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Source: http://www.readtheticker.com/Pages/IndLibrary.aspx?65tf=84_richard-wyckoff-method

Richard Wyckoff methodCreated on: 5/18/2010 12:14:14 AM GMT Last Update: 7/24/2011 12:43:55 AM 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 ownbrokerage 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 aneffort 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 tohave 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 throughprice and volume movements held the key to to forecasting future market movements. These observation led Wyckoff to believe that the marketoperated under a set of three laws.

The Law of Supply and DemandWhen 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, ifthere 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 EffectIn 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 movesoccur 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 ResultsSimply 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 ofother 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 ourtools, 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 methodsof 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 mustread (In no particular order).

Studies in Tape ReadingCharting The Stock Market, The Wyckoff MethodThe Secret Science of Price and VolumeMaster The Markets (book or pdf) and/or The Undeclared Secrets That Drive The Stock MarketInvesting with Volume AnalysisWyckoff 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 'Charting the stock market, the Wyckoff Method' has this new book (soon to be released). If any of you have a pre release issue, pleaseemail 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

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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 thelarge accounts determining market the trend, change of trend and price action. Consider the below application of Wyckoffian terms to the modern daySP500.

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 outfrom 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 strongestindex, select the strongest sectors within the index, select the strongest stocks within the sector (strength was measured on an alpha basis orrelative 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 ofRichard Wyckoff theories.

We acknowledge that Wyckoff implemented nine strict rules for the execution of an investment decision. We at readtheticker.com do not apply hisrules 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.



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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 Monthcharts (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 cando 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 newexciting level. He called it Volume Spread Analysis (VSA), and it warrants your attention to learn this art. However a word of caution, many are usingVSA as the definitive approach to execute trade decisions as if it was the Wyckoff method, they also assume that trading VSA can be applied withsuccess 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 statedabove Richard Wyckoff invested when the market entered a mark up or down phase, and we believe this approach should be maintained. VSA can andshould be used to formulate a view of price action, but when the Wyckoff investor must execute a trade the market phase, index strength, sectorstrength 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 thesame 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. Weadded to this the percentage of the float traded each day and swing. The results are always very interesting when you apply Wyckoff logic to floattraded as well as volume. (Note: Stock float data is not provided, we use the data from short squeeze.com )


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Richard Wyckoff also use the indicator called the Optimism Pessimism Index, this is in fact the modern day On Balance Volume indicator which is alsoavailable here. We prefer to use our own proprietary RTT_PriceVolume indicator that highlights the divergence in volume relative to price exceedinglywell.

Richard Wyckoff incorporated the 'Wyckoff Wave' (Our symbol: @RTWWV) within his trading, this is a custom index made up of 12 leading stocks, onefrom 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 educationpage) the authors map out the terminology used within a Wyckoff chart. The mapping of price action in this manner allowed Wyckoff to determine ifand when his nine steps formula had been achieved. Wyckoff new the process of accumulation (or distribution) was a minefield for the investor as therisk 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 (ordistribution) 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 timeto 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 thechange over from accumulation (or distribution) to mark up (or down) phase was tricky and the risk of loss was at this time highly probable. Wyckoffcreated 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 phase1) Downside Objective Accomplished (PnF)2) Bullish Price Behavior3) Preliminary Support and Selling climax (PnF)4) Stronger than the Market: Harmony/Alpha/Relative Strength5) Trend line Broken6) 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 phase1) Upside Objective Accomplished (PnF)2) Bearish Price Behavior3) Preliminary Supply and Buying Climax (PnF)4) Weaker than the Market: Harmony/Alpha/Relative Strength5) Trend line Broken6) 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 relativestrength.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 howfar 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 Buyingand 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 accumulationand distribution patterns below are just a mirror of the standard technical analysis of double tops, triple tops and head and shoulders, well they do


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capture those, but they also capture the more complicate patterns. The Wyckoff approach analyzes the inner behavior of the price action todetermine 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 filteringout those accumulation and distribution patterns that lack clarity. The only pattern that would not suit this approach is a V reversal pattern as anaccumulation 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 isevidenced 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 beingabsorbed by larger professional interests. Once these intense selling pressures have been expressed, and automatic rally (AR) follows the selling climax. A successfulsecondary 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 aroundthe 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 tohelp 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 ofthe 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 thebasic Wyckoff distribution schematic. Nonetheless, phase A still represents the area where the stopping of the previous trend occurs. Trading range phases B through Egenerally 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 nodecisive 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 anddemand 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 linesusually 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 tojudge 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 markupphase. 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 previoussupports 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 createsa 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 dropbelow 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 extentof 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 apparentlyexhausted 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 advisednot 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 themarkup 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 goodpotential 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 stockleaves 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 buyingclimax (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 adistribution 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 increasedspread 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 ofsupply” (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 opportunityto 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 tightlydefined 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. Anupthrust 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 extentof 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 theterminal 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 alsoresults 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 onincreasing 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 thebreakout 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. Whenanalyzing 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 arenot 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 toeach 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 thepotential 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 eventualmove 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 becomingdominant 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 bestopportunities 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 calculatedapproach 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 definitiveinformation here

