• Judgemental vs Technicial
  • Three Basic Laws
  • Five Simple Steps
  • Nine Tests
  • Charts
  • Wyckoff Wave
  • Insiders / Composite Man

Judgemental vs Technicial and Fundemential

Investors who use fundamental analysis place thier imphasis on a method that emphasis business condictions, economic events and news. They look at ballance sheets, profit and loss statements, cash flow figures adn other statistics as well as Wall Street, Barrons and the evenig news. The goal is to arrive at notion of a securitys present worth, and hopes for the future. A lot of investors look to that method as thier modius opporiro of looking at the markets. And it can be if used correctly. If you are ver long term. Long term are in three to five years or more.

Fundeminantial - one step removed from the price of the instrument

By the time the information becomes available to the retail public, or can be disimeniated the price of the stock has for the most part already made the move it's going to make to the news

The defect in fundemental analysis---is the absene of timing. The professionals and insiders have members only access to the facts and figures. And they have a better developed undestanding of what is really important. Unless you are an insider and have access to member only information you need not waste a great deal of time in absorbing what is for the most part useless information. The insiders see, they act adn the price of the secrity responds accordingly. By this time the retail has fidgured out what is going on, the opportuine moment has passed.

Mechanical is easier to use than Judemental. Unfortunately, it is also far less reliable under certain market condictions. It's father is Schabacher who in the 1920's studied pictuers and found common patterns that seems to lead to the same result. Head and Shoulders top, double tops, tripple tops, gaps, pennants just to name a few. His works and Elliotts is one of the most copied work in the public domain.

Judgemental required a keen power of observaton as does the Mechanical however with one difference. The judemental approach begins with a set of principles. A principle is an absolute. Its is a statement of condiction that is unequivocally true. Given a certain condiction or set of condictions the result will always be the same. It is more difficult and takes more time.



Taken from Wyckoff Course "Introduction to the Wyckoff Method of Stock Market Analysis
Stock Market Insitute, Inc."

Three Basic Laws

Richard D. Wyckoff has been in Wall Street 20 years when he first discoverd taht it was possible to judge the future course of the market by it's own action. In his book Wall Street Ventures and Adventures though Forty Years (page 168) "I saw more and more that the action of stocks reflected the plans and purposes of those who dominated them. I began to see possibilities of judgeing from the very tape what those master minds were doing.

My editorial work was proving a most valuable means of self-education. In gathering matherial that would benefit my readers, I was actively searching out the stuff that would aid me personally. While my subscribers were given the best of what I collected, there was much in material discarded which helbe to build up what I call a code of elnightned procueure for use in this greatest of all teh world's games."

Three Basic Laws:

  • The Law of Supply and Demand - When there is to much of something in the economy it's value is reduced in an effort to create a demand that will take up the supply. If there is not enough of something to meet the demand, it's valud has to be raised in an effort to create a supply that will meet the demand.
  • The Law of Cause and Effect - In order for there to be an effect that shows up as a change in the price of a security there must first be a cause. The cause can be stated in terms of the reason for the trade. These are not build from one trade but take some time to deveop. It's usually the cause build durrign the time in the shift in who is holding the secruities. The flow that is the greatest is the one that occurs as shres leave the strong hands of the professonals / insiders and go to the weaker hands of the reatail traders.
  • The Law of Effort vs Result - The average tader is mostly concened with the price. The experiencd trader is looking more at the character of the move. The result is what happend to price. It is the volume that produces the effort that achieves the result. Without effort there can be no result. When the amount of effort and the move of the result are not in harmony, somehting is wrong. The younger kids call it divergences. Wyckoff called it effort vs result.


In each of these three laws, the startign point is a statement of truth. From this it is possible to further express the meaning of the truth in terms in chart. A chart is the secritys own actio at work. In trading begin with a true statemtnt or market thesis. Arrive at some way of picturing teh statement in your mind and then searach out those market / secruitie that fit that picture.

Taken from Wyckoff Course "Introduction to the Wyckoff Method of Stock Market Analysis
Stock Market Insitute, Inc."

Five Simple Steps

The Wyckoff Method of Judgement is a method of judging the market by it's own action. It is intended for the trader / speculator. Any one who buys or sells a sock, bond commody or future for profit is spectulating if he / she employs intelligent foresight. If they do not, they are gambling. Your goal as a professional trader should be to become an intelligent, scientific and successful trader.

The Wyckoff Method of Judgement if for traders who have little or no expeience or for those who have experience but have never been shown teh real rules of the game. Out of the very limited number who really undestand teh inner workings of the market, few have been willing to show the retail trader the real inside.

BY understanding Wyckoff Method of Judgement you will gain the knowledge of the business or trading like the insider runs his campaigns.

STEP ONE - Determine the present and probable future trend of the market. Then decide how you are going to play the game: long, short or netura.

STEP TWO - Select from the markets or moments those opportunities in harmoney with the market the ones stronger than the market in a bull (up) market: in a bear (down) market select those that are weaker than the market.

STEP THREE - Select those secruities which have built up a cause, a potential count for a move in keeping with your goals.

STEP FOUR - Determine each securities readines to move. Analyze the vertical and figure charts of the canidiates with the aid of Wyckoff Buying and Selling Tests.

STEP FIVE - Time your commentment with a turn in the market. For this decision use your TA and Hidden Internal Clock to buy at or near the end of a reacton or sell short at or near of the end of a rally.

The skill in appling those five steps is developmed through a diciplined study of Wycoff Princiles and tools availble. Wyckoff approach is designed to allow traders the preserve, protect and to appreciate capiltial in market campaigns.

