All language subtitles for Session 05-WTC (Feb 04, 2019)

Hello, everyone. Today is February 4th,
and this is our session number five of

the Wyckoff Trading Course.

Today, we're going to cover the
exercises, the

homework that we had for the couple of
last sessions.

Specifically, we're going to look into
the distribution homework.

self -review the Microsoft homework.

I'll talk about this a little bit more,
but there are some spots that I want to

discuss because they were common for
everybody.

By the way, I did receive your emails
with your homework.

So today I had time and I also felt

healthy enough to go through all of the
homework.

I think I had a chance to reply to
everyone, at least send, you know, a

note here and there.

I must say that I feel comfortable with
how the group views the price structural

analysis right now.

There are some small minor things that
we will discuss.

And the next homework, which will be
Apple, also will be the homework on

labeling. So this is another.

chance for you guys to practice
structural labeling.

Next session is going to be on February
11th. A quick comment from a student.

This class has so much information and
it's a touch overwhelming, but I'll do

best to stay on the top of it.

So yeah, this is a great comment. I love
this comment and thank you for those of

you who are sending your emails and just

Thank you, neither me or the course.

Thank you for all those kind words.

Some of them I'll use as a testimonial.
So if you guys want to send

testimonials, I'll gladly receive those.
We just save those, and then at some

point we'll just put them on the
website.

We only disclose the first letters of
students' names, so it's very anonymous.

All right.

Let's see what we've got for today.

So today's session is going to be, we're
going to start with the review of the

distribution homework.

And because I want to go a little bit
fast, this is already session number

So I will not call on anybody today.

With an exception of a couple of spots,
we'll see where those spots are going to

be. But I just want to cover as much
material as possible and go through as

homeworks as possible.

We're still going to talk about some of
the distributional patterns,

specifically upthrust today.

And then whatever we can do with the
Microsoft homework, we also will do

today. We'll try to...

review it. If we don't cover that, then
this will become a self -review. So this

means that I'm going to give you
solution slides and then you're going to

to check your labeling against mine and
then to see what kind of questions you

might have.

As I mentioned, homework for next week
is again labeling.

We're going to take Apple and we're
going to look into quite a lot of ranges

Apple's history.

Next session, we're going to start on
volume and price analysis.

And our first task is going to be to
dive in into the volume and spread

analysis. We'll discuss what we're
looking in the spread, on the

price side, on the volume side, and so
on and so forth.

There's going to be two homeworks.
Homework number six is going to be on

volume spread analysis.

And then we're going to start what I
call a systematic exercise where we're

going to start introducing the concepts
of volume and effort against the price

or the result.

And that exercise is going to last for
about maybe four to five sessions,

depending on how quickly we're going to
go.

Meanwhile, on the theoretical side,
we're going to discuss a couple of laws

are going to be extremely important to
us in the way how we approach this

exercise.

are the laws of supply and demand and
the law of effort versus result.

And again, you know, if we don't have
time, self -review of the homework on

label, Apple.

Otherwise, you know, two homeworks that
we're going to have next week.

Now, don't jump to the conclusion that
this is too much. These homeworks

actually are going to be just one slide
each. So you're just going to have two

slides.

So don't worry beforehand.

All right, so that's the plan for the
next two sessions.

And let's jump to our homework review of
homework number three.

That was on the distribution.

And we went through the distribution. I
gave you kind of like the theoretical

material where, you know, I've discussed
the schematic where I discussed the

Wyckoff events, and I suggested that all
of you would not only review those

slides, but also to remember the
characteristics of all of the Wyckoff

that happened in the specific phases.

That's extremely important for timing
and for bias definitions.

So hopefully you've done so. So the
first stock is Callaway Golf.

This is the weekly chart.

So we are looking at the uptrend.

And when we look at the uptrend, we want
to distinguish a couple of things. We

want to understand what kind of
characteristics, all of the reactions.

are going to have on the way up we also
want to understand where the trend

emerges and where the trend ends in this
case we are given probably a slightly

limited amount of information but we
could maybe put

the trend lines like this

And at the break of this channel, this
is where we would consider that the

is done. It's a break of a trend.

And also, we could look at the character
with which the price is moving

up. And we could see that there are
quite a few climactic runs into areas of

consolidations on the way up almost
everywhere you kind of could see that

increasing volume signature and then
going into the

overbought condition short -term
overbought condition and the last run

necessarily seeing an increase in the
volume signature so we see on the third

leg to the upside

the character of the volume actually
starts to diminish.

That suggests that demand is being
exhausted at this point.

And then we see in the last bar on the
volume increase, which suggests

not just demand increase, but increase
in the supply.

This is the volume equation that we're
going to be very...

familiar with once we start going into
the next session and when we will start

discussing volume signature and how the
price reacts to that.

Well, then the next two bars have also
quite a lot of volume signature.

So we're seeing how supply has increased
over the last period where we had a

reaction. So with that, we're seeing
some kind of change of behavior.

in the supply signature.

So let's look at the price. What does
the price do?

Okay, we're seeing a reaction still
within confines of the trend.

So that's normal.

Still, even if we look at this reaction
and we would compare it to the previous

reactions, we're seeing that maybe the
size of this reaction just ever

slightly more, actually a little bit
more, so distance increases.

but not significantly.

And it still happens within the
boundaries of the support and the

the trend channel.

So until we see some kind of break over
trend, we might even assume that we're

going to have a continuation.

On the other hand, knowing the history
of the stock, we know that

there was a consolidation.

And this was the last point at which the
price has stopped going up.

and all of the other points were just
the retest of the same stop in action.

So from the historical perspective, we
know that this was the stop in action,

and therefore this was a climactic
action.

The reaction prior to that was a
preliminary supply, although not a lot

supply that has come at that area. So
sometimes it's not going to be that

significant to us.

Preliminary supply will be...

an indication of where we might see some
kind of

stopping action in different phases on a
very short -term basis.

So this area could provide some kind of
area of support in the near future.

As we recognize the bind climax, the
next reaction is going to be an

automatic reaction.

We have discussed the buying signature,
some supply increase, but it's not as

significant as some supply that we see
on the chart in the prior spots,

in the prior reactions.

So therefore, our conclusion here on the
bias is still that we are most likely

going to continue to the upside at this
point of time.

As the price goes up,

And the reverses on this bar right here,
we recognize that we are in the

confirmed trading range.

Buying climax and automatic reaction
define the boundaries of the

range with the support and the
resistance definition.

And then the next leg up, which is the
test of the local test of the

climactic stopping action, and then
subsequent reversal defines that we can

higher. and therefore we are from now on
in the non -trending environment or

consolidating environment, and therefore
we have entered phase A.

Next couple of tests, and they are
secondary tests

as minus sign of weaknesses.

So let's talk about this. Why are those
secondary tests? What are we testing?

Well, we are definitely testing the low
of the automatic reaction in

phase A. This is the main test.

But the low of this test are lower than
the low of the

automatic reaction. So therefore, lower
lows.

So just some kind of weakness,
structural weakness.

Whenever you see structural weakness,
right away look down, look at the volume

signature and see what supply is doing.
We kind of could see that, yeah, there

is some supply signature.

There is definitely some increase,
overall increase of the supply activity

phase A. So we're looking at supply in
B. We're looking at supply in A.

it produces just minus sign of
weaknesses.

So we should be on the lookout.

And here we would be thinking about the
bias as

still short -term bullish

with weak elements.

So that suggests that at any point, you
know, if... supply comes in or if the

bullish picture structural picture is
going to deteriorate we probably would

thinking that there is some kind of
bearish at least short -term bias

bias that could be defined so as we go
up we're seeing some kind of excitement

on this rally up

These are two possibilities at this
point of time.

We could be looking at the possibility
of a sign of strength or an upthrust.

Sign of strength will be in phase D of
an accumulation.

An upthrust could be either in phase B
or in phase C

of a distribution.

One of the things that we will pay
attention to on this rally is the

with which the price goes up.

We know that the sign of strength
definition is going to be

a rally that's going to travel from
phase C throughout the whole

trading range and above the resistance

that was created in phases A and B.

It's going to stay above there for some
time, spend some time above,

so not having the capacity to just think
on the bad demand

or emergent supply, and then have some
kind of reaction

to new support, which before

that acted as a resistance.

Characteristics.

of sign of strength are gonna be
expanding spread, specifically up

spread, and increasing demand.

All right, well we see how there is some
kind of increase in the volume

signature right here, and as this volume
signature increases, the price moves

up. So there is definitely some demand.

We just need to define what kind of
demand it is, a good demand or a bad

weak hands demand, strong hands demand.

We will see this only on the
confirmation.

By the spread, we could think that this
could be a legitimate sign of strength.

By the definition of the sign of
strength, we need to commit

and stay above.

There is only one close.

above the resistance level that is a
progressive close that makes

the new high on the close.

Please note that this bar right here,
which is also a big up bar,

but it doesn't close above the high of
that last bar.

So it doesn't produce that commitment
that we need. So there is only one close

here in this yellow.

small circle, that shows us a temporary
commitment to the upside.

And then the price falls back under the
resistance instantly on the next day.

So this looks more like a definition of
the upthrust rather than

a sign of stress.

So therefore, right here, we would be
questioning.

We would be making that judgment as to
maybe this is not...

necessarily a reaccumulation and maybe
this is a distribution.

Under the distributional scenario, if we
are in phase C of the distribution,

that upthrust is going to start falling
and failing back into the trading range.

It's going to create different points
of, less points of supply.

It's going to create a major sign of
weakness and less points of supply

And that's exactly what is happening.

As it happens, the characteristics of
the major sign of weakness are going to

of such where the spread to the downside
is going to start increasing.

And that's going to be on the increased
supply signature.

Why is this happening on the major sign
of weakness?

Well, that's because the trend to the
downside is starting to emerge.

And this is just another small
capitulation within the trading range by

institutions.

They are recognizing that there is no
absolute return over the last year or

On the attempt to go out of the trading
range, the price has failed, so they

need to get out.

There is no relative performance as
well. If you would look at the history

the market in 1997, the market was going
up.

So there is definite deterioration in
their portfolio as to how they treat

position. they will be capitulated.

And this is just an initial capitulation
here at the end of 1997,

beginning of 1998, by institutions.

