Wyckoff + SMC Masterclass
Last updated
Last updated
The market moves in a non-chronological and messy way. It makes complex pullbacks which adds to the unpredictability of the market. Let’s understand what makes the market move and what makes trading difficult.
The market moves in 3 phases: drop, consolidation, expand
what is the purpose of the consolidations? There are 2 purposes for this:
This is where the banks and institutional traders place heavy orders
This is to confuse traders because if the market only consisted of expanding and dropping phases, it would be easier to make money.
We’re going to focus on the consolidation part (i.e. Wyckoff). We’re going to break it down and understand each move in a consolidation.
what this is about: Understanding each move in a basic Wyckoff structure.
let's talk about all the details when the market is consolidating and when it is ready to change direction.
This is called a Buying Climax (i.e. BC). This is where the buying stopped and where the bullish trend ended.
To prove that the BC was correct and that it really as the end of buying, we see a strong downward reaction. This is called an Automatic Rally (i.e. AR). It proves that there are no longer buy orders and that sell orders are starting to come in.
Then, we see that price rose up and rejected off of the BC. This is called a Test because the market went up and tested the supply zone which was inside the Premium zone of the BC.
Then we see that the market broke above the test and pulled back into the range (the range is the area between BC and AR. This is the Purge or Stop Hunt. Anybody that sold when the Test happened got taken out when the Purge happened because their stoploss would be at/above the BC.
Then we see a pullback to the Purge. This is called a Return To Origin (i.e. RTO). This means that price is coming back to test that area one more time before heading to the intended direction (finally switching character).
Then we see a Sign of Weakness (i.e. SOW). This is more proof that the market wants to continue lower because it tested the previous range.
Then we see a consolidation. This is called a Last Point of Support (i.e. LP). This is where the market is trying to find buy orders to go in the opposite direction but it is finding weakness. There’s weakness because a sell model has started.
Let’s look at how we can find Wyckoff schematics using Smart Money concepts. There are 2 ways to use SMC: to identify where the Test happens and where the LP happens.
We can find where a Test happens by waiting for price to reject off of the demand order block which is in the Discount zone. The Discount zone would be the bottom 25% of the range between the BC and AR.
We can find where a Test happens by waiting for price to reject off of the supply order block which is in the Premium zone. The Premium zone would be the upper 25% of the range between the BC and AR.
We can predict where the LP might happen by finding the Demand zone (of the range which the RTO formed).
There is an advanced version of the Wyckoff schematic. The difference between that and the basic schematic is that the Test breaks through the BC and goes after external liquidity instead of going for internal liquidity like the basic schematic does. Everything else is the same. The Purge breaks above the Test and forms and RTO, SOW and LP.
When the Test happens, retail traders who think they’ve outsmarted the market think that they could take an entry. So, they place their stops below the Test. Then later, price forms the actual purge and goes even lower than the Test taking
out their stops.
This advanced version has a higher winning probability than the basic one, but it occurs less frequently.
Here we can see that a test happened. Traders bought over there thinking that price is going to go up and placed their stoplosses below the Test. They got taken out because the Purge formed and took out their stoplosses before forming an RTO and continuing up.
This is a buy model. A buy model should have an accumulation to the downside, a manipulation and finally a reversal to the upside which will take out all the liquidity which was resting above the accumulation.
A sell model would be the opposite of a buy model. A sell model should have an accumulation to the upside, a manipulation and finally a reversal to the downside which will take out all the liquidity which was resting below the accumulation.
https://www.tradingview.com/x/vD47i8Wr/
Let’s look at a buy model in a Wyckoff schematic:
Let’s combine models with Wyckoff to take entries.
Sell entry:
Here, we can see that price is forming sell models and you can expect price to continue bearish according to the trend.
Now, since our overall trend is bearish, we’re going to look for a micro timeframe sell model to align with our overall sell models. Here, we can see an accumulation and a manipulation form. That manipulation will lead to price going lower and taking out the liquidity.
Let’s look at what Wyckoff structure we have. We see a strong downward pullback. That could mean that it is an AR and the BC would be at the top. If that is the case, we’ll wait for a Test. If a Test doesn’t happen, we’ll wait for another setup.
Now, we can see that a Test did form. Since it was above the BC, this becomes an advanced Wyckoff structure.
We’ll now wait for a Purge to happen.
Now that price closed inside of the latest range, we can confirm that a Purge happened.
After the Purge occurred, we can see that price fell and went below the Accumulation.
We are going to look into how to use the Wyckoff schematic when it comes to point of interest. Use the Wyckoff schematic as an approachment to your point of interest. The point of interest is your entry point.
The point when the Wyckoff schematic reaches your point of interest should occur during the Purge phase. You would want price to head into your point of interest, form a purge and reject from there.
Here we see a bullish Wyckoff schematic forming. This is an advanced Wyckoff schematic in the making. We are now waiting for the Purge to hit the point of interest (which is a hidden Order Block).
Now, we see that the Purge formed within the point of interest. We could’ve taken a buy when the purge formed or waited for the RTO to form and then take a buy.
Here we see a bearish Wyckoff schematic forming. We waited for the Purge to hit the point of interest (which is an FVG).
Now, we see that the Purge formed within the point of interest. We could’ve taken a sell when the purge formed. I’m not too sure whether we could’ve taken a sell when the RTO happened because it failed to form inside the point of interest.
Please refer to this video for further help: Wyckoff + SMC ( Smart Money Concepts ) Masterclass
