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. So, in this post, I share the best strategies to trade Wyckoff accumulation. But let’s start with the basics.
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 prevent the price from changing significantly.
How do you tell if a stock or other asset is being accumulated?
Accumulation can last a 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 is pretty much equal. Thus, volatility tends to be low due to the lack of interest.
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Best strategies trade Wyckoff accumulation
If 200 EMA is flattening out and the price has dropped over the last 3 – 6 months, then identify the highs/lows of the consolidation range. If the price reaches the range’s low and gets rejected, consider longs with a tight stop loss and take profit near the nearest swing high. The opposite works for shorts. However, consolidation can’t last forever. So tights stop loss is a must. The next 2 techniques are valid only for longs.
Paying attention to the fundamental factors that move the market is important. If the market has a fundamental setup for the rally, there is a big chance Wyckoff accumulation will play very well. So, first, ensure a fundamental cause for the run. If yes, aggressive traders can buy after a successful Spring. In other words, a swing failure with significant volume is a signal to go long. The stop loss, in this case, is a bit below the Spring.
Again make sure there is a fundamental setup for the rally. Then wait till phase D. We need a clear LPS and SOS (explained below). Consider longs if SOS breaks out to the upside. If your equity is very small, put a stop loss below the base of SOS. If your equity allows a wider stop, put it below LPS. I like this approach most of all, as it gives the best risk/reward. Moreover, the next phase (E) brings an aggressive rally. So, you get profit fast enough compared to the aggressive entry we discussed above.
Reaccumulation is the pause in an uptrend that builds the cause for a new rally. It can take weeks, months, and even years to complete. Reaccumulation begins with an acceleration of the uptrend into a Buying Climax (BCLX). A BCLX and an Automatic Reaction (AR) set the resistance and support zones of the new consolidation area. The trendless trading range will discourage many traders, and they will sell shares to move on to other more active assets. At the same time, big players use the release and availability of shares to add to their positions.
Often traders misinterpret a reaccumulation as distribution. You can learn to make the essential distinction between these two conditions with careful analysis. Recall that absorption results in reaccumulation or accumulation, and price action becomes ever less volatile as the structure comes to a conclusion and the uptrend begins. This is because most available shares have been removed from the market. In the schematic above, notice how each of the lows (in the area of support) is higher than the prior low. It is not uncommon for the lowest price of the structure to be on the AR or the following Test. Reaccumulations can also have a Spring at the conclusion.
The best time to trade is SOS. In other words, a breakout above resistance, after Creek and LPS are clearly seen on the chart. The stop loss should be placed below support.
Wyckoff Accumulation Phases
The Wyckoff accumulation is a technical analysis approach. It helps traders navigate the financial markets based on studying 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 a result, it allows investors to make more logical decisions rather than acting out of emotions. Moreover, Wyckoff’s approach provides traders and investors with several tools for reducing risks and increasing their chances of success.
The Best 4 Strategies To Trade Wyckoff Accumulation. Phases and Events by Inna Rosputnia
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