And those are smarter institutions.

Those are the ones that are recognizing
that the trend has changed.

And obviously, those are also trend
-following institutions.

as they are the ones that are going to
recognize the spot as that emerging

downtrend.

So on the rally, this is where you
should get a lot of confirmation.

We see that the price commits, not
commits, but at least retests the new

after the minor lows, sign of weaknesses
in phase B.

We're assuming at that point that we are
probably in phase D and we should be

experiencing some kind of last point of
supply type of rally.

The first rally sometimes could be very
aggressive.

And we see it right here. It comes back
into one half of the range.

Well, it actually is a very logical
thing because,

you know, as there is this short -term
capitulation, on the way down into the

lows of the major sign of weakness, that
creates two things. It

creates a very short -term value
proposition to weak hands.

And again, by weak hands, I mean
institutional hands and public, both,

not just public.

So we never want to position ourselves,
you know, talking about composite men

against the public. This is an incorrect
statement.

We always want to talk about composite
men as a

strong holder, so therefore strong
hands.

And then other institutions that
participate

but on the wrong side.

of the trade and majority of the public
will be majority of the time

specifically you know at the majority of
the spot is going to be on the wrong

side of the trade as well so that's why
public always has this kind of like

negative view by the market experts okay
so

this is a short term value proposition
and then it also creates a short term

liquidity

because some of the institutions are
capitulating on this position with the

profit. So that creates an opportunity.

There is a short -term absorption of the
supply, and

that leads to this aggressive rally,
because a lot of the trend followers are

trying to pick up the spot as the
reversal and the resumption of the

And why wouldn't they?

Look at the leadership.

prior to the consolidation and then as
we go through there is not a

lot of deterioration uh to the downside
i mean we're not giving up we're giving

up probably what maybe like uh one
-fifth of the last leg to the upside so

a lot of them are going to see value
right here and i think that the clue

this you know

of the uptrend was somewhere here on
this gap with a lot of the

volume signature, probably earnings
catalyst right here.

And as we had probably earnings, very
favorable earnings, then the reaction on

earnings event is unfavorable for the
first time. And that's after the

absorption that has happened.

So who's selling? Some other
institutions are selling.

And they are selling a lot.

This is the highest volume signature
since the beginning of this chart.

So something is wrong. Something is not
going well.

So it's listed at the minimum. The price
is going to consolidate.

And then we should assess as to how it's
going to consolidate.

Two rallies, very weak rallies.

And as these two rallies develop, look
at the demand signature. It diminishes.

demand becomes poor and this is where we
just basically say that the

distributional scenario is unfolding
it's confirmed and we could open the

position and actually you know short the
stock all right so that's the whole

story here is my labeling for you and
then couple of questions here

In phase A, does automatic reaction have
to be equal or lower than preliminary

supply? Does the first secondary test
have to be equal or lower than the

climax? So we've talked about this a
little bit, preliminary supply, and then

look how we are connecting with this
area later on in the trading range,

multiple times.

And by connecting, I mean that either we
are testing with our short -term

committing, testing, short -term
committing below the area of the

It's not necessary that it's going to
happen this way. We might have multiple

scenarios. We might have a preliminary
supply that will be violated.

Usually that would suggest that there is
more supply that is coming in at this

point of time, and it has this capacity
to go.

through the support area of the
preliminary supply.

We could have the situation like we have
on our current chart, where

that area is being respected.

And in some instances, the price just
would stop exactly around the lows of

preliminary supply. So all of the three
possibilities are there, and we should

make a judgment.

by how the price reacts towards that
preliminary supply area as

for the secondary test the same thing we
could have different tests we could

have very very low tests that suggest a
lot of weakness we could have a higher

test where we're going to say that this
is a secondary test as an up thrust and

then we could have a test more of what
we see on this chart being in the same

area approximately as the buying climax.

And obviously, each test has its own
implications.

An up -thrust test would suggest that
maybe this is a leadership and we might

have, if this is a distribution, we
might have a rising, up -sloping trading

range. The weak performance of the
secondary test might suggest

Either a very poor demand and the price
will have to consolidate before it's

going to go up or just a continuation in
the hypodermic type of manner.

And we'll look into this on other slides
as well.

Next question. In real time, would this
area be labeled as a reaccumulation with

the upthrust being a sign of strength in
Phase D on increasing spread and volume

signature? So we've talked about this as
well.

there are some elements of a
reaccumulation right here.

Actually, not necessarily very favorable
elements.

I mean, if we would go into more details
of this area, we would see that on

average supply has increased and that
produced some minor weaknesses.

So that suggests that, you know, there
might be a possibility of a bearish

scenario at some point.

So therefore...

So it's not necessarily at that point
that we would be thinking that the

reaccumulation, but the first assumption
will be that it is a reaccumulation.

All right. Next question.

Can we only confirm distribution on the
break of the support with volume?

So I think that I've shown you guys kind
of like a gradual change of bias

or perception by us as to how we analyze
this whole trading range.

we could see that here it's going to be
extremely difficult for us not to give

the beginning trading range a definition
of a reaccumulation.

Then only in phase B, we're going to
have some kind of doubt that

this is just a reaccumulation. Because
even though it looks like a long -term

picture is still a reaccumulation, we
see on a short -term basis some kind

a deterioration in the increased supply
signature and result to the downside

that is slightly increasing so that
suggests short -term bearish picture

and then as we go into phase c into the
up thrust and we see the failure

this is where we're saying the up thrust
failure suggests at least a short -term

bearish scenario

And then once we go into a major sign of
weakness and then the LPSY fails, this

confirms a bearish bias.

So this is extremely important, what
I've done right now for you.

It's another way of showing to you of
how perception is

going to change through the analysis,
through all of the phases.

And we might be coming in.

into the trading range thinking that
this is a big leadership stock and we

be looking to buy this stock.

And the timing of phases would not allow
us to necessarily buy right away in

phase B. We would be waiting maybe for
the back and up action if we thought

we missed a sign of strength here.

And yet after that, the perception is
going to change and we're going to

our bias.

So and that's why, you know, it's a
nonlinear analysis that we

are conducting here because everything
changes. So it's kind of like ongoing.

But at the same time, I understand that
some of you, especially now those

engineer types, you guys are going to be
thinking about like, you know, a lot of

data points here and how could you
convert that into the bias decision.

And I think that it's possible. It's
just that you need to define.

you know, the interaction between those
data points and the deductions that you

made.

All right.

Question, and then we're going to go
away from this slide.

Large volume spike in May.

Can it be concluded as effort versus
result based on volume and price

So this one right here, yes.

So this is more of what we would call a
late institutional

capitulation, right? So we had like an
early institutional capitulation on this

volume signature. This is a late
institutional capitulation. Sometimes it

on earnings as well. And it kind of
moves the stock and the whole chart into

different

from a non -trending environment to the
trending, which is the downtrending

environment.

And at this point, the institutions that
are giving up their position, they are

not necessarily unprofitable. They could
have been holding on to this position

for quite some time.

So their profits are building.

They could be scaling out at that point.
But a lot of the trend followers,

are going to capitulate here.

And that's because the trend has been
decisively broken.

And not only that, the consolidation
that they may have thought was a

reaccumulation is actually resolving
itself as a distribution.

So this is where they're going to give
up. They're also going to give up here.

So these institutions are probably
already going to have some kind of

unfavorable profit picture or it's going
to be, you know, even

unprofitable proposition if they were
buying on the way up.

All right, so a couple of questions.

From Nilesh, why was logarithmic chart
used for this analysis?

Was not relevant.

at all for any type of the chart to use.

The purpose of this exercise is to
label, so that's what we're doing.

Next question.

About phase C, what is the difference to
label it as an upthrust after

distribution instead of the upthrust?

Okay, so we're talking about this spot
right here.

So the whole idea...

about the upthrust after distribution.

And I think that I've discussed this in
the last session, Eric.

So why is it after distribution? Because
the assumption was that distribution

has already happened by this point.

And again, this is a very erroneous
statement that was thought to us before.

It doesn't mean that by the upthrust in
phase C, all of the times

that distribution would conclude.

And this is a really great example of
this because we don't see a lot of

elements of the distribution until we
actually come to the later phase D.

So therefore, it doesn't necessarily
make a lot of sense to me that we call

the upthrust after distribution in this
case. So therefore, I kind of consider

this a legacy.

legacy name or legacy semantic.

And even though we're using it, we need
to understand the proper usage of it,

the functionality of it.

All right, let's go to the next one.

Oh, okay, let's talk about the upthrust.

Okay, so upthrust and upthrust action.

Those are two different things that
we...

want to distinguish.

And the first thing that we're going to
talk about is just upthrust itself.

And the definition of the upthrust is a
temporary commitment above a level of

resistance and almost immediate comeback
into the trading range.

So we see how upthrust happens this way.

So there is some kind of excitement the
price commits.

temporarily or at least tries to commit
temporarily above the resistance level

and then it fails almost instantly so in
the first case right here

we see a close above and again the way
how i look at up thrust and sign of

strength is i'm looking at the
progressive closes

to the upside.

So what do I mean by that?

I want to see how many closes are
actually above the resistance and

how many of those closes are going to
follow up and continue to the upside.

So for instance, let's look at this
trading range. And we see that there is

close number one that is above the
resistance area.

And then close number two, that is
higher than the previous close.

So we have two consecutive progressive
closes to the upside.

And then close number three, that also
has the same characteristic. The price

closes above the previous close or above
the area of the resistance that defines

this area.

We don't see that necessarily with up
thrust.

So we see one close and then one bar
that tries to close above but fails and

creates the supply tail.

So we only have one close at this level.

The same here.

This was even just an attempt to
upthrust rather than the upthrust

Why is this an attempt? Well, because
the price opened with the gap up.

It was a gap above the resistance, and
then for the whole session, the price

trending down, and it closed below the
support area.

So therefore, it was an attempt to
upthrust. It was an attempt to

commit above, but it was not necessarily
the upthrust itself.

And then in this example right here on
the chart below, we see a close above,

and then again.

There are no commitments above the lost
resistance that was created.

So just one close above the resistance,
and that's that temporary

commitment of the upthrust.

The upthrusts usually were discussed in
two places.

Actually, three places, but in the
distribution were discussed by Wyckoff

places.

