Wyckoff Events: Accumulation

As what I have promised to you on the previous post, these are the details of Wyckoff events: accumulation schematics.

PS – preliminary support, after prolong down-move the buying begins and you can see the stock bounces with some higher volume. It shows the stock is approaching the bottom.

SC – selling climax, panic selling by the public and it is being absorbed by larger professional operators. Normally it comes with bad news and usually appears with high volume.

AR – automatic rally, after the selling pressure has diminished and the buying pushes the price up.

ST – secondary test, the retest of previous SC. Usually the volume is low and large operators are testing the SC price.

Spring or shakeout – the final test by the large operators to make sure the available supply is absorbed before the markup. It is also the best time for short term traders to enter the trade.  

SOS – sign of strength, the stock rallies with high volume and shows the stock is preparing for the next rally. Sometimes it looks like pennant or flag.

LPS – last point of support, the stock pullback to test the support with the volume diminished.

In Kuala Lumpur Stock Exchange (KLSE), I have encountered many stocks from Phase B to Phase C or even Phase D. Phase B to Phase C might take years to develop, the longest I can remember is 4 to 5 years. The fixed deposit will do a better job for you during this period. You must be good at identifying spring in order to trade in these phases.

Phase D shows the possibility of further markup. Traders can enter the position during the LPS and add more shares after the confirmation of markup. Sign of strength is not easy to identify, some stocks rally followed by the price drops during the LPS.

Richard Wyckoff’s work is exceptional, he codified the best practices of Livermore and others into laws, principles and techniques of trading methodology, money management and mental discipline. His works help retailers to understand how stock markets operate. I hope this article will help you to identify the accumulation phases of a stock.

Keep learning and never give up.  

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Author: Gerald Koh