Identifying Institutional footprints using Wyckoff Accumulation
Updated
Here I am using 63Moons monthly chart to explain how Wyckoff Accumulation works. The Wyckoff Accumulation has 5 major phases.
Phase A - Stopping the previous trend
Phase A marks the stopping of prior downtrend.
The Preliminary Support(PS) indicates that some buyers are showing up but still not enough to stop the downward move.
The Selling Climax(SC) is formed by an intense selling activity as investors panic. This is a point of high volatility where panic selling creates big candlesticks and wicks. The strong drop then quickly reverses into a bounce also known as Automatic Rally(AR) as excessive supply is absorbed by buyers.
The Secondary Test(ST) happens when the market drops near the SC region testing whether the downtrend is really over or not. At this point the trading volume and volatility tend to be lower. ST generally forms at or above the same price level as the SC, if the ST goes lower than that of Sc one should anticipate new lows or prolonged consolidation.
The lows of the SC and the ST and the high of AR set the boundaries of the trading range(TR).
Phase B - Building the cause
Phase B serves the function of building a cause for new uptrend. Basically the idea is that something cannot happen out of nowhere, that to see a change in price a root cause must first have been built. Generally causes are constructed through a major change of hands between well informed & uninformed operators in an anticipation of the next markup.
This institutional accumulation takes a long time sometimes more than a year. As institutions do their due diligence and take their required positions.
There are usually multiple STs during Phase B as well as upthrust type actions near the upper range of TR. Early on in Phase B the price swing tends to be wide and accompanied with high volume. As professionals absorb the supply the volume on downswings within the TR tends to diminish. When it appears that the supply is likely to have been exhausted the stock is ready for Phase C.
Phase C - Test
In Phase C the stock price goes through a decisive test of the remaining supply. In Wyckoffian Analysis a successful test of supply is represented by a spring(shakeout). A low volume spring(or low volume test of a shakeout) indicates that the stock is likely ready to move up.
A spring is a price move below the support level of the trading range (which is established by low of STs in Phase A and B) that quickly reverses and moves back to TR.
The spring action is very important and ideal because the greater the movement, the more liquidity you will be able to capture and there the more gasoline the subsequent movement will have.
Phase D - Trend within range
Phase D consists of breakout and confirmation events. After the shakeout event the price should now develop a clear trend movement within the range with wide candles. This is evidenced by a pattern of advances known as Signs of Strength(SOS) on widening price spreads and increasing volume as well as reactions (Last point of Support LPS)on smaller spreads and diminished volumes.
During Phase D the price will move at least to the top of the Trading range. LPS in this phase are excellent places to initiate long positions.
Phase E - Trend out of range
In Phase E the stock breaches the trading range. This phase consists of impulsive and reactive movements and some shakeouts which are short lived. The price here abandons the structure upon which the cause has been built previously and begins a new trend as an effect of the same.
Coming to the chart of 63 Moons any pullback near 180-160 is an excellent place to initiate positions. The Phase E is gonna start soon in this scrip.
Hope you liked my analysis.
Phase A - Stopping the previous trend
Phase A marks the stopping of prior downtrend.
The Preliminary Support(PS) indicates that some buyers are showing up but still not enough to stop the downward move.
The Selling Climax(SC) is formed by an intense selling activity as investors panic. This is a point of high volatility where panic selling creates big candlesticks and wicks. The strong drop then quickly reverses into a bounce also known as Automatic Rally(AR) as excessive supply is absorbed by buyers.
The Secondary Test(ST) happens when the market drops near the SC region testing whether the downtrend is really over or not. At this point the trading volume and volatility tend to be lower. ST generally forms at or above the same price level as the SC, if the ST goes lower than that of Sc one should anticipate new lows or prolonged consolidation.
The lows of the SC and the ST and the high of AR set the boundaries of the trading range(TR).
Phase B - Building the cause
Phase B serves the function of building a cause for new uptrend. Basically the idea is that something cannot happen out of nowhere, that to see a change in price a root cause must first have been built. Generally causes are constructed through a major change of hands between well informed & uninformed operators in an anticipation of the next markup.
This institutional accumulation takes a long time sometimes more than a year. As institutions do their due diligence and take their required positions.
There are usually multiple STs during Phase B as well as upthrust type actions near the upper range of TR. Early on in Phase B the price swing tends to be wide and accompanied with high volume. As professionals absorb the supply the volume on downswings within the TR tends to diminish. When it appears that the supply is likely to have been exhausted the stock is ready for Phase C.
Phase C - Test
In Phase C the stock price goes through a decisive test of the remaining supply. In Wyckoffian Analysis a successful test of supply is represented by a spring(shakeout). A low volume spring(or low volume test of a shakeout) indicates that the stock is likely ready to move up.
A spring is a price move below the support level of the trading range (which is established by low of STs in Phase A and B) that quickly reverses and moves back to TR.
The spring action is very important and ideal because the greater the movement, the more liquidity you will be able to capture and there the more gasoline the subsequent movement will have.
Phase D - Trend within range
Phase D consists of breakout and confirmation events. After the shakeout event the price should now develop a clear trend movement within the range with wide candles. This is evidenced by a pattern of advances known as Signs of Strength(SOS) on widening price spreads and increasing volume as well as reactions (Last point of Support LPS)on smaller spreads and diminished volumes.
During Phase D the price will move at least to the top of the Trading range. LPS in this phase are excellent places to initiate long positions.
Phase E - Trend out of range
In Phase E the stock breaches the trading range. This phase consists of impulsive and reactive movements and some shakeouts which are short lived. The price here abandons the structure upon which the cause has been built previously and begins a new trend as an effect of the same.
Coming to the chart of 63 Moons any pullback near 180-160 is an excellent place to initiate positions. The Phase E is gonna start soon in this scrip.
Hope you liked my analysis.
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