Richard Demille Wyckoff Method

Well its been a while since I posted a new thread. Well here I am finding myself trying to make better contribution.

A bit about me:

My intro to trading

I started trading forex a couple of years ago, after I realized that my daytrading stocks was minimal because of insufficient funds to trade unlimited roundtrips in the stock market. I quickly joined a trading forum/chatroom. I started learning all about trading, as much as I could. Free videos, Free Webinars, and free pump n dump stocks to say the least (I didnt even touch these, I was just here to learn the different instruments used to trade markets). Once I realized I did not have the minimum day trader status funds in my account. I did a bit more research and came accross Forex.

My Intro to forex

I started seeking out more about this forex. To make a long story short it brought me to babypips (I learned everything I needed to know about trading at the time from babypips). So I found out I could trade currencies with little money thanks to leverage.

My Forex trading experience

I ended up opening my first demo account. Did great on this till I realized that I was ready to open a new account about 3 months later (big mistake this was). I tried systems, all kinds of indicators, this, that, and a little of everything only to blow my account. Too much emotion, didnt understand about levereging properrly, and impatient. I opened another account a much bigger account $2K drew it down to about $700, then i built it back up to $2001K again and was so happy I thought I finally got the big picture. I repaired my account from $700 to $2K in less than a few weeks. Boy oh Boy, I though I was Mr. Hot Shit... lol; however a couple weeks later to my dismay I was humbled... I drew my account to $500 because I was cocky, overlevereged and overtrade. A total year and a half had gone by throughtout my trading forex to acheive loser status. Upset, furious, angry, spending 1000's of hours staring at charts, looking for the holy grail I couldnt come to grip with reality and my easily disillusioned trading.

Where trading took a turning point for the better for me.

After so much frusteration, I decided to get rid of indicators, emotions, and and decided to really see the market for what it really is. I had a buddy I was trading with via skype and we would share thoughts and ideas. Both of us were fed up at this point and I told him one day... Man I am done. I need a break for about a month and gather my thoughts and focus on how I was going to study charts and see what the market was really doing. Seeing throught the smoke and mirrors. My buddy agreed and said he was going to do the same thing. We kept in contact and tried to mentor each other. (I am a self tought trader and so was he. We never paid for training except for the money which we lost)... I studied, and studied PA, on FF, on the Internet and everywhere I could think of. I was ready to jump back into trading...

This is the end my friend

I called my buddy, said man I am jumping back into trading, I am ready to go. I said I am trading naked (priced only charts no indicators). After I threw off all my indicators and started trading again, I realized where my trading went wrong (aside for being over leveraged). I actually started to see the market for what it really is. I showed a buddy of how I have started trading and I found a ton of success with this. Not rich success but success in trading. I told him I lowered my leverage, and started trading a new smaller account and trading much smaller lots. Below is an example of a chart I showed him and I sent him many examples of these trades which I was taking:

So he started seeing my entries and he said man how and what are you doing to make those trades, I said that its just the way I started seeing the market. He replied well man that looks like Wyckoff. I am asked who the heck is that? He replied its Jack Wyckoff. Look him up. So I looked him up and to my dismay I saw Jack Wyckoff Trading method charts. I will post those in the next reply to give a brief overview of who he is.

So I started researching this Wycoff guy and looked at his charts such as the ones attached here. The top one is the accumulation demand phase (buying phase), the 2nd one is the distribution supply phase.

So he showed me those 2 charts and I was very intersted because this is how I started seeing the market after a while.

Jack Demille Wycoff was probably one of the greatest traders known. There are others but for the point of this thread we will not focus on anything else than Wycoff trading.

Ill post a bit about Wycoff on the next reply to break up the reading some.


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Note: time frames for these setups depend on the trend change you wanna catch, intermediat, longer term or shorter term. It works for each of those time frames but you must use top down analasys eg daily, h4, h1, m5.

My entries consiste of m1 chart after I have looked at monthly - daily - h4 - h1 - m5. Monthly is not required however I do like to see a bigger picture
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Richard Demille Wyckoff (born November 2, 1873; died March 19, 1934) was a stock market authority, had his own magazine Magazine of Wall Street (founded1907), and an editor for Stock Market Techniques.

