Develop Your Fundamental Trading Skill

Introduction
Google around for Trading Methods, and you can easily ton and ton of various methods.
Among these, there are 4 timeless approaches to analysis of the market, namely
Elliott Wave Theory,
Gann's !ing Trading,
ha"acker's #hart $attern and
Wyckoff Trading Methods
Each methods has their o!n pro and con, "ut if you !ill to ask me !hich methods i
prefer or i train in% &'m !ill say &'m all in for Wyckoff. Most of my trading skill are "ased
on his teaching and it is serving me good especially for my &nde' Trading.
(ichard )emille Wyckoff, a stock market authority, founder and onetime editor of
the Maga*ine of Wall treet, and editor of tock Market Techni+ue





,et us read on for more of his trading ideas- An e'tract of a great article from
http.//stockcharts.com/school/doku.php%
id0chart1school.market1analysis.!yckoff1market1analy. 2ust remem"er that it is !hat
you do to educate yourself during your free time to improve your current financial state.
o let get start to develop your Trading kill-

Wyckoff Market Analysis
(ichard ). Wyckoff, a perpetual stock market student, !as a great trader and a pioneer of
technical analysis. 3ased on his theories, studies and real life e'periences, Wyckoff
developed a trading methodology that has stood the test of time. Wyckoff started !ith a
"road market assessment and then drilled do!n to find stocks !ith the most profit
potential. This article, the first of t!o, details Wyckoff's approach to "road market
analysis. &t is important to understand the "road market trend and the position !ithin this
trend "efore selecting individual stocks. The second article sho!s ho! Wyckoff selected
stocks to "uy and sell. This second article !ill "e posted "y the end of 4e"ruary 5675.
About
(ichard Wyckoff "egan his Wall treet career in 7888 as a runner scurrying "ack and
forth "et!een firms !ith documents. As !ith 2esse ,ivermore in the "ucket shops,
Wyckoff learned to trade "y !atching the action first hand. 9is first trade occurred in
78:; !hen he "ought one share of t. ,ouis < an 4rancisco common stock. After
successfully trading his o!n account several years, he opened a "rokerage house and
started pu"lishing research in 7:6:. The Maga*ine of Wall treet !as one of the first, and
most successful, ne!sletters of the time. As an active trader and analyst in the early
7:66s, his career coincided !ith other Wall treet greats including 2esse ,ivermore,
#harles )o! and 2$ Morgan. May have called this the =golden age of technical analysis>.
As his stature gre!, Wyckoff pu"lished t!o "ooks on his methodology. tudies in Tape
(eading ?7:76@ and 9o! & Trade and &nvest in tocks and 3onds ?7:54@. &n 7:A7,
Wyckoff pu"lished a correspondence course detailing the methodology he developed
over his illustrious career.
Two ules
Wyckoff focused e'clusively on price action. Earnings and other fundamental
information !ere simply too esoteric and imprecise to "e used effectively. Moreover, this
information !as usually already factored into the price "y the time it "ecame availa"le to
the average speculator. 3efore looking at the details, there are t!o rules to keep in mind.
These rules come directly from the "ook, #harting the tock Market. The Wyckoff
Method, "y 2ack B. 9utson, )avid 9. Weiss and #raig 4. chroeder.
Rule One: Don't expect the market to behave exactly the same way twice. The market is
an artist, not a computer. It has a repertoire of basic behavior patterns that it subtly
modifies, combines and springs unexpectedly on its audience. A trading market is an
entity with a mind of its own.
Rule Two: Today's market behavior is significant only when it's compared to what the
market did yesterday, last week, last month, even last year. There are no predetermined,
neverfail levels where the market always changes. !verything the market does today
must be compared to what it did before.
&nstead of steadfast rules, Wyckoff advocated "road guidelines !hen analy*ing the stock
market. Cothing in the stock market is definitive. After all, stock prices are driven "y
human emotions. We cannot e'pect the e'act same patterns to repeat over time. There
!ill, ho!ever, "e similar patterns or "ehaviors that astute chartists can profit from.
#hartists should keep the follo!ing guidelines in mind and then apply their o!n
Dudgments to develop a trading strategy.
!road Market Trend
3y definition, vast maDority of stocks move in harmony !ith the "roader market.
#hartists, therefore, should first understand the direction and position of the "road market
trend. With this in mind, Wyckoff developed a =!ave chart>, !hich !as simply a
composite average of five or more stocks. Cote that #harles )o! developed the )o!
