Hi!
I get questioned a lot of the type of trading analysis I use and what are my methods when conducting an analysis. To answer this question, its a combination of three:
1. Wyckoff Method
2. Price Action
3. Volume Analysis
So who is Richard Wyckoff?
Richard Demille Wyckoff (November 2, 1873 – March 7, 1934) was a stock market authority, founder and onetime editor of the Magazine of Wall Street (founding it in 1907), and editor of Stock Market Technique. He is considered one of the five “titans” of technical analysis, along with Dow, Gann, Elliott, and Merrill. At age 15 he took a job as a stock runner for a New York brokerage, then he became the head of his firm while still in his 20s. He also founded and for nearly two decades wrote and edited “The Magazine of Wall Street,” which at one point had more than 200,000 subscribers. Wyckoff was an avid student of the markets and an active tape reader and trader. He observed the market activities and campaigns of the legendary stock operators of his time, including JP Morgan and Jesse Livermore.
Richard Wyckoff stated “The large operator does not, as a rule, go into a campaign unless he sees in prospect a movement of from 10 to 50 points. Livermore once told me he never touched anything unless there were at least 10 points in it according to his calculations.” This is exactly the mindset you have to put whenever you think of entering the market. Wyckoff wanted traders to learn and understand how institutions and professionals traded the market.
So how do large institutions and hedge funds trade the markets?
Trading is like any other merchandising business. Richard Wyckoff said “When you have learned to take a wholly impartial viewpoint, unbiased by news, gossip, opinions and your prejudices, you will realize that the stock market is like any other merchandising business. “Those who understand it buy only when prices are low with the idea of selling when they are high; and they operate only in the stocks or commodities which they can move best so they may secure the highest possible rate of turnover of inventories.”
Hedge Funds will take their time to accumulate before the next big move. Buying at once will cause the price to rise too fast!
“The preparation of an important move in the market takes a considerable time. A large operator or investor acting singly cannot often, in a single day’s session, buy 25,000 to 100,000 shares of stock without putting the price up too much. Instead, he takes days, weeks or months in which to accumulate his line in one or many stocks. He prefers to do this while the market is weak, dull, inactive and depressed. To the extent that they are able, he, and the other interests with whom he works bring about the very conditions which are most favorable for the accumulation of stocks at low prices. When he wishes to accumulate a line, he raids the market for that stock, makes it look very weak, and gives it the appearance of heavy liquidation by sending in selling orders through a great number of brokers.” Wyckoff added: “You have often noticed that a stock will sell at the highest price for many months on the very day when a stock dividend, or some very bullish news, appears in print. This is not a mere accident.The whole move is manufactured."
Sources: Stockcharts, Wikipedia and an Article I published on Medium
I get questioned a lot of the type of trading analysis I use and what are my methods when conducting an analysis. To answer this question, its a combination of three:
1. Wyckoff Method
2. Price Action
3. Volume Analysis
So who is Richard Wyckoff?
Richard Demille Wyckoff (November 2, 1873 – March 7, 1934) was a stock market authority, founder and onetime editor of the Magazine of Wall Street (founding it in 1907), and editor of Stock Market Technique. He is considered one of the five “titans” of technical analysis, along with Dow, Gann, Elliott, and Merrill. At age 15 he took a job as a stock runner for a New York brokerage, then he became the head of his firm while still in his 20s. He also founded and for nearly two decades wrote and edited “The Magazine of Wall Street,” which at one point had more than 200,000 subscribers. Wyckoff was an avid student of the markets and an active tape reader and trader. He observed the market activities and campaigns of the legendary stock operators of his time, including JP Morgan and Jesse Livermore.
Richard Wyckoff stated “The large operator does not, as a rule, go into a campaign unless he sees in prospect a movement of from 10 to 50 points. Livermore once told me he never touched anything unless there were at least 10 points in it according to his calculations.” This is exactly the mindset you have to put whenever you think of entering the market. Wyckoff wanted traders to learn and understand how institutions and professionals traded the market.
So how do large institutions and hedge funds trade the markets?
Trading is like any other merchandising business. Richard Wyckoff said “When you have learned to take a wholly impartial viewpoint, unbiased by news, gossip, opinions and your prejudices, you will realize that the stock market is like any other merchandising business. “Those who understand it buy only when prices are low with the idea of selling when they are high; and they operate only in the stocks or commodities which they can move best so they may secure the highest possible rate of turnover of inventories.”
Hedge Funds will take their time to accumulate before the next big move. Buying at once will cause the price to rise too fast!
“The preparation of an important move in the market takes a considerable time. A large operator or investor acting singly cannot often, in a single day’s session, buy 25,000 to 100,000 shares of stock without putting the price up too much. Instead, he takes days, weeks or months in which to accumulate his line in one or many stocks. He prefers to do this while the market is weak, dull, inactive and depressed. To the extent that they are able, he, and the other interests with whom he works bring about the very conditions which are most favorable for the accumulation of stocks at low prices. When he wishes to accumulate a line, he raids the market for that stock, makes it look very weak, and gives it the appearance of heavy liquidation by sending in selling orders through a great number of brokers.” Wyckoff added: “You have often noticed that a stock will sell at the highest price for many months on the very day when a stock dividend, or some very bullish news, appears in print. This is not a mere accident.The whole move is manufactured."
Sources: Stockcharts, Wikipedia and an Article I published on Medium