The Wyckoff Accumulation Scheme, named for its creator Richard Wyckoff, is a method of market behavior analysis that focuses on identifying the stages in which large, influential market participants—often called “smart money”—build their positions. Wyckoff believed that financial markets are driven by the dynamics of supply and demand, and that the key to forecasting future price moves lies in understanding when and how smart money accumulates and distributes its holdings.
Stages of the Wyckoff Accumulation Scheme
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Accumulation: Smart money steadily builds positions without triggering sharp price moves. Demand slowly lifts prices, allowing analysts to draw a support line under the lows. On a chart, this stage shows a series of higher highs and higher closes.
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Test: After accumulation, smart money tests the market to see if remaining sellers will step aside. A successful test confirms that the market is ready for a markup phase.
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Markup (Rise): Once the test succeeds, price breaks out above the trading range and a sustained uptrend begins. This is when smart money begins to realize profits on its previously accumulated positions.
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Distribution: Smart money starts to sell into strength, often keeping price relatively flat to avoid panic. This slowly offloads their positions to less-informed buyers.
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Markdown (Decline): After distribution completes, price falls sharply. Retail investors who bought near the highs often incur losses, unaware that smart money has already exited.
When applying Wyckoff’s accumulation framework, traders watch volume closely: rising volume on up moves and lighter volume on tests signal that smart money is in control. Identifying these stages can give you a head start on major trend changes—but, as with any technical method, it works best when combined with other indicators and solid risk management.
The Wyckoff Distribution Scheme
The Wyckoff Distribution Scheme mirrors the Accumulation Scheme in reverse. It identifies stages when smart money methodically offloads positions—typically after a strong uptrend—often foreshadowing a significant decline.
Stages of the Wyckoff Distribution Scheme
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Preliminary Supply (PSY): Early signs of selling emerge as volume spikes on relatively small price changes, suggesting the uptrend may be nearing its end.
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Buying Climax (BC): Price surges to a new high on accelerating volume—the final effort by smart money to sell into buying enthusiasm.
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Sign of Weakness (SOW): After the climax, price falls below support levels, showing that distribution is underway and supply is dominating.
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Upthrust (UT): A false breakout back above the range creates the illusion of renewed strength, but on lighter volume—trapping late buyers.
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Last Point of Supply (LPSY): One final rally attempt offers smart money an opportunity to sell remaining shares before a sustained markdown.
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Markdown (Decline): Once distribution ends, price drops sharply on heavy volume, punishing late buyers as smart money has long since exited.
To use the Wyckoff Distribution Scheme, traders look for these volume and price behaviors at key support and resistance levels. Recognizing smart money’s distribution can help you avoid buying just before a steep decline. As with accumulation, success requires patience, careful volume analysis, and confirmation from other technical tools.
