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Henry O. Pruden Certificate
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5 MANDATORY COURSES
3 ELECTIVE COURSES
Wyckoff Market Discussion (3+ months) - Use Once
Wyckoff Market Discussion (3+ months) - Use Once
A Detailed Look Into Springboards
Back-Testing/Validating Trading Plan (2017)
Beyond Springs And Upthrusts
Improving Your Wyckoff Swing Trading Results
Intraday Trading Using The Wyckoff Method
Long-Term Campaigns and Tactical Swing Trades
Momentum, Volume And Price Structure
Point-and-Figure Part III
Practices For Successful Trading
Scan For Success Part 1
Scan For Success Part 2
Swing Trading Using The Wyckoff Method
Trading Technical Analysis Signals
Trust the Process Part 1
Trust the Process Part 2
Upgrading Your Trading Plan (2018)
Wyckoff Market Discussion (3+ months) - Use Once
Wyckoff Market Discussion (3+ months) - Use Once
A Detailed Look Into Springboards
Back-Testing/Validating Trading Plan (2017)
Beyond Springs And Upthrusts
Improving Your Wyckoff Swing Trading Results
Intraday Trading Using The Wyckoff Method
Long-Term Campaigns and Tactical Swing Trades
Momentum, Volume And Price Structure
Point-and-Figure Part III
Practices For Successful Trading
Scan For Success Part 1
Scan For Success Part 2
Swing Trading Using The Wyckoff Method
Trading Technical Analysis Signals
Trust the Process Part 1
Trust the Process Part 2
Upgrading Your Trading Plan (2018)
Wyckoff Market Discussion (3+ months) - Use Once
Wyckoff Market Discussion (3+ months) - Use Once
A Detailed Look Into Springboards
Back-Testing/Validating Trading Plan (2017)
Beyond Springs And Upthrusts
Improving Your Wyckoff Swing Trading Results
Intraday Trading Using The Wyckoff Method
Long-Term Campaigns and Tactical Swing Trades
Momentum, Volume And Price Structure
Point-and-Figure Part III
Practices For Successful Trading
Scan For Success Part 1
Scan For Success Part 2
Swing Trading Using The Wyckoff Method
Trading Technical Analysis Signals
Trust the Process Part 1
Trust the Process Part 2
Upgrading Your Trading Plan (2018)
SUCCESS
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5/8
2020
ACCUMULATION AS AN EXPRESSION OF SUPPLY AND DEMAND!
by John Colucci

Welcome back fellow Wyckoffians!  In our last installment, we looked at the three (3) laws of Wyckoffian Price Movement.  Why?  Not just because it’s the law, but because it is how we order our thoughts about structural price movement in a way that helps us scan effectively.  Now, lets look a bit deeper at accumulation.

Accumulation from a Supply and Demand Perspective.

Structurally speaking, accumulation (original accumulation that is) is always preceded by a downtrend.  When we speak of a downtrend, what are saying in terms of supply and demand?  Supply exceeded demand for a period of time long enough to establish a series of lower highs and lower lows constituting a [down] trend (we will cover trending/nontrending later), simple as that. 

When we say supply exceeded demand, do we mean there was lots of supply or just low demand?  For our immediate purposes, there is no need for such fine distinctions.  There is one simple relationship we are considering: when supply is consistently greater than demand, for any reason or combination of reasons, price will decrease.

The speed at and extent to which price decreases when supply exceeds demand relates to the degree of imbalance between supply and demand. Generally, the greater the imbalance between supply and demand, the faster and further price will move.  In non-Wyckoffian lingo, the number of elephants heading for the door is directly related how likely it is you will be trampled.

Ah hah, you say!  There may be more going on with this Supply/Demand stuff that it first seems. 

Let see if we can make some Wyckoffian permutations on the Law of Supply and Demand:

WYCKOFFIAN PRICE MOVEMENT PRINCIPLE 1: IMBALANCE BETWEEN SUPPLY AND DEMAND MOVES PRICE

WYCKOFFIAN PRICE MOVEMENT PRINCIPLE 2: THE GREATER MORE PERSISTENT THE IMBALANCE BETWEEN SUPPLY AND DEMAND, THE FASTER AND FURTHER PRICE WILL MOVE.

