The mechanics of the markets are so complicated that one must break

The Whyckoff Trading Method 1930: it down into some foundational guidelines that encompass the whole,
A Case Study of the US Stock Market then build upon that foundation slowly and methodically until it
makes sense and becomes a high probability, low risk undertaking.

by Jerry Garner jr

The Law of Supply and Demand Law of Supply and Demand

1. States that when demand is • Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of
greater than supply, prices will a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the
rise, and when supply is greater demand relationship. The analyst studies the relationship between supply vs. demand using price and volume over time.
them demand, prices will fall.
Here the analyst studies the • Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are
relationship between supply willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied
versus demand using price & to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.
volume over time as found on • The Law of Demand states, the lower something’s price is, the more demand there is for it and the relationship between
the bar chart. demand and price is an inverse relationship. As one goes up, the other comes down. The Law of Supply states, the higher
2. The Law of Cause & Effect something’s price is, the more it will be supplied and the relationship between supply and price is a direct relationship. As one
Postulates that in order to have goes up, the other goes up.
an effect will be in proportion • Supply and demand is the basic foundation of economics However Supply and demand is the effect, not the cause. Something
to the cause. This law is happens, and supply increases or demand decreases (or both) causing price to go down, or something happens and supply
seen working as the force of goes down or demand goes up (or both) causing price to go up. The “something” is the cause, and the change in supply/
accumulation or distribution demand is the effect. So, yes, price went up because of an increase in demand however, it is the cause for the change in
within a trading range. supply and demand that caused the price change. trading is the perception and speculation of what the change in supply and
3. The Law of Effort Versus Result demand will be.
divergences and disharmonies • Markets move off of the imbalance of supply and demand, a imbalance of supply and the market has to fall, a imbalance of
between volume and price often demand and the market has to rise. Accumulation from the Supply/Demand perspective is demand coming in to gradually
presage a change in the direction overcome and absorb the supply and to support the market at this price level. Distribution from the Supply/Demand
of the price trend & helpful for perspective is where the Supply overcomes Demand and stops the upward move and eventually begins the downward move.
indentifying accumulation verses Distribution refers to the elimination of a long investment or speculative position and often involves establishing a speculative
distribution & gauging effort. short position by professional interests in anticipation of a decline of price.
 Richard D. Wyckoff devised three laws that govern market dynamics.
The Whyckoff Trading Method 1930: These laws tell you how and why the markets work. The law of Supply
A Case Study of the US Stock Market and Demand is the most fundamental and overriding aspect of
market dynamics. The other two laws act on and measure Supply
and Demand.

by Jerry Garner jr

The Law of Supply and Demand Law of Cause & Effect

1. States that when demand is
greater than supply, prices will • A second basic principle underlying all analytical efforts is the law of cause and effect. The idea here is that in order for there
rise, and when supply is greater to be an effect that shows up as a change in the price of a stock, there must first be a cause. In its most basic state, this law
them demand, prices will fall. seems very much the same as the law of supply and demand. In the cases of the individual trades mentioned, the cause is the
Here the analyst studies the buyer’s desire to hold the shares, or the seller’s desire to have dollars. In one case the cause is expressed in terms of demand
relationship between supply and in the other in terms of supply.
versus demand using price & • A cause can be stated in terms of the reason behind an individual trade. In the making of important profits in the stock
volume over time as found on market, however, the significance of each individual trade is greatly reduced. Here the idea of a cause must be taken more
the bar chart. broadly, The effect realized by a cause will be in direct proportion to that cause. Consequently, to get an important move, or
2. The Law of Cause & Effect effect there must be an important cause. These are not built from one trade, but rather take time, sometimes a long time, to
Postulates that in order to have develop.
an effect will be in proportion • Generally these causes are built during an important shift in who is holding the stock. The flow of shares that is of greatest
to the cause. This law is significance is the one that occurs as shares leave the strong hands of the professional traders and go to the weaker hands of
seen working as the force of the general public.
accumulation or distribution
within a trading range. • Every market advance begins only after the professional traders have all, or just about all, the shares they desire. Once the
move begins, it will be carried forward primarily by the increasing and emotional buying of the public. The emotion at work
3. The Law of Effort Versus Result here, by the way, is greed. The knowledgeable trader will go with the upward trend of the advance as long as prices continue
divergences and disharmonies to move up easily.
between volume and price often
presage a change in the direction • The idea is to measure this cause and project the extent of its effect. The excesses that develop in supply and demand are not
of the price trend & helpful for random but are the result of key events in market action or the result of periods of preparation. This law’s operation can be
indentifying accumulation verses seen working as the force of accumulation or distribution within a trading range that works itself out in the subsequent move
distribution & gauging effort. out of that trading range. This law can be seen working over a group of bars.
 The price of every equity moves up or down because there is an excess
The Whyckoff Trading Method 1930: of demand over supply or supply over demand, the Law of Effort vs.
A Case Study of the US Stock Market Results - divergencies and disharmonies between volume and price
often presage a change in the direction of the price trend.

