Wyckoff simplified + entries & exits
מעודכן
I'm going to explain Wyckoff to you in a simplified manner and show you how you can use it for entries & exits.
What is Wyckoff?
Large market orders by huge entities come in gradually. If the market only consisted of buying and selling, it would be too easy to make money as it would be too predictable. So instead, orders are injected into the market via an accumulation process (i.e. Wyckoff schematic)
Basically, the big players of the market try to take out the retail traders’ stoplosses by injecting orders into the market (to move price toward the stoplosses and hit them). They inject these orders gradually (to avoid being predictable and to trick the retail traders).
Basic Wyckoff schematic
This is a bearish Wyckoff schematic:
Let’s break this down.
BC - This stands for Buying Climax. The Buying Climax marks the end of buying and is confirmed by an Automatic Rally.
AR - This stands for Automatic Rally. This is when price goes in the opposite direction of the climax. In this case, the AR was to the downside. This confirms that it is the end of buying because it shoots straight down (indicating strong selling pressure). This confirms the Buying Climax by going into the Discount level (bottom 25%) and by being bigger than all the other downward pullbacks which happened before.
Test - Price goes close to the Climax point and re-tests it. Then, traders take sells because they think that because of the AR, price would go down. The traders think that price went up for the last time and will finally go down. Because of their sell orders, price falls a little.
Purge - The big players try to take out the traders’ sell orders by moving price up to the Climax point. They push price a little higher than the Climax point to take out all the stoplosses.
RTO - This stands for Return to Origin. Because of the purge, traders think that price broke structure to the upside. So, they buy which makes price form the RTO. They’re trying to make price revisit the Climax point. Then, price moves lower and they get stopped out again.
SOW - This stands for Sign of Weakness. When structure breaks to the downside after the RTO, this shows that selling pressure is coming in.
LPS - Last Point of Support. This is the consolidation which must happen before price breaks out of the consolidation to convince you that price is bearish and no longer bullish.
Here is how a bullish Wyckoff structure looks like:
Let me explain this once more so that you understand it.
The main trend was a down trend on the left side of the chart. Then, price had a strong bull move up (the AR) which means that there were buy trades (i.e. Automatic Rally). That confirms that there was a Selling Climax (i.e. SC) and that it’s the end of selling (because if it wasn't the end of selling, the AR wouldn't go so high)
After that, price came down to re-test the Selling Climax zone (which is called the Test). Then, traders took a buy because they thought that because of the AR, price would be going up.
Then the big players pushed price down a little lower than the Selling Climax to hit the buy orders' stoplosses which forms the Purge.
After that, because the Purge happened, it made traders think that price broke structure to the downside which led them to sell. Then, price went down because of those sell orders (forming the RTO) and rejected from the Selling Climax (price went up).
Price rejected from that level because there were buy orders from the big players which made price go up. Since price went up, those sell trades got taken out. Because price went up, it formed an SOS (i.e. Sign of Strength). It means that the selling pressure had weakened, and the buying pressure had strengthened.
Finally, price formed a consolidation (i.e. LPS) which tricked traders again into thinking that price will go down. The traders sold and the big players pushed prices up to hit their stoplosses one last time.
This is a basic Wyckoff pattern in a nutshell.
You’ll be more likely to predict the Wyckoff pattern in its later stages when some parts of it have formed. The earlier it is, the riskier it’ll be.
Advanced Wyckoff schematic
Let’s talk about the 2nd variation of the Wyckoff pattern. This is the same as the basic Wyckoff schematic except that the Test will go beyond the BC/SC. It will look like a purge, but it won’t be. It will be a fake purge. Then, after the Test, the actual Purge will happen.
This is to trick most of the Smart Money Concept traders into thinking that the purge has already happened and that price will form an RTO and go lower (in case of a bearish schematic). The traders will then sell. The big players will then push price up to break the Test and form the actual Purge. All the traders will get wiped out because price has hit their stoplosses.
In case of a bullish schematic, the traders will think that the purge has already happened and that price will form an RTO and go higher. They’ll buy. The big players will then push price down to form the actual Purge and take out the buy orders.
Here is how it looks like:
Structures
Before I explain how you can use this to trade, let’s first understand market structures. There are 2 types of market structures which I’ll be talking about: Support & Resistance and Supply & Demand.
There’s also 1 more thing to understand: ranges. A range is the area between the latest swing high and swing low.
👉 Supply & Demand Structure
This is when price forms a new range by forming a new high or a new low. Then, it comes back into the old range.
When price comes back into the range, it finds more buy orders to push it up again.
When price comes back into the range, it finds more sell orders to push it down again.
👉 Support & Resistance Structure
This is the same thing as the Supply and Demand structure except that price will not come back into the range but instead bounce off of the highs/lows.
Let’s see how we can use structures with Wyckoff to take entries and exits. We’re first going to use the Supply & Demand structure. Then, we’ll see how we can use the Support & Resistance structure.
