Wyckoff basics Explained

23 February 2022

Going back to the 18th of March where we called the Buyers Climax top for Bitcoin’s “Wyckoff” Distribution phase. We have had a lot of questions regarding the technique.

Mayfair Method Trading Logo Favicon
Published by: Lewis Daniels
Table of Contents

It’s a very difficult one to put into only one post – but to understand Wyckoff methodology you need to first APPRECIATE what Wyckoff is about.

Richard Demille Wyckoff (November 2, 1873 – March 7, 1934) was an American stock market investor, and the founder and onetime editor of the Magazine of Wall Street.

Wyckoff implemented his methods of technical analysis of the financial markets (the study of charts showing movements of stock-prices and other data). He grew his wealth such that he eventually owned nine and a half acres and a mansion next door to the Hamptons estate of General Motors president Alfred Sloan in Great Neck, New York.

As Wyckoff became wealthier, he also became altruistic about the public’s Wall Street experience. He turned his attention and passion to education, teaching, and in publishing exposes such as “Bucket Shops and How to Avoid Them”, which were run in New York’s The Saturday Evening Post starting in 1922.

Jump forward – too much detail for one post to cover.
Wyckoff’s research claimed many common characteristics among the greatest winning stocks and market campaigners of the time. He believed he had analyzed and determined where risk and reward were optimal for trading. He emphasized the placement of stop-losses at all times, the importance of controlling the risk of any particular trade. Wyckoff also has techniques he believed offered advantages when markets were rising or falling ( bullish and bearish ). The Wyckoff technique may provide some insight as to how and why professional interests buy and sell securities, while evolving and scaling their market campaigns with concepts such as the “Composite Operator”.

Wyckoff offered a detailed analysis of the “trading range”, a posited ideal price bracket for buying or selling a stock. One tool that Wyckoff provides is the concept of the composite operator. Simply, Wyckoff felt that an experienced judge of the market should regard larger market trends as the expression of a single mind. He felt that it was an important psychological and tactical advantage to stay in harmony with this omnipotent player. Wyckoff believed investors would be better prepared to grow their portfolios and net worth by following in his footsteps.

Applying this concept in a chart you can identify market phases and cycles – here’s the snapshot from a daily BTC move.

This relates to one of 4 (master patterns)this particular known as distribution schematic 1. **For the others you can see in the PDF linked below;**

Phases – Simplified
In this distribution schematic example (literally from Wednesday’s BTC exit of the range) you will be able to identify a Buyers Climax ( BC ) from here, the assumption is that the composite man (strong hand operators) are taking profits – Money flow leaving, this causes an Automatic Reaction (AR).

Now many retail traders will assume, this is another pullback (failing to identify the BC ) if their on a very small time frame (and many retail traders are operating on lower time frames) then the assumption would be “buy the dip” and for a little while they are correct, we often see this (ST) move up but, this usually fails to go higher than the ( BC ).

Composite man is in control
This game is what many retail traders refer to as “Market Manipulation” – whilst the reality is, there is an identifiable pattern. Human beings are greedy, fearful and outright stupid at times. This allows for the perfect schematic to play itself out as the composite man accumulated or in the Bitcoin move Distribute.

Here’s an example from an older post I did walking through the psychology on a chart.

You will see how price action in inextricably linked with the moves caused by the players “you & me” in the market.

Later phases of this structure
The general idea is for the composite man to accumulate or distribute to obtain a better position for himself, taking the market one way and the other. Often at times, retail will do the last couple of steps among themselves. Although the strong hands are often hedging positions, it is not always required to have their participation as the phases move on inside the structure.

As we see a Sign Of Weakness (SOW) – the retail traders would have now seen a lower high and a lower low (logic) However from the (SOW) we move almost impulsively to the Upthrust (UT) the “bulltrap” to many newer traders. At this stage of the post, you might be starting to see inside how the manipulation works?

Next phase
Range bound – in true Wyckoff terms this region inside the schematic is known as phase B. We chop up and down and eventually create a new higher high. Again in Bitcoin’s case we see the ATH . Known as the (UTAD) to Wyckoffian’s – Up Thrust After Distribution.

This is the climax and from here we see the price breaking down until we anticipate the exit of the range.

On @TradingView We have also developed a pretty cool indicator to use one buy and one sell for Wyckoff schematics in particular. You can see how it fits inside the schematic.

The logic can easily be assessed and broken down into small parts, step by step. And therefore, if it’s something we can program. It is something you can learn.

Here is the free link to the other Wyckoff Schematics – https://drive.google.com/drive/folders/1…

Hope you enjoyed this short intro to Wyckoff – see the previous video posts for live Wyckoff overlay examples.

This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.