It is Part 4 of my Wyckoff Method series. So, now it’s time to have a deeper look into its basis – supply and demand analysis or to be more specified reading volume and price movement. We have already talked about the accumulation and distribution.
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So, how to identify accumulation and distribution by Wyckoff Method?

All you need is a chart. If you see a price bar with wide spread, closing at its high much above the previous several bars, accompanied by higher-than-average volume, you have a sign of demand. Certainly, the opposite is valid for supply. A high-volume price bar with wide spread, closing at its low well below the lows of prior bars indicates the presence of supply. Understanding supply and demand is very important if you want to add the Wyckoff Method to your technical analysis.
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SUPPLY AND DEMAND ANALYSIS. VOLUME AND PRICE AS BASIS OF WYCKOFF METHOD

Wyckoff method. supply and demand analysis

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There are obvious insights of the law of Supply and Demand: when demand (buy orders) to buy potatoes exceeds sell orders at any time, the price will advance to a level where demand decreases and/or supply increases to create a new equilibrium. The same works for stocks or any other trading instrument. If supply (sell orders) exceed buy orders (demand) at any time, equilibrium will be restored (temporarily) by a price decline to a level where supply and demand are in balance.
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SUPPLY AND DEMAND ANALYSIS. VOLUME AND PRICE AS BASIS OF WYCKOFF METHOD
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Third law of the Wyckoff Method (Effort vs Result)

I would like to pay your attention to the third law of the Wyckoff Method (Effort vs Result). When volume (Effort) and price (Result) both increase substantially, they are in harmony, suggesting that Demand will likely continue to propel price higher. But in some cased volume may increase, but the price doesn’t follow it. Such behavior during accumulation suggests the absorption of supply by large interests. In other words, it’s a strong bullish indicator. And the opposite works – if you see the huge volume on a rally and not much price reaction, you can get it as the inability to rally. The main reason for it is a significant supply (yup, from big boys mostly).
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SUPPLY AND DEMAND ANALYSIS. VOLUME AND PRICE AS BASIS OF WYCKOFF METHOD
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If you want to survive trading these markets then you learn fairly quickly how important it is to protect against risk. I am here to help you find better trades and navigate these incredibly crazy market trends. I can help you preserve and grow your long-term capital with my managed accounts and market research that tell you when long-term trends are starting and ending. Don’t wait until it is too late!

Wishing you a great week!

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