2ones &ndustrial Average and )o! 2ones Transportation Average around the same time.
While the )o! &ndustrials is perhaps the most famous =!ave chart>, chartists today can
choose among several indices to analy*e the "road market. These include the <$ E66,
the <$ 766, the Casda+, the CF #omposite and the (ussell 5666.
Wyckoff used the daily high, lo! and close to create a series of price "ars and construct a
classic "ar chart. The o"Dective !as to determine the underlying trend for the "roader
market and identify the position !ithin this trend. Trend is important "ecause it tells us
the path of least resistance for the maDority of stocks. $osition is important "ecause it tells
us the current location !ithin this trend. 4or e'ample, trend position helps chartists
determine if the market is over"ought or oversold to time "uy and sell decisions.
There are three possi"le trends in action. up, do!n or flat. There are also three different
timeframes. shortGterm, mediumGterm and longGterm. 4or the purposes of this article,
daily charts are used for the mediumGterm trend. An uptrend is present !hen the
composite inde' forms a series of rising peaks and rising troughs. #onversely, a
do!ntrend is present !hen the inde' forms a series of falling peaks and troughs. A series
of e+ual troughs and e+ual peaks forms a trading range. #hartists must then !ait for a
"reak from this range to determine trend direction.
The charts a"ove sho! e'amples of an uptrend and do!ntrend. Within the trend, prices
can "e positioned at oversold levels, over"ought levels or some!here in the middle of the
trend. Trend position is important to determine the riskGre!ard ratio of a ne! position.
&deally, chartists should look for long positions !hen the trend is up and the inde' is
oversold. This means a pull"ack or correction has occurred. The riskGre!ard ratio is less
attractive if "uying in an uptrend !hen prices are over"ought. imilarly, the riskGre!ard
ratio is less attractive if selling in a do!ntrend !hen an inde' is in an oversold position. &t
is "est to esta"lish a ne! short position !hen the inde' is either over"ought !ithin a
do!ntrend or in the middle of this do!ntrend.
Ma"or Tops and !ottoms
&n "et!een trending periods, the "road market indices form maDor tops and "ottoms that
reverse e'isting trends. Wyckoff noted that tops and "ottoms !ere different. Market tops
!ere often long dra! out affairs, !hile market "ottoms !ere relatively short violent
"easts. Wyckoff identified specific characteristics some 766 years ago and these
characteristics can still "e seen in today's markets.
3ear markets often end !ith a selling clima' or spring, !hich is a failed support "reak.
4irst, the maDor stock inde' is in a do!ntrend "ecause it has "een moving lo!er for an
e'tended period. entiment is +uite negative and many investors are thoroughly
discouraged !ith their mounting losses. At some point, discouraged investors finally
thro! in the to!el and unload their stocks. $rices fall sharply and often "reak a key
support level. $rices appear to "e in a free fall at this stage, "ut the =smart> money is
!aiting in the !ings. mart money "uying pressure suddenly reverses the free fall and
prices surge to close !ell a"ove their lo!s.
Wyckoff used volume to confirm the validity of a reversal, "reakout or trend. A selling
clima' or spring should "e accompanied "y an increase in volume to sho! e'panding
participation. &t is important that "ig money ?i.e. institutions@ support a market move for it
to have staying po!er. ,o! volume suggests limited participation and increases the
chances of failure.
The e'ample a"ove sho!s a high volume selling clima' and spring in early Hcto"er
5677. Cotice ho! the <$ E66 "roke support as selling pressure pushed prices "elo!
7766. $rices dipped "elo! 7686 intraday, "ut "uyers stepped in and pushed the inde'
"ack a"ove 7756 "y the close. The support "reak did not hold and the selling clima'
occurred on high volume. This "ullish signal !as enough to carry the <$ E66 a"ove its
late August high "y the end of Hcto"er.
As noted a"ove, market tops are different than market "ottoms. Tops often form !ith an
e'tended period of side!ays price movement, !hich is a consolidation. This is kno!n as
a distri"ution period !here the smart money ?institutions@ distri"utes shares to the dum"
money ?pu"lic@. &n other !ords, the smart money sells their shares to the dum" money
Dust "efore the market "reaks do!n.