Taken from Wyckoff Course "Introduction to the Wyckoff Method of Stock Market Analysis
Stock Market Insitute, Inc."

Nine Tests

Wyckoff created nine tests for buying and nine tests for selling. For brifety I will outline the buying test only

Nine Buying Tests:

  • The first buying test applies to the objective of the prior tradig range. In order to insure that the prepration in the trading range that leads to the precived buying opportinity is in fact accumuation, the downside objeive of the prevoius trading range must be accomplished. If not, the potnetial buying opportunity is suspect.
  • The second buying test requires that the price and volume action to be bullish befoer any long postions can be taken. Bullish behavior is indicated by a pattern in the relatioship between price and volume. Volume increases on teh rallies and decreaces on the reactions.
  • The third buying test involves preliminary support and selling climax. It is very simple. Unless the stopping action is present on buying can be justified.
  • The fourth buying test states the security must be stronger than the general market.
  • The fifth buying test centers around the suppl line of the down trend. As long as the line remains unbroken, the down trend is intact, and able to direct teh further action of the security in a downward direction.
  • The six buying must have had a serries of higer supports.
  • The seven buying must have had a serries of higher tops.
  • The eight buying test states in order for a security to be considerd for a long position, it must have built a base.
  • The final buying test is to determine that the estimated profit exceeds the indicated risk.


If a potential trade passess all nine buying tests, it is a potential buy. This assumes that it also possess adequate potential to make a worth while move and is located in on of the primary buying positions.

Taken from Wyckoff Course "Introduction to the Wyckoff Method of Stock Market Analysis
Stock Market Insitute, Inc."

Charts

The business of Wall Street is the fiancance corportaions and to sell the securites - stocks and bonds - which result from tis fiancing. Some secruties are good; others not so good. Those who undestand and / or sell them to the public know thier value best. The public has comparatievly little idea of their real value except for seasoned securties. Seasoned securites are those which have been on the market for a long time and which, therfore, have established earning power and intrinstic value.

Wyckoff used a tape reading chart and a Chart - Which enabled one to detect and profit by the operations and to form judgements as to the future course of stocks, by weighing the relation of supply andx demand. This somtimes can be done from price movement along, but if you conside also the volume of transactons you gain an additinal and vitally important helpful factor. br>

Wyckoff Charts:

  • Tape Reading
  • Vertical
  • Figure (p&f)
  • Trend


Taken from Wyckoff Course "The Richard D. Wyckoff Course in Stock Market Science and Technique
Volume One SMI Stock Market Insitute, Inc."

Wyckoff Wave

The vast majority of market students have little difficulty in recogonizing the goals which they wish to attain. Many, however, fail to cosider the price which must be paid in order to achieve such goals. Success, if it is to be enjoyed over a span of many years, can be gained only through the careful develeopment of a plan of total market strategy.

Further, this blueprint will only be of help to the student who possess and uses the tools essential for it's implemetation. At the very heart of such a plan it the task of determining the markets general trend and of developing effective, workable tools for analyzing that trend.

The general trened (the line of least resistance) is created by the interaction of the economic forces of supply and demand. Selling pressure and buying power applied to common stocks cause price change, and it is the total price movment of common stocks which is the general trend. The ideal approach in observing and mearuring the line of lest resistance is that of creating a common stock price index in which all stocks are reprsented. Data could be obtained on each and every stock and, after totalling all the imformation, one could come to a conclusion about the general trend. Once that is done, it wold only be necessary to implement a plan of action which was in harmony with that conclusion.

The Wyckoff Wave in an Index - not a market average. It is an index which reflects the position and trend of the stock market. In general, the Wyckoff Wave in more sensitive than most other market indexes. The basic reason for this sensitivitis due to the natue of its construti. The Wave consists of eight (8) stocks which are conssidered to be market leaders. They are selected for their indstry leadership, bredth of ownership and attracriiness to varoius classess of spctulators and investors. All buying and selling waves occurring on the exchnage are reflected by the Wckoff Wave. Consequently, this index will more effectively and more quickly morrorr the price trend changes in socks than will the other marjor market averages.

Taken from Wyckoff Course "The Richard D. Wyckoff Course in Stock Market Science and Technique
Volume Two SMI Stock Market Insitute, Inc."

Insiders / Composite Man

In studying, understanding and interpreting market action, we should consider all market action as manufacatured operation in which the buying and / or selling is suppiciently centered and coming from interest better informed than the generally untrained investor / spectulator.

The many large interest which do have an effect on teh market place (trust companies, banks, mutual funds, investment trusts, investment companies, hedge funds, specialist, positon brokers, etc) are best thought of as the "Composite Man."

This Composite Man causes the market to act and react. Or, what actually happens is the market responds to the ageless, natural Law of Supply and Demand. The Composite Man and the effects of the Law of Supply and Demand are really synonymous. It is teh result of the motives, objectives, hopes and fears of all the buyers and sellers whose actions produce the new effect upon the market.

Other term which may be thought to be synonymous with the Composite Man would be the "Market", the "Sponsor", the "Operator", or "They" the "INSIDERS". These terms are used interchangeably through the text.

It should be your objective to think of the Composite Man as the primary force in the market place. Thinking of him in this light should enhance your analysis of the action resulting from the dominant groups operating within teh individual stocks adn their total effect within the general market place.

Taken from Wyckoff Course "The Richard D. Wyckoff Course in Stock Market Science and Technique
Volume One SMI Stock Market Insitute, Inc."


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