AR Automatic rally or reactionBC Buying ClimaxBOI Backing upto iceBTI Breaking the iceBUEC Backup to edge of creekCREEK Critical supportFTI First time over iceICE Critical resistanceJAC Jumping across the creek (or JOC)LPS Last point of Support (Demand)LPSY Last point of SupplyMD Mark downMU Mark upPS Preliminary support (Demand)PSY Preliminary supplySOS Sign of strengthSOW sign of weaknessST Secondary testTSO Terminal shake out (Spring)TUT Terminal thrustUTAD Up thrust after distributuonSC Selling ClimaxTR Trading RangeUT Up thrust


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Source: http://www.readtheticker.com/Pages/IndLibrary.aspx?65tf=263_wyckoff-method-improved1

Wyckoff method improved1Created on: 7/3/2011 3:49:19 AM GMT Last Update: 9/23/2011 5:12:06 AM 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 overfrom 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 breakout into a price mark up or down phase. You can refresh yourself on the detail of these phases via our ‘Richard Wyckoff Method’ page. Wehave marked on the chart below the 5 phases next to each price reversal action. Once the 5 phases have been confirmed and price breaksthrough the ice (support) or the creek (resistance) the Wyckoff trader must then draw a trading channel to navigate the price mark up ordown. Wyckoff would execute positions in the market after reference points 1, 2 and 3 on the chart subject to favourable price and volumeaction.

The Richard Wyckoff method is a solid technique but in our view could use a little adjustment when the trader is working through phase Dand 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, howeversome times the price and volume patterns are not so clear and confusion and fear as to a false break out will plague the Wyckofftrader 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’tknow 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 isnot 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. Forexample, if the slope of the channel is relatively flat then the price action may be just moving into a new trading range and thus bemore accumulation or distribution.

4) The construction of the Wyckoff channel requires three pivot points (as shown by the three solid dots on the chart). Sometimesthere is no correlation between the price mark up or down to the channel and constant re drawing of the channel (or trend lines isrequired).

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 thereader is open to a possible fix then consider the following.

Gann AnglesGann angles drawn on an equal time (xAxis) to price (yAxis) scale are a true measure of price appreciation or depreciation to time. You canrefresh 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.


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Black Corridor When price is over of the black line it is appreciating at better than 12 units ofprice 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 pricefor 1 unit in time (1x8).

Green Corridor When price is over of the green line it is appreciating at better than 4 units of pricefor 1 unit in time (1x4).

Blue Corridor When price is over of the blue line it is appreciating at better than 2 units of pricefor 1 unit in time (1x2).

Red Corridor When price is over of the red line it is appreciating at better than 1 unit of price for1 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. Thegeneric patterns the chartist sees are patterns like flags, symmetrical triangles and small rectangles. These continuation patterns can be afew days or several weeks in time. The time span of the continuation pattern is the ‘degree’ of concern, the longer in time the continuationpattern are the greater the risk the re accumulation pattern morphs into a full distribution pattern and price reverses ( like wise for redistribution patterns).

Please refresh your self with the Wyckoff Phase chart. Re accumulation patterns begin their life with minor distribution (as some players takeprofits), 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 there 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 knowfor sure when price is in a pure mark up or down phase as this has direct implications on capital allocation and or portfolio profitability (Alphaor 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 pricestays within its boundaries price would continue to be in a mark up (or down) phase with only minor periods of re accumulation (or redistribution).

Our ResponseIf price stays above the Blue corridor (including the Green, Gray and Black corridors) then price is appreciating at better than 2 units of pricefor 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 GannAngle). 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 suffera moderate re accumulation before continuing on. Price breaching of the Blue or Red corridor will require a re evaluation of price action asprice 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 thingelse 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 onhow 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 nameof 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 withonly few minor re distribution phases. Both period1 and period2 were under the blue corridor (or the 1x2 Gann Angle). There was a minorprice test, when price challenged the blue corridor (see yellow circles). The pink zone with the X is where the trend changed. The downtrend 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 seriousthan 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 onlyfew minor re accumulation phases. Both period3 and period4 were over the blue corridor (or the 1x2 Gann Angle) and for a short while overthe 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 thered 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 hassignalled 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 weovercome 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 inthe 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 youhave 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 upor 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 theimpulse 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 byjudging 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 formark 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 theWyckoff 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 distributionphase:

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 solepurpose 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 isunder 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 improved2Created on: 7/3/2011 10:59:38 PM GMT Last Update: 9/23/2011 3:53:20 AM 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 highestprobability for mark up (or down) to occur was on the completion of his nine rules. We believe the application of Gann Angles inthe 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 Hurstmethod 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 toforecasting the next market phase. Cycles have a very good habit of timing the next explosion of activity (mark up or down). We feel Hurstcycles add another string to the bow for the Wyckoff Investor.

