Wyckoff accumulation

Richard Wyckoff described the market in the early 1900s as a cycle of four stages: accumulation, markup, distribution and markdown. He advised reading it as if one large operator – the Composite Man – were behind the moves, buying quietly in ranges and selling into rallies.

Accumulation is the range where that buying takes place. A large position cannot be bought at one price without moving it, so it is built over time inside a range. In Wyckoff's terms the range is the cause and the uptrend that follows is the effect: the longer the range, the larger the move expected from it.

• Phase A – the downtrend stops. Preliminary support (PS) is the first notable buying. The selling climax (SC) is a wide, heavy-volume drop as late sellers give up. The automatic rally (AR) is the bounce that follows. The secondary test (ST) returns to the area of the climax on lower volume. The low of the SC and the high of the AR set the range.
• Phase B – building the cause. The longest phase: price swings between the edges of the range, and volume tends to dry up on the declines.
• Phase C – the test. The spring is a drop below the support of the range that fails quickly. It is followed by a test that holds a higher low.
• Phase D – the move to the top of the range and through it. The sign of strength (SOS) is a rally on wider candles and rising volume. The last point of support (LPS) is the pullback after it, which often holds near the top of the range.
• Phase E – markup. Price leaves the range and an uptrend begins.

A spring is a break below the low of the range that does not continue. Price trades under the support set in Phase A, triggers the stops resting there and returns inside the range. In smart money terms it is a liquidity sweep of the range low.

Wyckoff traders read it as the last test of supply: if price falls through support and little selling follows, the supply is gone. A spring on low volume with a fast recovery is treated as the stronger kind. Not every accumulation has one – in some ranges Phase C is only a higher low inside the range.

The sign of strength is the first rally that shows demand in control: larger candles, closes near the highs, more volume, and a move to or through the high of the automatic rally. The Volume indicator is the simplest way to compare the rallies with the declines.

The pullback after it is the last point of support. Old resistance at the top of the range is tested from above, on smaller candles and lower volume. This retest is also called a back-up.

On Charts the rectangle tool marks the range, and Replay mode lets you go back through past ranges candle by candle.

• Wait for Phase C – inside Phase B the range can go on for a long time, and its direction is not yet known.
• Entry 1 – the test after the spring, when price holds a higher low. Stop below the low of the spring.
• Entry 2 – the last point of support after the sign of strength. Stop below the low of the pullback or below the middle of the range.
• Target – Wyckoff projected targets with point-and-figure counts across the range. A simpler common estimate adds the height of the range to its top.
• Invalidation – a close below the spring low that stays there. The range is then read as a pause in the downtrend.

Wyckoff distribution is the mirror image: a range after an uptrend in which large holders sell. The spring becomes an upthrust above the range, the sign of strength becomes a sign of weakness, and the range resolves down. While a range is forming the two look alike. The tell is in the tests: in accumulation the lows hold on falling volume and the rallies get stronger.

• Labelling every range as accumulation – many ranges after a decline break down. The label is confirmed only in Phase D.
• Buying the first break below support as a spring – a spring is known only after price has closed back inside the range.
• Forcing every event onto the chart – real ranges skip events or repeat them. The schematic is a model, not a template.
• Ignoring volume and the higher timeframe – a small range inside a weekly downtrend rarely carries a large markup.