TLDR: Wyckoff’s Market Cycle and its four phases: Accumulation, Markup, Distribution, and Markdown.

Could you imagine how good it feels to be able to predict the stock market?

If you could consistently buy during market uptrends and sell before sell-offs, it would be PRETTY amazing, right?

The good news is: The stock market operates in a cycle..

By understanding this cycle and recognizing repeated patterns, you too can become a fortune teller of sorts.

One of the most important concepts in the market cycle is known as Wyckoff’s Market Cycle.

Identified by Richard Wyckoff, a legendary trader from the early 20th century, this cycle consists of four distinct phases: Accumulation, Markup, Distribution, and Markdown.

These phases have stood the test of time and remain crucial for traders to learn.

Understanding these phases empowers you to identify patterns and anticipate trends, which is exactly what we’ll be discussing in this blog.

The Four Phases of the Wyckoff Cycle

Phase 1: Accumulation

This is where the “big players” quietly enter the market.

Institutional players scare off retail traders by creating false breakouts to trigger stop losses. They accumulate shares without causing major price swings. Look for narrow trading ranges, low volume, and prices quickly recovering after dips.

The market moves sideways within a trading range, with occasional dips and a gradual upward trend breaking resistance above.

Phase 2: Markup

This is the phase where price spikes and volume booms. Institutions, confident in their holdings, push the market higher.

After the breakout from resistance in phase 1, the price accelerates with a sudden increase in trading volume, driving demand up.

Volume increases, and we see higher highs and higher lows, with occasional pullbacks finding support at higher levels.

As retail traders, we want to enter the trade during the early markup stage to catch the wave and benefit from the surge.

Phase 3: Distribution

This phase is when institutions subtly offload their shares, preparing for a reversal.

Growth slows down, and the market shows volatility in both directions.

Watch for decreasing volume, choppy price action with lower highs and lows, and occasional false breakouts to trick retail traders.

The trend will flatten, and this is the last opportunity for retail traders to take profit or cut their losses before the bearish phase begins.

Phase 4: Markdown

The bears take over! Prices plummet as institutions complete their exits and bearish momentum builds. High volume on downticks and breakouts of support levels confirm the shift in sentiment.

The downward momentum triggers many stop losses, accelerating the downtrend and creating gaps and huge engulfing candlesticks.

Once the price falls to a point where institutions consider it cheap enough to buy, the cycle repeats, returning to the accumulation stage.

Advanced Strategies For Wyckoff Cycle

Wyckoff’s cycle isn’t just about blindly following phases. Here are some bonus tips:

Beware false breakout

Especially in lower timeframes. Prices may jump outside the pattern to grab liquidity from both sides. Be cautious and wait for confirmation before entering a trade.

Use other Indicators or tools for confirmation

Moving averages can smooth out trends and help you ignore false breakouts, reducing emotional attachment to short-term price movements.

TradeDots can identify market pivots and trends across timeframes. Combine Wyckoff with your favorite technical tools for a more comprehensive picture.

Adapt to different market conditions and stocks

Wyckoff works best on large-cap stocks with significant institutional involvement. In small-cap stocks or high volatility markets, the patterns may be less clear. Adjust your approach based on the market environment.

Fundamentals matter, but timing is key

Don’t wait for news to react. Use Wyckoff to identify early price changes, then use fundamental analysis to support your technical decisions. Price is the real-time feedback of every fundamental data, representing the most accurate form of valuation for any company or asset.

If you hear it on the news, you’re already late.

Bottom Line

The market is a complex ecosystem. No single method guarantees success. But by mastering Wyckoff’s market cycle, you gain a valuable edge. You’ll learn to discern the whispers of the market, anticipate trend changes, and ultimately, make informed decisions that can lead to greater success in the dance of the bulls and bears.

Ready to take your trading to the next level? Start decoding the Wyckoff cycle today!

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Disclaimer: The information provided in this article is for educational purposes only and should not be considered as financial advice. Trading involves risk, and it is important to conduct thorough research and seek professional guidance before making any investment decisions.