As trading kept developing, various methods and instruments for it also got to perfection. And today, when humanity is enjoying the internet, trading has become available to anyone, even if they do not have money. However, getting started is the hardest part for any beginner.

Why so? The internet is full of methods, ways, strategies, indicators, and advisors that, unfortunately, do not always work properly. So, the beginner gets lost in the variety of methods and trading strategies, for getting about the basics that trading is based on.

In this article I am telling you about a somewhat classic trading method designed in the far-off 1900s by one of the most famous traders Richard Wycoff.

Richard Wycoff

Wycoff was a "self-made trader" that decided to reveal the rules of the game. Over the years of watching the market, Wycoff concluded that prices tend to change depending on the ratio of demand for and supply of this or that instrument. Thus, this ratio is the most accurate indicator of future price direction.

The Wycoff method used to be popular in the times of the trader himself because it was "different". Richard Wycoff never listened to analysts, experts, economists, and the like because at that time analysis was based on bare charts, nothing else. Wycoff, nonetheless, was sure that the price was moved by all market participants, so the future of the price was "in people's minds".

According to Wycoff, the trader must be some sort of a detective and calculate, based on the chart and volumes, who is controlling the market (the bulls or bears), after which they could attack this or that instrument. Psychology also plays its part here: for people, it is much easier to do their job when they are interested. And when the job becomes mere routine, people lose grip, so their productivity suffers

This approach made the Wycoff method popular nowadays, though no one apparently uses it "in the virgin form". However, many methods used by professional traders all over the world are based on Wycoff's system. It is applicable to all trading instruments: stocks, currencies, options, futures, etc. As for timeframes, the method is very good for intraday traders.

Main principle of the Wycoff trading method

The main task of the trader is to make conclusions about how their trading instrument (stocks, option, currency) will behave in the fight of demand and supply. To do it, the price chart and volumes are quite enough.

Then the trader finds possible tops (for a bullish trend) and bottoms (for a bearish trend). Also, make notice of correctional price movements because trading consists of certain cycles of purchases and sales. One cycle (wave) will last while new participants join in. As soon as the cycle is worn out, a reverse process starts, and the price goes in the opposite direction. All this can be seen on the chart.

As the creator of the method used to say, if you master it once, you will need a few minutes to make a forecast of future price movements.

You can find more about the system in a book by J.Hutson "The Wycoff Method". It is available on the internet.


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Editor in Chief at R Blog.