WYCKOFF ACCUMULATION SCHEMATICS

Outlook on WYCKOFF’s method of figuring out process of ACCUMULATION undergoing in a stock

Generally when we hear about WYCKOFF everyone gets the pictorial image of “PRICE CYCLE” (as depicted below) in which you will be able to figure out that a stock passes through iterative cycle of FOUR PHASES consisting of
“ACCUMULATION” — “MARK UP” — “DISTRIBUTION” — “MARK DOWN”.

PRICE CYCLE (IMAGE COURTESY: STOCKCHARTS.COM)

Before we proceed let me be very clear that
1. BUY stocks which are in ACCUMULATION PHASE — SELL stocks which are in DISTRIBUTION PHASE
2. Its more important to understand that these four phases reflect “CAUSE — EFFECT” relationship wherein “Accumulation is the CAUSE & Mark Up is the EFFECT” and on the contra side “Distribution is the CAUSE & Mark Down is the EFFECT”
This may sound so simple and also the image looks very much understandable and it must have also got photocopied in your brain but deep problem would start occurring when you will pick up stocks and try to correlate with these images and logic

So in this article I will try to cover “ACCUMULATION SCHEMATIC” as suggested by WYCKOFF. Before we move further let me take a chance to clarify few things
1. Methodology which will be suggested will have great relevance in context of “VOLUMES” so its clear that you should have hold over “VOLUME SPREAD ANALYSIS / PRICE VOLUME ANALYSIS” for getting better understanding
2. WYCKOFF in order to decide TARGETS used to prefer “POINT & FIGURE CHARTS” so if you are having knowledge of POINT & FIGURE charting method then it will act as an additional edge for you while trading these setups
3. This article is not meant for sharing any STRATEGY rather read this article with an aim to answer one simple question
“How to catch underlying sentiment of stock/instrument under consideration?”

WYCKOFF ACCUMULATION SCHEMATIC #1
In this article we will be discussing about SCHEMATIC#1 as there are two major variations of ACCUMULATION i.e. SCHEMATIC #1&2

TERMS & CONCEPTS

1. PS — Preliminary Support: When the stock is coming from a substantial downtrend this is the first them when stock starts witnessing some buying interest. Generally its been observed that in this part VOLUME & SPREAD starts improving which starts giving a clue that DOWN TREND is reaching its CLIMAX
2. SC — Selling Climax: This is the point when the fall actually stops and most of the RETAILERS are trapped on the wrong side and SMART MONEY starts pouring money in the stock i.e. RETAILERS starts SELLING due to FOMO and SMART MONEY starts BUYING and all the supplies get absorbed and this gives a very clear indication that bottom is very near
3. AR — Automatic Rally: Now just think in this manner when the PRICE was falling along with which SMART MONEY was pouring in money will it have some positive effect on the stock? If your answer is “YES” then you are on right track because that’s what is actually going to happen the stock will start moving higher reason being SMART MONEY’s BUYING at TAIL ENDS. Also note that this rally will be sharp and many a times you will find out that there are consecutive GREEN/WHITE bars
4. ST — Secondary Test: Now this act is done to check the if there is any left over supply in the range where the stock is operating. In simple terms ST is like a mock drill to ensure that there is no supply left and price has bottomed out. When you are seeing this type of action going on just look out for one thing “VOLUMES” should be dropping significantly during the down move. And hopefully this should make sense because ST is not actual selling but its a mock drill to check if there is any underlying supply. Similarly you can think for the concept of TEST but one thing you can add for TEST is look for good “VOLUME & SPREAD” when the TEST activity is going on because understand we are going through “accumulation phase” so we want good “VOLUMES & SPREADS” on up moves and not on down moves
5. CREEK — Many of the traders think that this is something very unusual but actually CREEK is a free hand line drawn using the tops of TEST. It should not be necessarily picture perfect and can be drawn loosely without much perfection
6. SPRING — Once the stock is moving in a range for some time then you will see that there is some activity that is being done by SMART MONEY to put RETAILERS on WRONG FOOT and then take the stock towards their desired direction. In this you will be able to find that the SUPPORT BAND which is developed for time being will be broken and then the price will again shoot back in the range. Actually lets make an attempt to understand what has happened
   a. When the price broke through the SUPPORT BAND STOPLOSS of RETAILERS who were LONG got triggered and they are thrown out of the game
   b. Also when the price broke through the SUPPORT BAND breakout traders must have got active and their SELL LIMIT ORDERS must have got triggered and they are trapped
   c. In simple terms this activity was done to improve the liquidity to move higher (also referred as ENGINEERED LIQUIDITY)
7. SOS — Sign of Strength: Now you will see that price will start moving higher and higher as if there is no tomorrow. Hope you can understand “WHY THE PRICE IS MOVING RAPID & FAST?” because its SMART MONEY who is driving the price and RETAILERS are deserted. Actually SOS will be proved when the price will JUMP ACROSS THE CREEK. Also SOS will be proved when the price will breakout of upper band of trading range
8. LPS — Last Point of Supply: Once the price has started moving higher then there will an attempt to throw the price back into the range and shed of as many RETAILERS as possible but here you will be able to find that price will not penetrate again back into range but rather it will take SUPPORT on the RESISTANCE band which is very much confirmatory that this is the last point of supply. Normally you have to ensure that when the price is thrown back then VOLUMES & SPREADS should be on the lower ends