Richard was probably one of the greatest all time traders. He studied Volume analasys, weak, and strong markets to derive his meathod, which basically is following money and order flow.

Wyckoff implemented his methods in the financial markets, and grew his account such that he eventually owned nine and a half acres and a mansion next door to the General Motors' Industrialist, Alfred Sloan Estate, in Great Neck, New York (Hamptons).
As Wyckoff became wealthier, he also became altruistic about the public's Wall Street experience. He turned his attention and passion to education, teaching, and in publishing exposés such as “Bucket shops and How to Avoid Them”, which were run in New York's The Saturday Evening Post starting in 1922.
Continuing as a trader and educator in the stock, commodity and bond markets throughout the early 1900s, Wyckoff was curious about the logic behind market action. Through conversations, interviews and research of the successful traders of his time, Wyckoff augmented and documented the methodology he traded and taught. Wyckoff worked with and studied them all, himself, Jesse Livermore, E. H. Harriman, James R. Keene, Otto Kahn, J.P. Morgan, and many other large operators of the day.
Wyckoff's research claimed many common characteristics among the greatest winning stocks and market campaigners of the time. He analyzed these market operators and their operations, and determined where risk and reward were optimal for trading. He emphasized the placement of stop-losses at all times, the importance of controlling the risk of any particular trade, and he demonstrated techniques used to campaign within the large trend (bullish and bearish). The Wyckoff technique may provide some insight as to how and why professional interests buy and sell securities, while evolving and scaling their market campaigns with concepts such as the "Composite Operator".
The teachings of Wyckoff are still taught at the Golden Gate University in San Francisco.{http://www.ggu.edu/about/faculty/fac...y/henry_pruden }
Wyckoff was thorough in his analysis of the trading range. One tool that Wyckoff provides is the concept of the Composite Operator. Simply, Wyckoff felt that an experienced judge of the market should regard the whole story that appears on the tape as though it were the expression of a single mind. He felt that it was an important psychological and tactical advantage to stay in harmony with this omnipotent player. By striving to follow his footsteps, Wyckoff felt we are better prepared to grow our portfolios and net-worth.

Personal

Wyckoff married three times: first in 1892 to Elsie Suydam; second to Cecelia G. Shear, and third to Alma Weiss. Wyckoff charged in 1928 that his second wife, Cecelia G. Wyckoff, whom the media dubbed a Prima Donna of Wall Street, had wrested control of the Magazine of Wall Street from Mr. Wyckoff by "cajolery." The media celebrated separation ended in an agreement where he received half a million dollars of the magazine company's bonds.

Source: http://en.wikipedia.org/wiki/Richard_Wyckoff

In order to understand the markets you need to understand the following and you must, must, I repeat must understand the following:

1. Emotions are driven by $$$$ and addiction. The market can become an addiction and to enter the market is driven most often than not by money hungry minds such as possibly yourself and my old self.

Get rid of emotions, get rid of $$$ and get rid of addiction. You ask how? I have written up a topic that will cover all of these basis. Please read through this completely and digest it and practice the techniques listed here.

http://www.forexfactory.com/showthre...54#post5753954

Disregard the title in the link above as it applies to this rule number 1.

2. Throw out your indicators. Get it in your head that they lag, show false movements, and you are depending on mathematical computations verses your eyes and your view of the market.

3. Start learning a bit about Volume and understanding illiquid markets and liquid markets. I wont go into topic here but I will leave you this link as it is a pre-requesit to understing how price moves. It is rather easy, an increase in volume should parallel to a rising market, and an increase in volume should parallel to a falling market. Please see the attachment again which I posted an edited version here.

Compare this to the first picture in posting #2

Ok yes I understand on the Wycoff charts there are alot of phases and cycles. You dont need to necessarily memorize all of that however it is good to know. Your eye will start seeing these setups after quite a few hours of staring for these setups. I am going to post the Wycoff phases meanings in the next reply.

