Wyckoff Rules
Wyckoff’s first rule tells traders and investors that the market and individual securities never behave in the same way twice. Rather, trends unfold through a broad array of similar price patterns that show infinite variations in size, detail, and extension, with each incarnation changing just enough from prior versions to surprise and confuse market participants. Many modern traders would call this a shapeshifting phenomenon that always stays one step ahead of profit seeking.
The second rule raises the misunderstood issue of market relativity, telling traders and investors that context is everything in the financial markets. In other words, the only way to evaluate today’s price action is to compare it to what happened yesterday, last week, last month, and last year. A corollary to this rule states that analyzing a single day’s price action in a vacuum will elicit incorrect conclusions.
Wyckoff established simple but powerful observational rules for trend recognition. He determined there were just three types of trends: up, down and flat, and three time frames, short term, intermediate term, and long term. He observed that trends varied significantly in different time frames, setting the stage for future technicians to create powerful trading strategies based on their interplay. Alexander Elder’s Triple Screen method, outlined in Trading for a Living, offers an excellent example of this follow-up work.
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Wyckoff’s first rule tells traders and investors that the market and individual securities never behave in the same way twice. Rather, trends unfold through a broad array of similar price patterns that show infinite variations in size, detail, and extension, with each incarnation changing just enough from prior versions to surprise and confuse market participants. Many modern traders would call this a shapeshifting phenomenon that always stays one step ahead of profit seeking.
The second rule raises the misunderstood issue of market relativity, telling traders and investors that context is everything in the financial markets. In other words, the only way to evaluate today’s price action is to compare it to what happened yesterday, last week, last month, and last year. A corollary to this rule states that analyzing a single day’s price action in a vacuum will elicit incorrect conclusions.
Wyckoff established simple but powerful observational rules for trend recognition. He determined there were just three types of trends: up, down and flat, and three time frames, short term, intermediate term, and long term. He observed that trends varied significantly in different time frames, setting the stage for future technicians to create powerful trading strategies based on their interplay. Alexander Elder’s Triple Screen method, outlined in Trading for a Living, offers an excellent example of this follow-up work.
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