Supply & Demand Entry
We’re going to take entries using the Supply & Demand structure. This strategy uses 2 timeframes to take entries (Macro & Micro). We’re going to look at a buy example. For a sell, simply use the opposite logic.
The main idea is to trade with the trend. So, first go to a higher timeframe and find a Supply & Demand structure. Then, look for when price forms a new low/high. We can see that, in this case, price formed the first lower low.
Now, we know that because this is a Supply & Demand structure, price will go back up into the range. So, to take advantage of this up move, we can take a buy.
We first have to know where to buy. So, go down to a lower timeframe. Then, look for a bullish Wyckoff schematic. Look for the Selling Climax (i.e. SC). This means that it is the end of the downtrend. Then, wait for price to form the AR, Test, Purge and RTO. You can buy when the RTO or LPS happens.
You can exit when you see a bearish schematic. This bearish schematic has to reach the Premium level. First, find the Premium level by going back to the higher timeframe and taking the upper 25% of the down leg. Then wait for price to form a bearish schematic and reach that premium level.
The Premium level will be reached when price forms a Purge (during a bearish schematic). We can see (in the picture below) that during the bearish schematic, price did Purge and break into the Premium level. Exit your buy here.
There’s also another way you can take a trade (look at the picture below). You can sell during the bearish schematic. Sell when you see the RTO or LPS (during the bearish schematic). You can exit at the Purge of the next bullish schematic.
It is more preferable to sell than to buy, in this case, because the larger trend on the higher timeframe is a bearish Supply & Demand structure. So, price is going down on the larger trend. When you trade with the trend, the probability of your trade giving profits is higher.
This was in case of a sell. If the larger trend was bullish, a buy would’ve been taken at the RTO or LPS of a bullish schematic. Then it can be exited at the Purge of the next bearish schematic.
Support & Resistance Entry
To trade a Support & Resistance structure, we do the exact same things we did for the Supply and Demand structure. The only difference is that instead of looking for a Purge near the upper 25%/bottom 25%, look for it where price will react (near the red line).
After you’ve found it, you can enter your trade when the RTO, SOW or LPS comes.
This is in case of a buy. For a sell, use the opposite logic.
Like I’ve said before, you can also take a sell to trade with the trend on the higher timeframe. You can sell during the bearish schematic. Sell when you see the RTO or LPS (during the bearish schematic). You can exit at the Purge of the next bullish schematic.
If the larger trend was bullish, a buy would’ve been taken at the RTO or LPS of a bullish schematic. Then it can be exited at the Purge of the next bearish schematic.
I hope you found this useful!
What is Wyckoff?
Large market orders by huge entities come in gradually. If the market only consisted of buying and selling, it would be too easy to make money as it would be too predictable. So instead, orders are injected into the market via an accumulation process (i.e. Wyckoff schematic)
Basically, the big players of the market try to take out the retail traders’ stoplosses by injecting orders into the market (to move price toward the stoplosses and hit them). They inject these orders gradually (to avoid being predictable and to trick the retail traders).
Basic Wyckoff schematic
This is a bearish Wyckoff schematic:
Let’s break this down.
BC - This stands for Buying Climax. The Buying Climax marks the end of buying and is confirmed by an Automatic Rally.
AR - This stands for Automatic Rally. This is when price goes in the opposite direction of the climax. In this case, the AR was to the downside. This confirms that it is the end of buying because it shoots straight down (indicating strong selling pressure). This confirms the Buying Climax by going into the Discount level (bottom 25%) and by being bigger than all the other downward pullbacks which happened before.
Test - Price goes close to the Climax point and re-tests it. Then, traders take sells because they think that because of the AR, price would go down. The traders think that price went up for the last time and will finally go down. Because of their sell orders, price falls a little.
Purge - The big players try to take out the traders’ sell orders by moving price up to the Climax point. They push price a little higher than the Climax point to take out all the stoplosses.
RTO - This stands for Return to Origin. Because of the purge, traders think that price broke structure to the upside. So, they buy which makes price form the RTO. They’re trying to make price revisit the Climax point. Then, price moves lower and they get stopped out again.
SOW - This stands for Sign of Weakness. When structure breaks to the downside after the RTO, this shows that selling pressure is coming in.
LPS - Last Point of Support. This is the consolidation which must happen before price breaks out of the consolidation to convince you that price is bearish and no longer bullish.
Here is how a bullish Wyckoff structure looks like:
Let me explain this once more so that you understand it.
The main trend was a down trend on the left side of the chart. Then, price had a strong bull move up (the AR) which means that there were buy trades (i.e. Automatic Rally). That confirms that there was a Selling Climax (i.e. SC) and that it’s the end of selling (because if it wasn't the end of selling, the AR wouldn't go so high)
After that, price came down to re-test the Selling Climax zone (which is called the Test). Then, traders took a buy because they thought that because of the AR, price would be going up.
Then the big players pushed price down a little lower than the Selling Climax to hit the buy orders' stoplosses which forms the Purge.
After that, because the Purge happened, it made traders think that price broke structure to the downside which led them to sell. Then, price went down because of those sell orders (forming the RTO) and rejected from the Selling Climax (price went up).