by Jerry Garner jr

The Law of Supply and Demand Law of Effort vs Result

1. States that when demand is
greater than supply, prices will • states that the change in price of a trading vehicle is the result of an effort expressed by the level of volume & that harmony
rise, and when supply is greater between effort & result promotes further price movement while lack of harmony promotes a change in direction. The law of
them demand, prices will fall. effort (volume) verses result (price) is action, this law can be seen working on one bar.
Here the analyst studies the • To get a better idea of how the concept of effort versus result works and how it can help protect against disaster, consider yet
relationship between supply another hypothetical situation. It begins with a stock that explodes upward by six points. The volume is ten thousand shares.
versus demand using price & The next day, there is an additional advance of four points and trading expands to twenty thousand shares. At this point,
volume over time as found on many people are making a lot of money. This is also the type of situation that brings out an incredible amount of greed. On
the bar chart the third day, the stock takes on an additional two points while the volume soars to forty-thousand shares. Then day number
2. The Law of Cause & Effect four comes and this time the “wonder stock” only advances half a point. The volume, however, tops the hundred thousand
Postulates that in order to have share level.
an effect will be in proportion • Is it clear what is happening in this case? Obviously, the price is moving up and the volume is expanding. That should be
to the cause. This law is a good sign and in many cases it is a good indication for the future. In this case, though, it creates a problem. As the stock
seen working as the force of advances, the amount of each successive advance decreases. The volume on the other hand increases steadily throughout the
accumulation or distribution four days. This results in a clear case of an effort without a corresponding result. It produces a warning of potential trouble.
within a trading range. Anyone not already in this stock is well advised not to get in, at least not at this dangerous time. Those already holding
3. The Law of Effort Versus Result positions should protect themselves as best they can, or just get out. Until it can be determined why the result is lagging
divergences and disharmonies behind the effort or until the situation corrects itself, there is the potential for disaster. The chart at the bottom of exhibit five
between volume and price often shows how this concept of effort without result might look in actual practice.
presage a change in the direction
of the price trend & helpful for
indentifying accumulation verses
distribution & gauging effort.
 Trading ranges are places where the previous move has been halted
The Whyckoff Trading Method 1930: and there is relative equilibrium between supply and demand. It is
A Case Study of the US Stock Market here within the TR that campaigns of accumulation or distribution
develop in preparation for the coming bull or bear trend. It is this
force of accumulation or distribution that can be said to build a
cause that unfolds in the subsequent move.

Whckoff Schematics Wyckoff Schematics Of Market Phases

1. Wyckoff empowers the trader-
analyst with a balanced, whole
brained approach to technical
analysis decision making. The
schematics provide picture dia-
grams as a right-brained tool to
complement the left-brained ana-
lytical checklists furnished by the
Wyckoff three laws and nine tests.
2. One objective of the Wyckoff
method of technical analysis
is to improve market timing
when establishing a speculative
position in anticipation of a
coming move where a favorable
reward/risk ratio exists to justify
taking that position.
3. To be successful, you must be able
to anticipate and correctly judge
the direction and magnitude of
the move out of the TR.
 Trading Ranges present favorable short-term trading opportunities
The Whyckoff Trading Method 1930: with potentially very favorable reward/risk parameters.
A Case Study of the US Stock Market Nevertheless, great reward comes with participation in the trend that
emerges from the Trading Range. Wyckoff offers unique guidelines by
which the trader-analyst can examine the phases within a TR.

