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The Pattern Used By Smart Money To Control Market Structure (Wyckoff Events & Phases REVEALED) - YouTube
Channel: The Secret Mindset
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Hello and welcome.
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Today we'll look at Wyckoff method, weâll
analyze the events in accumulation and distribution
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phases and we'll cover the main guidelines
for finding the best trades, with excellent
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risk to reward ratios.
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So if you could⊠like, subscribe to the
channel and stick around for the full video.
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Ranges that are formed at the end of a previous
trend bring a balance in supply and demand
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of the market.
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In such ranges, neither buying nor selling
activity will be large enough to create significant
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movement towards upside or downside.
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Accumulation is nothing but a sideways market
activity that happens after an extended downtrend.
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This is the phase where smart money try to
acquire positions without moving the prices
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too much to the upside.
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Distribution is a range bound market activity
that happens after an extended Uptrend.
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This is the phase where smart money try to
sell off their positions without moving the
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prices too much to the downside.
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You may want to watch this video first if
you want to know the basics of Wyckoff trading.
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Now, Richard Wyckoff offered detailed guidelines
for spotting Accumulation and Distribution
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phases based on certain patterns that take
place within them.
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Iâll try to keep it very simple and explain
each phase.
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First, letâs analysis Wyckoff events during
accumulation.
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PSâpreliminary support, this is where substantial
buying begins to provide pronounced support
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after a prolonged down-move.
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Volume increases and price spread widens,
signaling that the down-move may be approaching
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its end.
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SCâselling climax is the point at which
widening spread and selling pressure usually
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climaxes and heavy or panic selling by the
public is being absorbed by smart money at
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or near a bottom.
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Often price will close well off the low in
a selling climax, reflecting the buying from
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smart money.
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ARâautomatic rally occurs because intense
selling pressure has greatly diminished.
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A wave of buying easily pushes prices up.
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The high of this rally will help define the
upper boundary of an accumulation trading
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range.
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STâsecondary test, in which price revisits
the area of the selling climax to test the
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supply/demand balance at these levels.
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If a bottom is to be confirmed, volume and
price spread should be significantly diminished
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as the market approaches support in the area
of the selling climax.
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It is common to have multiple secondary tests
after a selling climax.
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SOSâsign of strength, which is a price advance
on increasing spread and relatively higher
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volume.
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Often a sign of strength takes place after
a spring.
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A Wyckoff spring occurs when price falls below
its trading range, and makes a new âpanic
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lowâ â and then âspringsâ back into
its previous range.
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LPSâlast point of support, the low point
of a reaction or pullback after a sign of
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strength.
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The last point of support is the final drive
toward the bottom of the Accumulation area
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before the uptrend begins.
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A last point of support makes a higher low
and then turns upward.
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BUââback-upâ.
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A back-up is a common structural element preceding
a more substantial price mark-up, and can
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take on a variety of forms, including a simple
pullback or a new trading range at a higher
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level.
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Now letâs analyze Wyckoff phases during
accumulation.
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Phase A
Up to this point, supply has been dominant.
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The decrease of supply is evidenced in preliminary
support (ps) and a selling climax (sc).
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These events are often very obvious on charts,
with widening spread and heavy volume.
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Once these intense selling pressures have
been relieved, an automatic rally (ar) typically
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occurs.
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A successful secondary test (st) in the area
of the selling climax will show less selling
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than previously and a narrowing of spread
and decreased volume, generally stopping at
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or above the same price level as the selling
climax.
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If the secondary test goes lower than that
of the selling climax, you can anticipate
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either new lows or prolonged consolidation.
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The lows of the selling climax and the secondary
test and the high of the automatic rally set
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the boundaries of the trading range.
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Sometimes the trend may end less dramatically,
without climactic price and volume action.
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In general, however, it is preferable to see
the preliminary support, selling climax, automatic
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rally and secondary test, as these provide
not only a more distinct landscape but a clear
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indication that smart money have definitively
initiated accumulation.
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Phase B
In phase B, smart money are accumulating at
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relatively low-price in anticipation of the
next markup.
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There are usually multiple secondary tests
during phase B, as well as upthrust actions
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at the upper end of the trading range.
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In phase b, the price swings tend to be wide,
with high volume.
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As professionals absorb the supply, however,
the volume on downswings within the trading
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range tends to diminish.
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Phase C
In phase C, price goes through a decisive
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test of the remaining supply, allowing the
âsmart moneyâ to ascertain whether the
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price is ready to be marked up.
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As I said earlier, a spring is a price move
below the support level of the trading range
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(established in phases a and b) that quickly
reverses and moves back into the trading range.
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Itâs an example of a bear trap because the
drop below support appears to signal resumption
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of the downtrend.
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In reality, though, this marks the beginning
of a new uptrend, trapping the late sellers.
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In Wyckoff's method, a successful test of
supply represented by a spring (or a shakeout)
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provides a high-probability trading opportunity.
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The appearance of a sign of strength shortly
after a spring or shakeout validates the analysis.
