Wednesday, March 24, 2004
Wyckoff's Three Tenet's
The stock market of the 1920s left modern market enthusiasts a rich legacy not only of stories and lore, but analysis methods that continue to inspire emulation.
Perhaps the greatest legacy are the people themselves, the major players of that era. The near mythical actions of Jesse Livermore, Bernard Baruch, and WD Gann were fortunately recorded by journalists of the time. One journalist, Charles Dow, would become known not only by the "little paper" he would found, now known as the Wall Street Journal.
One of Charles Dow's market theories was the idea that markets move up in three swings and correct by 3/8ths. That does sound a bit like Elliott theory, which of course was made far more complicated, er, complex. Readers of my site already know of another simple idea, that of actio-reactio, which was propounded by Roger Babson in regards to the stock market, and itself made more complicated, er, complex, by men such as Gann and later, Alan Andrews. But I digress.
While less well known, no less important are the ideas of Richard D. Wyckoff, who also worked in the finacial markets in the early 1900s. In fact, like Jesse Livermore, he was a day trader! And like Livermore, Wyckoff was also a student of the tape, of price action, and importantly, of volume. While his ideas are more complex than the three tenets listed below, the three are enough to perhaps make you look at price and volume with a fresh and simple view.
The three principles which are the core of Wyckoff are
1) Effort vs Result (Volume vs Price Action)
2) Cause vs Effect (Time in Trading Range relates to How Powerful the Move out of it)
3) Demand vs Supply (Buying vs Selling)
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Labels: volume
At last, over the rim
of the waiting earth
the moon lifted with
slow majesty
till it swung clear of the horizon and rode off,
free of moorings
- Kenneth Grahame,
The Wind in the Willows
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