Richard Wyckoff Method - RTT PDF

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Richard Wyckoff method
Created on: 5/18/2010 12:14:14 A M GMT Last Update: 7/24/2011 12:43:55 A M GMT Posted by: RTT
The originator of this method is from the writings of Richard D Wyckoff. (1873-1934)
At the age of 15-years old, he became a stock runner, scurrying back and forth on Wall Street. At age 25, he opened his own
brokerage office which gave him close contact with several the most important and influential traders Wall Street has ever seen.
He studied the market operations of Jay Gould, Jesse Livermore, J.P. Morgan, Andrew Carnegie, along with many others, all in an
effort to develop his own approach to the market. These were men who studied the market, understood how and why it moved,
and profited from it. Wyckoff methods were successfully applied in newsletter called 'The Magazine of WallStreet' (known to
have 200,000 subscribers in the 1920's). The newsletter became the darling of Wall Street traders.
Wyckoff saw the economic principles of supply and demand at work through in the stock exchange. He believed that the behavior observed through
price and volume movements held the key to to forecasting future market movements. These observation led Wyckoff to believe that the market
operated under a set of three laws.
The Law of Supply and Demand
When there is an excess amount of something (supply) the value of that item is reduced to draw in the demand needed to absorb that supply. Or, if
there is a scarcity of something, then the value of that item will increase to create the supply that will meet that demand.
The Law of Cause and Effect
In order for there to be an effect (change in price), there needs to be a cause. The effect will be in direct proportion to that cause. Best price moves
occur when there has been enough time to allow for a period of accumulation or distribution (or in other words a cause).
The Law of Effort vs Results
Simply state, if there is an effort, the result must be in proportion to that effort and can not be separated from it. If it is not, it is an indication of
other principles in action. Think of effort as the volume on a move, and the result is the corresponding price action. These two should be in harmony.
If you have a lot of volume, you should see a lot of move, if you don’t…why? What is happening? This is where we become the detective, use our
tools, evaluate that price action (result), with the corresponding volume (effort), and make some deductions based on the “balance of probabilities”.
Wyckoff was proof that a great trader was not born or had mystical powers, but resulted from sound training and hard work. He merged the methods
of great traders of the time into a detailed step by step plan. With no confusion or gaps in explanation that is so common is 'How I trade' books,
Wyckoff produced charts, trading results, diaries and full explanations. To best understand wyckoffian logic and methods the following texts are a must
read (In no particular order).
Studies in Tape Reading
Charting The Stock Market, The Wyckoff Method
The Secret Science of Price and Volume
Master The Markets (book or pdf) and/or The Undeclared Secrets That Drive The Stock Market
Investing with Volume Analysis
Wyckoff Schematics: Visual templates for market timing decisions (pdf)
Trades about to Happen: A Modern adaptation of the Wyckoff Method**
** Author David Weis co-author of 'C harting the stock market, the Wyckoff Method' has this new book (soon to be released). If any of you have a pre release issue, please
email me with your review. Thanks. ISBN-10:0470487801
You can find more information on the education page and via our videos.
There is a formal Wyckoff education process from 'Wyckoff Stock Market Institute' .
(Note: Readtheticker.com have no association with the institute nor do we have an opinion on their products.)
The Wyckoff Way
converted by Web2PDFConvert.com
When you understand the Wyckoffian phases of the market, you can determine when to be in or out of the market. You begin to understand how the
large accounts determining market the trend, change of trend and price action. Consider the below application of Wyckoffian terms to the modern day
SP500.
For more detail on the Wyckoff phase labels: Wyckoff Schematics: Visual templates for market timing decisions (pdf) via our education page.
NOTE: Annotations placed on chart via Paint.Net
How did Wyckoff Trade: In short he traded the phase known as 'price mark up/down', which occurs soon after price had completed a clean break out
from a base pattern. Wyckoff would then purchase shares on the dips (assuming the volume conditions warranted price action was still bullish).
Wyckoff avoided making trades during significant 'accumulation' and 'distribution' phases within the market.
Wyckoff interviewed many famous traders of his time, this is how he learnt to apply the top down stock selection approach: Select the strongest
index, select the strongest sectors within the index, select the strongest stocks within the sector (strength was measured on an alpha basis or
relative strength). The readtheticker.com Alpha Stock Scanner makes this task a breeze.
Wyckoffian logic has found its way into a wide variety of modern day texts, once you read the original source you will clearly uncover adaptations of
Richard Wyckoff theories.
We acknowledge that Wyckoff implemented nine strict rules for the execution of an investment decision. We at readtheticker.com do not apply his
rules with the same discipline, however we acknowledge them and treat them as a guide only.
Readtheticker.com annotation tools are excellent for tracking Wyckoffian logic terminology on your favorite stock charts.
Viewing price and volume action on daily, weekly and monthly charts are the norm. We find favor with viewing price and volume action with Half Month
charts (that is start of month to 15th, then 15th to end of month), we see these as just right for a wider view of the price action. And yes we can
do quarterly as well, just for fun.
Tom Williams is a master of the Richard Wyckoff method. Tom took the method of reading the bar by bar price action the Wyckoff way to a new
exciting level. He called it Volume Spread Analysis (VSA), and it warrants your attention to learn this art. However a word of caution, many are using
VSA as the definitive approach to execute trade decisions as if it was the Wyckoff method, they also assume that trading VSA can be applied with
success no matter the phase of the market. Our view is that the phase of the market is critical for the Wyckoff method to be successful. As stated
above Richard Wyckoff invested when the market entered a mark up or down phase, and we believe this approach should be maintained. VSA can and
should be used to formulate a view of price action, but when the Wyckoff investor must execute a trade the market phase, index strength, sector
strength and stock's relative strength are every bit as critical as the VSA view.
