Wyckoff Phases in PracticeWe all know that market moves in Phases. The four most popular phases are –
1️⃣Accumulation
2️⃣Markup
3️⃣Distribution and
4️⃣Markdown
Mr. Wyckoff analyzed these phases further, esp . Accumulation and Distribution, to understand the price behavior for potential opportunities to trade/invest in the market.
In this tutorial I am going to have a brief discussion about Accumulation-sub-phases of the market with the help of an example that I came across today.
✅Phase A
🚩This phase is preceded by a major downtrend.
🚩Begins with a selling climax ( SC ) - Large down bars with abnormally high volume (see B).
🚩SC is followed by the largest rally in the major downtrend, associated with good buying volume . This Automatic Rally (AR) represents the change in character (ChoC) of the market - buyers taking over.
🚩Market retest the level B with a lower volume (supply) – Secondary Test (see D).
✅Phase B
🚩Usually the longest phase.
🚩Higher volume during rallies (eg. E) and lesser during retracements.
🚩Even if volume is high during retracements, price fails to make new lows.
🚩More secondary tests (see F) held at the support zone (B and D).
🚩Market consolidates testing supply and demand with no particular direction – Consolidation.
✅Phase C
🚩This phase is the smallest but the most important.
🚩Usually ends with a Spring (not in the above case).
🚩You would often see final shakeout of weak buyers in this phase. Price would dip underneath the support zone (B, D and F) and reverse sharply back above support.
🚩Perhaps the best time to enter for those who like to take low risk high probability trades.
🚩In the above case, point G was just another test of support Zone.
✅Phase D
🚩You would see swift action in this phase. Wide up bars (with high volume ) and small down bars (with low volume ) -Sign of Strength.
🚩This also represents the change in character, which now differs from the consolidation phase.
🚩ChoCh - Notice two blue rectangles and the price action in them. The action differs vehemently from the previous phases - wide bars with ease of movement.
🚩Price breaks the resistance zone (in most cases resistance would be the high of automatic rally).
🚩It again retests (after breakout) this resistance which now starts acting as support. This is called the Backup action.
🚩Further (re)accumulation can be seen here in many cases.
🚩This is perhaps the best time for those who like to enter after confirmation (A higher high; break of resistance; price jumping outside the range)
✅Phase E
🚀Accumulation is over and a trend is established - Markup phase
Not all bear markets end up with these accumulation-sub-phases. You may often see V-shaped recoveries just like what we experienced after March 2020 lows. But you will surely find some stocks or markets that moved in line with Wyckoff phases.
Thanks for reading.
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📣Disclaimer: The views are personal only. Apply your own due diligence before making your investment decisions.