Hn the price chart, the market top is often not clear until the second half of the pattern
unfolds. This often involves a failed "reakout or a failure at resistance. This is not so
negative at the time, "ut prices then return all the !ay to support. uch a sharp decline
reflects a marked increase in selling pressure. There is then some sort of "ounce off
support that forms a lo!er peak, !hich sho!s diminished "uying pressure. At this point,
the charts sho!s an increase in selling pressure on the support test and a decrease in
"uying pressure on the su"se+uent "ounce. The reversal is completed !ith a final support
"reak on increasing volume.
The e'ample a"ove sho!s the )o! &ndustrials !ith a peak in 566;. Cotice ho! prices
moved side!ays for around seven months. There are five points on this chart to define
the topping process. The first point, !hich occurred in the second half of the pattern,
sho!s the )o! failing to hold a"ove its prior peak. There is nothing "earish a"out this
failed "reakout until prices decline all the !ay "ack to the August trough. This is the first
sign that selling pressure ?supply@ is increasing. $rices "ounce off support, "ut a lo!er
peak forms in early )ecem"er. This is the first signal that "uying pressure ?demand@ is
diminishing. An increase in selling pressure and decrease in "uying pressure com"ine to
mark an important top that is confirmed !hen prices "reak support !ith a sharp decline
in 2anuary 5668. Wyckoff used volume to confirm price movements. Cotice ho! volume
on do!n days e'ceeded volume on up days in Hcto"er and Covem"er as prices declined
to support. This sho!ed an increase in selling pressure that validated the support "reak.
#rice #ro"ections
Hnce a market top and "ottom or "ottom took shape, Wyckoff turned to figure charts to
calculate price proDections. 4igure charts later evolved into $oint < 4igure charts. &n
general, Wyckoff "ased his price proDections on the !idth of the pattern. The !ider the
pattern, the higher the ultimate price proDection. &n other !ords, a long "ase e'tending
over ten $<4 columns !ould proDect a relatively high target upon a "reakout. #onversely,
a narro! "ase covering Dust si' columns !ould proDect a relatively lo! target. &t is
important to make sure the "ase is "ig enough and the "reakout ro"ust enough to assure a
high enough price target. The converse is true for market tops. An e'tended top covering
over ten $<4 columns !ould proDect a much deeper decline than a narro! top e'tending
less than ten columns.
Wyckoff "ased his proDections on the !idth of the entire topping pattern. As !ith most
technical analysis, the !idth of the pattern can "e su"Dective. Wyckoff like to look for the
ro! !ith the most filled "o'es and count the entire !idth of this ro!, including the empty
"o'es. #hartists can employ this method or simply measure the entire !idth from start to
finish. 4irst, start "y finding the key support "reak. Hnce the support "reak is found,
e'tend a support line across the chart. #hartists can then identify the column leading into
the pattern ?start@ and the column leading out ?end@. These t!o define the entire pattern.
The e'ample a"ove sho!s the <$ E66 top in 566; !ith the column count e'tending
from Covem"er 566; ?red 3@ to 2anuary 5668 ?red 7@. Cote that 4e"ruary starts !ith the
red 5 and HG#olumn "reaks support "efore this red 5 is printed. This is a long and
e'tended top covering A4 columns. At 76 points per "o' on a AG"o' reversal, the
estimated decline is around 7656 points ?A4 ' A ' 76 0 76E6@. This amount is su"tracted
from the pattern peak for a do!nside target in the E56 area ?7E;6 G 7656 0 EE6@. The
ultimate lo! in the <$ E66 !as around III in March 566:.
The second chart sho!s the <$ E66 "ottom in 566: !ith t!o "ottoming patterns. Cotice
that there are t!o "reakouts. one in May ?red E@ and another in 2uly ?red ;@. 3oth patterns
share the same lo! point ?I;6@. 3ased on the resistance "reak, the smaller pattern e'tends
56 columns, !hich is from the entry column to the e'it column. 3ased on 76 points per
"o' and a AG"o' reversal setting, the proDected advance !ould "e I66 points ?56 ' 76 ' A
0 I66@ and the target !ould "e around 75;6 ?I;6 J I66 0 75;6@. The second pattern is
much "igger and e'tends some 45 columns for a proDected advance of 75I6 points ?45 ' A
' 76@. This targets a move to around 7:A6, !hich !ould "e one heck of a "ull market.
Even though Wyckoff used hori*ontal counts to make proDections, he also cautioned
against taking these proDections too seriously. As noted a"ove, nothing is definitive !hen
it comes to the stock market and technical analysis. #hartists are given "road guidelines
and must make their o!n Dudgments as price action unfolds. ome counts fall short of
their targets, !hile some counts e'ceed their targets. Fou can read more on traditional
$<4 counting techni+ues in our #hartchool.