Whckoff Schematics Wyckoff Schematic Of Accumulation

1. Wyckoff empowers the trader- visual representation of the Wyckoff market action typically found within a TR of accumulation
analyst with a balanced, whole
brained approach to technical
analysis decision making. The
schematics provide picture dia-
grams as a right-brained tool to
complement the left-brained ana-
lytical checklists furnished by the
Wyckoff three laws and nine tests.
2. One objective of the Wyckoff
method of technical analysis
is to improve market timing
when establishing a speculative
position in anticipation of a
coming move where a favorable
reward/risk ratio exists to justify
taking that position.
3. To be successful, you must be able
to anticipate and correctly judge
the direction and magnitude of
the move out of the TR.
 Wyckoff model for accumulation is not a schematic for all the
The Whyckoff Trading Method 1930: possible variations within the anatomy of a Trading Range, it does
A Case Study of the US Stock Market provide the important Wyckoff principles that are evident in an
area of accumulation. It also shows the key phases used to guide
our analysis from the beginning of the Trading Range with a selling
climax, through building a cause until the taking of a position.

Phases of Accumulation Wyckoff Schematic Of Accumulation

visual representation of the Wyckoff market action typically found within a TR of accumulation
1. Lines A and B define support of
the trading range, while lines C
and D define resistance.
2. Phase A: To stop a downward
trend either permanently or
temporarily.
3. Phase B: To build a cause within
the trading range for the next
effect and trend.
4. Phase C: Smart money “tests”
the market along the lower and/
or the upper boundaries of the
trading range. Here one observes
“springs” and/or “jumps” and
“backups”.
5. Phase D: Defines the “line of least
resistance” with the passage of the
nine buying tests.
6. Phase E: The mark up or the
upward trending phase unfolds.
 The Whyckoff Trading Method 1930:
A Case Study of the US Stock Market

Accumulation Schematic Defined Wyckoff Schematic Of Accumulation

1. PS (1) – preliminary support, visual representation of the Wyckoff market action typically found within a TR of accumulation
where substantial buying begins
to provide pronounced support
after a prolonged down-move.
Volume and the price spread wid-
en and provide a signal that the
down move may be approaching
its end.
2. SC (2) – selling climax, the point
at which widening spread and
selling pressure usually climaxes
and heavy or panicky selling by
the public is being absorbed by
larger professional interests at
prices near the bottom. At the
low, the climax helps to define the
lower level of the TR.
3. AR (3) – automatic rally, where
selling pressure has been
exhausted. A wave of buying
can now easily push up prices,
which is further fuelled by short
covering.
 The Whyckoff Trading Method 1930:
A Case Study of the US Stock Market

Accumulation Schematic Defined Wyckoff Schematic Of Accumulation

1. ST (4, 5, 8) – secondary test, price visual representation of the Wyckoff market action typically found within a TR of accumulation
revisits the area of the selling cli-
max to test the supply/demand at
these price levels. If a bottom is to
be confirmed, significant supply
should not resurface, and volume
and
2. The Creek (6) – is a wavy line of
resistance drawn loosely across
rally peaks within the trading
range. There are minor lines of
resistance and a more significant
“creek” of supply that will have
to be crossed before the market’s
journey can continue onward and
upward.
 The Whyckoff Trading Method 1930:
A Case Study of the US Stock Market

Springs or Shakeouts (7) Defined Wyckoff Schematic Of Accumulation

visual representation of the Wyckoff market action typically found within a TR of accumulation
1. Usually occur late within the
trading range and allow the
dominant players to make a
definitive test of available supply
before a markup campaign will
unfold.
2. If the amount of supply that
surfaces on a break of support is
very light (low volume), it will be
an indication that the way is clear
for a sustained advance.
3. Heavy supply here usually means
a renewed decline.
4. Moderate volume here may mean
more testing of support and a
time to proceed with caution.
5. The spring or shakeout also
serves the purpose of providing
dominant interests with
additional supply from weak
holders at low prices.
 The Whyckoff Trading Method 1930:
A Case Study of the US Stock Market

