Legendary technician Richard Wyckoff wrote articles on financial markets at the same time as Charles Dow, Jesse Livermore, and other iconic figures in the early 1920sday century. His pioneering method of technical analysis has continued into modern times, guiding traders and investors in the best way to select winning stocks, buying stocks at the most favorable time, and the most effective risk management techniques.
His observations on price behavior are combined into Wyckoff Market Cycle It outlines the key elements of trend development, marked by periods of accumulation and distribution. Four different stages constitute this cycle: accumulation, price increase, distribution and price reduction. He also outlines the set of rules used in conjunction with phases to further determine the position of prices in a wide range of uptrends, downtrends, and horizontal markets.
Wyckoff’s first rule tells traders and investors that the market and individual securities will never act twice. Rather, the trend is unfolding through a series of similar price patterns that show infinite changes in size, detail, and expansion. Each avatar has changed from the previous version enough to surprise and confuse market participants. Many modern traders will call this a deformation phenomenon, which is always one step ahead of the pursuit of profit.
The second rule raises the misunderstood issue of market relativity. It tells traders and investors that in financial markets, the environment is everything. In other words, the only way to assess today’s price movement is to compare it with what happened yesterday, last week, last month, and last year. A corollary of this rule suggests that analyzing single-day price behavior in a vacuum will lead to wrong conclusions.
Wyckoff established a simple but powerful trend recognition observation rule. He determined that there are only three trends: up, down, and flat, and three time frames, short-term, medium-term, and long-term. He observed that trends vary greatly in different time frames, which laid the foundation for future technicians to create powerful trading strategies based on their interactions. Alexander Elder’s triple screening method, outlined in Live by trading, Provide a good example for follow-up work.
Wyckoff Market Cycle
The new cycle begins at the accumulation phase where the trading range is generated. This pattern usually produces a failure point or spring before finally exiting the strong trend on the other side of the range, marking a selling climax. The last drop was matched by an algorithm-driven stop-loss hunt, usually observed near the low of a downtrend, where the price fell below the key support and triggered a sell-off, followed by a wave of recovery that pushed the price above the support.
Then there is the price increase stage, which is measured by the slope of the new upward trend. The new support for the callback provides a buying opportunity that Wyckoff calls a callback, similar to the bargain-hunting buying pattern popular in modern markets. The re-accumulation phase interrupted the increase in a small integration mode, and he called a steeper correction correction. The price increase and accumulation continued until these correction stages failed to produce new highs.
This failure marks the beginning of the distribution phase. The price movement in the range is similar to the accumulation phase, but marked by the profit-taking of smart funds and the wait-and-see movement. In turn, this puts the securities at a disadvantage, and they are forced to sell when the range fails during the subdivision and new price reduction phases. This bearish period has produced a return to new resistance, which can be used to establish timely short sales.
The slope of the new downward trend measures the price reduction phase. This creates its own redistribution part, where the trend pauses and the securities attract a new set of positions that will eventually be sold. Wyckoff invoked a steeper rebound in this structure correct, Using the same terminology as in the ascent phase. When the broad trading scope or foundation marks the beginning of a new accumulation phase, the price cut will eventually end.
Richard Wyckoff established the key principles of tops, bottoms, trends, and tape reading in the first decades of the 1920sday century. Nearly 90 years later, these timeless concepts continue to educate traders and investors.