You can learn more on the subject through Tom Williams books listed on our education page. We are great fans of VSA, our charts are very VSA
friendly, plus we allow you apply VSA mutli time frame. The next chart shows you how to apply VSA to both the daily and half month chart at the
same time.
You can also use our Point and Figure charts to complete the Wyckoff accumulation and target exercises.
In Tim Ord's book (The Secret Science of Price and Volume) he explains how to review volume per price swings and when to be bullish or bearish. We
added to this the percentage of the float traded each day and swing. The results are always very interesting when you apply Wyckoff logic to float
traded as well as volume. (Note: Stock float data is not provided, we use the data from short squeeze.com )
Richard Wyckoff also use the indicator called the Optimism Pessimism Index, this is in fact the modern day On Balance Volume indicator which is also
available here. We prefer to use our own proprietary RTT_PriceVolume indicator that highlights the divergence in volume relative to price exceedingly
well.
Richard Wyckoff incorporated the 'Wyckoff Wave' (Our symbol: @RTWWV) within his trading, this is a custom index made up of 12 leading stocks, one
from each major market sector. Applying Hurst and Gann together tools only adds further value to the chart.
Wyckoff Mapping of Chart Action: In the article titled 'Wyckoff Schematics: Visual templates for market timing decisions' (pdf) (see our education
page) the authors map out the terminology used within a Wyckoff chart. The mapping of price action in this manner allowed Wyckoff to determine if
and when his nine steps formula had been achieved. Wyckoff new the process of accumulation (or distribution) was a minefield for the investor as the
risk of being stopped out was high and the risk to reward ratio was poor. Wyckoff use the nine rules to determine when and if the accumulation (or
distribution) process was to end and the price mark up (or down) process was about to be begin, the mark up (or down) process being the ideal time
to take an investment position. Wyckoff wished only to invest in the mark up (or down) phase of the stock price cycle, he also new determining the
change over from accumulation (or distribution) to mark up (or down) phase was tricky and the risk of loss was at this time highly probable. Wyckoff
created the logical approach of the nine rules to be more scientific than artistic or discretionary to limit his risk.
Reference: here
The nine rules for buying (long) into the mark up process after a accumutlation phase
1) Downside Objective Accomplished (PnF)
2) Bullish Price Behavior
3) Preliminary Support and Selling climax (PnF)
4) Stronger than the Market: Harmony/Alpha/Relative Strength
5) Trend line Broken
6) Higher Bottoms: Reason To move.
7) Higher Tops: Reason To move.
8) Base Forming (PnF): The cause.
9) Trade 3:1 Reward / Risk Ratio (PnF): Expected Effect.
The nine rules for selling (short) into the mark down process after a distribution phase
1) Upside Objective Accomplished (PnF)
2) Bearish Price Behavior
3) Preliminary Supply and Buying Climax (PnF)
4) Weaker than the Market: Harmony/Alpha/Relative Strength
5) Trend line Broken
6) Lower Tops: Reason To move.
7) Lower Bottoms: Reason To move.
8) Crown Forming (PnF): The cause.
9) Trade 3:1 Reward / Risk Ratio (PnF): Expected Effect.
The nine steps above are a sub set of Wyckoff 5 overall leading steps of evaluation:
1) Determine the present position and probable future trend of the market.
2) Select those stocks that are in harmony with the market, in a bull market stronger, in a bear market weaker, using the idea of relative
strength.
3) Select those stocks that have built a cause for a potential move in keeping with our goals. Use point and figure charts to determine how
far the stock is likely to move.
4) Determine the stock’s readiness to move and then analyze the standard price and Point and Figure charts with the help of the Nine Buying
and Selling Tests.
5) Time your commitments with a turn in the general market using the three laws that govern all market behavior.
The Wyckoff mapping process is fun and as it puts sign posts on the chart to the direction of Mr Market. You may think that the Wyckoff accumulation
and distribution patterns below are just a mirror of the standard technical analysis of double tops, triple tops and head and shoulders, well they do
capture those, but they also capture the more complicate patterns. The Wyckoff approach analyzes the inner behavior of the price action to
determine if Mr Market is about employ a mark up or down phase.
Let's face it, not all patterns break out into tradeable trends, they can morph into another pattern. The approach below is Wyckoff method for filtering
out those accumulation and distribution patterns that lack clarity. The only pattern that would not suit this approach is a V reversal pattern as an
accumulation or distribution base is not present, this pattern is rare, therefore we would say most of the time the Wyckoff approach is applicable.
Here are the headline phases of a stock price.
The Accumulation phase with Wyckoff sign posts.
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
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.
Phase E: Depicts the unfolding of the uptrend; the stock or commodity leaves the trading range and demand is in control. Sell offs are usually feeble.
The Distribution phase with Wyckoff sign posts.
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: Depicts the unfolding of the downtrend; the stock or commodity leaves the trading range and supply is in control. Rallies are usually feeble.
The re accumulation and re distribution phase with Wyckoff sign posts.
Terminology for the abbreviations as supplied by the article 'Wyckoff Schematics: Visual templates for market timing decisions'. More definitive
information here
AR Automatic rally or reaction
BC Buying Climax
BOI Backing upto ice
BTI Breaking the ice
BUEC Backup to edge of creek
CREEK Critical support
FTI First time over ice
ICE Critical resistance
JAC Jumping across the creek (or JOC)
LPS Last point of Support (Demand)
LPSY Last point of Supply
MD Mark down
MU Mark up
PS Preliminary support (Demand)
PSY Preliminary supply
SOS Sign of strength
SOW sign of weakness
ST Secondary test
TSO Terminal shake out (Spring)
TUT Terminal thrust
UTAD Up thrust after distributuon
SC Selling Climax
TR Trading Range
UT Up thrust
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Source: http://www.readtheticker.com/Pages/IndLibrary.aspx?65tf=263_wyckoff-method-improved1
Wyckoff method improved1
Created on: 7/3/2011 3:49:19 A M GMT Last Update: 9/23/2011 5:12:06 A M GMT Posted by: RTT
Extract from the site page called 'Richard Wyckoff method'
.."Wyckoff wished only to invest in the mark up (or down) phase of the stock price cycle, he also new determining the change over
from accumulation (or distribution) to mark up (or down) phase was tricky and the risk of loss was at this time highly probable"...
