• Judgemental vs Technicial
  • Three Basic Laws
  • Five Simple Steps
  • Nine Tests
  • Charts
  • Wyckoff Wave
  • Insiders / Composite Man

Judgemental vs Technical and Fundamental

Investors who use fundamental analysis place their emphasis on a method that emphasizes business conditions, economic events, and news. They look at balance sheets, profit, and loss statements, cash flow figures, and other statistics as well as Wall Street, Barrons, and the evening news. The goal is to arrive at a notion of a securities present worth, and hopes for the future. A lot of investors look to that method as their Modius Operandi of looking at the markets. And it can be if used correctly. If you are very long term. The long term is in three to five years or more.

Fundamental Analysis- one step removed from the price of the instrument

By the time the information becomes available to the retail public or can be disseminated the price of the stock has for the most part already made the move it's going to make to the news

The defect in fundamental analysis---is the absence of timing. The professionals and insiders have members-only access to the facts and figures. And they have a better-developed understanding of what is really important. Unless you are an insider and have access to member-only information you need not waste a great deal of time in absorbing what is for the most part useless information. The insiders see they act and the price of the security responds accordingly. By this time the retail has figured out what is going on, the opportunity moment has passed.

Mechanical is easier to use than Judgemental. Unfortunately, it is also far less reliable under certain market conditions. Its father is Schwabacher who in the 1920s studied pictures and found common patterns that seem to lead to the same result. Head and Shoulders top, double tops, triple tops, gaps, pennants just to name a few. His works and Elliotts is one of the most copied works in the public domain.

Judgemental required a keen power of observation as does the Mechanical however with one difference. The judgmental approach begins with a set of principles. A principle is absolute. It is a statement of condiction that is unequivocally true. Given a certain condition or set of conditions the result will always be the same. It is more difficult and takes more time.

Taken from Wyckoff Course "Introduction to the Wyckoff Method of Stock Market Analysis
Stock Market Insitute, Inc."

Three Basic Laws

Richard D. Wyckoff has been in Wall Street 20 years when he first discovered that it was possible to judge the future course of the market by its own action. In his book Wall Street Ventures and Adventures though Forty Years (page 168) "I saw more and more that the action of stocks reflected the plans and purposes of those who dominated them. I began to see possibilities of judging from the very tape what those masterminds were doing.

My editorial work was proving a most valuable means of self-education. In gathering material that would benefit my readers, I was actively searching out the stuff that would aid me personally. While my subscribers were given the best of what I collected, there was much in material discarded which helped to build up what I call a code of enlightened procedure for use in this greatest of all the world's games."

Three Basic Laws:

  • The Law of Supply and Demand - When there is too much of something in the economy its value is reduced in an effort to create a demand that will take up the supply. If there is not enough of something to meet the demand, it's value has to be raised in an effort to create a supply that will meet the demand.
  • The Law of Cause and Effect - In order for there to be an effect that shows up as a change in the price of a security there must first be a cause. The cause can be stated in terms of the reason for the trade. These are not built from one trade but take some time to develop. It's usually the cause build during the time in the shift in who is holding the securities. The flow that is the greatest is the one that occurs as shares leave the strong hands of the professionals/insiders and go to the weaker hands of the retail traders.
  • The Law of Effort vs Result - The average trader is mostly concerned with the price. The experienced trader is looking more at the character of the move. The result is what happens to price. It is the volume that produces the effort that achieves the result. Without effort, there can be no result. When the amount of effort and the move of the result are not in harmony, something is wrong. The younger kids call it divergences. Wyckoff called it effort vs result.

In each of these three laws, the starting point is a statement of truth. From this, it is possible to further express the meaning of the truth in terms of a chart. A chart is the security's own action at work. In trading begin with a true statement or market thesis. Arrive at some way of picturing the statement in your mind and then search out those markets/securities that fit that picture.

Taken from Wyckoff Course "Introduction to the Wyckoff Method of Stock Market Analysis
Stock Market Insitute, Inc."

Five Simple Steps

The Wyckoff Method of Judgement is a method of judging the market by its own action. It is intended for the trader/speculator. Anyone who buys or sells a sock, bond commodity or future for profit is speculating if he/she employs intelligent foresight. If they do not, they are gambling. Your goal as a professional trader should be to become an intelligent, scientific and successful trader.

The Wyckoff Method of Judgement if for traders who have little or no experience or for those who have experience but they have never been shown the real rules of the game. Out of the very limited number who really understand the inner workings of the market, few have been willing to show the retail trader the real inside.

BY understanding Wyckoff Method of Judgement you will gain the knowledge of the business or trading like the insider runs his campaigns.

STEP ONE - Determine the present and probable future trend of the market. Then decide how you are going to play the game: long, short or natural.

STEP TWO - Select from the markets or moments those opportunities in harmony with the market the ones stronger than the market in a bull (up) market: in a bear (down) market select those that are weaker than the market.

STEP THREE - Select those securities which have built up a cause, a potential count for a move in keeping with your goals.

STEP FOUR - Determine each security's readiness to move. Analyze the vertical and figure charts of the candidates with the aid of Wyckoff Buying and Spelling Tests.

STEP FIVE - Time your commitment with a turn in the market. For this decision use your TA and Hidden Internal Clock to buy at or near the end of a reaction or sell short at or near the end of a rally.

The skill in applying those five steps is developed through a disciplined study of Wycoff Principles and tools available. Wyckoff approach is designed to allow traders the preserve, protect and to appreciate capital in-market campaigns.