Accumulation Schematic Defined Wyckoff Schematic Of Accumulation

visual representation of the Wyckoff market action typically found within a TR of accumulation
1. Jump (9) – continuing the creek
analogy, the point at which price
jumps through the resistance
line; a bullish sign if the jump is
achieved with increasing speed
and volume.
2. SOS (10, 12) – sign of strength, an
advance on increasing spread and
volume, usually over some level of
resistance
3. BU/LPS (13) – last point of
support, the ending point of a
reaction or pullback at which
support was met. Backing up
to an LPS means a pullback
to support that was formerly
resistance, on diminished spread
and volume after an SOS. This
is a good place to initiate long
positions or to add to profitable
ones.
 The Whyckoff Trading Method 1930:
A Case Study of the US Stock Market

Accumulation Schematic Defined Wyckoff Schematic Of Distribution

1. PS (1) – Preliminary Supply is visual representation of the Wyckoff market action typically found within a TR of accumulation
where substantial selling begins
to provide pronounced resistance
after an up move. Volume and
spread widen and provide a sig-
nal that the up move may be ap-
proaching its end.
2. BC (2) – Buying Climax is the
point at which widening spread
and the force of buying climaxes,
and heavy or urgent buying by
the public is being filled by larger
professional interests at prices
near a top.
3. AR (3) – Automatic Reaction with
buying pretty much exhausted
and heavy supply continuing an
AR follows the BC. The low of this
selloff will help define the bottom
of the Trading Range (TR).
 The Whyckoff Trading Method 1930:
A Case Study of the US Stock Market

Accumulation Schematic Defined Wyckoff Schematic Of Distribution

1. ST – Secondary Test(s) revisit the visual representation of the Wyckoff market action typically found within a TR of accumulation
area of the Buying Climax to test
the demand/supply balance at
these price levels. If a top is to be
confirmed, supply will outweigh
demand and volume and spread
should be diminished as the mar-
ket approaches the resistance area
of the BC.
2. SOW – Sign of Weakness at point
10 will usually occur on increased
spread and volume as compared
to the rally to point 9. Supply is
showing dominance. Our first
“fall on the ice” holds and we get
up try to forge ahead.
3. The ice is an analogy to a wavy
line of support drawn loosely
under reaction lows of the
Trading Range. A break through
the ice will likely be followed by
attempts to get back above it.
 An upthrust is the opposite of a spring. It is a price move above the
The Whyckoff Trading Method 1930: resistance level of a trading range that quickly reverses itself and
A Case Study of the US Stock Market moves back into the trading range. An upthrust is a “bull trap” – it
appears to signal a start of an uptrend but in reality marks the end of
the up move.

Accumulation Schematic Defined Wyckoff Schematic Of Distribution

1. UTAD – UPthrust After visual representation of the Wyckoff market action typically found within a TR of accumulation
Distribution Similar to the Spring
and Terminal Shakeout in the
trading range of Accumulation,
a UTAD may occur in a TR or
distribution. It is more definitive
test of new demand after a
breakout above the resistance line
of the TR and usually occurs in
the latter stages of the TR.
2. If this breakout occurs on light
volume with no follow through
or on heavy volume with a
breakdown back into the center
of the trading range, then this is
more evidence that the TR was
Distribution not Accumulation.
3. This UTAD usually results in
weak holders of short positions
giving them up to more dominant
interests, and also in more
distribution to new, less informed
buyers before a decline.
 Within the dynamics of a Trading Range, the force of accumulation
The Whyckoff Trading Method 1930: or distribution gives us the cause and the potential opportunity for
A Case Study of the US Stock Market substantial trading profits.

Accumulation Schematic Defined Wyckoff Schematic Of Distribution

1. LPSY – Last Point of Supply visual representation of the Wyckoff market action typically found within a TR of accumulation
after we test the ice (support)
on a SOW, a feeble rally attempt
on narrow spread shows us the
difficulty the market is having in
making a further rise. Volume
may be light or heavy, showing
weak demand or substantial
supply. It is at these LPSY’s that
the last waves of distribution are
being unloaded before markdown
is to begin.
2. After a break through the ice, a
rally attempt is thwarted at the
ice’s surface (now resistance). The
rally meets a last wave of supply
before markdown ensues. LPSY’s
are good places to initiate a short
position or to add to already
profitable ones.
3. In Phase E, the stock or
commodity leaves the TR and
supply is in control.