The Richard Wyckoff method has 5 phases (A, B, C, D, E) to determine if the (re) accumulation or (re) distribution pattern is about to break
out into a price mark up or down phase. You can refresh yourself on the detail of these phases via our ‘Richard Wyckoff Method’ page. We
have marked on the chart below the 5 phases next to each price reversal action. Once the 5 phases have been confirmed and price breaks
through the ice (support) or the creek (resistance) the Wyckoff trader must then draw a trading channel to navigate the price mark up or
down. Wyckoff would execute positions in the market after reference points 1, 2 and 3 on the chart subject to favourable price and volume
action.
The Richard Wyckoff method is a solid technique but in our view could use a little adjustment when the trader is working through phase D
and E. We wish to highlight some minor issues that require a little tweaking:
1) The Wyckoff trader must determine in phases D and E through price and volume action that either demand has over come supply
(bull case) or supply has overcome demand (bear case). When the chart allows this to be clear this process is easily done, however
some times the price and volume patterns are not so clear and confusion and fear as to a false break out will plague the Wyckoff
trader mind.
2) After determining that a mark up or mark down period is about breakout with a good 3 to 1 profit ratio the Wyckoff trader doesn’t
know if the profits will be made within 10 days or 10 weeks. Time is money and the application of price channels to the price action is
not a true measure of time to price as the slope of the channel is not a factor in the Wyckoff method.
3) The Wyckoff channel is not a definitive tool to determine whether price action will maintain a status of mark up or down. For
example, if the slope of the channel is relatively flat then the price action may be just moving into a new trading range and thus be
more accumulation or distribution.
4) The construction of the Wyckoff channel requires three pivot points (as shown by the three solid dots on the chart). Sometimes
there is no correlation between the price mark up or down to the channel and constant re drawing of the channel (or trend lines is
required).
The above issues are not major and if the reader wishes they can be ignored to maintain the purist view of Wyckoff trading style. But if the
reader is open to a possible fix then consider the following.
Gann Angles
Gann angles drawn on an equal time (xAxis) to price (yAxis) scale are a true measure of price appreciation or depreciation to time. You can
refresh yourself on the detail of Gann Angles via our ‘William Gann Method’ page. Let’s review.
Bullish Angles: When price is above a positive sloping Gann Angle it is in a corridor of price appreciation.
Bearish Angles: When price is below a negatively sloping Gann Angle it is a corridor of price depreciation.
Our discussion will cover the bullish Gann Angles, the inverse is true for bearish Gann Angles.
Black Corridor When price is over of the black line it is appreciating at better than 12 units of
price for 1 unit in time (1x12).
Gray Corridor When price is over of the gray line it is appreciating at better than 8 units of price
for 1 unit in time (1x8).
Green Corridor When price is over of the green line it is appreciating at better than 4 units of price
Blue Corridor When price is over of the blue line it is appreciating at better than 2 units of price
Red Corridor When price is over of the red line it is appreciating at better than 1 unit of price for
1 unit in time (1x1).
Quickly the reader will realise that price action in the steeper corridors will generate quicker profits that when it is not.
When price action is within a mark up or down phase it can consolidate into different degrees of re accumulation or re distribution. The
generic patterns the chartist sees are patterns like flags, symmetrical triangles and small rectangles. These continuation patterns can be a
few days or several weeks in time. The time span of the continuation pattern is the ‘degree’ of concern, the longer in time the continuation
pattern are the greater the risk the re accumulation pattern morphs into a full distribution pattern and price reverses ( like wise for re
distribution patterns).
Please refresh your self with the Wyckoff Phase chart. Re accumulation patterns begin their life with minor distribution (as some players take
profits), but as time goes on the re accumulation pattern breaks into a further mark up of prices. Time may or may not be the friend of the
re accumulation phase as fundamentals can change for better or for worse (like wise for re distribution patterns).
Let us review the floating variables within the Wyckoff channel tool to monitor price mark up or down.
1)Price can be marked up or down at any pace (as the slope of the Wyckoff Channel can be very different degrees of pace)
2)Price may suffer during the mark up or down phases re accumulation or re distribution phases of different time spans.
You can conclude that the Wyckoff Channel is not definitive when price action is within its boundaries will be a pure mark up or down phase,
as the mark up process can be troubled with an unknown degrees of re accumulation or re distribution. It is important for the investor know
for sure when price is in a pure mark up or down phase as this has direct implications on capital allocation and or portfolio profitability (Alpha
or relative strength return).
Therefore the investor requires a tool to identify pure price mark up (or down). The tool is required to be 80% plus accurate for when price
stays within its boundaries price would continue to be in a mark up (or down) phase with only minor periods of re accumulation (or re
distribution).
Our Response
If price stays above the Blue corridor (including the Green, Gray and Black corridors) then price is appreciating at better than 2 units of price
for every 1 unit in time, then it is very unlikely that price will suffer any serious re accumulation until the blue corridor is broken (or 1x2 Gann
Angle). A lesser test, but by no means poor, if price stays above the Red corridor (1x1 Gann Angle) then the price mark up phase may suffer
a moderate re accumulation before continuing on. Price breaching of the Blue or Red corridor will require a re evaluation of price action as
price may be just shifted sideways and not breaking down. Each case must be judge on its merits.
The $64000 question has just been answered: If you have a robust test to determine the pure mark up or down phase then every thing
else on the chart not identified is by process of elimination is either accumulation or distribution.
That’s it then. We have our tool so let’s go hunting for pure mark up or down phases on the SP500 ETF or SPY. We will swing back later on
how to see how the Blue and Red corridor work within Wyckoff method.
NOTE: To use Gann Angles within readtheticker.com the chart must setup with a 1x1 price to time axis. See red box under the symbol name
of the chart.