Taken from Wyckoff Course "Introduction to the Wyckoff Method of Stock Market Analysis
Stock Market Insitute, Inc."

Nine Tests

Wyckoff created nine tests for buying and nine tests for selling. For brifety I will outline the buying test only

Nine Buying Tests:

  • The first buying test applies to the objective of the prior trading range. In order to ensure that the preparation in the trading range that leads to the perceived buying opportunity is, in fact, accumulation, the downside objective of the previous trading range must be accomplished. If not, the potential buying opportunity is suspect.
  • The second buying test requires that the price and volume action to be bullish before any long positions can be taken. Bullish behavior is indicated by a pattern in the relationship between price and volume. Volume increases on the rallies and decreases on the reactions.
  • The third buying test involves preliminary support and selling climax. It is very simple. Unless the stopping action is present on buying can be justified.
  • The fourth buying test states the security must be stronger than the general market.
  • The fifth buying test centers around the supply line of the downtrend. As long as the line remains unbroken, the downtrend is intact and able to direct the further action of the security in a downward direction.
  • The six buying must have had a series of higher supports.
  • The seven buying must have had a series of higher tops.
  • The eight buying test states in order for a security to be considered for a long position, it must have built a base.
  • The final buying test is to determine that the estimated profit exceeds the indicated risk.

If a potential trade passes all nine buying tests, it is a potential buy. This assumes that it also possesses adequate potential to make a worthwhile move and is located in one of the primary buying positions.

Taken from Wyckoff Course "Introduction to the Wyckoff Method of Stock Market Analysis
Stock Market Insitute, Inc."


The business of Wall Street is to finance corporations and to sell the securities - stocks, and bonds - which result from its fiancing. Some securities are good; others not so good. Those who understand and/or sell them to the public know their value best. The public has comparatively little idea of their real value except for seasoned securities. Seasoned securities are those which have been on the market for a long time and which, therefore, have established earning power and intrinsic value.

Wyckoff used a tape reading chart and a Chart - Which enabled one to detect and profit by the operations and to form judgments as to the future course of stocks, by weighing the relation of supply and demand. This sometimes can be done from price movement along, but if you consider also the volume of transactions you gain an additional and vitally important helpful factor. br>

Wyckoff Charts:

  • Tape Reading
  • Vertical
  • Figure (p&f)
  • Trend

Taken from Wyckoff Course "The Richard D. Wyckoff Course in Stock Market Science and Technique
Volume One SMI Stock Market Insitute, Inc."

Wyckoff Wave

The vast majority of market students have little difficulty in recognizing the goals which they wish to attain. Many, however, fail to consider the price which must be paid in order to achieve such goals. Success, if it is to be enjoyed over a span of many years, can be gained only through the careful development of a plan of total market strategy.

Further, this blueprint will only be of help to the student who possesses and uses the tools essential for it's implementation. At the very heart of such a plan it the task of determining the markets general trend and of developing effective, workable tools for analyzing that trend.

The general trend (the line of least resistance) is created by the interaction of the economic forces of supply and demand. Selling pressure and buying power applied to common stocks cause price change, and it is the total price movement of common stocks which is the general trend. The ideal approach in observing and measuring the line of least resistance is that of creating a common stock price index in which all stocks are represented. Data could be obtained on each and every stock and, after totaling all the information, one could come to a conclusion about the general trend. Once that is done, it would only be necessary to implement a plan of action which was in harmony with that conclusion.

The Wyckoff Wave in an Index - not a market average. It is an index which reflects the position and trend of the stock market. In general, the Wyckoff Wave in more sensitive than most other market indexes. The basic reason for this sensitivity is due to the nature of its construction. The Wave consists of eight (8) stocks which are considered to be market leaders. They are selected for their industry leadership, breadth of ownership and attractiveness to various classes of speculators and investors. All buying and selling waves occurring on the exchange are reflected by the Wyckoff Wave. Consequently, this index will more effectively and more quickly mirror the price trend changes in socks than will the other major market averages.

Taken from Wyckoff Course "The Richard D. Wyckoff Course in Stock Market Science and Technique
Volume Two SMI Stock Market Insitute, Inc."

Insiders / Composite Man

In studying, understanding and interpreting market action, we should consider all market action as manufactured operation in which the buying and/or selling is sufficiently centered and coming from interest better informed than the generally untrained investor/speculator.

The many large interests which do have an effect on teh market place (trust companies, banks, mutual funds, investment trusts, investment companies, hedge funds, specialist, position brokers, etc) are best thought of as the "Composite Man."

This Composite Man causes the market to act and react. Or, what actually happens is the market responds to the ageless, natural Law of Supply and Demand. The Composite Man and the effects of the Law of Supply and Demand are really synonymous. It is the result of the motives, objectives, hopes, and fears of all the buyers and sellers whose actions produce the new effect upon the market.

Other terms which may be thought to be synonymous with the Composite Man would be the "Market", the "Sponsor", the "Operator", or "They" the "INSIDERS". These terms are used interchangeably through the text.

It should be your objective to think of the Composite Man as the primary force in the market place. Thinking of him in this light should enhance your analysis of the action resulting from the dominant groups operating within the individual stocks and their total effect within the general market place.

Taken from Wyckoff Course "The Richard D. Wyckoff Course in Stock Market Science and Technique
Volume One SMI Stock Market Insitute, Inc."

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