Wyckoff accumulation and distribution

What it is

Richard Wyckoff described how big traders (his 'Composite Man') accumulate (buy) or distribute (sell) inside a range before a trend. In accumulation, preliminary support (PS) is the first buying, a selling climax (SC) ends the fall, an automatic rally (AR) sets the top of the range, secondary tests (ST) probe the lows, a spring briefly breaks below the range to take stops and is tested, then a sign of strength (SOS) breaks above the range and the last point of support (LPS) is the pullback before the markup.

Those events fall into five phases: A stops the old trend (PS, SC, AR, ST), B builds the cause inside the range, C is the test (the spring), D is the move out of the range (SOS, LPS) and E is the trend itself. Some ranges have no spring at all (Wyckoff's 'schematic #2'); the last test simply holds above the lows.

Distribution is the mirror image at the top: preliminary supply (PSY), a buying climax (BC), the AR and ST, then upthrusts. An upthrust (UT) is a push above the range in phase B; the upthrust after distribution (UTAD) is the final, phase C false breakout above the range, the mirror of the spring. They are not the same event. A sign of weakness (SOW) and last point of supply (LPSY) then lead into the markdown.

How to spot it

• A long range after a big move, with heavy volume at the climax.
• A false break of the range edge (spring or upthrust) that quickly reverses.

How to use it

• Look for longs after the spring and the sign of strength, often at the last point of support.
• Stop below the spring.

Common mistakes

• Labelling every range as accumulation.
• Buying the spring before price has shown strength back inside the range.
• Calling every upthrust a UTAD; most upthrusts happen in phase B, well before the final test.
• Reading Wyckoff's volume clues on spot forex or CFDs, where the volume is only the broker's tick count.

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