

In Wyckoff's fundamental law of “Cause and Effect,” the

horizontal Point and Figure count within a trading range
represents the cause, while the subsequent price
movement represents the effect.

Therefore, if you are planning to take long positions,

choose markets that are under accumulation or
re-accumulation and have built a sufficient cause to
satisfy your objective. Step 3 relies on the use of Point
and Figure charts of individual markets.

We talk more about the Law of Cause and Effect in

Volume 3.

Cause That Quantum Stone

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 4 DETERMINE WHEN
TO TRADE

Determine the markets that are ready to make a move.

Apply the nine tests for buying or for selling. For
instance, in a trading range after a prolonged rally, does
the evidence from the nine selling tests suggest that
significant supply is entering the market and that a short
position may be warranted?

Or in an apparent accumulation trading range, do the

nine buying tests indicate that supply has been
successfully absorbed, as evidenced further by a low-
volume spring and an even lower-volume test of that
spring?

By understanding this, we can choose from our list of

markets what to trade, and what to stay away
from/avoid for the week ahead.

Determine When Quantum Stone

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 5 TIMEFRAME

Time your commitment with a turn in the stock market

index (Dollar Index). Regardless of the timeframe, your
Wyckoff bias should move in harmony with the general
market, so you improve the odds of a successful trade
by having the power of the overall market behind it.

Specific Wyckoff principles help you anticipate potential

market turns, including a change of character of price
action (such as the largest down-bar on the highest
volume after a long uptrend), as well as manifestations
of Wyckoff's three laws. Put your stop-loss in place and
then trail it, as appropriate, until you close out the
position.

In Volume 3 we will discuss 3 Wyckoff Laws.

Timeframe Quantum Stone

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