In phase B, and obviously phase analysis
came later, so Weikers was

talking about the upthrust itself, and
then upthrust of the distribution.

And we've discussed the upthrust of the
distribution. The only thing that I want

to add to that for the upthrust of the
distribution, just because it is in

C.

we're going to have the equivalent of
the second point of fear that we've

discussed for an accumulation.

So a second point of fear usually is
going to occur into the lows of phase C

just because supply has increased as the
price approaches the support level and

that triggers the worries of the weak
hands and they start providing liquidity

to the market by selling their
positions.

that could take the price lower.

So with the increase of the supply
signature, volume is going to increase

well.

And the result to the downside on the
short -term basis is going to increase

too. And that's what we call a second
point of fear.

It's going to be associated with the
first point of fear, which is the

run into the stop in action in phase A.

Now think about this in the reverse.

Think about this as a distribution right
now. If we have had points of fear,

then on the upside, we most likely are
going to have points of excitement.

First point of excitement is going to be
a climactic run into the stopping

action of the buying climax.

It's going to be associated with some
volume increase.

and some spread increase, momentum,
velocity increase to the upside.

This second point of excitement is going
to come into the highs of phase C.

And usually that second point of
excitement is going to be more evident

on the upthrust rather than on the last
point of supply rally.

And we kind of see it from here, right?
The rally before in phase B.

looks somewhat more interesting.

But there are some elements of
excitement on this last rally. As you

the volume signature increases, the
spread to the upside increases as well.

The true range of the gap action also
happens on the increased spread and

increased volume signature.

Those are the elements of weak hands
excitement.

They are getting into this position
because they are recognizing in their

that the trend is emerging.

Unfortunately, it's going to fail and
it's going to act as an upthrust and the

price is going to come back into the
trading range.

But this is the area and the rally that
we want to recognize as a second point

of excitement.

What does it give us? Well, it gives us
the timing. The timing of what?

The timing of phase.

And obviously phase C is one of the most
crucial phases because in phase C,

at the height of phase C, this is where
the downtrend is going to start.

And this is where we're going to start
having the environment where the

volatility is going to increase.

And we're going to start seeing on that
volatility diminishing result

on the upside and increasing result on
the downside.

and we want to catch that emergence of
the trend.

All right, let's look at the next
example. And this is an interesting one

because usually there are some of the
difficulties associated with

this chart. So really quickly, a
volunteer, say yes, and I have a couple

questions for you here.

A volunteer.

Okay. Let's go to Rama.

Hey, Rama.

So this is going to be very quick.

My question is, where do you see a
consolidation here?

Where is our trading range? How do we
find it?

I found...

When I was doing this homework, the
trading range starts sometime

after February 7th.

So what is this point then? If this is
the beginning of the trading range, then

how would we label this?

I would label that as a buying climax
because of the price signature.

Okay, great.

Okay, Rama, thank you. So I just wanted
just that question.

Okay, so yeah, this is a good definition
of where

the trading range would start.

Now, the question here is how do we
confirm that this is the beginning of

trading range?

Well, again, this is the historical
chart, so there are quite a few points

references for you. But imagine that we
are just maybe somewhere here.

We are still in the definition of the
uptrend.

Look at the higher highs, higher lows
throughout.

So there is no way that you will be
thinking that this is a distribution and

that we are in the trading range or
anything of this sort.

Now, the key here was identifying this
buying climax was

the characteristics of the climactic run
and characteristics of the change of

character. The characteristics of the
climactic run included

Acceleration to the upside, gaps,
increased spread to the

upside, and then stop in action, after
which the

price produces the largest reaction to
the downside that we have seen or that

see on this chart.

That suggests at some point that we're
going to have some kind of trading

We see from the next action into a
possible secondary test

after the automatic reaction that the
price does not want to go lower.

So what does it mean? It means that
there is still some strength around this

spot.

So what does it mean? That means that
most likely we're going to continue with

the upward movement.

And if this is a trading range that we
might possibly,

have a downsloping trading range.

Now at this point of time, if you're
going to tell me right here that we are

going through the distribution, most
likely I'm going to say no.

And I'm going to say that short -term
picture at least is going to be to the

upside. And there is no definition to
the downside yet. At least

everything what kind of came.

is very short -term oriented.

Even if we talk about this reaction rate
here that had some kind of increase of

the supply signature, but it still
created a higher low, the price quickly

rebounded to the same ground and did not
want to go down afterwards.

Those are bullish characteristics, not
bearish. So therefore, our

bias still will be bullish.

And it will be bullish until we actually
see this reaction right here. This

becomes the largest reaction that we see
on the chart.

And it also breaks a couple of
intermediate support levels.

So it's either a potential phase C.

Or it's a major sign of weakness in
phase D.

So now that we've seen the structure a
little bit and we're saying, okay, bind

climax, automatic reaction, secondary
test, and we have some kind of upsloping

structure, then we could connect this.

like this.

And then think about what happens at

the edges of this trading range.

What we are seeing is the price
commitment into the overbought condition

where the price again commits only once
or maybe twice

and then comes back into the trading
range.

This is more of a definition of an
upthrust than a sign of strength.

And then for the first time, a break of
two support areas, and this is

the largest reaction in this trading
range.

So it looks a lot like a sign of
weakness that tries to commit below the

support. We would be seeking the
confirmation on the last point of supply

And it does come. All of the rallies are
extremely weak.

And actually, the signature is almost
identical to the colorway golf chart

we have seen on the previous slide.

Aggressive rally to the upside.

Gap to the downside.

Probably a pre -earnings gap and then
earnings gap somewhere here.

And then the rallies.

that are very, very weak rallies.

This was an actual trade. I traded the
stock at that time. I shorted the stock

right here in this area.

And then instantly you're rewarded to
the downside and we see how institutions

are entering this capitulation zone and
they just don't care. They want to sell,

sell, sell. And that's why the price
travels down so fast, so quick on such

volume signatures.

So it was a challenging chart because
Again, we are looking at how the

leadership stock, like Netflix, is being
distributed on

the way up.

And we're seeing that initial elements
of distribution happened here, here,

here, here, and then just a
capitulation, overall capitulation here.

It was such a darling. Nobody wanted to
get rid of it.

So therefore, when people don't want to
get rid of it and the conditions change

and they want to get rid of it really
fast, this is how quickly the price is

going to go to the downside.

And that's why the trades to the
downside require less time than the

the upside.

But obviously, trades to the downside
always have a limitation as you cannot

below zero.

All right.

Let's look here at some of the
questions. Subsloping trend can be

a reaccumulation in real time. Is the
low volume on the move higher a clue of

demand of poor quality?

I'm trying to detect where a subtle
distribution is coming in.

Yeah, you could definitely think of it
this way.

It's not necessary at this point of time
of the uptrend, especially think about

this uptrend in Netflix that has started
at the lows of 2009.

So this trend has been lasting for more
than two years now.

So it's not necessary to have an extreme
volume signature on the demand side.

And for the price to go up, we kind of
see it here.

Volume is low or demand is low, and yet
the price is making a progress to

the upside.

And at the same time, if you remember
the history of the market,

we had a trading range in the market.

And the trading range was more
horizontal, whereas here in Netflix, we

of the...

up -sloping trading range.

So we're definitely outperforming the
market at this point.

So there is no reason for institutions
to give up this position.

They're still receiving an absolute
return.

They're receiving a relative return.

And they're really happy with this
position until this quarter comes.

And this is where they capitulate.

So this analysis

kind of like a rollover analysis on the
buyers, especially with the stocks that

are going to be extremely winning
stocks, the leadership stocks.

So you have to be extremely akin to this
area right here where the change of

character takes place.

All right, let's talk about the next

on the next possible way of how we could
address upthrust.

One of the ways that Weikert talked
about upthrust is a

measure of momentum.

He used the upward thrust in the uptrend
as a

distance between the significant highs
that are being reached and

where the price stopped for a
significant period of time.

And he looked at the progression of
those highs, and he would determine

momentum was increasing or decreasing.

And in this case, we see how the
upthrust or upward thrust is

momentum is going down. So that was
another way of looking at the upthrust.

uh measurement of the momentum by the
way look into this distribution how this

happens right so what do we see here
where the institutions are selling the

stocks first so probably somewhere here
right so this looks like that climactic

run um somebody might argue with me that
this could be a climactic run and you

know you could be absolutely correct
about that, and we could label it in two

different ways.

The climactic characteristics are
present in both cases.

So I would probably go for it like this,
with the horizontal range, define phase

A here, and then phase C somewhere here.

So B is almost the same size as A, so
not necessarily the preferable scenario,

but still possible.

Major sign of weakness and then LPSY
area.

And LPSY has its own range.

So look into this smaller range right
here and look at this upthrust action.

And look at this upthrust.

What does it look like? It looks like
somebody is coming in and demand is

increasing, but result to the upside is
decreasing, right?

So this means that there is a lot of
effort to the upside, and yet result to

downside is diminishing. So that's a
bearish sign.

And this upthrust becomes a second point
of excitement for

weak hands. They're trying to play the
reversal here.

Okay, well, we've talked about the
upthrust. We've talked about the upward.

thrust in the uptrend.

Let's now talk about the upthrust
action.

What is the upthrust action?

So one of the things that we recognize
is that the

upthrust could happen in the
accumulation or reaccumulation as well.

How is it possible? Because we were
usually taught that the upthrust is

be defined only in the areas of the
distribution.

Well, the swings above the resistance
level in the

reaccumulation or accumulation could act
in the same way as an upthrust itself.

Those swings could temporarily commit
above the area of the resistance, and

the price can come back really quickly
back into the trading range.

That's what we've seen here in both of
these scenarios.

our first upthrust action is actually a
secondary test to the bind climax that

we experienced in prior to that.

Look into the, a change of character
that defines that the

uptrend is done. This is the largest
reaction here.

And then going into the secondary test,
just because we upthrust, we could say

that this is a secondary test as an
upthrust action. So it acts, like an

upthrust, but because this is a
reaccumulation, we can't say that this

upthrust. It's an upthrust -like action
in the accumulation -reaccumulation.

The same happens in phase B here for the
small trend rate, for the small

consolidation. We're committing to the
upside actually quite significantly.