By placing the bearish Gann Angles on major pivots highs we can see how period1 and period2 performed as a pure mark down phase with
only few minor re distribution phases. Both period1 and period2 were under the blue corridor (or the 1x2 Gann Angle). There was a minor
price test, when price challenged the blue corridor (see yellow circles). The pink zone with the X is where the trend changed. The down
trend from 10/09/2007 was under the red 1x1 corridor and as we stated above you can expect the re distribution phases to be more serious
than those under the blue 1x2 corridor.
By placing the bullish Gann Angles on major pivots lows we can see how period3 and period4 performed as a pure mark up phase with only
few minor re accumulation phases. Both period3 and period4 were over the blue corridor (or the 1x2 Gann Angle) and for a short while over
the green corridor (or 1x4 Gann Angle). The pink zone with the X is where the trend changed. The up trend from 03/09/2009 was above the
red 1x1 corridor and as we stated above you can expect the re accumulation phases to be more serious than those above the blue corridor
(1x2 Gann Angle). There blue corridor suffered a few shifts to the right, but soon re established the pure mark up trend.
As you can see below the blue corridor (1x2 Gann Angle) has been very important to the SPY chart. When the blue corridor has broken it has
signalled a major trend change. Note: Charts will differ as to which corridor (Gann Angle) will dominate.
We hope you agree that the Gann Angle can assist the Wyckoff investor as to the location of pure price mark up or down. Here is how we
overcome the four Wyckoff D and E phase issues we posted above:
1) Place the Gann Angles on the last pivot point within phase D, if price is beginning a mark up or down phase then price should stay in
the Blue Corridor (or 1x2 angle), or at the very least stay within the Red Corridor (or 1x1 angle).
2) The Gann Angles are drawn on a chart scale of equal time and price therefore if price action is in the Red Corridor or better you
have secured one unit of price to one unit of time at the very least.
3) We hope the example on the SPY charts above prove to you that Gann Angles are excellent for highlighting the pure price mark up
or down phases. Knowing this should keep the Wyckoff investor out of troublesome accumulation or distribution phases.
4) The Gann Angle only requires one pivot point and not three. The selection of the pivot point should be the one just prior to the
impulse move expected within the Wyckoff phase D and E. As price moves along, move the angle to the next pivot point.
To conclude we would place Gann Angles at location 1, 2 and 3 on the first chart of this post. Then decide if the trade is warranted by
judging price performance to stay within the desired Gann Angle corridor.
If you haven't yet worked it out, the Wyckoff Investor is a mark up (or down) hunter. Wyckoff determined that the highest probability for
mark up (or down) to occur was on the completion of his nine rules. We believe the application of Gann Angles in the correct way aid the
Wyckoff Investor to nurture and enjoy as much of the mark up (or down) process as possible. Hope you concur.
Investing in the Wyckoff mark up (or down) phase has major advantages compared to investing in either the accumulation or distribution
phase:
Price in the mark up phase is deliberately being moved up, therefore buying the short term pullbacks will be successful.
Price in a strong mark up phase will see heavy buying during short term pullbacks.
Price during the mark up phase often extends further than expected as this phase attracts a buying climax or blow off price action.
The accumulation or distribution phase is normally range bound and is populated with false break outs in either direction with the sole
purpose to bust stops.
Profits are expected to be larger in the mark up phase.
Gann Angles Advance: You can have a positive stock trend on a Gann Angle of 2x1 (or two units of time to one unit of price), but as this is
under our minimum requirement of 1x1 or better we will leave the tricky and poor rewarding setups to others.
NOTE: Members can use both the QuickDraw (Ctl Z, Ctl X) and Object Gann Angles.
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Wyckoff method improved2
Created on: 7/3/2011 10:59:38 PM GMT Last Update: 9/23/2011 3:53:20 A M GMT Posted by: RTT
In a closing paragraph of this post Wyckoff method improved1 we said:
.."If you haven't yet worked it out, the Wyckoff Investor is a mark up (or down) hunter. Wyckoff determined that the highest
probability for mark up (or down) to occur was on the completion of his nine rules. We believe the application of Gann Angles in
the correct way aid the Wyckoff Investor to nurture and enjoy as much of the mark up (or down) process as possible"..
We would like to add another set of scenario's to Wyckoff nine rules, and that would be the three signals produced by the Jim Hurst
method through the application of cycle theory.
1) When price conforms to a cycle trough and moves upwards with the cycle rising.
2) When price conforms to a cycle peak and moves downwards with the cycle falling.
3) Which price fails to conform to the cycle and moves in a manner inverse to the cycle action.
The short and long term dominant cycle are the birth places of accumulation and distribution. The monitoring of cycles is very beneficial to
forecasting the next market phase. Cycles have a very good habit of timing the next explosion of activity (mark up or down). We feel Hurst
cycles add another string to the bow for the Wyckoff Investor.
NOTE: C ycles do not replace Wyckoff nine rules, they do however help filter out those patterns that are less attractive.
The above chart is the visual definition of the Hurst and Gann value added Wyckoff method, or more simply Wyckoff 2.0. The above chart is
Richard Wyckoff method for the 21st Century.
Wyckoff 2.0 Defined:It is the appication of the Richard Wyckoff method in the pure form with the added value tools of Gann Angles and Hurst
Cycles. The Gann Angle 1x4, 1x2 and 1x1 are used to assist in the location of pure price mark up (or down), the Hurst cycles are used to
forewarn of (re) accumulation and (re) distribution phases.
Video explaining Wyckoff 2.0 in brief
How to find Mark up Phase
On the GOLD
Here is a real world example of Wyckoff 2.0 method.
Currently (20110707) every hedge fund manager and institution owns a piece of Apple Inc for the simple reason the stock has been in a
'pure mark up' period since the 2008 lows. Sure a few re accumulation patterns along the way, but a fantastic performing stock. Of course a
serious break of the latest blue corridor (1x2 Gann Angle) and a more serious distribution could unfold.Yes you can assume that the Wyckoff
2.0 methods are employed by the top investment houses whether they know it or not.
The Point and Figure Chart always as 'clear as day' shows phases of (re) accumulation and (re) distribution.
The post named Powerful patterns hold further illustrations.