WYCKOFFIAN PRICE MOVEMENT PRINCIPLE 3: WHEN BALANCE BETWEEN SUPPLY AND DEMAND EXISTS, PRICE WILL BE AT EQUILLIBRIUM.

WYCKOFFIAN PRICE MOVEMENT PRINCIPLE 4: EVEN WHEN PRICE IS AT EQUILLIBRIUM, PRICE WILL OFTEN HAVE MOVEMENT BETWEEN AREAS OF SUPPORT (A POINT AT WHICH DEMAND EXCEEDS SUPPLY) AND RESISTANCE (A POINT AT WHICH SUPPLY EXCEEDS).

Wow, where did that come from?

Our simplified chart review shows us these principles:

ACCUMULATION ARROW SCHEMATIC

Let’s analyze our Accumulation Arrow Schematic again.

  1. At point 1, price moves down and stops at a line representing support. In order for these structural elements to occur: (a) Supply must have been greater than Demand (imbalance); and (b) Demand must have become at least equal to Supply to stop the downward price movement (equilibrium at support).
  2. At point 2, price moves sideways during a period of testing. Testing?  Yes, testing.  We will cover this more in the future.  For now, think of the point 2 as an area that market participants are determining the Supply/Demand relationships at the lines (areas) of support and resistance. A period of sideways movement between support and resistance is a form of price equilibrium.

At point 3, imbalance prevails again: only this time, demand exceeds supply and price moves up and out.

Scanning Implications.

Finally, scanning implications?

The scanning implications of the Law of Supply and Demand are profound.  As see, we’ve already derived four (4) Wyckoffian Price Movement Principles from one simple law. For scanning, the importance is also critical:  Any price movement for which we scan is an expression of the Law of Supply and Demand.  Take a minute and think on that one.  You can click your heals three times and you won’t be in Kansas, but this scanning principle will still be the same.

Lets take a look at a quick scan that focuses exclusively on the expression of the supply/demand relationship as reflected by the movement of price.

Here is a scan operator that focuses only on a change in something (price in this case): the Percent Change.  There is a wonderful “Writing Percent Change Scans” article on Stockchart.com: take a look and you will see the varienty of applications for Percent Change scanning.  For now, we will focus only changes in price.

Here is a very short, simple percent change scan focusing on price movement:

[group is sp500]

AND [PctChange(10,close)  < -15]

RANK BY [PctChange(10, close)] ASCENDING

 

It looks like this in the Advanced Scan Workbench.

 

Can you tell what this scan is looking for?  Take a minute and see what you think.  (Hint: significant price drop). 

Go ahead and write your beliefs about the role each word and line plays in the scope of the scan syntax.

If you guessed that this scan looks for a price drop greater than -15% over a 10 trading day period, you are correct.  Wow, that’s a big drop.

Feel free to shoot me line in the Wykoff Analytics Blogging Forum with your annotations/questions.  Let’s use the Forum to develop our community and scanning skills!

Here is the list of stocks that met the criteria:

 

Three (3) stocks met our criteria with Kohls (KSS) leading the way down.  How could that be I love Kohls! Let’s look at the chart:

 

The chart tells the story.  Our scan asked for stocks that dropped more that 15% in 10 trading days.  We did the math and so did Stockcharts.com (note last column of search return screen—our rank by command confirms our math).

We found a large price drop in Kohls. A large price drop indicates that Supply and Demand were, at least temporarily, out of balance.  Was there greater Supply?  Was there less demand?  What may have caused this imbalance?  How long will it last? Is my Kohls cash safe?

What does a 20.75% drop in the Kohls share price in that 10-trading day timeframe tell us about overall Supply and Demand for Kohls? No, not too many Amazon returns!  The Supply available during that 10 trading day period significantly exceeded the aggregate Demand during that time frame. 

Does the fact that price drops 20% in 10 trading days mean we are in accumulation or something else.  Nope. Sorry, not that simple.  Lots more to do before we can begin to label something as accumulation: a downtrend (price drop) is only one factor.  Go back and take a look at the Accumulation Type 1 Schematic and Accumulation Arrow Schematic and see what else needs to happen to label something as an accumulation.

 

Coming Up.

Next time, we will look deeper into accumulation and continue the process of translating price movements into scans that highlight supply and demand as components of Wyckoffian Structural Scanning.

See you next time.

Scan well, trade better!

 

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