Wyckoff Phases of Accumulation


Phase A — In phase A, supply has been dominant and it appears that finally the exhaustion of supply is becoming evident. The approaching exhaustion of supply or selling is evidenced in preliminary support (PS) and the selling climax (SC) where a widening spread often climaxed and where heavy volume or panicky selling by the public is being absorbed by larger professional interests. Once these intense selling pressures have been expressed, and automatic rally (AR) follows the selling climax. A successful secondary test on the downside shows less selling that on the SC and with a narrowing of spread and decreased volume. A successful secondary test (ST) should stop around the same price level as the selling climax. The lows of the SC and the ST and the high of the AR set the boundaries of the trading range (TR). Horizontal lines may be drawn to help focus attention on market behavior.

It is possible that phase A will not include a dramatic expansion in spread and volume. However, it is better if it does, because the more dramatic selling will clear out more of the sellers and pave the way for a more pronounced and sustained markup.

Where a TR represents a reaccumulation (a TR within a continuing up-move), you will not have evidence of PS, SC, and ST. Instead, phase A will look more like phase A of the basic Wyckoff distribution schematic. Nonetheless, phase A still represents the area where the stopping of the previous trend occurs. Trading range phases B through E generally unfold in the same manner as within an initial base area of accumulation.


Phase B — The function of phase B is to build a cause in preparation for the next effect. In phase B, supply and demand are for the most part in equilibrium and there is no decisive trend. Although clues to the future course of the market are usually more mixed and elusive, some useful generalizations can be made.

In the early stages of phase B, the price swings tend to be rather wide, and volume is usually greater and more erratic. As the TR unfolds, supply becomes weaker and demand stronger as professionals are absorbing supply. The closer you get to the end or to leaving the TR, the more volume tends to diminish. Support and resistance lines usually contain the price action in phase B and will help define the testing process that is to come in phase C. The penetrations or lack of penetrations of the TR enable us to judge the quantity and quality of supply and demand.


Phase C — In phase C, the stock goes through testing. It is during this testing phase that the smart money operators ascertain whether the stock is ready to enter the markup phase. The stock may begin to come out of the TR on the upside with higher tops and bottoms or it may go through a downside spring or shakeout by first breaking previous supports before the upward climb begins. This latter test is preferred by traders because it does a better job of cleaning out the remaining supply of weak holders and creates a false impression as to the direction of the ultimate move.

A spring is a price move below the support level of a trading range that quickly reverses and moves back into the range. It is an example of a bear trap because the drop below support appears to signal resumption of the downtrend. In reality, though, the drop marks the end of the downtrend, thus trapping the late sellers, or bears. The extent of supply, or the strength of the sellers, can be judged by the depth of the price move to new lows and the relative level of volume in that penetration.

Until this testing process, you cannot be sure the TR is accumulation and hence you must wait to take a position until there is sufficient evidence that markup is about to begin. If we have waited and followed the unfolding TR closely, we have arrived at the point where we can be quite confident of the probable upward move. With supply apparently exhausted and our danger point pinpointed, our likelihood of success is good and our reward/risk ratio favorable.


Phase D — If we are correct in our analysis and our timing, what should follow now is the consistent dominance of demand over supply as evidenced by a pattern of advances (SOSs) on widening price spreads and increasing volume, and reactions (LPSs) on smaller spreads and diminishing volumes. If this pattern does not occur, then we are advised not to add to our position but to look to close out our original position and remain on the sidelines until we have more conclusive evidence that the markup is beginning. If the markup of your stock progresses as described to this point, then you’ll have additional opportunities to add to your position.

Your aim here must be to initiate a position or add to your position as the stock or commodity is about to leave the TR. At this point, the force of accumulation has built a good potential as measured by the Wyckoff point-and-figure method.

In phase D, the markup phase blossoms as professionals begin to move into the stock. It is here that our best opportunities to add to our position exist, just as the stock leaves the TR.

Wyckoff Phases of Distribution


Phase A — In Phase A, demand has been dominant and the first significant evidence of demand becoming exhausted comes at preliminary supply (PSY) and at the buying climax (BC). It often occurs in wide price spread and at climactic volume. This is usually followed by an automatic reaction (AR) and then a secondary test (ST) of the BC, usually upon diminished volume. This is essentially the inverse of phase A in accumulation.

