Steps to Approach the Market

1. Determine the present position and probable future trend of the market

 Is the market moving sideways or trending up or down?

 Does your analysis of supply&demand indicate the direction that is likely in the near
future?
 This step helps you to decide whether the market is trending up or down or sideways or
to be in the market at all. If the market is trending up, should take long positions.
Conversely, if the market is trending down, should take short positions.
 Use bar charts and Point and Figure charts (P&F) of major market indices (S&P 500,
Dow Jones Industrials, etc.…) for step 1.

2. Select stocks in harmony with the trend

 In an uptrend, select stocks that are stronger than the market. For example, search for
stocks that show greater percentage increases than the market during an uptrend and
smaller percentage decreases during a reaction (a sudden but usually short-lived upwards
or downwards movement in a stock's price). Say, S&P 500 increases 20% in value from
1st January to 20th January and ABC Ltd stock price increases 25% from 1 st January to
20th January and S&P 500 decreases 10% during a reaction on 21 st January while ABC
Ltd stock price only decreases 3% on that day. In a downtrend, do the reverse, choose
stocks that are weaker than the market.
 Use bar charts of individual stocks to compare with those of the most relevant market
index for Step 2.

3. Select stocks with a “cause” that equals or exceeds your minimum objective

 A critical component of Wyckoff's trade selection and management was his unique
method of identifying price targets using Point and Figure (P&F) projections for both
long and short trades. In Wyckoff's fundamental law of “Cause and Effect,” the
horizontal P&F count within a trading range represents the cause, while the subsequent
price movement represents the effect. Therefore, if you are planning to take long
positions, choose stocks that are under accumulation or re-accumulation and have built a
 sufficient cause to satisfy your objective. Step 3 relies on the use of Point and Figure
charts of individual stocks.

4. Determine the stocks' readiness to move

 Apply the nine tests for buying or for selling (described below). For instance, in a trading
range after a prolonged rally, does the evidence from the nine selling tests suggest that
significant supply is entering the market and that a short position may be warranted? Or
in an apparent accumulation trading range, do the nine buying tests indicate that supply
has been successfully absorbed, as evidenced further by a low-volume spring and an even
lower-volume test of that spring? Use bar charts and Point and Figure charts of individual
stocks for Step 4.

5. Time your commitment with a turn in the stock market index

 Three-quarters or more of individual issues move in harmony with the general market, so
you improve the odds of a successful trade by having the power of the overall market
behind it. Specific Wyckoff principles help you anticipate potential market turns,
including a change of character of price action (such as the largest down-bar on the
highest volume after a long uptrend), as well as manifestations of Wyckoff's three laws
(see below). Put your stop-loss in place and then trail it, as appropriate, until you close
out the position. Use bar and Point and Figure charts for Step 5.
Forms of Charts

Bar Charts

 The opening price is indicated by a short horizontal line on the left.

 The closing price is indicated by a short horizontal line on the right.
 The range from high to low is indicated by a vertical line.
 Volumes are recorded by a vertical line at the bottom. Every transaction that takes place
between a buyer and a seller of a security contributes to the total volume count of that
security. One transaction occurs whenever a buyer agrees to purchase what a seller is
offering for sale at a certain price. The volume (number of shares dealt in) indicates the
intensity of the trading and the quality of the buying and selling, and is a further
essential aid in judging supply and demand.

Advantages of a bar chart

 By using a bar chart, we’re able to judge the supply and demand, the points of support
and resistance, and the trend.
 The Time Factor is also important because it enables us to estimate the speed of the
advances and declines — whether the buying or selling is urgent or leisurely;
whether it is slow or rapid accumulation, or distribution.
 From the volume and the price movement we find the greatest aid: (a) in determining
the direction of coming moves; (b)deciding when to buy or sell, when to go long or
short; (c) when a stock is on the springboard, and (d) when a move is culminating.