That shows an element of strength, so we
could call this

actually a minor sign of strength here,
but it acts as an upthrust, commits

temporarily, comes back into the trade
range. So that type of action in

accumulation or reaccumulation, we would
call an upthrust action.

All right, questions. But in real -time
analysis, we can't know it's an upthrust

or upthrust action, or can we?

Okay, again, we're coming back to this
kind of like our...

rolling over analysis right so my point
again and i see how

some of you are kind of like you know
thinking about the real time and you

are getting stuck there with with that
type of thinking don't think of

this analysis as something that you need
to

define in the moment right away

that analysis could develop and become a
more complete picture as you're getting

more data points.

So therefore, when we are thinking about
this upthrust right here, we might be

saying, okay, yeah, we definitely know
this is a secondary test.

Fine climax, automatic reaction,
secondary test. We know that. And then

somewhere we're going to know that there
is an upthrust action here. So that

suggests some...

And that suggests some reaccumulation.

But we yet have to confirm it.

That's our first assumption.

So you see what I'm doing here? I'm not
necessarily saying that this is an

upthrust or it's an upthrust action.

I'm just seeing this action as an
upthrust.

And that gives me some kind of
suggestion on the buys that I still need

confirm.

So therefore, going through this whole
range, again, somewhere here, we might

thinking that there is some elements of
strength and so on and so forth. Here,

we might be thinking, okay, is this an
upthrust or a major sign of strength?

So we would be actually thinking that
this is an upthrust as the price goes

here, but it's going to be a major sign
of strength to this area right here.

So analysis unfolds. Analysis is not
linear, and definitely I want you to

recognize this. If there is one point
from today's class, that would be it.

That's a very, very important point.

So let's kind of get it.

Okay, next chart. And this one I'm going
to discuss right away with the

labeling.

So this is Apple.

Actually, why did I do this?

Okay.

All right. Well, we'll see how you're
going to handle this with the next

homework. So a leadership uprun into the
stop in climactic action.

A change of character is well defined
with the increased volume signature

we say that supply has come in. This is
early institutional distribution into

the weak hands.

Weak hands are seeing some kind of
value.

short -term value at this point, and
they are buyers.

And rightfully so, because on a short
-term basis, you are going to have some

kind of rebound out of what now seems to
be an extreme oversold condition right

away.

A minor sign of weakness, that's the
first suggestion that there might be

kind of short -term bearish bias if

both price and volume fails.

But instead, we're having elements of a
reaccumulation, suggesting a short -term

run. So we're still thinking that, you
know, the continuation to the upside.

And then just again, minus signs where
we see some kind of selling, some kind

selling, but still it's not the
pronounced reactions that we see with

of selling.

Therefore, our first concern about the
bias here is only after the upthrust

has been reached and then it fails.

Somewhere here, this is where our
perception is going to start changing.

Again, look at what I'm doing.

I'm not suggesting a distribution here.

Look at this volume signature,
diminution volume signature, diminution

signature on a higher highs, higher
lows.

So what are you going to do here? If
you're a long -term investor, you're

in this position, you're holding on to
this position until this failure.

If you're a swing trader, you're
initiating a position to the upside and

exit is going to be on this bar right
here, on this change of character bar.

And in both cases, it's still worthwhile
to either be in this position or to

hold on to this position.

And then some of us are going to be
thinking that this is too much supply.

maybe in the future, if there is some
kind of failure, the bias is going to

change to a downtrend rather than an
uptrend or a consolidation.

That's exactly what happens. On the
major sign of weakness, we see and the

reaction that is the largest reaction in
this trading range.

And that defines institutional selling
on the way down

and suggests that we are in the
distribution.

So after that, it's only tactics.

We want to open the position after the
last point of supply, the first rally

again out of the short -term oversold
value.

proposition for some of the institutions
and that's why the rally is so so quick

then look at this whole trading range
and look into this rally right here

what can you say about that this rally
what are the characteristics of this

rally some small increase of the demand
more local than global

And the result to the upside is
diminishing.

Those are going to be, and it looks
like, a second point of excitement.

And then a failure right away. And then
a failure again on the gap.

And then a failure again on the rally.

Those are all bearish characteristics.

And therefore, we would label this as a
redistribution to the main.

distribution range.

All right, questions.

The swing buy is because of diminishing
volume with uptrend. I would be afraid

of the gap down.

Yeah, exactly.

So diminishing volume signature, higher
highs, higher lows.

You could label this, this trading
range. Here's the range that you're

at. So your phase A is probably
somewhere here.

phase B low, and then you could probably
squeeze in phase C right

here, or you could have a phase C here.

Now, Philip is talking about this gap.

All right, well, if we would look at
this gap, look at how effort has

tremendously, yet what was the intention
behind this reaction?

It's to commit below the support level.
Have we done so?

No, we haven't.

Therefore, diminishing results to the
downside on extreme volume signatures

suggest a presence of demand.

The presence of demand or increase in
demand suggests absorption.

We only need a confirmation of price
that after such

absorption, the price could go up. We
see that exact thing on the next three

bars or so.

As it happens, we definitely want to get
into this position.

If we miss this point of entry, and by
that I mean one and two,

then we could definitely come in after
the backing

up action, especially on the breakout.

So here is our point of entry number
three.

Those are the only points of entry that
we see here.

And then our exit is going to be here.

here, and then on the failures, on all
of the failures to the downside. So it's

just basically down, down, down.

This is not necessarily going to be a
winning trade, but it's going to be like

break -even, small win, small loss type
of trade.

This is the trade that usually is going
to be either in the correct direction in

phase B, or it's going to be on the
failure of the continuation of the

trend. In this case, a failure to
continue with the uptrend after the

and on what seemed to be the emergence
of the continuation of the uptrend

and then the failure of that.

All right.

Let's see what else.

Why automatic rally or automatic
reaction is there instead of the

actually is occupying the minor sign of
weakness?

Okay, so we're talking about this spot,
automatic reaction instead of this. So

the suggestion from Eric is to go all
the way.

Well, we usually would be thinking about
swings in the trading

range, right?

Look at this.

So each swing is going to be defined by
a reversal at the beginning of the

swing. And each swing has an end.

of the swing is going to be defined by
the opposite reversal those are going to

be points of confirmation those are
going to be the last points where we

know that the swing has reversed so
therefore we would define our labeling

on the swing analysis right so here we
could see that um

a swing goes down there is no reversal
on this bar

No reversal on this bar.

Then it goes down again, and then there
is a big bar to the upside. This is the

true range of that bar. It closes right
here. It closes above the closes of

1, 2, 3, 4, 5 bars to the downside.

So we see that this was a swing to the
upside.

Swing to the downside, swing to the
upside.

Automatic reaction, secondary test.

Swing to the downside.

Minor sign of weakness in phase B.

All right, next question.

Okay, more like a comment.

Okay, from Roman.

Two most important and vital thinking
skills essential for mastering

This course, flexible thinking and
nonlinear thinking.

Yeah, I would agree with this.

But, you know, I would say it's just not
necessarily just for Wyckoff.

I think that we kind of used to, in
life,

to create systems for ourselves, right?
So there is a system of how we drink tea

in the morning. There is a system of how
we take care of our children.

And it's all systematic in our...

We just don't even sometimes think that
this is a system, but you have rules,

you have steps, and everything happens
in some kind of sequence, and then you

just have deviation from that.

Well, with the markets, unfortunately,
we have to be systematic,

but we are functioning in the
environment where there are so many

many data points, and it's uncertain.

in the way of how these data points are
going to be presented to us on each

particular day.

So therefore, we can't really have
simplistic steps

when we judge the market. We have to
have a much deeper understanding and

therefore we have to have more data
points.

With more data points, you know, with
the analysis of that, we just naturally

get lost.

And there is a tendency to go and just
to say, okay, well, I want the rules. So

give me the rules.

And then, you know, I'm going to just go
by the rules.

And usually I see that with students.
They just kind of like take the rules

then strictly want to follow those
rules. But there are quite a few

And you have to either remember all of
those exceptions and have the

very much clearly defined rules Or you
have to be a little bit more flexible

allow the analysis to unfold, allow the
picture to kind of like this puzzle to

be connected, you know, all of the spots
to be connected to each other.

So it's a rollover analysis, so to say.

All right, let's go to the next one.

All right, we're doing great on time. I
like that.

Okay, so composite.

And again, I'm just gonna go right away
into the labeling here.

So three small, three trading ranges.
The first one is very small at the top.

So we're looking at just probably even
intraday picture right here that we need

to figure out.

And this is a very quick trading range.
Well,

another reason why this happens so quick
is because it's a tippy formation so we

have speculation on the way up and this
has been happening in the beginning of

2000 and then urgent distribution on the
way down we see that from the volume

signature increase and how the price
reacted to the downside after this

there is no way we don't see the bias

why well because it did not developed
like this,

where there is no progression to the
downside by the price.

It did not develop as a horizontal
trading range.

It developed as an urgent sell -in by
institutions on two legs to the

actually three legs to the downside.

At this point of time, you already
should be thinking that this is a

deterioration to the secular trend.

And therefore, most likely, long -term
bias is going to be down.

Now, short -term bias, because of this
reaction right here that has elements of

diminishing downspread, diminishing
supply signature.

That suggests that the short -term bias
is going to be to the upside.

That's another difficulty in students'
analysis that I see.

Thinking about two biases at the same
time for different time frames.

Thinking that the long -term bias here
is to the downside, but that the short

-term picture most likely is going to be
technical picture, is going to be some

kind of rally.

and most likely out of this always -sold
condition, which is extreme at this

point. Think about for the whole time
that the trend was up, especially in

when the price was going up, up, up,
without stopping, kind of like a 2017

of market that we have had just
recently.

Going down so fast, so quick is going
to...

define an oversold condition for us and
that's going to be an extreme oversold

condition just because we've never seen
this before in the last year or so.

So that suggested a rally. A rally
suggested that we might have some kind

upthrust situation.

So we're looking for the upthrust, we're
looking for the test.

That usually would define phase C for
us.

