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– Why is this important: I trade Stage 1 to Stage 2 breakouts and Stage 2 continuation setups. — The Wyckoff Cycle describes the progression in the price of an asset (in my case, US stocks). It starts with Stage 1 where the asset is being slowly accumulated by institutions, and where the buying pressure is not strong enough to push the price up. The price action typically forms a base (it could be a ‘saucer’, a VCP (volatility contraction pattern), a descending base, a large cup and handle, a rectangle, they have many names. Basically, the price moves within a range until a point where it makes a tight range, and breaks out from this range. Then after this breakout from the base occurs, we enter Stage 2, where price moves upwards, making higher highs and higher lows (an ‘uptrend’). Typically, there are 3 to 5 bases in a Stage 2, and there could be 1 or 2 bigger bases or pauses (most commonly against the 50 day moving average). Breakouts from Stage 1 to Stage 2, and continuation patterns forming on Stage 2 is where I enter my trades, as these offer the best risk-reward opportunities. At some point, the price will extend too much from the base, and the buying pressure eases, and we enter Stage 3, where there is increased volatility, making the typical ‘head and shoulders’, or ‘double top’, or ‘triple top’, or a reversed VCP, or any other type of pattern where price moves within a range, with a notable violence. The uptrend momentum is completely lost. When price breaks down from this range, it will start Stage 4, a down trend, where price will typically make lower highs and lower lows. Sometimes a Stage 3 can turn into a Stage 1 and price will break out to the upside again and start a new Stage 2. It’s important not to take this perfect shape of the cycle too seriously. Meaning, it typically won’t have this exact form, but you will be able to recognize the stages and understand the concept behind them. Here are some examples: Here’s a nice Stage 1, 2, 3 4 cycle (Stage 4 underway). Here’s a bit choppy Stage 1 with a failed attempt to BO, it gave an early entry, and then another entry closer to the previous VCP BO zone. Here’s a weekly chart with a short Stage 2, which failed quickly, then the stock went sideways, maybe attempting another Stage 1. Another example of a Stage 1 to Stage 2 transition, which gave 2 opportunities to enter a trade. One more: Homework: Find 100 examples of Wyckoff Cycles. Identify the stages with their corresponding bases (Stage 1), breakouts (Stage 1 to 2), tops, and breakdowns (Stage 3 to 4). — Link to my (free) program: https://docs.google.com/spreadsheets/d/1RuQ5vFX4To8xlPLjHV5IkX5qOx06cNF1HlNL2WYscSc/edit?gid=0#gid=0 Sometimes I post setups and trades on X: https://x.com/manucapital submitted by /u/manucap_trader to r/Trading |