Wyckoff’s laws from trend to congestion and back again

Wyckoff’s laws from trend to congestion and back again

Whatever timeframe you are trading, Wyckoff’s laws apply, and in this video, I explain how the three rules cycle from congestion to trend and back again.

00:00

Introduction and webinar disclaimer

00:00

The presenter welcomes everyone to the webinar, noting that the recording has just started. They remind viewers about the trading disclaimer, emphasizing the risks involved and advising not to trade with money that cannot be afforded to lose. The session will focus on analyzing charts.

00:31

Overview of volume price analysis (VPA)

00:31

The speaker introduces the topic of volume price analysis, explaining that the session will review various charts using this methodology. They mention a book available on Amazon that thoroughly explains the approach, focusing on understanding the relationship between price and volume to interpret current market conditions and predict future price movements.

01:02

Companion book and proprietary indicators

01:02

The speaker introduces a companion book that illustrates their methodology through 200 worked annotated examples covering various time frames, mainly focused on stocks, with some commodities and indices included. There is also a version tailored for the forex market. The sessions use proprietary indicators, and attendees range from those who have purchased just a few indicators to those with the full package. The speaker acknowledges the presence of forex program students and addresses the question of why forex traders might benefit from sessions that also cover indices and commodities, noting there may not be time to focus on stocks in this session.

02:11

Applicability of VPA across markets

02:11

The session emphasizes that the Volume Price Analysis (VPA) methodology applies universally across all markets and time frames, making the specific ticker or chart less important. Using examples like the pound against the Australian dollar and the Nasdaq 100 daily chart, it highlights that the lessons from VPA are relevant whether trading forex, commodities, or other assets. The discussion also notes that technical analysis forms the foundational starting point for all traders.

03:13

Importance of cross-market and sentiment analysis

03:13

The speaker emphasizes the importance of considering fundamental news and global events, especially the impact of the virus, when trading. They discuss the necessity of cross-market analysis because movements in one market often influence others. There are correlations and relationships between different instruments and markets, such as the Nasdaq, S&P 500, and Dow Jones, which tend to move together despite occasional divergences. Understanding these relationships is crucial for traders.

05:04

The discussion continues about the importance of recognizing relationships not only within the specific market a trader focuses on but also across other markets. Forex traders, for example, should monitor market sentiment as certain currencies like the Australian dollar and Japanese yen reflect broader market emotions. Additionally, index traders should stay aware of currency market movements since shifts in currencies like the yen can lead or signal changes in other markets, sometimes causing unusual market behavior.

05:30

Recent market reversal and daily chart example

05:30

The speaker discusses recent market movements, highlighting a dramatic reversal in forex and equity indices last Thursday. Initially, indices were rising while the yen was being bought, but sentiment completely shifted. This reversal is attributed mainly to actions by the Federal Reserve. The speaker notes the market adage to never fight the Fed, emphasizing that while the Fed has supported many market participants, it has not yet directly purchased stocks to support the markets.

06:43

Central banks and their stock holdings

06:43

The segment explains how central banks support the economy by buying stocks, sometimes extensively. Examples include the Bank of Japan (BOJ) heavily investing in ETFs and the Swiss National Bank holding significant shares in major U.S. companies like Amazon and Apple. Information on which central banks own particular stocks can be found through SEC filings. The discussion then shifts to the VPA (Volume Price Analysis) methodology, which examines the relationship between price action and volume to understand market dynamics.

07:55

Applying VPA: price and volume anomalies

07:55

The speaker explains the importance of identifying anomalies in price action to determine if market movements are genuine or manipulated. They discuss the potential outcomes of such anomalies, including pauses that could lead to either reversals or congestion phases before the primary trend resumes. The concept of shock reversals is introduced, along with the idea that these price actions follow certain principles known as Wyckoff’s three laws, which are applied at different stages of a market’s price cycle, such as during an uptrend.

09:03

Wyckoff’s three laws explained

09:03

The speaker explains how to assess market moves by comparing the effort behind a price move to the actual result. They highlight the importance of volume analysis, noting that increasing volume should correspond with price spreads during upward trends. When volume is high but spreads remain narrow, it indicates a discrepancy or anomaly, reflecting Wyckoff’s laws about effort versus result in market behavior.

10:11

Wyckoff’s second law: congestion phase

10:11

The speaker explains the congestion phase in price movements, which occurs after a price has paused or reversed but before the trend resumes. Using an example from the Pound-Aussie currency pair on the MT5 platform, they illustrate how a trend moves lower, enters a congestion phase, and that the duration of this phase influences the strength and distance of the subsequent breakout, whether it continues the original trend or reverses.

11:23

Wyckoff’s first law: supply and demand

11:23

The speaker explains Wyckoff’s second law, which is based on supply and demand, focusing on accumulation and distribution phases. They describe how price movements cycle through effort and result, often followed by a congestion or sideways movement. Currently, regarding the Nasdaq (NQ), the market’s direction is uncertain, and a congestion phase may develop within the current range.

12:02

Market congestion and possible outcomes

12:02

The speaker discusses the market approaching an all-time high and the likelihood of entering a congestion phase before either continuing upward or reversing downward. This congestion can develop into a distribution phase, serving as either a platform for further gains or a sign of reversal. They emphasize the importance of understanding how these market cycles, governed by three laws, manifest across different time frames. While daily charts show slower cycles, faster time frames reveal these patterns more clearly and are easier to analyze, allowing traders to apply insights from short-term charts to longer-term trends.

13:13

Focus on timeframes and Q&A invitation

13:13

The speaker reflects on focusing either on faster or slower time frames and invites David to add any thoughts or questions. Viewers are encouraged to submit questions or ask for clarifications about the indicators in the chat. The segment ends with the speaker preparing to share a brief personal story.

13:41

Success story using volume price analysis

13:41

The speaker discusses email correspondence with a reader who is working through the ‘Forest for Beginners’ book, which applies forex market methodology. The reader has had moderate success and recently took her first trade using volume price analysis (VPA) on the cable market. She noticed a narrow spread candle with high volume, recognized it as an anomaly from the book’s teachings, and changed her trading decision accordingly, resulting in a positive outcome that pleased both her and the speaker.

By Anna Coulling – creator of volume price analysis