And then we're also looking at the
upsloping structure of this whole

And we're seeing, you know, we could
connect the highs and then from the lows

the selling climax, extract the next
parallel line. And then from the lows of

the secondary test of the sign of
weakness in phase B, extract the next

And look how perfectly the major sign of
weakness, I don't know

why I don't have this label in here,
major sign of weakness.

is being defined by the commitment below
on multiple closes down, four closes

down, rather than just an attempt to go
down.

And then a last point of supply rally
has some aggression to the upside, but

finds the resistance at the level of
support.

And then the second rally shows that
demand is starting to deteriorate and

that... The result to the upside is also
deteriorating, suggesting that this is

the time right now for the price to go
down.

As the price goes down, another trading
range. This one is a peculiar trading

range because it unfolds so quick.

So you have to think, because we're
looking at the historical chart as to

is my last point of supply.

where the downtrend is going to start.
And we know that the trend has started

this point. So most likely this is going
to be phase C.

And then a selling climax, automatic
rally, secondary test, and then

in between is phase B.

Okay, questions here.

Can a distribution occur without phase
B?

This is a really good question.

Some distributions with fewer bars to my
eyes appear to not have phase B, but

proceed from A to C. And we obviously
are talking about this trading range

here. So the way how we would be looking
at this trading range is there could be

multiple ways.

We definitely recognize that this is a
major sign of weakness. This is a change

of character.

We also recognize that this level of
support is probably crucial because the

rally comes exactly to this level. So
we're most likely talking about just

picture right here.

Again, I have mentioned a TP formation.

In a TP formation, we're going to have
two types of charts.

We're going to have what we're going to
call a hypodermic TP formation.

where there is a speculation on the way
up and speculation on the way down,

something like this.

And then we're going to talk about the
TP formation, where there is an urgent

selling in phase A, and then we are
residing in the lower part

of the trading range, and we never touch
the buying climax high.

And then the price fails.

So in both of these cases, the

distribution at the top is going to be
very fast.

So therefore, your phases are going to
be all collapsed.

And the rule here where we say that
phase B is going to be the longest phase

not going to be applicable just because
there is an urgency to sell.

So that's the key to the collapse of the
phases in

either a hypodermic scenario or on the
accumulation, we're going

to see that collapse in the shakeout
type of situation that we recently have

had.

Okay, next one.

Can a secondary test in phase B be lower
than the saline climax level?

Secondary test in phase A, so somewhere
here, be lower than the saline climax?

Yeah, of course.

We could have this. Look at this, right?
So this is why this question is here,

yeah.

So look at these two scenarios.

In the first scenario, we see that the
secondary test is a high or low.

In the second scenario, we see it as a
low or low.

And in both cases, there are
suggestions.

What are the suggestions? A high or low
suggests some kind of strength.

And think about this. I'm saying
strength. I don't want you to think

about this statement because we defined
that the long -term bias after this

move to the downside was...

down, and then a short -term bias was
defined by us out of the oversold

condition here as up.

So therefore, a high -low and this
strength that secondary test shows at

point of time suggests that and confirms
the short -term bias to the upside.

It doesn't confirm a long -term bias to
the downside. It just suggests that

short -term we might have some kind of
reaction.

In this case, a low, a low on the
secondary test suggests what? Suggests

presence of the supply and suggests that
demand is poor.

So therefore, we would be thinking that
the next

rally that we still have to have into
phase B and phase C could be of weaker

quality.

And therefore, we're definitely
interested.

in the trade to the downside.

Shouldn't redistribution start with the
buying climax?

No, why would it?

Right? So how does redistribution
happen?

Okay, so maybe we didn't go through this
material.

But we did go through the
reaccumulation.

So I'm kind of, you know, in my mind
thinking that you guys are...

converting that into the redistribution.

So reaccumulation is going to start with
what? With the stopping action.

It's going to be an intermediate buying
climax.

And then after that, we're going to have
an automatic reaction, secondary test,

and so on and so forth. But it's going
to start with the buying climax.

Why? Because the price was going up.

We were in the buying mode here,
specifically with weekends.

On the way down, we cannot have a buying
climax because there is selling going

on. And in some instances, I know that,
there is some references

to labeling this as a buying climax
rather than a selling climax.

And the logic is that institutions are
buying here.

Okay, well...

Let's talk about this really quickly.

Didn't want to go into this, but I think
that's necessary.

So why sell in Climax and

not buy in Climax?

The pros for buying Climax
identification here in the

redistribution. The suggestion here is
that institutions are buying

at this point.

And therefore, this is a buying climax
and not a selling climax. Okay.

So think about just the semantics of
this.

Climactic action suggests that there is
a

stopping, a conclusion of some action.

What action is that?

It's the price going down.

Why is it going down? Well, because
there is a lot of selling.

So it's a conclusion or a stopping
action of selling.

So therefore, it doesn't make sense to
say a buying climax at this spot.

Then also think about, you know,

A buying climax at this spot in the
redistribution.

Who is buying? Okay, well, some
institutions are buying, but what hands

those institutions?

They are weak hands.

We know this because the price went up
short -term and then it went down.

So they were on the wrong side of the
long -term trade.

So therefore, weak hands.

So whatever they are buying here is
going to be temporary.

And it's going to be only temporary to a
long -term trend that is developing

here. So therefore, we don't want to
call the stopping actions buying

climaxes. We want to call them selling
climaxes. And they're going to be

the same way as a rate accumulation,
only mirror image.

Selling climax, automatic rally,
secondary test,

phase B, phase C, phase D.

everything is the same. So only phase A
might have some kind of issues for us

here.

Okay, let's go to the next one.

Okay, so multiple trading ranges here.
One of the examples

that I like for the hypodermic action.

So we've talked about the hypodermic
distribution patterns where we said that

there's going to be a collapse.

of duration of phases.

Why? Well, because there is an urgency
to sell.

When there is an urgency to sell, phases
are gonna be collapsed.

And this is what we see there.

There are quite a few ways of how we
could label this.

We could label buying climax at the top
right here.

and then just say that we have automatic
reaction secondary test, sign of

weakness in B, phase C, either here or
here, and

this whole thing is our distribution.

So that's one way. Another way is just
to recognize this as a potential

change of character and as a first stop
in action after the climactic run.

And then recognize this as an upthrust
of the distribution.

And then a major sign of weakness and an
LPS.

Either labeling is fine.

I doubt that a lot of us will be able to
catch this trade to the downside.

But I want a lot of us to catch this
trade to the upside.

The money here is to the upside. It's
not necessarily to the downside.

you're kind of running into the problem
of, well, what if this is a trading

range? And if it collapses like this,
you might be far away from the ideal

of entry.

So sometimes it's not even worth it to
think about the trade to the downside,

but it's definitely very profitable to
think about the trade to the upside.

All right, accumulation, you can go
through this yourself.

The only comment that I have here is
kind of like this apex formation.

with the sign of strength still
committing above and holding on there

support area. So it just works really
beautifully.

All of this, you know, test number one,
test number two, test number three

works. In the apex formation, the second
point of fear is not going to work.

It's not going to look as a point of
fear just because there is a

diminishing volume characteristics.

Next trading range.

Relative to this rally, we see a
reaction that suggests a change of

and suggests a trading range.

Lost attempt to go up before a major
sign of weakness. Major sign of weakness

well -defined.

Increased spread to the downside.

Commitment to the downside multiple
times.

and increase in the volume signature.

So before the major sign of weakness, we
are probably experiencing phase C.

Because this is a lower high, we are
going to label it as a last point of

supply.

After that, after the major sign of
weakness, a rally that has multiple

to go up, but it can't overcome the
point of the resistance that was defined

the automatic reaction.

in phase a and therefore suggest more
weakness and this is the point where we

could open the position to the downside
the next trading range is uh

weird because it um has a very short
duration and high

volatility so think about think about
this trade in general

so we have a lot of speculation on the
way up then institutions are selling.

Then somebody is seeing short -term
value coming in and buying at this

As they buy, they produce a really good
rally that comes to the previous point

of selling, and then it's being sold
again.

We see this from the increase in the
volume signature here.

There's a lot of selling behind that
volume signature and the way how the

starts to create lower highs and lower
lows.

Increased volatility suggests
distributional pattern as well.

So then this is extremely volatile, very
short duration, and

we probably identify this bar as kind of
both a selling climax and an automatic

rally at the same time.

Secondary test as a sign of weakness, as
a low low suggests more weakness, and

we just need to wait for the rally to
open the position.

As the price goes into the up thrust,
reversal acts as a perfect point of

in this case. And you could be thinking
that you could still be in phase B at

this point.

So your goal is just to create some kind
of lower low below the previous low,

just because of the weakness that we've
seen. And it goes exactly to this point.

At this point, you might actually
reassess and just say, okay, well, maybe

the rally is weak, I'm going to...
continue holding on to this position.

Three times the rally tries to go up,
fails, and you could add to the position

somewhere here into the climactic action
right here.

That would be the trait.

Questions here?

Okay, so we've covered this.

Can we have a situation where the
secondary test is a sign of weakness?

in phase B is so extreme that it causes
the formation of a newer and lower

trading range.

Okay, well, interesting suggestion.

I'm just trying to identify where this
is.

Yeah, I don't see it here.

Okay. Yeah, probably these two questions
should not be on the slide.

Okay. In a third trading range, I
identified secondary test in your chart

a buy -in climax.

So third trading range. Okay. Identified
secondary test as a buy -in climax and

secondary test as a sign of weakness.
Okay.

As an automatic reaction, could you
please go over how we identify the

for this range from the wish. Yeah, so I
think I mentioned this, right?

Climactic run relative to this rally.

This reaction, is this the largest
reaction?

Yes, it's the largest reaction.

So this could be either a preliminary
supply or a buying climax.

So the way how I confirmed this
automatic reaction was more by the

the last point of supply.

So they come into the resistance that
acted before as the support.

So support based on what? Well, based on
the definition of the automatic

reaction. And that's how it kind of is
being confirmed.

But you could definitely do exactly what
you said and then put here preliminary

supply and then buy in climax here.

Now, the problem with this is going to
be...

all in the characteristics of the
climactic run. You kind of could see how

two are so different.

And even if you overlook that, then
let's say from the bind climax into the

automatic reaction, secondary test, this
is going to be phase A.

And then going into B, we're probably
going to define a sign of weakness right

here in B.

So test at the high, test at the low.

Maybe phase C here, major sign of
weakness, LPSY.

