Wyckoff’s unique approach to technical analysis has survived into the modern era and still works amazingly. It guides traders and investors on the best ways to pick winning stocks and other assets. Moreover, it helps traders like me and you to identify the most advantageous times to enter the market. I believe you have heard Wyckoff’s Method was originally focused on stocks, but it is now applied to all sorts of financial instruments. And in this post, I will share my insight on how to trade Wyckoff accumulation and get the highest possible accuracy. So, let’s start with the basics.

What is Wyckoff accumulation?

The accumulation is sideways and a range-bound trading period. It usually occurs after a prolonged downtrend. This is the trading zone where big players build long positions and wash out retail traders. They accumulate positions gradually to avoid the price from changing significantly.

How do you tell if a stock or other asset is being accumulated?

Accumulation can last few months or even years. But in most cases, it takes 3 – 6 weeks. It looks like a long period of consolidation during a downtrend. So, you can easily identify it on the chart. Also, the ratio of up days to down days are pretty much equal. Thus, volatility tends to be low due to the lack of interest.

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Wyckoff Accumulation Phases

Phase A: 

This phase is a sign previous downtrend has ended and means booking profits and closing of short positions. Up to this point, supply has been dominant. The approaching diminution of supply is evidenced in preliminary support (PS) and a selling climax (SC). Usually, these events can be easy to see on the bar charts, where widening spread and heavy volume depict the transfer of huge numbers of shares from the public to large professional interests. An automatic rally (AR), consisting of both institutional demand for shares as well as short-covering, typically ensues after strong selling pressures. Next what we see in Phase A is a successful secondary test (ST) in the area of the SC. But ST usually shows less selling than previously and a narrowing of spread and decreased volume, generally stopping at or above the same price level as the SC. ST, AR, and SC create a consolidation zone of the market. Sure, sometimes we can see sharp reversals without consolidation. But now we are trying to figure out a clear indication of downtrend reversal.

Awyckoff accumulation phases

Phase B: 

In Wyckoff’s analysis, phase B serves the function of “building a cause” for a new uptrend. The main sign of this phase is an accumulation of positions by institutions and you can always see open interest in COT reports. The process of accumulation can take from a few weeks to almost a year. But usually, it takes 3 – 6 weeks. the longer it takes the more ST we will see in phase B. Early on in Phase B, the price swings tend to be wide, accompanied by high volume. As the professionals absorb the supply, however, the volume of downswings within the TR tends to diminish. Phase B is the longest phase of accumulation. When it appears that supply is likely to have been exhausted, the market is ready for Phase C.

Phase C: 

This phase takes less time. The main function of this phase is to test the remaining supply, allowing the “smart money” operators to ascertain whether the market is ready to be marked up. Very often you can see the so-called “spring” – it is a price move below the support level of the TR established in phases A and B that quickly reverses and moves back into the RT. In other words, it’s a false breakdown It is an example of a bear trap because the drop below support appears to signal resumption of the downtrend. But you are smart traders and use this high-probability trading opportunity to go long?

D: 

The next what we can see after “spring” is the consistent dominance of demand over supply – SOS. This is evidenced by a pattern of advances (SOSs) on widening price spreads and increasing volume, and reactions (LPSs) on smaller spreads and diminished volumes. The price moves at least to the top of the TR. LPSs in this phase are generally excellent places to initiate or add to profitable long positions.

E: 

In phase E of Wyckoff accumulation, the market leaves the TR, demand is in full control, and the markup is obvious to everyone. Pullbacks are very small during this phase. New, higher-level TRs comprising both profit-taking and acquisition of additional shares (“re-accumulation”) by large operators can occur at any point in phase E. These TRs are sometimes called “stepping stones” on the way to even higher price targets.
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wyckoff reccumulation

Best books to learn Wyckoff Method

The Wyckoff Methodology in Depth: How to trade financial markets logically (Trading and Investing Course: Advanced Technical Analysis Book 1). It is a great book to learn Wyckoff approach – how and why markets move, 3 fundamental laws, the process of accumulation and distribution, events and phases of the Wyckoff Methodology, etc.

Trades About to Happen: A Modern Adaptation of the Wyckoff Method. Honestly the book on adapting the classic work of Richard Wyckoff to today’s markets. You will learn how to construct intraday wave charts similar to Wyckoff’s originals, draw support/resistance lines, interpret the struggle for dominance in trading ranges, and recognize action signals at turning points, and more.

My Secrets of Day Trading in Stocks. Amazing guide for day traders from the market legend with a big number of examples and detailed explanations.

Price Action Breakdown: Exclusive Price Action Trading Approach to Financial Markets. This book covers concepts, ideas and price action trading methods that you most likely haven’t seen anywhere else. The knowledge contained can be used to trade any financial market such as Forex, Futures, Stocks, Commodities, and all major markets.

Charting the Stock Market: The Wyckoff Method. This book guides you step by step through the Wyckoff method: first, the basic principles; second, examples of the method applied to the bond market; and third, an outline of steps to put the method to use. Details of the Wyckoff method covered in this book include: point and figure charting, trends, price and volume studies on vertical charts, stop orders, forecasting, wave charts & intraday, group stock behavior,  stock selection criteria, and much more …

In conclusion

The Wyckoff accumulation is a technical analysis approach.  It helps traders to navigate the financial markets based on the study of the relationship between demand and supply forces. Many well-known investors used his approach, including James Keene, Jesse Livermore, Andrew Carnegie, J.P. Morgan, Jay Gould, and others.

It has been almost a century since its creation, but the Wyckoff Method is still one of the most popular and highly accurate approaches. It includes many principles, theories, and trading techniques.

As result, it allows investors to make more logical decisions rather than acting out of emotions. Moreover, Wyckoff’s approach provides traders and investors a number of tools for reducing risks and increasing their chances of success.

Wishing you a great week!

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