After this you will see that price is literally flying and takes off without much pain. Now the question that you will have is “What are the zones where we can enter LONG trade?”

TRADE LOCATION

See the above image you are able to see a RECTANGULAR BOXED ZONE (BLUE) that’s the area where you can enter in the following manner
1. You can start you trade with PILOT POSITIONS (small positions to test the waters) after the SPRING action
2. If the trade is going as per your analysis then you can compound your positions after the action of JUMP ACROSS CREEK and re-test of CREEK (this is also considered as LPS)
3. Once you have come up to this level and everything is happening according to your analysis then you can compound your positions at LPS (retest of BAND OF RESISTANCE — Change of Polarity)

Now once you have understood the whole structure let’s make an attempt to get some hands on practical ideas in order to confirm does it really happen as its depicted above for which I will be discussing the recent example of CIPLA which I traded with my INNER CIRCLE

PRELIMINARY SUPPORT

See in the above image you will be able to find that when the stock was falling it actually has started some signs of SELLING CLIMAX as the VOLUMES where get built up and SPREADS were improving (Those who don’t know SPREAD is basically the difference between HIGH & LOW of a candle/bar)

CIPLA WYCKOFF ACCUMULATION SCHEMATIC#1

See the above image the whole idea which we have discussed earlier is been put up in the similar manner. Few things which you can observe here
1. See the VOLUMES when the SELLING reaches its CLIMAX
2. During every down move hence forth you will see that normally the VOLUMES are very dry and SPREAD is very insignificant
3. Most importantly when you read the whole concept of SPRING you must have thought it is just a single bar/candle layout but see that’s how books and practical approach differs as in this case SPRING is not a SINGLE BAR/CANDLE but its MULTIPLE CANDLES/BARS

CIPLA TRADE LOCATIONS

In the given case you could have initiated LONG positions at three places
1. Once the price comes back in the range after doing SPRING action putting SL below the SHAKEOUT / SPRING ZONE
2. You could have compounded your positions once the price JUMPED ACROSS THE CREEK
3. You could have added final lot of LONGS once the price went across TRADING RANGE’S upper band and then came back to RE-TEST

TRADE IDEA SHARED

This is the screen shot of trade idea shared with my INNER CIRCLE members.

Day on which article is been written CMP is 589.60 and stock has fulfilled our targets in much easier manner once it was out of the trading range

Hopefully I was able to do some value addition to knowledge. Now make an attempt to understand the whole structure and develop your own trades. Most importantly try to develop such structures on WEEKLY / DAILY / 4 HOURS time frame as they would be noiseless and much easier to frame out whole process step by step and are more reliable.

Before I conclude I would say one thing that I have fudged WYCKOFF’S method by not considering PHASES in the stock i.e. every accumulation pattern has four phases — PHASE A / B / C & D

In the next article we will discuss about DISTRIBUTION SCHEMATIC#1 till then “KEEP LEARNING , KEEP GROWING”

With Regards,
Siddharth