You probably could label it like that,
but then it seems like a trading range.

I'm sorry, it seems like a downtrend
rather than a range.

So I would probably just be thinking
that this is the range right here, this

the range right here, this is the range
right here.

So this smaller range belongs to this
one more as...

a major sign of weakness, and then LPSY,
and this range stands on its own.

Okay, yeah, so I don't think that there
is, well, okay, so down sloping range,

yes, you could probably, you know, try
and do it like this, but I think it's

well defined. I mean, like in this case,
there is no need for that.

Look at how LPSY rally comes exactly to
the point of the support, and that's

exactly what we want to see.

If anything, this is not down sloping
range.

This is more of the expanding formation
where we see that the

support starts to expand to the
downside, and then we see deterioration

the other side.

probably would look at this like that.

But again, the major trading point is
gonna be somewhere here, here,

here. All of those are great points of
entry, also here.

So all on the way down.

All right.

Okay, next one.

Okay, so this was probably like, The
most challenging.

I have it in reverse. Okay, it doesn't
matter.

Yeah, let's just do it on the one
without labeling here.

So, yeah, this by far was the most
challenging

chart.

It's a chart of Yahoo.

There are multiple trading ranges right
here.

The key here was to define

the ranges themselves.

So let's maybe have a volunteer. Let's
have a discussion here because this is

going to be a good learning point.

So say yes and I'll unmute you.

Okay, let's go.

Nilesh, how are you doing?

I'm doing good. How are you? Good.

Okay. So what are the trading ranges
that we are looking at?

Sure. So the first trading range, which
I identified as a,

it's like a preliminary supply where we
have the highest volume

signature on the map.

That I identified as a preliminary
supply.

Okay.

And then at the top, there was,

the trading range, which was like kind
of very condensed and that would have

been my upthrust after distribution in
that trading range. So it's very small.

Okay, hold on a second. I lost you. I
lost you.

Let's just address the question first.

So what are the trading ranges that
we'll look at? So give me the timestamp

where the trading range starts and where
it ends.

Or maybe just approximately, like with
the timestamp.

The timestamp?

Yeah. Like, for instance, I see that
there is a trading range right here.

Okay. So where is the next trading
range?

The next one would be 2000,

I think. Is that 00?

That's the, yeah.

So that's where I have the second
trading range at the top.

I'm sorry, what is that?

The peak before that, where you have
highlighted, right?

Okay, I'm right here. I'm at the top. So
is this where the trading range starts?

No, the high before that.

Okay, this one right here?

That would be my buying climax of that
range.

That would be after distribution.

Okay, got it. So what is the trading
range? Is it this trading range right

Right, right. I see. Got it. All right.
So what is the next trading range?

The next one is the next biggest
reaction that we see to the

upside, right?

Okay, this one?

No, the high before that.

Yeah.

Okay. Okay, can you go to the lowest
point in that?

Yeah, that would be my trading range.

Sorry, timestamps, there is not much
timestamps or dates that I can do.

Okay, that's fine, that's fine.

So can the next trading range?

The next trading range is the one that
we just marked, right? So the

end of that trend.

That would be my selling climax.

And then we have a very narrow trading
range which starts from there. Yeah,

there and there.

Okay. All right, got it.

Okay.

So... Okay.

Let's think about this.

this way so i'm going to direct you with
the questions and i want you to listen

to the question do not deviate in your
answer from the uh from the question

kind of like stay on it stay aware and
just be present with me and then we're

going to go through the logic of this
and this is going to be guys an example

how we should be thinking about labeling
especially

labeling of the historical charts that
we go through. This is our first task on

the historical chart to be able to
recognize specific elements of

and distribution to recognize what
elements belong to which phase and

to understand where is the final
capitulation before the trend starts or

is the emergence of the trend.

So what I would suggest, Naresh, is to
look into this area right here

is this a distribution or a uh is this a
distribution

or a reaccumulation distribution
distribution why is this a distribution

by looking at the chart uh

because the price went down after yeah i
think in the most

simplistic terms that you could possibly
think of, right? The price was going

up, then it had some kind of
distribution, and then the price went

On the way down, it had what?

Another distribution, or is it a
redistribution?

Redistribution. Redistribution. The
reason why it's a redistribution,

the price was going down before.

Then it went to the consolidation, and
then it went down.

All right, so our attention is on this
area of the distribution.

Okay, so on the way up, how would you
characterize this rally?

What do you see on this rally?

Is there a lot of speculation that's
going on in this rally?

I mean, think about the way how it went
up, right? So we have...

Two quarters here.

And price went up from 40 to 120.

What do you think institutions are going
to do when the price goes up so fast?

They're going to at least at the minimum
take some profit.

So I'm working with one of the
institutional clients right now. And one

requirements for the system is to be
able to take the profit at the areas

the position is in the extreme
overbought condition.

Because they know that there's going to
be a reversion to the mean.

If the price went up so fast, it has to
revert to the mean at some point.

So it's a very logical place for them to
do a couple of things.

to scale out of the position, to close
the position, or to hedge the position.

So therefore, we know that whatever
selling is going to come is going to be

institutional type.

Look at the selling that comes.

This is a significant volume signature
over anything that we've seen before on

the downside.

Okay, well now, let's kind of like
visualize this a little bit. So there is

speculation.

on the way up, which leads to some kind

of urgent selling by institutions.

When do we have that type of price
behavior?

where there is a speculation on the way
up and then there is an urgency to sell

by institutions on the way down.

How do we call this type of
distributional pattern?

Parabolic trends?

I'm sorry?

I don't remember the exact name, but
it's like whenever we have like a

moves to upside.

Hyperdermic formation, right?

So we would say hypodermic formation.

And by the way, guys, I really would
like you to study those. I mean, like I

gave you all of the schematics, all of
the characteristics are there.

We also talk about teepee formation,
right? So teepee family.

So hypodermic is going to look like a
hut, Indian hut, right?

So it's going to have a speculation on
the way up and then urgent selling on

way down.

We don't have it here. We only have
speculation on the way up. And then we

like the first leg where we see some
urgent selling.

But then it goes into a trading range.

So the TP formation of the same kind of
like qualities is going to be something

where we have a speculation on the way
up.

And then we have phase A, phase B.

With urgent selling, and usually it's
going to be labeled like this.

Phase A, secondary test is going to be
very weak into one half of the whole

to the downside. Then we're going to
experience a sign of weakness in phase

And then after that, the price is just
going to create an apex.

And then it's going to go down.

It might have different variations.

It might have an apex. It might have
some kind of upthrust attempt and then

down.

All right. So these two I gave you last
week. So you should be aware of this

schematic and the way how
characteristically the price and the

behave. So does this remind you of
anything here on the chart?

Yes, it looks exactly.

What we just referred to.

Which one?

The hypodermic, I think that is the one,
right?

Well, hypodermic is this. Do we have
this type of structure up and down?

Yeah, then TP.

Yeah, TP.

We have up, speculation on the way up,
and then we have an urgent sell -in,

but it doesn't really negate all of the
profits. It doesn't go lower.

Like the Alexian. Remember, Alexian went
down much more significantly.

So this one is more of a tippy
formation.

Okay, Nilesh, I'm going to take over
here. Thank you.

Thank you.

All right, guys. So study, study, study,
study.

You know, this is, you know, the
patterns that we need to know by heart.

So when we look into the formation, it
should come.

visually to you all of those elements,
and then you just visually confirm those

elements. You're thinking, okay, well, I
see this speculation on the way up.

This could happen in both of the
scenarios.

I see that speculation on the way up.

Then I see that on the way down, there
is a lot of urgent selling.

We see this from the volume signature.
This is the largest.

selling signature that we've
experienced.

Prior to that was actually on this bar.
Some selling came there, but supply was

observed really quickly and the price
continued to the upside.

As we look into this picture and we're
thinking about this whole trading range,

obviously it starts with the buying
climax here. This is the stop in action.

And then the first leg to the downside
is an automatic reaction.

The next swing to the upside is a
secondary test. That's our phase A.

So we're here and here.

And look at this attempt to go up.

At this point of time, we would be
thinking this is a very weak secondary

And right away, it falls down. It falls
into phase B

on a lower low.

which suggests sign of weakness.

This point right here. So at this point,
we would be thinking, well, they

urgently sold.

There is something that's going on and
they want to get rid of this position.

And therefore, there's going to be an
urgent selling and then there's going to

be a period of inactivity.

So the whole pattern, the sentiment of
this pattern develops as extreme

speculation on the way up.

That's number one.

Urgent sell -in into the loads of phase
A and phase B.

Number two. Those are done by the
composite mass. So this urgent

sell -in suggests that their positions
are closed.

Institutional positions, and
specifically CO, are closed.

So who's left?

in this position.

While institutional trend followers are
still in this position, the trend is not

broken, right? So we have a higher high
and we have a higher low at this point

of time.

And because this is the period where CO
is inactive.

we're going to see the diminishing
volume signature.

And therefore, from this diminishing
volume signature, we're concluding that

both supply is diminishing and demand is
diminishing.

So what is happening here?

Somewhere here on the short -term
oversold,

there are some buyers, weak -hand
buyers.

And they bought in into this position.
So they're fully invested.

Fully in.

The composite is fully out.

And then trend followers are still in
this position and they are doing

ITF are holding this position.

So it's a period of time when everybody
is inactive.

The COO has sold, and there is no reason
for the COO to come in and to establish

the position either to the upside or to
the downside.

It's too late for the upside. There is
no potential for the upside in their

and their evaluation.

And then it's definitely not the time to
open the position to the downside

either.

So they are standing on the side for
this stock.

The weak hands, having identified the
value at the lows of phase B, they are

into this position, and now they're just
holding their position. They're doing

nothing as well. They're just waiting.

And then institutional trend followers
are in this position. They did not scale

out.

Maybe it scaled out, but they did not
exit this position, so they're also

waiting. And this waiting period is
going to be like this on the lower

signature where both supply and demand
goes down.

The weak hands are going to be excited
if that picture is that Apex is

resolving into a fake move to the
upside.

They are getting into this position.

So that creates a second point of
excitement.

And we know that this is a
characteristic of the upthrust.

And we confirm that by one close and
then almost immediate pushback into the

trading range.