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Wyckoff 2.0 vs Others
Created on: 7/5/2011 8:26:07 A M GMT Last Update: 7/5/2011 10:58:55 PM GMT Posted by: RTT
A quick re vamp, the Wyckoff 2.0 Chart
The above chart is the visual definition of the Hurst and Gann value added Wyckoff method, or more simply Wyckoff 2.0. The above chart is
Richard Wyckoff method for the 21st Century.
Wyckoff 2.0 Defined:It is the application of the Richard Wyckoff method in the pure form with the added value tools of Gann Angles and
Hurst Cycles. The Gann Angle 1x4, 1x2 and 1x1 are used to assist in the location of pure price mark up (or down), the Hurst cycles are used
to forewarn of (re) accumulation and (re) distribution phases.
Extract from the site page called 'Richard Wyckoff method'

.."Wyckoff wished only to invest in the mark up (or down) phase of the stock price cycle, he also new determining the change over
from accumulation (or distribution) to mark up (or down) phase was tricky and the risk of loss was at this time highly probable"...
Simple put, investing during the accumulation and distribution phases of a stock phase cycle is just too hazardous to warrant an investment
decision.
Once an investor has determined the stock price is in the mark up phase then it does not matter the method or indicators used to profit, as
all indicators and methods will do well during the mark up (or down) phase. The trick is to know the phase the stock is in. Lets use Apple Inc
(AAPL) as an example once again.
From 2009 to 2011 Apple Inc is above the blue corridor (1x2 Gann Angle), this is confirmation that price is in a pure mark up phase. We hold
the conclusion that all methods work well during the mark up phase.
For example:
1) Standard Indicators: Any oscillator picking short term dips would work.
2) Elliot Wave: The application of the 1 to 5 count for the impulse wave would work.
3) Darvas Boxes: The application of Nicolas Darvos boxes would work.
4) Drummond Geometry: Indicators from his toolset would work.
5) William O'Neil: CANSLIM would work.
etc
And the list will never end, everything works when the chart is nice and pretty.
It should be noted that:
1) Some of these system could exit you early. For example the Elliot Wave method may via the application of Fibonacci count may call a 5
wave top at only the 60% completion of the move.
2) The majority (or I should say all) of methods that allow investments during an accumulation or distribution phase struggle.
The above goes for newsletter and stock pickers, those that do well have selected more stocks during there mark up phase that those that
have not, it is as simple as that. The reader has the ability to apply and learn Wyckoff 2.0 via our site to take advantage of profitable stock
price mark up (or down) phases for better returns.
In our humble view the Wyckoff 2.0 method is the granddaddy of all methods, it is the approach all investors should apply. The Wyckoff 2.0
method will work for decades, after all the Wyckoff 1.0 method has already completed eight decades (1930-2010).
To fully understand Wyckoff 2.0, Please read these references on the menu
Richard Wyckoff Method
Jim Hurst Method
William Gann Method
Wyckoff Method Improved1
Wyckoff Method Improved2
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Wyckoff 2.0 and Volume Spread Analysis
Created on: 7/12/2011 10:56:57 PM GMT Last Update: 7/13/2011 4:53:32 A M GMT Posted by: RTT
We are great fans of Tom Williams and his two books ('Master the Markets'* and 'The Undeclared Secret that Drive the
Stock Market'*) in which he discusses his adaptation of Richard Wyckoff methodology. Tom Williams named his
approach the 'Volume Spread Analysis' or 'VSA' and it is based on the bar by bar study of volume (or relative volume),
the close and the range of the bar (high less low) to judge the contest between demand and supply.
There is a high correlation with VSA and Richard Wyckoff's bar by bar determination, many of the definitions are the
same yet the name may differ.
*Note: See our education page for details.
Wyckoff Accumulation Phase Chart
For example:
VSA Definitions Wyckoff Defintions

