Stock reversal signals | Wyckoff analysis

Identifying Stock Reversals, Market Tops and Bottoms using Wyckoff Analysis

One of the key applications of Wyckoff cycle analysis is determining major market turning points, tops and bottoms. Certain patterns provide clues on when trend reversals are likely which can inform profitable trade entries and exits.

Understanding Accumulation and Distribution

As a quick recap, accumulation occurs when informed investors are buying shares quietly while distribution is unfolding when informed investors unload positions secretly as demand wanes.

Accumulation signals potential market bottom
Distribution signals potential market top

Major upward and downward moves in stock indices are often foreshadowed by subtle accumulation and distribution activity visible on the chart.

Therefore analyzing price action for signs of these stages in progress provides early warning on impending trend changes.

Key Signals of Trend Reversals

Here are some tell-tale patterns that mark transitions between various Wyckoff cycle stages:

Accumulation to Markup

  • Increase in volume on up days
  • Cluster of closing prices near high of day
  • Higher highs and higher lows
  • Expansion in volatility and price spread
  • Breakouts above key levels

The above signals demand is overwhelming supply indicative of bullish accumulation climaxing into markup.

Markup to Distribution

  • Heavy supply visible on rally attempts
  • Increase in volatility and widing price spread
  • Failed breakouts and lack of follow through
  • Low volume rises and high volumes on weakness

This shows informed investors unloading into strength while demand falls off marking the distribution stage.

Distribution to Markdown

  • Acceleration in selling pressure
  • Sharp declines on increasing volume
  • Closes near lows of day/week
  • Breakdowns below recent lows

Intense capitulation alerts the transition from distribution to markdown implies change in control from bulls to bears.

Markdown to Accumulation

  • Narrowing price spread and decreasing volatility
  • Support zones containing declines
  • Low volume selling with increased activity on bounces
  • Drying up of selling pressure near lows

These reversal signals after capitulative markdown imply informed buyers are re-entering discreetly.

Wrapping Up

Developing ability to detect subtle accumulation and distribution patterns is instrumental for timing trend reversals. Applying these Wyckoff principles can help determine potential market bottoms and tops in advance allowing investors to orient themselves in harmony with emerging trends early on.

Finding market tops and bottoms using wyckoff analysis -





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