The basic tools of the Wyckoff practitioner are the bar chart and the point-and-ﬁgure chart. Historically, students of the Wyckoff method have re-ferred to these two types of charts as the vertical line chart and the ﬁgure chart. In addition, students of the Wyckoff method use a third type of chart, the line chart.
This article explores the construction, value and application of these different charts as they are used in the Wyckoff method. Throughout this article I incorporate a wide variety of real-life examples. In addition to being introduced to the basic bar and point-and-ﬁgure charts, the trader-analyst will see how daily and weekly charts form into trends, and how trend-lines and trend channels can help the trader visualize trend continuation and trend reversal. The chapter also investigates the importance of price spread and volume, support and resistance, divergence, and Wyckoff’s unique construction and use of point-and-ﬁgure charts.
The Bar Chart
The bar chart’s graphic representation of price and volume on vertical bars, one above the other, makes it the most comprehensive tool available to the Wyckoff-oriented trader-analyst. The bar chart appears frequently in the Wall Street Journal and Investor’s Business Daily and is used widely in software programs and technical analysis publications.
Figure 5.1 shows a vertical line or bar chart with the high, the low, and the closing price on the vertical axis, and the total volume appearing as a separate bar immediately below the price bar. Time (in dates) appears along the horizontal axis at the bottom of the chart.
The Point-and-Figure Chart
Figure 5.2 shows a ﬁgure chart, or point-and-ﬁgure chart. Precise procedures must be followed to properly construct this type of chart according to the Wyckoff method. The ﬁgure chart is very useful, though consider-ably less popular than the vertical line or bar chart.
WYCKOFF MARKET CYCLE
Figure 5.3 shows two idealized representations of a stock or market movement over the four phases of accumulation, markup, distribution, and markdown. The upper diagram reveals that the action of a stock or the market ﬂuctuates around a broad primary growth trend, in this case a primary bull market trend.
The lower graph is an artiﬁcial line chart that traces out the broad con-ﬁguration of price movement within trends and trading ranges. For the analysis of actual trends, trading range, and turning points, the trader-analyst can construct charts or obtain charts from any of the numerous data feeds available, such as Commodity Quote Graphics (www.cqg.com), StockCharts.com, and Worden Brothers (www.worden.com).
The movements from one phase in an uptrend in a market cycle to the next phase of the market cycle can be likened to connecting the dots from point A to point B in Figure 5.4. Likewise, connecting A to C reﬂects a sideways movement and connecting the dots from A to D a downtrend. These connections might be made by drawing a simple straight line from A to B, A to C, or A to D. Alternatively, these connections might be made by drawing a more elaborate zigzagging line, a bar chart, or other styles of charts.
Figure 5.5 shows that a more elaborate bar chart could connect the dots at points A and B. This upward sloping zigzag line deﬁnes an uptrend-ing, bull market channel. As you can see, this charting method is equally applicable to long- and short-term time periods.
An even more elaborate line chart for connecting the dots appears in Figure 5.6. The large arrow on the left-hand side of the chart points along an interim uptrend that could have been used to connect points A and B. At a lower degree, a more detailed level, we see that the larger swing is composed of shorter-term upward, downward, and sideways trends. Finally, the larger up arrow in Figure 5.6 deﬁnes a swing that could now con-nect point A to point D in Figure 5.4.
A complex set of swings similar to those in Figure 5.6 is presented in Figure 5.7. The difference is that Figure 5.7 is a daily or daily-basis chart. The solid vertical bar shows the range of price recorded during that day (low to high), and the small crossbar appended to that day’s price range indicates the closing price for the day. The price movement from A to B to C on the chart deﬁnes an uptrend while the movement C-F-G deﬁnes a downtrend. Note that the movement between points D and E denotes a brief upswing within the larger downtrend from C to G on Figure 5.7.
A third type of chart commonly used in the Wyckoff Method is the ﬁgure chart or point-and-ﬁgure chart. An example of the ﬁgure chart is given in Figure 5.8. From the lower left corner of the chart around the 50 level to the upper right corner around the 85 level, price is seen to move upward in zigzag fashion. This ﬁgure chart could be used to connect the dots be-tween Points A and B on Figure 5.4.
- Part of book: The Three Skills of Top Trading By Hank Pruden