So an upthrust. An upthrust and a second
point of fear could happen only in

phase C.

So this seems to be our phase C.

This is phase C. We know by the TPU
schematic that a bind climax is going to

followed by the automatic reaction,
secondary test, phase A, sign of

B, and then phase C.

And then it's on the break of that apex
formation or TPU

formation here where ITFs are going to
give up.

they're going to capitulate.

And with this capitulation, the volume
signature is going to increase and the

price is going to go down. So the result
to the downside is going to increase.

And that's going to create a sign of
weakness.

And then the price is going to come back
into the area of the support that acted

before as the resistance. And that's
going to create the last point of

And that's the whole formation.

I'd like you to think and to consider
the story behind

the price formation.

What does it mean for institutions?

How do they behave there?

It's a very important knowledge that we
have to have.

Now, as we continue with our story here,
right, so some

volume increase.

on institutional trend following
capitulation and then co

has sold itfs gave up on this position

and then also the weak hands

which are public hands got in here

And then they sold on the way down.

So what do you think is the sentiment at
this point of time?

Does CO want the stock here?

Well, we don't see a big bounce here, so
CO is out.

There is no value here for the CO.

We know that if CO does not have any
value for this stock, then most likely

are going to go down even after this
reaccumulation.

The weak hands, which are public
institutional hands, they are not

because there is too much emotional
pain.

So they just stay away from the stock.
They forget about it. So they're not

selling nor buying.

And that's why the rally is not that
big.

And that's why the selling does not
continue right away.

And then institutional trend followers
are predominantly, you know, long -term

players. So they are completely out of
the stock either.

And because there is no emergence of the
trend at this low, they are not

participating. So what the stock will
do?

Kind of do nothing.

And look how that nothing looks on the
volume signature.

inactivity. And look how it looks on the
price signature.

So you've got to think in these charts
in terms of how

the sentiment changes for all market
participants and how the price structure

basically a reflection of behaviors that
we all exhibit in the

market belonging to a specific group.

either strong hands or weak hands.

Now imagine yourself and you are given,

let's say, $100 million to manage at the
level of the

knowledge of the market that you have.

Think about what kind of trades you're
going to have.

And if you have some mistakes losing
trades, how are you going to get out of

this position and capitulate?

And that's what's going to produce those
big gaps, big spread increases, big

increases in the volume signature.

Institutions are people.

And people are skin and bones. They are
like us. There is nothing different.

The only difference between them and us
is that it's their profession.

So they have to spend a lot of time
studying this material, developing the

skill, and then applying it in the most
successful way.

And they're getting paid for that,
getting compensated. Us, it's our money,

right? So we invest, and if we miss,
okay, it's on us.

So we're not necessarily dependent on
the income, you know, from trading. And

I'm talking about retail traders,
obviously, here.

So all is being driven by the behaviors
of different market participants.

This chart is just like such a case
study of how it all happens.

All right, well, let's go through the
labeling here.

So we've labeled the first trading range
right here. The

second one is easy once you put the
slope and

you kind of right away see the emergence
of the major sign of weakness.

a really strong momentum rally back into
the trading range on the increased

demand signature.

So this demand signature suggests that
the duration of this redistribution

is going to increase and we're going to
have another trading range.

At the end of this trading range, there
is a very, very good rally to the upside

on... increase in volume signature.

So that's our second point of
excitement.

And therefore phase C for that small
range.

And off we go to the downside.

Again here, look at this bar.

Second point of excitement, phase C.

Second point of excitement, phase C.

Second point of excitement, phase C.

So even by that, you could just quickly
define phases and the timing.

Another thing that we could mention here
is, and this was, and Elisha started

with, is this trading range.

Someone could label it.

this way.

Buying climax on the climactic run on
the extreme volume signature.

Automatic reaction, secondary test,
phase A.

Phase B, phase B, and then the upthrust
into phase C.

And then the first big reaction, sign of
weakness, and LPSY comes exactly

to the point of resistance which acted
before as the support.

that's a possible interpretation of this
area right here. But once you are in

this range, you've got to do it the way
how we did it because it's a TP

formation. So it's going to have a very
specific label in which I want you to

remember.

All right, great.

All right, so now that we have, oh, hold
on a second. Is this distribution?

Oh, I'm sorry. I have to correct this.

Yeah, this is not the distributional
label, and this is Apple.

So we're going to look into the history
of Apple.

And I'm giving you all of the slides. So
just as usual, they're going to be

uploaded below all of the slides,
homework slides.

Print those out, label those.

send those to me. So on some of the
charts, I don't define the trading

want you to kind of think about this.

This is the next step for us.

On some of the charts, I do define the
trading ranges. I want you to, you know,

go through all of those and label those.

Again, now trading ranges, trading
ranges.

Okay. So you kind of could see where
we're going with this.

Now, these charts, have volume
signatures.

So it's going to be interesting to see
if you could come up also with some

volume comments on that.

And this is very intentional because the
next class we're going to start on our

volume definitions.

All right. So quite a few trading
ranges, quite a few slides.

So I would like you to maybe start
earlier a little bit.

And again, you know, it all depends on
how you're doing with this course, you

know, what kind of commitment you have
for this course. You could definitely go

at your own pace.

You could, you know, do the whole
homework or just a partial.

I'm fine with any way as long as you're
improving even marginally from one class

to another.

Okay. We do have some time, so we have
like around 30 minutes here.

So let's go through the Microsoft
homework and let's see what we could

And I'm just going to go through some of
the probably most common mistakes or

most common questions and comments that
you could possibly have about this

labeling. So the first chart.

And right away.

When I ask you this question, guys, as
to what catches your eye

on this chart, I always want you to
think in terms of extremes and in terms

concepts.

So let's think in these terms.

And to me, this is kind of like the way
of the nonlinear thinking, right?

We are not going to start at one point
and then going to go strictly from that

point on. We're going to try to identify
some of the things that are going to be

catching our eye in a lot of ways.

Well, right away, right here, I'm
thinking, hmm, very interesting increase

the downspread.

Usually that's going to be associated
with the increased volume signature.

And then after that, the price went up
and had some kind of test.

So increase of the supply and then the
test.

And that happens after we first defined
the low and then we

tested it. So we have the first test,
second test, and possibly a third test

as an area.

So that suggests the behavior that's
going to be congruent with the price

behavior in phase C.

So if this is phase C, we are probably
in the second point of fear. We see that

the previous reaction has other
characteristics or slightly more bullish

characteristics than the one that we
think phase C is.

So if this is an attempt to spring, then
the next low is the test of that

spring. Right away, we could start
thinking this is phase C.

Even without thinking what has happened
prior to that.

If we define phase C, then we could
define phase D easily.

How? Well, we know that in phase D,
we're going to experience a major sign

strength. That is going to be followed
by a backing up action, which is going

be a reaction that's going to come to
the support level, which acted before as

resistance. We know that the definition
of the major sign of strength is going

to state that from the lows in phase C,
the price is going to go through the

whole trading range, and it's going to
overcome the points of the resistance

that were created in phases A and B.

It's going to commit.

And we see that the commitment is
multiple progressive closes to the

spend some time above that resistance
and then react exactly to the point of

support that was defined by phases A and
B.

And that happens exactly that way. So in
a lot of your

homeworks and in a lot of my remarks to
your homeworks, I mentioned phase D

boundary.

So a lot of you are very comfortable now
with phase C boundary.

Some of you put maybe like this type of
boundary for phase C. I would include

the test because it's a local test to
what? To the action that is phase C type

of action.

So you have to include it together.

But then I have seen also where the
boundary was put maybe somewhere here.

Maybe it was an assumption that... There
is a small commitment and then a

reaction. Well, you have to look at the
swings, right? Like we're going through

the swings on the Apple chart, right,
where we had this type of picture,

automatic reaction, secondary test, and
this was not a full swing.

The swings were well -defined there. So
there is no reversal here, and

the reversal only comes on this bar. So
here is a swing.

a swing to the upside, and then swing to
the downside.

So we don't want to put the boundary in
the middle of the swing. We want the

conclusion of the swing to the upside,
and then we want the conclusion of the

swing to the downside.

And then the reversal out of that
position will define the boundary for

phase. So now phase C and phase D are
defined.

The problem is usually somewhere here in
this labeling.

in the labeling of this area. Why? Well,
because in some instances you might say

that, okay, well, what about this
trading range, horizontal range?

Just because this looks as a change of
character.

And this looks like a climactic run. So
we're buying climax here.

So you would be right. It is indeed a
change of character.

The only problem with this change of
character is that it probably belongs to

this trading range.

It's a distributional pattern before the
shakeout happens.

So you could label this as a selling
climax and a shakeout.

Please note that you could also label
this as a preliminary supply and then a

buying climax.

And then you could have a selling climax
or a shakeout.

And that would be fine as well. I
actually like this type of labeling.

But the climactic run at the end kind of
suggests that this is more of a buying

climax. And if this is a buying climax,
it stops the uptrend, defines the new

environment on the change of character,
and then upthrusts as

a part of the distributional pattern,
and then a downtrend.

After that, the next hardest part is...

a couple of automatic reactions that we
have.

So in some instances, we could have
that.

A big, quick move as an oversold move,
and then a rally that is short.

It still acts as a change of character.

Change of character to what? To this
move to the downside. It's the largest

rally on the way up.

But because of how supply is so
available, it cannot be big.

So therefore...

you know, it's small, and then only on
the next absorption, after the next

absorption point at secondary test,
that's when we have this capacity to

in a much more meaningful manner.

All right. Well, everything else could
be...

Self -explanatory.

So let me see if there are some
comments. Can be lunch swing on

be interpreted as a buying climax and
shakeout? Okay, well, we went through

this, so yes, it can.

Could you go over buying climax and Utah
in 87?

Okay, well, again, climactic run, buying
climax, change of character,

attempts to go up, secondary test.

sign of weakness in phase B, and then
the upthrust action, and then a major

of weakness.

And this is just a small distributional
pattern that happens often before we go

into some kind of reaccumulation
structure.

But please don't think that this is
extremely important.

I mean, it is important for us to
understand how to label this. That's

But if we are mistaken and if we label
this in a different way, let's say I

label it like this.

Did anything change to our trading
strategy at this on the right of the

No. I will label it like this now.