#osition in Trend
3efore making a trading or investment decision, chartists need to kno! !here the market
is !ithin its trend. Hver"ought markets are at risk of a pull"ack and positions taken !ith
over"ought conditions risks a significant dra!do!n. imilarly, the chances of a "ounce
are high !hen the market is oversold, even if the "igger trend is do!n. elling short !hen
market conditions are oversold can also result in a significant dra!do!n and adversely
affect the riskGre!ard ratio.
Wyckoff notes that an uptrend starts !ith an accumulation phase and then enters a
markup phase as prices move steadily higher. There are five possi"le "uy points during
the entire uptrend. 4irst, aggressive players can "uy on the spring or selling clima'. This
area offers the highest re!ard potential, "ut the risk of failure is a"ove average "ecause
the do!ntrend has not yet reversed. The second "uy point comes !ith the "reakout a"ove
resistance, provided it is confirmed "y e'panding volume. #hartists missing the "reakout
"uy point are sometimes given a second chance !ith a thro!"ack to "roken resistance,
!hich turns into support.
Hnce the markup stage is fully under !ay, chartists must then rely on corrections, !hich
can form as consolidations or pull"acks. Wyckoff referred to a flat consolidation !ithin
an uptrend as a reGaccumulation phase. A "reak a"ove consolidation resistance signals a
continuation of the markup phase. &n contrast to a consolidation, a pull"ack is a corrective
decline that retraces a portion of the prior move. #hartists should look for support levels
using trend lines, prior resistance "reaks or prior consolidations. Alternatively, Wyckoff
also looked for support or reversal signs !hen the correction retraced E6K of the last up
leg.
A do!ntrend starts !ith a distri"ution phase and then enters a markdo!n phase as prices
move steadily lo!er. Cote that Wyckoff did not shy a!ay from shorting the market. 9e
looked for opportunities to make money on the !ay up and on the !ay do!n. As !ith the
accumulation and markup phase, there are five potential selling points during this
e'tended do!ntrend. 4irst, a lo!er peak !ithin a distri"ution pattern offers a chance to
short the market "efore the actual support "reak and trend change. uch aggressive tactics
offer the highest re!ard potential, "ut also risk failure "ecause the do!ntrend has not
officially started. The "reakdo!n point is the second level to short the market, provided
the support "reak is validated !ith e'panding volume. After a "reakdo!n and oversold
conditions, there is sometimes a thro!"ack to "roken support, !hich turns into
resistance. This offers players a second chance to partake in the support "reak.
Hnce the markdo!n phase "egins in earnest, chartist should !ait for flat consolidations
or oversold "ounces. Wyckoff referred to flat consolidations as reGdistri"ution periods. A
"reak "elo! consolidation support signals a continuation of the markdo!n phase. &n
contrast to a consolidation, an oversold "ounce is a corrective advance that retraces a
portion of the prior decline. #hartists can look for resistance areas using trend lines, prior
support levels or prior consolidations. Wyckoff also looked for resistance or reversal
signs !hen the correction retraced E6K of the last do!n leg.
$onclusions
There are four key areas of the Wyckoff market method. trend identification, reversal
patterns, price proDections and trend position. Getting the trend correct is half the "attle
"ecause the maDority of stocks move in conDunction !ith the "road market trend. This
trend continues until a maDor top or "ottom pattern forms. Aggressive players can act
"efore these reversal patterns are complete, "ut the e'isting trend does not officially
reverse until price "reaks a key support or resistance level on good volume. Hnce a top or
"ottom is complete, chartists can use a hori*ontal count method on $<4 charts to proDect
the length of the ensuing advance or decline. A trend is considered mature and ripe for a
reversal once prices reach these target areas. $rovided the trend has further room to run,
chartists can then determine the position of prices !ithin this trend to insure a healthy
riskGre!ard ratio !hen taking positions. #hartists should avoid ne! long positions !hen
the market is over"ought and avoid ne! short positions !hen the market is oversold. As
noted at the "eginning, these are "road guidelines for interpreting market movements.
The final Dudgment call is up to you.

And for those !hom prefer picture !ith sound, do play on the follo!ing video.
https.//!!!.youtu"e.com/!atch%v0fAGEk89,io<list0W,<inde'05

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