6 charts reproduce the classic Wyckoff trend analysis method

The source of the following content: Wechat public account remittance classroom​

​

Many traders have heard of the Wyckoff trend analysis method!

Wyckoff was a pioneer of technical analysis in the stock market in the 20th century, and he and Dow Jones were called the five giants of technical analysis.

The three laws and investment strategies he put forward can be applied not only to the stock market, but also to other investment markets such as foreign exchange.

Today, Hui Classroom will share with you the application of Wyckoff's trend analysis method in foreign exchange trading.

​

Introduction to Wyckoff Trend Analysis

Wyckoff's trend analysis method is mainly used to analyze the trend structure. It believes that as long as the trend structure does not change, you can continue to hold positions. We use this method to identify the location of trend breakouts and reversals, helping to establish take profit and stop loss positions.

The Wyckoff trend analysis method divides market trends into different stages. If you are familiar with these, you will observe that market trends often appear in this situation.

As shown in the figure below, the market price is in a downward trend, and after going through the stages of accumulation, spring, marking, distribution, and spring, it re-enters the downward trend. What does each stage mean?

​

Accumulation: The downtrend has stagnated, the market price is in a period of consolidation, and the price moves sideways but it does not mean that the downtrend is over.

The first spring: It marks the failure of the price to break downward, which means the end of the downtrend.

Mark: It marks the end of the market price's sideways consolidation period and enters an upward trend.

Distribution: The upward trend slows down, and the market enters a consolidation period again.

The second spring: the price reaches a high point, but the upward breakthrough fails, which means that the price upward trend ends.

The "number one players" in the investment market, such as banks and investment institutions, usually establish positions during the accumulation and distribution stages, and they are the promoters of market development. For most retail investors, we cannot enter the market during these two stages. If we want to survive in the market longer, we need to wait until the market price breaks through or pulls back.

​

Example of Wyckoff Trend Analysis

Let's take a look at the performance of Wyckoff's trend analysis method in foreign exchange trading with examples. The time period of the following analysis example application is the daily line.

There are many variations when using Wyckoff's trend analysis method, and not all price trends fit perfectly into the Wyckoff's basic model. For example, in the figure below, the marking stage means that the market will enter a new trend, but there are also situations where the market price retests the original consolidation range, and the callback behavior does not only occur when the price breaks through.

​

Sometimes in the spring stage, the market price is presented in the form of Pinbar, and after the spring to the marking stage, the market price may revolve around the support and resistance range of the accumulation period, and a continuous callback phenomenon occurs.

​

Not all downward trends are very strong. For example, in the figure below, the downward trend at the beginning is relatively weak, the market price accumulation period is relatively short, the spring form is strong, and the upward trend is relatively strong after the price breaks through. Generally, a new uptrend formed after a weak downtrend will be stronger.

After the second spring, the market price tested the distribution range again and formed a strong downward trend.

​

The momentum in the Wyckoff trend structure can be comprehensively analyzed in combination with the RSI indicator. For example, in the distribution stage in the figure below, the support level shows an upward trend, and the corresponding RSI indicator presents a downward trend at this time. The deviation reveals that the momentum of the upward trend in the distribution stage has weakened. So it can be seen that the strength of the second spring breakthrough is relatively small, and the market will soon show a downward trend.

​

At the same time, it can also be combined with Bollinger bands to strengthen the signal of Wyckoff trend analysis. For example, in the figure below, the upper and lower tracks of the Bollinger Bands are the price fluctuation range, so when the market price breaks through the upper and lower tracks of the Bollinger Bands, it is a signal of price reversal. For example, in the spring stage, when the market price breaks through the upper and lower tracks of the Bollinger Bands, a reversal occurs.

​

The above is today’s sharing. The Wyckoff trend analysis method provides us with a visual price trend analysis method, which is more useful in analyzing the continuation and reversal of trends. But any classical analysis method is not necessarily completely accurate, and it only provides us with an analysis method.