As with accumulation, phase A in distribution price may also end without climactic action; the only evidence of exhaustion of demand is diminishing spread and volume.
Where redistribution is concerned (a trading range within a larger continuing down-move), you will see the stopping of a down-move with or without climactic action in phase A. However, in the remainder of the trading range (TR) for redistribution, the guiding principles and analysis within phases B through E will be the same as within a TR of a distribution market top.


Phase B — The building of the cause takes place during phase B. The points to be made here about phase B are the same as those made for phase B within accumulation, except clues may begin to surface here of the supply/demand balance moving toward supply instead of demand.


Phase C — One of the ways phase C reveals itself after the standoff in phase B is by the sign of weakness (SOW). The SOW is usually accompanied by significantly increased spread and volume to the downside that seem to break the standoff in phase B the SOW may or may not “fall through the ice,” but the subsequent rally back to a “last point of supply” (LPSY), is usually unconvincing for the bullish case and likely to be accompanied by less spread and/or volume.

Last point of supply gives you your last opportunity to exit any remaining longs and your first inviting opportunity to exit any remaining longs and your first inviting opportunity to take a short position. An even better place would be on the rally that tests LPSY, because it may give more evidence (diminished spread and volume) and/or a more tightly defined danger point.

An upthrust is the opposite of a spring. It is a price move above the resistance level of a trading range that quickly reverses itself and moves back into the trading range. An upthrust is a bull trap — it appears to signal a start of an uptrend but in reality marks the end of the up-move. The magnitude of the upthrust can be determined by the extent of the price move to new highs and the relative level of volume in that movement.

Phase C may also reveal itself by a pronounced move upward, breaking through the highs of the trading range. This is shown as an upthrust after distribution (UTAD). Like the terminal shakeout in the accumulation schematic, this gives a false impression of the direction of the market and allows further distribution at high prices to new buyers. It also results in weak holders of short positions surrendering their positions to stronger players just before the down-move begins. Should the move to new high ground be on increasing volume and relative narrowing spread, and price returns to the average level of closes of the TR, this would indicate lack of solid demand and confirm that the breakout to the upside did not indicate a TR of accumulation, but rather a formation of distribution.

Successful understanding and analysis of a trading range enables traders to identify special trading opportunities with potentially very favorable reward/risk parameters. When analyzing a trading range, we are first seeking to uncover what the law of supply and demand is revealing to us. However, when individual movements, rallies, or reactions are not revealing with respect to supply and demand, it is important to remember the law of effort versus result. By comparing rallies and reactions within the trading range to each other in terms of price spread, volume, and time, additional clues may be discovered as to the stock’s strength, position, and probable future course.

It will also be useful to employ the law of cause and effect. Within the dynamics of a trading range, the force of accumulation or distribution gives us the cause and the potential opportunity for substantial trading profits. The trading range will also give us the ability, with the use of point-and-figure charts, to project the extent of the eventual move out of the trading range and will help us determine if those trading opportunities favorably meet or exceed our reward/risk parameters.


Phase D — Phase D arrives and reveals itself after the tests in phase C show us the last gasps or the last hurrah of demand. In phase D, the evidence of supply becoming dominant increases either with a break through the ice or with a further SOW into the trading range after an upthrust.

In phase D, you are also given more evidence of the probable direction of the market and the opportunity to take your first or additional short positions. Your best opportunities are at rallies representing LPSYs before a markdown cycle begins. Your legging in of the set of positions taken within phases C and D represents a calculated approach to protect capital and maximize profit. It is important that additional short positions be added or pyramided only if your initial positions are in profit.


Phase E — Phase E depicts the unfolding of the downtrend; the stock or commodity leaves the trading range and supply is in control. Rallies are usually feeble.

So what I have posted so far is really all that a trader should really need. It will take time to obsorb these items discussed. Remember Money management, patience for the setup, dont overtrade, and confirmation. I will be contributing more to this thread as time permits, I wont be able to post consistently it will be off and on but this is what I wanted to start and see it grow. This thread is open to discussion, and market analasys and how we can help eachother:

Rules:

1. If you post respect others
2. I will not tolerate disrespecting others
3. Do not post just to post with random comments - you will post related to this topic and current discussions about market sentiments and setups.
4. Do not ask me for signals, or talk about signals.
5. Do not ask me how to trade if you have never traded. This is a more advanced thread. If you need trading basics go here http://www.babypips.com/school/ or search other parts of forexfactory.com
6. No question is a dumb question - If you answer someones question treat them as you would want to be treated.
7. Post charts if you have setups. Do not post entries and exits if you have nothing to show for it.