Tests Automatic rally
Failed Test Buying Climax
Shakeouts Backing upto ice
No demand Breaking the ice
No Supply Backup to edge of creek
Stopping volume Critical support (creek)
Pushing through supply First time over ice
Upthrust Critical resistance (ice)
Selling Climax Jumping across the creek (or JOC)
Buying climax Last point of Support (Demand)
Climactic action Last point of Supply
Support Mark down
Resistance Mark up
Trap up/down move Preliminary support (Demand)
No result after strong effort Preliminary supply
Selling/buying pressure Sign of strength
Bottom reversal Sign of weakness
End of a rising market Secondary test
Bag Holding Terminal shake out (Spring)
Terminal thrust
Up thrust after distributuon
Selling Climax
Trading Range
Up thrust
Reference: Master the Markets Reference: Richard Wyckoff method
Wyckoff definitions are designed and named in a manner to support the Wyckoff 9 trading rules through the trading range phases A to E,
where as Williams definitions are designed to cover all the bar by bar action no matter the phase. We like both. Both are designed to help
judge the contest between supply and demand.
Both Wyckoff and Tom Williams adhere to the importance of market phases ([re]accumulation, [re]distribution, mark up, mark down), but we
feel the Wyckoff definitions are tailor made to determine the change over from (re) accumulation to mark up or (re) distribution to mark down
more so than Tom Willams defintions, the reader may think this is splitting hairs, but we think this is the case as Tom Williams in his books do
not present his definitions in the framework of Wyckoff trading range phases A to E with the 9 Wyckoff trading rules.
Tom Williams VSA trading setups are designed around the Wyckoff phases known as 'Signs of Weakness' (SOW) or 'Signs of strength' (SOS).
As these phases are an important part of the Wyckoff trading range D and E phase, (Reminder: Wyckoff D and E phase are the price break
out phases) we feel that the VSA setups are best executed only when the pure mark up (or down) phase has been clearly established.
A VSA 'Sign of Weakness' (SOW) setup would consist of a pattern of 3 to 20 bars that include any combination of the following VSA bar
types: Buying climax, No Demand, Suppy overcoming demand, Up Thrusts, End of a Rising Market, Top Reversal, Failed Test.
A VSA 'Sign of Strength' (SOS) setup would consist of a pattern of 3 to 20 bars that include any combination of the following VSA bar types:
Selling Climax, No Supply, Demand overcoming supply, Test, Two bar reversal, Shakeout, Test of supply after Shakeout, Bag Holding, Test of
a Break Out
In summary our view for better success with VSA trading setups:
1) VSA Sign of Weakness (SOW) setups: Are best executed when a pure mark down phase has been confirmed. Wyckoff 2.0 requires that
price be underneath the Gann Angle 1x2 (preferred) or 1x1 and it is best that price is below broken support for a pure mark down phase to
present. See the red shade area in the first image above.
2) VSA Sign of Strength (SOS) setups: Are best executed when a pure mark up phase has been confirmed. Wyckoff 2.0 requires that price
be above the Gann Angle 1x2 (preferred) or 1x1 and it is best that price is above broken resistance for a pure mark up phase to present. See
the blue shade area in the first image above.
When either a pure mark up or down phase can not be established then the phase may either be accumulation or distribution and this market
phase was considered by Richard Wyckoff as an unattractive market phase to profit. We also hold this view and we also feel VSA traders
should as well.
The reader may be very confused with all the lingo and definitions, after you read the material behind the subject matters the confusion will
be removed.
We would also like to bring to the attention of the reader that from out post Wyckoff 2.0 vs Others that everything works when the chart
is nice and pretty, and a chart is always very pretty when either pure mark up or down is clearly established.
Reading References:
Wyckoff 2.0
Richard Wyckoff method
Master the Markets
The Undeclared Secret that Drive the Stock Market
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Jim Hurst method
Created on: 8/25/2010 4:46:29 A M GMT Last Update: 5/16/2011 6:53:33 PM GMT Posted by: RTT
The originator of this method is from the writings of Jim Hurst.
James (Jim) M Hurst is a legend to knowledgeable individuals interested and involved in the study of cyclical
price movement in the financial markets.
By training and background an aerospace engineer, he was the first true pioneer in the computerized research
into the nature of stock price action, devoting many years and over 20,000 computer hours to this study. His
conclusions were first documented in his groundbreaking classic, The Profit Magic of Stock Transaction Timing.
The work of Hurst inspired cycles analysts who came later, and represents the most important factor behind the
work later done by such cycles luminaries as peter Eliades, Jim Tillman, Walter Bressert, and Brian Millard.
First, lets review some basic cycle terminology.
Jim Hurst published his methods in the book called 'The Profit Magic of Stock Transaction Timing' (see our education page). Hurst determined that a
price series may have dominating cycles that can be used to time stock transactions for profit. You can also learn more via our videos.
How would Hurst Trade:

In short he would:
1) Find the dominant cycle or cycles: One can use the basic eyeball method or as we prefer the readtheticker.com 'RTT Cycle Finder Spectrum' tool
to determine dominating cycles within a price series.
2) Find the sub cycle by dividing the dominant cycle in half. (Example: A dominant cycle of 80 would have a sub cycle of 40). Of course, you can use
other lower period cycles that have a good Bartels value.
3) Time your stock transaction with turns of (2) within the trend of (1). See more on the subject under the post titled PI:Price to continue or
reverse?
Note: We use the RTTHurstDPO or the RTTHurstROC to time price action to the dominant cycle.
To use the full set of Hurst tools you require a membership to RTTIndicators. Standard indicators have limited Hurst Cycle functionality.
Please review the 80 period cycle within the SPY ETF (image below). The dominance did not really start until mid 2008, then it has led the way of
nearly all major market turns. You will need to search far and wide to find a better leading (not lagging) stock timing indicator than the hurst cycle.
However, like anything a cycle dominance can fade, dominance can shift, therefore one has to be diligent and monitor a price series closely. The
chart below is an example why Hurst was successful. Price and their underlying cycles can be predictable and therefore stock transaction timing is
very possible and can be very profitable.
The Hurst cycle we use is a sinewave filtered by price, the higher correlation of price to the sinewave the less the sinewave is altered. Thus allowing
one to view good and poor periods of price cycles behavior.
If you find multiple significant cycles, you can plot them together and then combine them to see the master cycle.
Or it might be best to study multiple cycles individually.
Cycles do exist in the market or any time series. Just check out these cycles lows found on the Dow Jones.
Once we determine the dominant cycle, a scientific method is required to measure the performance of price relationship to the cycle. Future price
action is always an 'unknown', but we can say that future price action will take one of three forms:
(i) Conform to the cycle.*
(ii) Temporarily trend in a inverse manner to the cycle.*
(iii) Break the cycle, as to render cycle influence as random.
*These periods are excellent opportunities to profit.
The following chart highlights the two tools we use to measure price action with the dominant cycle, the RTTHurstDPO and the displaced moving
average. Hurst expected price to conform to the cycle by the completion of the half cycle, but Hurst understood that price in trends can temporarily
inverse to cycle, this is accepted as long as price re affirms its relationship to the cycle by the next swing.
When price action fails to obey the cycle this is called an inversion. How to judge possible inversions is a technical art that the Hurst analyst must
master.
Methods available are:

1) Apply a displaced simple moving average to price, displacement being half of the cycle period. If price fails to break the average then price is likely
to inverse to the cycle.
2) Apply the RTT HurstDPO. If the DPO price breaks the cycle swing, then price is likely to inverse to the cycle.
3) Apply the RTT TrendPower tool, to determine if the strength or weakness of the trend concurs with expected cycle outcome (note: if the cycle
period is 80, then use 40 within the RTT TrendPower indicator).
4) Apply methods from the Wyckoff and Gann tool chest. Gann Angles, Wyckoff market phases and volume patterns will increase your odds of
correctly determining a price inversion to the cycle.
Example: Gann Angles help with the determination of price inversion to the dominant cycle.
Readtheticker.com Cycle Finder Spectrum
We have incorporated the latest advanced mathematics to find within a price series sample:
1) Cycles with significant amplitudes
2) Rank cycles with their 'Bartels Significance Value'.
3) Determine win loss percentage of cycle profitability to price.
The 'RTT Cycle Finder Spectrum' is a pop out tool within the members area. It is designed to scan for cycles while you are building an analysis or
cycle chart. There is no charting functionality within this tool.
The Bartels Significance Value

Developed by Julius Bartels, a geophysicist who worked at the Carnegie Foundation in Washington in the 1930's. The advanced maths measures the
stability of the amplitude and phase of each cycle. The method provides a direct measure of the likelihood that a given cycle is genuine and not
random. The closer the cycle Bartels value is to zero, the less likelihood the cycle has been influenced by random events, and therefore significant to
the data series.
To conclude: The lower the 'Bartels value' the more significant the cycle to the price series sample used.
We color code the report table for easier use, as follows.

Red < 2.5
Blue < 7.0
Green < 12.0
Any reading over 7.0 requires an eyeball determination as to the cycles significance. For readings over 12 the cycle is unlikely to be significant, and
most likely to be random. Cycle readings under 2.5 are considered to be significant. The 'Bartels value' does change over time for each cycle period,
therefore regular monitoring of the price series to cycle dominance is required.
Examining the profit win loss percentage of cycles is another tool to use to determine the dominant cycle. This is very useful when you have a
cluster of low Barbels cycle scores.
Recently we found a dominant cycle within the SP500 index, that had a Bartels score of 2.0245, a win/loss count percentage of 80%, a win/loss
SP500 points of 85%. Knowing this cycle I made very sure we did not invest against it. Where as the general market participants had no idea of this
dominant cycle and most likely suffered a loss. Further, it is great to have an indicator that is 80% accurate, it is even better when you add our
proprietary RTTTrendStatus and RTTHurstDPO tool to make the percentage chance of success even higher.
Another point to note is that a Bartels scan is cumulative over the data sample selected, that is it examines all data over the cycle period selected.
This is not like stock scans for RSI levels or MACD levels which are at a point in time.
Example output from the readtheticker.com 'RTT Cycle Finder Spectrum'.
Specification are:
Symbol: SPY
Run to last date (optional): 04/01/2010
Manual cycle period selected (optional): 78
Max cycle periods to scan up to: 150
Daily data sample size used: 750 days
Max daily data sample available: 4325 days.
See why Bartels Significance Values do matter.
This is the methodology used to determine win loss percentage of cycles related to price time series.
We also take a portfolio approach with Hurst logic. For example, we scanned the NASD100 index to find the dominant cycle. This turned out to be
cycle period 78. Then we wanted to find stocks within the NASD100 that are most sensitive to cycle period 78 for our portfolio. The results follow.
Once a dominant cycle has been determined and added to an 'Analysis Chart', constant monitoring of the cycle Bartels performance is required over
time to ensure the cycle statistical significance is maintained, this is because new price data can either enhance or reduce cycle dominance. To
monitor the 'Bartels' of the cycle we use the 'Cycle Chart'. Therefore if you have a portfolio it is easy to monitor your favorite cycles and their Bartels
over time for each symbol in your portfolio.
Example of the Cycle Chart
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The Wyckoff Way

The Accumulation phase with Wyckoff sign posts.

Wyckoff Phases of Accumulation

The Distribution phase with Wyckoff sign posts.

Wyckoff Phases of Distribution

The re accumulation and re distribution phase with Wyckoff sign posts.

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Extract from the site page called 'Richard Wyckoff method'

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In a closing paragraph of this post Wyckoff method improved1 we said:

How to find Mark up Phase

Here is a real world example of Wyckoff 2.0 method.

© Copyright 2010 www.readtheticker.com (or 'RTT')

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A quick re vamp, the Wyckoff 2.0 Chart

Extract from the site page called 'Richard Wyckoff method'

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VSA Definitions Wyckoff Defintions

Reference: Master the Markets Reference: Richard Wyckoff method

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The originator of this method is from the writings of Jim Hurst.

First, lets review some basic cycle terminology.

How would Hurst Trade:

Methods available are:

The Bartels Significance Value

We color code the report table for easier use, as follows.

Example output from the readtheticker.com 'RTT Cycle Finder Spectrum'.

See why Bartels Significance Values do matter.

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