🔶Wyckoff + Smart Money Concepts Full Course
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Video: Wyckoff + Smart Money Concepts Full Course | Step By Step Tutorial
What is Wyckoff?
Wyckoff is a theory which explains how the market moves like this:
Basically, the big players of the market try to take out the retail traders’ stoplosses by injecting orders into the market (to move price toward the stoplosses and hit them). They inject these orders gradually (to avoid being predictable and to trick the retail traders)
If the market only consisted of buying and selling, it would be too easy to make money as it would be too predictable. So instead, orders are injected via an accumulation process (i.e. Wyckoff Schematic).
Here is how the basic Wyckoff structure looks like:
Here is what each of those terms means in case of a bearish schematic (use the opposite of this logic for a bullish schematic):
BC - Stands for Buying Climax. Buying climax marks the end of buying and is confirmed by an Automatic Rally.
Let’s look at what happened next.
AR - Stands for Automatic Rally. This is when price goes in the opposite direction of the climax. In this case, the AR was to the downside. This confirms that it is the end of buying because it shoots straight down (indicating strong selling pressure). This confirms the Buying Climax by going into the Discount level and by being bigger than all the other downward pullbacks which happened before.
Test - This is when price goes to revisit the buying climax zone and then rejects from it. It rejects from the Buying Climax because retail traders take sells based on some smart money concepts or supply/demand concepts.
They’re stoplosses would be above the Buying Climax.
Purge - The big players try to take out the traders’ sell orders by moving price up to the Climax point. They push price a little higher than the Climax point to take out all the stoplosses. The traders thought that price went up for the last time when the test happened and will finally go down. That’s why they sold. But, they were wrong and the big players moved price against them.
RTO - This stands for Return to Origin. Because the Purge happened, it made traders think that price broke out of the structure to the upside (completely ignoring what happened before) which led them to buy. Then, price went up because of those buy orders and rejected from the Buying Climax level (forming the RTO). Price rejected from that level because there were sell orders from the big players which made price go down. Those buy trades have now been taken out.
SOW - This stands for Sign of Weakness. We can see that price made a lower low. It is so because buying pressure is weakening. Selling pressure is strengthening. That’s why price went down.
LPS - This stands for Last Point of Support. Before the accumulation phase ends, price will try its last trick. The last trick would be a consolidation back in the range and price will accumulate right here. The market will do this to trick traders into buying. Traders will think that the price came into range to shoot up. Then, price will go down again which will take out the stoplosses of the buy trades.
After price does this, it will finally go down.
This is in case of a bullish schematic.
The main trend was a down trend on the left side of the chart. Then, price had a strong bull move up which means that there were buy trades (i.e. AR). That confirms that there was a Selling Climax (i.e. SC) and that it’s the end of selling.
After that, price came down to re-test the Selling Climax zone. This is where traders buy. (This is called the test)
Then the big players will push price down a little lower than the Selling Climax to hit their stoplosses and form a Purge.
After that, because the Purge happened, it made traders think that price broke out of the structure to the downside (completely ignoring what happened before) which led them to sell. Once it goes down, it forms an RTO. Now, the big players move price up to hit the sell trades’ stoplosses.
Then price goes down again to form an SOS. That means Sign of Strength. It means that the buying pressure is strong.
Finally, price forms a consolidation (i.e. LPS) which tricks traders into thinking that price will go down. The traders sell and the big players push prices up to hit their stoplosses one last time.
You’ll be more likely to predict the Wyckoff pattern in its later stages when some parts of it have formed. The earlier it is, the riskier it’ll be.
This is the same as the basic Wyckoff schematic except that the test will go beyond the Buying/Selling Climax. It will look like a purge, but it won’t be. It will be a fake purge. Then, after the test, the actual purge will happen.
This is to trick most of the SMC traders into thinking that the purge has already happened and that price will form an RTO and go lower (in case of a bearish schematic). The traders will then sell. The big players will then push price up to break the test and form the actual purge. All the traders will get wiped out because price has hit their stoplosses.
Bearish Schematic: Bullish Schematic:
This is how you differentiate between a basic and an advanced schematic. Let me explain this through diagrams.
When you look at this, you might think that you have found the BC and the test. Then you’ll think that price will form an RTO and go lower.
That is wrong labelling. Instead, move your BC to that newly formed high/low. Then wait for price to reject from that level. If it does (like in this picture), that is the test.
Then you can wait for price to purge (like it did here). Then you can wait for RTO, SOW or LPS to enter a sell.
To understand Wyckoff, you need to understand Structures.
This is when price forms a new range by forming a new high or a new low. Then, it comes back into the old range.
When price comes back into the range, it finds more buy orders to push it up again.
When price comes back into the range, it finds more sell orders to push it down again.
This is the same thing as the Supply and Demand structure except that price will break structure to form a new high/new low and it will not come back into the range but instead bounce off of the highs/lows.
This is how you can combine wyckoff with structures to take entries.
This shows you how to take entries using the Supply & Demand structure. This uses 2 timeframes to take entries (Macro & Micro).
The main idea is to trade with the trend. So, first go to a higher timeframe and find a supply & demand structure. Then, look for when price forms a new low/high. We can see that price formed the first lower low.
Now, we know that, because this is a supply & demand structure, price will go back up into the range. So, to take advantage of this up move, we can buy.
We first have to know where to buy. So, go down to a lower timeframe. Then, look for a bullish Wyckoff schematic. Wait for the RTO or LPS to form. You can buy there.
You can exit when you see a bearish schematic. This bearish schematic has to reach the premium level. First, find the premium level by going back to the higher timeframe and taking the upper 25% of the down leg. Then wait for price to form a bearish schematic and reach that premium level.
The premium level will be reached when price purges (during a bearish schematic). We can see that during the bearish schematic, price did purge and break into the premium level. Exit your buy here.
(this pic was on AUDUSD 4H)
There’s also another way you can take a trade. You can sell during the bearish schematic. Sell when you see the RTO or LPS (during the bearish schematic). You can exit at the Purge of the next bullish schematic.
It is more preferable to sell than to buy, in this case, because the larger trend on the higher timeframe is a bearish Supply & Demand structure. So, price is going down on the larger trend. When you trade with the trend, the probability of your trade giving profits is higher.
The opposite of this logic can be used for taking trades in a higher timeframe bullish structure.
This is how you can look for entries in a Support & Resistance structure.
We do the exact same things we did for the supply and demand structure. The only difference is that instead of looking for a purge near the premium/discount level, look for it near the range (where the red line is)
Like I’ve said before, you can also take a sell to trade with the trend on the higher timeframe. You can sell during the bearish schematic. Sell when you see the RTO or LPS (during the bearish schematic). You can exit at the Purge of the next bullish schematic.
The opposite of this logic can be used for taking trades in a higher timeframe bullish structure.
Here’s how you can use Wyckoff as an entry confirmation: Go to a higher timeframe and look for an order block.
Then wait for a Wyckoff schematic to form and enter at the RTO level. However, a lot of times, you won’t find a wyckoff schematic here.