NOTE: Cycles 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 isRichard 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 HurstCycles. 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 toforewarn of (re) accumulation and (re) distribution phases.

Video explaining Wyckoff 2.0 in brief

How to find Mark up Phase




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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 aserious break of the latest blue corridor (1x2 Gann Angle) and a more serious distribution could unfold.Yes you can assume that the Wyckoff2.0 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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Source: http://www.readtheticker.com/Pages/IndLibrary.aspx?65tf=268_wyckoff-20-vs-others

Wyckoff 2.0 vs OthersCreated on: 7/5/2011 8:26:07 AM 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 isRichard 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 andHurst 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 usedto 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 overfrom 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 investmentdecision.

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, asall 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.


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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 holdthe 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 5wave 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 thathave 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 stockprice 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 2.0method 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 menuRichard Wyckoff MethodJim Hurst MethodWilliam Gann MethodWyckoff Method Improved1Wyckoff Method Improved2




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Wyckoff 2.0 and Volume Spread AnalysisCreated on: 7/12/2011 10:56:57 PM GMT Last Update: 7/13/2011 4:53:32 AM GMT Posted by: RTT

We are great fans of Tom Williams and his two books ('Master the Markets'* and 'The Undeclared Secret that Drive theStock Market'*) in which he discusses his adaptation of Richard Wyckoff methodology. Tom Williams named hisapproach 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 thesame yet the name may differ.

*Note: See our education page for details.

Wyckoff Accumulation Phase Chart

For example:

VSA DefinitionsTestsFailed Test

Wyckoff DefintionsAutomatic rallyBuying Climax


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Shakeouts No demand No SupplyStopping volume Pushing through supply Upthrust Selling ClimaxBuying climax Climactic action SupportResistanceTrap up/down move No result after strong effort Selling/buying pressure Bottom reversal End of a rising marketBag Holding

Reference: Master the Markets

Backing upto iceBreaking the iceBackup to edge of creekCritical support (creek)First time over iceCritical resistance (ice)Jumping across the creek (or JOC)Last point of Support (Demand)Last point of SupplyMark downMark upPreliminary support (Demand)Preliminary supplySign of strengthSign of weaknessSecondary testTerminal shake out (Spring)Terminal thrustUp thrust after distributuonSelling ClimaxTrading RangeUp thrust

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 helpjudge 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 wefeel the Wyckoff definitions are tailor made to determine the change over from (re) accumulation to mark up or (re) distribution to mark downmore 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 donot 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 breakout 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 bartypes: 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 ofa 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 thatprice 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 topresent. 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 pricebe 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. Seethe 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 marketphase was considered by Richard Wyckoff as an unattractive market phase to profit. We also hold this view and we also feel VSA tradersshould 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 willbe 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 chartis nice and pretty, and a chart is always very pretty when either pure mark up or down is clearly established.

Reading References:Wyckoff 2.0Richard Wyckoff methodMaster the MarketsThe Undeclared Secret that Drive the Stock Market





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Jim Hurst methodCreated on: 8/25/2010 4:46:29 AM 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 cyclicalprice movement in the financial markets.

By training and background an aerospace engineer, he was the first true pioneer in the computerized researchinto the nature of stock price action, devoting many years and over 20,000 computer hours to this study. Hisconclusions 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 thework 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' toolto 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 useother 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 orreverse?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 ofnearly 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




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chart below is an example why Hurst was successful. Price and their underlying cycles can be predictable and therefore stock transaction timing isvery 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 allowingone 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 priceaction 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 movingaverage. Hurst expected price to conform to the cycle by the completion of the half cycle, but Hurst understood that price in trends can temporarilyinverse 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 mustmaster.

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 likelyto 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 cycleperiod 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 ofcorrectly 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 SpectrumWe have incorporated the latest advanced mathematics to find within a price series sample:1) Cycles with significant amplitudes2) 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 orcycle chart. There is no charting functionality within this tool.

The Bartels Significance ValueDeveloped by Julius Bartels, a geophysicist who worked at the Carnegie Foundation in Washington in the 1930's. The advanced maths measures thestability of the amplitude and phase of each cycle. The method provides a direct measure of the likelihood that a given cycle is genuine and notrandom. The closer the cycle Bartels value is to zero, the less likelihood the cycle has been influenced by random events, and therefore significant tothe 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 < 2.5Blue < 7.0Green < 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, andmost 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 acluster 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/lossSP500 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 thisdominant 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 ourproprietary 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: SPYRun to last date (optional): 04/01/2010Manual cycle period selected (optional): 78Max cycle periods to scan up to: 150Daily data sample size used: 750 daysMax 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 becycle 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 overtime to ensure the cycle statistical significance is maintained, this is because new price data can either enhance or reduce cycle dominance. Tomonitor 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 Bartelsover time for each symbol in your portfolio.

Example of the Cycle Chart






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