Price rejected from that level because there were buy orders from the big players which made price go up. Since price went up, those sell trades got taken out. Because price went up, it formed an SOS (i.e. Sign of Strength). It means that the selling pressure had weakened, and the buying pressure had strengthened.
Finally, price formed a consolidation (i.e. LPS) which tricked traders again into thinking that price will go down. The traders sold and the big players pushed prices up to hit their stoplosses one last time.
This is a basic Wyckoff pattern in a nutshell.
You’ll be more likely to predict the Wyckoff pattern in its later stages when some parts of it have formed. The earlier it is, the riskier it’ll be.
Advanced Wyckoff schematic
Let’s talk about the 2nd variation of the Wyckoff pattern. This is the same as the basic Wyckoff schematic except that the Test will go beyond the BC/SC. It will look like a purge, but it won’t be. It will be a fake purge. Then, after the Test, the actual Purge will happen.
This is to trick most of the Smart Money Concept traders into thinking that the purge has already happened and that price will form an RTO and go lower (in case of a bearish schematic). The traders will then sell. The big players will then push price up to break the Test and form the actual Purge. All the traders will get wiped out because price has hit their stoplosses.
In case of a bullish schematic, the traders will think that the purge has already happened and that price will form an RTO and go higher. They’ll buy. The big players will then push price down to form the actual Purge and take out the buy orders.
Here is how it looks like:
Structures
Before I explain how you can use this to trade, let’s first understand market structures. There are 2 types of market structures which I’ll be talking about: Support & Resistance and Supply & Demand.
There’s also 1 more thing to understand: ranges. A range is the area between the latest swing high and swing low.
👉 Supply & Demand Structure
This is when price forms a new range by forming a new high or a new low. Then, it comes back into the old range.
When price comes back into the range, it finds more buy orders to push it up again.
When price comes back into the range, it finds more sell orders to push it down again.
👉 Support & Resistance Structure
This is the same thing as the Supply and Demand structure except that price will not come back into the range but instead bounce off of the highs/lows.
Let’s see how we can use structures with Wyckoff to take entries and exits. We’re first going to use the Supply & Demand structure. Then, we’ll see how we can use the Support & Resistance structure.
Supply & Demand Entry
We’re going to take entries using the Supply & Demand structure. This strategy uses 2 timeframes to take entries (Macro & Micro). We’re going to look at a buy example. For a sell, simply use the opposite logic.
The main idea is to trade with the trend. So, first go to a higher timeframe and find a Supply & Demand structure. Then, look for when price forms a new low/high. We can see that, in this case, price formed the first lower low.
Now, we know that because this is a Supply & Demand structure, price will go back up into the range. So, to take advantage of this up move, we can take a buy.
We first have to know where to buy. So, go down to a lower timeframe. Then, look for a bullish Wyckoff schematic. Look for the Selling Climax (i.e. SC). This means that it is the end of the downtrend. Then, wait for price to form the AR, Test, Purge and RTO. You can buy when the RTO or LPS happens.
You can exit when you see a bearish schematic. This bearish schematic has to reach the Premium level. First, find the Premium level by going back to the higher timeframe and taking the upper 25% of the down leg. Then wait for price to form a bearish schematic and reach that premium level.
The Premium level will be reached when price forms a Purge (during a bearish schematic). We can see (in the picture below) that during the bearish schematic, price did Purge and break into the Premium level. Exit your buy here.
There’s also another way you can take a trade (look at the picture below). You can sell during the bearish schematic. Sell when you see the RTO or LPS (during the bearish schematic). You can exit at the Purge of the next bullish schematic.
It is more preferable to sell than to buy, in this case, because the larger trend on the higher timeframe is a bearish Supply & Demand structure. So, price is going down on the larger trend. When you trade with the trend, the probability of your trade giving profits is higher.
This was in case of a sell. If the larger trend was bullish, a buy would’ve been taken at the RTO or LPS of a bullish schematic. Then it can be exited at the Purge of the next bearish schematic.
Support & Resistance Entry
To trade a Support & Resistance structure, we do the exact same things we did for the Supply and Demand structure. The only difference is that instead of looking for a Purge near the upper 25%/bottom 25%, look for it where price will react (near the red line).
After you’ve found it, you can enter your trade when the RTO, SOW or LPS comes.
This is in case of a buy. For a sell, use the opposite logic.
Like I’ve said before, you can also take a sell to trade with the trend on the higher timeframe. You can sell during the bearish schematic. Sell when you see the RTO or LPS (during the bearish schematic). You can exit at the Purge of the next bullish schematic.
If the larger trend was bullish, a buy would’ve been taken at the RTO or LPS of a bullish schematic. Then it can be exited at the Purge of the next bearish schematic.
I hope you found this useful!
הערה
The upper 25% of a range is called the Premium zone. The bottom 25% of a range is called the Discount zone. You buy when price reaches the discount zone. You sell when price reaches the Premium zone.
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