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Please note that the testing of supply can
occur higher up in the trading range without
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a spring or shakeout.
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Phase D
If we are correct in our analysis, what should
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follow is the consistent dominance of demand
over supply.
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This is evidenced by a pattern of advances
(sign of strength) on widening price spreads
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and increasing volume, as well as a last point
of support on smaller spreads and diminished
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volumes.
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During phase D, the price will move at least
to the top of the trading range.
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Last point of support in this phase are generally
excellent places to initiate or add to long
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positions.
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Phase E:
In phase E, the price leaves the trading range,
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demand is in full control and the markup is
obvious to everyone.
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New trading ranges can occur, this concept
is also known as âre-accumulationâ by
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smart money.
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These trading ranges are sometimes called
âstepping stonesâ on the way to even higher
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price targets.
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Now letâs showcase Wyckoff events for distribution
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PSYâpreliminary supply, where smart money
begin to unload shares after a pronounced
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up-move.
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Volume expands and price spread widens, signaling
that a change in trend may be approaching.
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BCâbuying climax, during which youâll
see increases in volume and price spread.
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The force of buying reaches a climax, with
heavy or urgent buying by the public being
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filled by smart money at prices near a top.
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A buying climax often coincides with a great
earnings report or other good news, since
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smart money require huge demand from the public
to sell their shares without lowering the
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price.
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ARâautomatic reaction.
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With intense buying substantially diminished
after the buying climax and heavy supply continuing,
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an automatic reaction takes place.
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The low of this selloff helps define the lower
boundary of the distribution trading range.
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STâsecondary test, in which price revisits
the area of the buying climax to test the
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demand/supply balance at these price levels.
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For a top to be confirmed, supply must outweigh
demand; volume and spread should thus decrease
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as price approaches the resistance area of
the buying climax.
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A secondary test may take the form of an upthrust
(ut), in which price moves above the resistance
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represented by the buying climax and possibly
other secondary tests before quickly reversing
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to close below resistance.
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After an upthrust, price often tests the lower
boundary of the trading range.
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SOWâsign of weakness, observable as a down-move
to (or slightly past) the lower boundary of
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the trading range, usually occurring on increased
spread and volume.
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The automatic reaction and the initial sign
of weakness indicate a change of character
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in the price action: supply is now dominant.
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LPSYâlast point of supply.
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After testing support on a sign of weakness,
a rally on narrow spread shows that the market
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is having considerable difficulty advancing.
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This inability to rally may be due to weak
demand, substantial supply or both.
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Last point of supply represent exhaustion
of demand and the last waves of smart money
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distribution before the markdown begins.
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UTADâupthrust after distribution occurs
in the latter stages of the trading range
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and provides a definitive test of new demand
after a breakout above trading range resistance.
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An upthrust after distribution is not a required
structural element.
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And here are Wyckoff phases during distribution
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Phase A:
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Phase A in a distribution trading range marks
the stopping of the prior uptrend.
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Up to this point, demand has been dominant
and the first significant evidence of supply
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entering the market is provided by preliminary
supply (psy) and the buying climax (bc).
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These events are usually followed by an automatic
reaction (ar) and a secondary test (st) of
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the buying climax, often with diminished volume.
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However, the uptrend may also terminate without
climactic action, instead demonstrating exhaustion
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of demand with decreasing spread and volume.
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Phase B:
During this time, smart money review their
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portfolios and initiate short positions in
anticipation of the next markdown.
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This process leaves clues that the supply/demand
balance has tilted toward, supply instead
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of demand.
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For instance, sign of weakness are usually
followed by significantly increased spread
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and volume to the downside.
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Phase C:
This is the most interesting phase of distribution.
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That is the time when many retail traders
go long, during one of the most popular traps.
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In other words, phase C is the phase of misleading
retail traders.
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Aggressive traders open shorts after upthrust,
as they have a very good risk/reward ratio.
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But big players are not ready to allow retailers
to make money so easily.
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That is the reason why very often you can
see a few upthrusts one after the other.
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Basically⊠stop hunting in action.
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Conservative traders wait to open shorts until
phase D, at last point of supply.
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Phase D:
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Phase D shows us the last signs of demand.
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Price goes to or through trading range support.
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The evidence that supply is clearly dominant
increases either with a clear break of support
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or with a decline below the mid-point of the
trading range after an upthrust or upthrust
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after distribution.
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The best trading strategy in phase D is to
go short at last point of supply.
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Phase E:
In phase E of Wyckoff distribution price leaves
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the trading range and supply is in control.
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Once trading range support is broken on a
major sign of weakness, this breakdown is
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often tested with a rally that fails at or
near support.
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This also represents a high-probability opportunity
to initiate short positions.
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After a significant down-move, climactic action
may signal the beginning of a re-distribution
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trading range or of new phase of accumulation.
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If youâre learned something new and want
more Wyckoff videos, please hit the like button,
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since it really helps us out, and subscribe,
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And check out our academy program if you want
to further level up your trading.
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Until next time.
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