Richard Wyckoff, one of the great traders in his days, identified trading ranges as places whereby accumulation and distribution develops to build a cause for the subsequent change of trend in movement of price actions. Trading range are places whereby there are equilibrium between supply and demand and if judged correctly, would allow traders to profit form the magnitude of the move within and out of trading ranges. Wyckoff and Jesse Livermore belong to the same era on Wall Street history but Livermore was primarily a trend follower while Wyckoff was a range trader
I came to know of Wyckoff's method of technical analysis when I came across "The Three Skills of Top Trading" by Hank Pruden whereby the Wyckoff schematics of accumulation and distribution were covered extensively by the author. Fantastic read! This book is a must read !
Here i will attempt to explain the anatomy of the trade for Bank of America (BAC) using Wyckoff's trading method.
Abbreviations used:
Selling Climax (SC): the point at which widening spread and selling pressure (high volume) usually climaxes and panicky selling by public is absorbed by professional interest at prices near bottom.
Automatic Rally (AR): Relief rally where short-covering can easily cost prices to shoot up
Secondary Test (ST): A retest of the area of selling climax to test the supply and demand at these levels. For a bottom to be found, volume and price spread should be significantly diminished as market approaches support.
Sign of Strength (SOS): Advance on high volume and price spread
Last Point of Support (LPS): The ending point of a reaction or pullback where support was met, also known as a retest of support where long position can be initiated or to add to profitable ones.
Have a good weekend!
I came to know of Wyckoff's method of technical analysis when I came across "The Three Skills of Top Trading" by Hank Pruden whereby the Wyckoff schematics of accumulation and distribution were covered extensively by the author. Fantastic read! This book is a must read !
Here i will attempt to explain the anatomy of the trade for Bank of America (BAC) using Wyckoff's trading method.
Abbreviations used:
Selling Climax (SC): the point at which widening spread and selling pressure (high volume) usually climaxes and panicky selling by public is absorbed by professional interest at prices near bottom.
Automatic Rally (AR): Relief rally where short-covering can easily cost prices to shoot up
Secondary Test (ST): A retest of the area of selling climax to test the supply and demand at these levels. For a bottom to be found, volume and price spread should be significantly diminished as market approaches support.
Sign of Strength (SOS): Advance on high volume and price spread
Last Point of Support (LPS): The ending point of a reaction or pullback where support was met, also known as a retest of support where long position can be initiated or to add to profitable ones.
Have a good weekend!
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