Ok I am tired, I hope this is the start of something great.

P.S. Yes this is the real deal and this is how you follow the true market and ride with the big dogs.

Good stuff, I subscribe.

subscribed, looks interesting!

Thanks for a great thread.
Trying to work out "SOSs" and " LPSs". In Distribution phases there is LPSY so, does LPSs mean Last Point of Supply.
Also, could not see any explanation of ICE and CREEK.
Will be following closely, as my FX experience has be very similar to yours.
EP

I'm not being negative here but how do you get round the fact that different brokers will have different tick values? For instance the Alpari feed ticks wildly as they are a bucket shop market maker whereas someone like Vantge FX have a less wild feed and hence the volume may look less. I'm not suggesting this idea is not valid, I'm sure it is, but if two traders are both looking at different information then they will take different trades in the same situation.

you bring up an interesting point. I'm not too well versed in how tick volumes are calculated in forex, would brokers that offer multiple liquidity providers have more accurate representation of volume flow?

That's what i thought about using volume in Forex trading..it's different with stock market ..we really never know the exact volume on forex..

Subscribed...

Side note: Many,many years back bought Wycoff's book "Charting the Stock Market: The Wyckoff Method" . Info was way beyond me at the time. Not so much now . Like you my interest ls only PA, Volume, Support/Resistance and Supply/Demand. Volume in forex appears to be tricky vs. volume coming out of the CME, etc.

Looking forward to your thread

TSD

same story with me,
i lower my leverage
trash all indicator
take bigger time frame (H4 & more)
and i think the best thing i learn is to let profit run
i still not using hard SL, but i will take loss when i think i'm in wrong position.

my trade decision method is different, i rely on news and a lot of corelation... so i think i can learn from you here eace:

really nice post

They might have different feeds but the higher time frame (which is best to catch the right moves, I would say higher than 15 minutes), has more reliable tick movement as other brokers.

Yes the scale might be smaller but should all be equivalent such as as for instance, lets use a visual here. Say you are looking at an island from a distance however you are looking at that island again at a much further distance... it will look much smaller from further distance than it would from a closer distance however you will notice the shape is basically the same. Yes because different feeds it might be shaped less but overall you can see there is still a lot of similarity.

A higher time frame will be similar. I dont look at volume on a small time frame it is really irrelevant esp if you are scalping because you would see dissimilar tick volume on the smaller tf like m5 and m1 and sometimes even m15. When I look i like to see what the volume is like on the higher TF, Wycoff traded long term and looked at daily and up charts.

SOS is really Volatility once the trend change starts to take place you will notice possibly an increase of spread, you might not see a huge change maybe 1 to 2 pips at times but it will be there. This is because money is starting to move and become more volatile. Thats all really. Notice SOS refrenced at LPS (last point of supply) this is the thrust that pushes the market lower and ultimately changes the trend.

Ice and creek please see screenshot the previous screenshots, do you see the creek at the downtrend ending and changing to an uptrend, the Creek is broken by the second confirmed higher high, the opposite is true for breaking the ice, notice that a lower high is confirmed before the downtrend is confirmed?

Correct look at the basic definition of volume. It is basically the ammount of substance in a confined area. Key word being substance and ammount. In trading forex you have spot volume (tick volume), and in regular trading such as equities and futures you have actual volume of contracts, and same goes for options.

I have put on a new trade my entry is 1.2535. I am looking at trading the small 100 pip retracement because as we all know the overall trend is down. This is not a counter trend trace this is a retracement trade. at 2650 I will look to short again.

You can see the areas I have outlined to show good support for a buy opportunity. This is a little different picture than wycoff however the generalization is the same format, just missing the creek because I am not going for a huge trend.

I am using a 30 pip sl

You can see the picture on the Smaller TF of 1 minute shows the movement clearly. Looks like perfect timing on the entry.