I was buying Climax and let's say
automatic reaction secondary test.

And this is the range.

Did anything change on the right side of
the chart?

Nothing.

We still would be seeing phase C as it
is here and phase D as it is here.

And therefore, our points of entry are
going to be 1, 2, 3, and then

4.

Nothing would change no matter how we
label phase A or what comes prior to

All right, next one.

So one of the things here for the lower
trading range, it was to define the

slope.

And that slope gives you the definition,
a more correct definition of the major

sign of strength.

And it gives you a much correct
definition of the backing up action.

how the character of the move to the
upside changes after that.

That's because the supply has been
observed at the level of the support.

and then at the level of the resistance
where it has been sold before.

So, and that's what we are expecting
from the backing up action. A backing up

action is a test of supply at the level
of the

resistance.

And usually this level of the resistance
is going to be defined by the price

selling. We see how the volume supply
has increased here in this area.

So we are naturally going to produce
some kind of stopping action and see

kind of supply comes there. And it
doesn't. So that suggests that the

is going to be very favorable.

Second point of fear.

First point of fear.

First point of excitement.

Second point of excitement.

Phase C could be defined in both biases.

Pretty easily.

And everything else, I think, was okay
here.

All right, let's go to the next one.

Okay, so one of the things that I kind
of was looking for, and now I see that

even I'm not doing this, is putting the
boundary of phase C somewhere here.

And the reason why is because this is a
test.

definitely something that I would
correct here on my slide.

And then a lot of you, not a lot of you,
but some of you define this as a sign

of strength and then phase D as just
this.

So again, we need a reversal, right? So
we need a continuation of this swing to

the upside until it actually reverses.
And then we would...

say the major sign of strength has
happened and the backing of action has

happened in this case this is uh one two
three abc formation so the boundary is

going to be here um okay so what else oh
look into

this move to the upside stop in action a
trading range and then again

a small distributional range within
buying climax and up for us That should

remind you of the chart before, right?
And then that defines the causality for

the change of character reaction.

And then after that, it's all the same
kind of, the same structure.

So again, could we have this as a
trading range?

Probably not.

Probably this is more of the
distributional character.

And then you start your trading range
with big swings like this.

and then everything could be defined.

All right.

Okay, fill it.

Let me unmute you.

Are you there?

Yeah, sorry.

Yeah, so what's the question about the
upvote?

Yeah, it was regarding the chart number
two.

There was an upthrust in the
accumulation range, and I thought if it

labeled as upthrust action.

Okay, yeah, all right. Thank you. Great.

Yeah, I was looking at this and couldn't
understand it. All right, that sounds

good. All right, next one.

We have about 15 minutes here.

So a downsloping range, this is a very
interesting spot because

that, a spot suggests that we might be
in phase C. So how would we be dealing

with this?

Obviously, we would be trading it if
we're thinking that this is a

reaccumulation.

So our points of entry are going to be
around this area right here.

We would be looking actually at the very
favorable gap, favorable continuation,

and then a failure.

Failure to overcome this resistance.

And then after this failure, we would be
out in this area.

So that's going to be our first trade
here. Again, this is not a bad trade.

It's almost like a probe trade that we
have to put on.

And it doesn't necessarily get us in
into the position fully.

I mean, like if you think about the
points of entry, which we will study

on, guys, so don't worry about this.

Here is our first point of entry. This
could be a second point of entry. So

let's just say that we have two points
of entry.

We can't really add to the position here
or here. This is too far away. This is

in the resistance cluster.

So let's say that if our position risk
is going to be,

let's say, 2 % of our portfolio.

So we would define...

our point of entry number one and two
risk

as one -fourth and one -fourth

of the full risk.

So this means that we've opened half of
this position. This means that we've

invested 50 basis point and then another
50 basis point for a 1 %

risk of the portfolio.

So how would you think about this risk?

If you have, let's say, 10 ,000 as your
portfolio, then 1 % risk is going to be

1 ,000.

So 1 ,000, that should be the difference
between the price of

entry and your stop loss.

So let's just kind of like play around
with this. So let's just say that we're

entering here at $5.

and that our stop loss is going to be
somewhere here at 475

so uh 25 cents and this is obviously a
low price stock

microsoft oh well this is after the
split so uh definitely going to be

different but you know the calculations
here are going to be the same so you

could define the number of shares as
1000

of risk divided by the actual risk,
which is $0 .25.

Actually, let's do it in a different
way. Let's do it $0 .50.

So let's just support that our stop loss
was here.

Divided by $0 .50.

So that's going to be what?

That's going to be 2 ,000 shares.

That's our position size for each point
of entry

here. And let's just even imagine that
we enter in just once, maybe like on the

breakout. Well, actually, let's just go
with this example. So two points of

entry. So that's our 1 % risk, 1 ,000 we
are risking.

It's actually for both of the positions,
right? So 1 ,000.

So we are opening, let's say, 1 ,000
shares at one spot,

1 ,000 shares at another spot.

And then we are exiting this position
either on this bar right here or on this

one right here. So our average exit
price is going to be maybe like around

535, about.

So we actually have even a slight profit
here.

So 5, maybe 5 .10, 5 .15, something like
this. So we have

maybe like 20 cents of profit.

But what this example, what I'm trying
to show to you guys is that we only had

two points of entry as we're scaling in
into the position.

We have not opened.

Position fully yet.

And that protects us from any type of
moves like this that we have.

Obviously, we are being protected by the
exit criteria itself.

A backing up action fails.

So this means that we can't open
positions anymore

at backup reversal because it didn't
come.

and then also at the breakout of a
backing up action. So these two

add -ons are not going to be in the
play.

And even if we gave up somewhere here or
even lower, we're only risking

half of the position, and also we

technically could be much faster and
close in this position much faster.

How would it work in the example where
we actually would produce some profit?

So here is our first point of entry.
Here is our second point of entry.

Then we're going into major sign of
strength and we're waiting for the

up action.

The backing up action happens, the test,
and then we are entering the position

somewhere here.

The next point of entry is going to be
somewhere here.

shows us the breakout out of the apex
formation on the backing up action.

So all of the positions are going to be
profitable, and look at how gradually

we're coming in into this position and
establishing all of the four trenches.

That limits our risk. That allows us to
only risk half of the position.

On average, our, you know,

average price is going to be somewhere
in the middle of the range, and then

we're still going to have the same size
that we wanted.

So these are very simplistic tactical
mechanics, and we'll study this a little

bit more, of the spots like this.

One is going to be a failure and we have
to be ready to recognize that this

failure will come and we will have those
type of trades.

And one is going to be a success.

And when we have a success, that's when
we want to be pigs, right? So we want to

create a sizable position, especially if
we're long -term investors.

All right.

All right, next.

So this was interesting because...

of phase C.

You could, and I've seen some of you do
this, you know, increase this phase C

into this testing action.

And I think that's appropriate. That's
totally fine.

It comes at the same level as testing of
the support in phase B.

So that makes a lot of sense. It's also
a test of the screen itself.

So that makes sense too.

Major sign of strength.

overcomes the resistance, which I put
here as an upsloping resistance in the

support, and then comes back into the
area of the support, which acted before

the resistance.

There were some interpretations where
people would put buying climax here.

Well, then think about this reaction.

What is that?

It seems like there was a climactic run,
which is well defined by the volume

signature and the price signature.

It seems like there was a very
meaningful change of character that

trading range. So it's probably we are
at the beginning of the trading range.

And this whole rally, you know, which
doesn't have, it has a climactic run,

not as good as the prior one.

So this rally right here probably
suggests that we are.

in a secondary test rally, and then we
go into phase B.

All right.

What else here? Five minutes. All right.
So this one had the same type of

trading dynamic as the couple of slides
before this.

So a well -defined climactic action on
the climactic run, a well -defined

of character with the secondary test.

Could be labeled different.

It could be labeled automatic reaction
secondary test.

The reason why I wanted to shake out is
because it didn't go below the previous

low here.

But then in this area right here, we
could be thinking phase C, point of

point of entry, and then a failure here.

So this would be more of the break -even
loss.

And then after that, and I think that
the...

Again, the boundary should be here.

I know why. I can't really... This is
painted, so I can't remove that anymore.

I just need to redo all of this.

So there is a test, a definitive test of
the local action, of the local

quality here.

So this would be our phase C.

And then after that, a major sign of
strength committing above the...

resistance that was created by the
buying climax and then a reaction into

support as a backing up action so here's
our phase d

all

right uh this this uh distributional um
top produced you know some kind

of issues for us as a group um We
definitely want to define the

slope.

Up thrust in phase C.

Second point of excitement.

First point of excitement on the
climactic run.

Secondary test is an up thrust.

Everything else in between is phase B.

A very strong rally here.

not very characteristic in the
distribution.

But think about what Microsoft was for
this market going into the height of the

2000. It was a leadership stock.

So leadership stocks are going to be
distributed with the characteristics of

reaccumulation, which we see in this
area right here in phase B. And that's

this rally is just so strong. Plus,
think about what the market is doing at

point of time. The market is extremely
strong.

The market has...

a huge breadth going up.

So a lot of the stocks, at least short
term, are being pushed up. Some of them

stay behind and don't participate in the
first quarter of the run of the market.

Microsoft is one of them.

All right.

What else?

Okay, so this is a very long -term chart
here.

This comes after this distributional top
that we've just seen.

Look how...

The distribution has happened into the
lows of 2000.

And then Microsoft actually exhibiting
some strength into 2000 to 2003 low,

creating a slightly higher low relative
to the low in 2000.

So that suggests some point of
selection.

But there is a lot of volatility in this
trade range.

And then also there are some managerial
problems at that point of time with...

What's the guy's name? Steve Boulder, I
think.

The owner of Clippers right now.

The former Microsoft CEO.

So he's the CEO during this time.

So look how uninterested institutions in
the products here.

Okay, so thank you.

So nothing is really happening here.
Only in the last phases of the market

in 2006 -2007, There is some kind of
activity.

And then what defines this long -term
pattern is the second point of fear

So this leads us to the conclusion that
this is phase C. A lot of you had phase

C as if this was a distribution.

But then if this is a distribution, then
why are we not traveling down?

Why are we not in the downtrend?
Instead, we're actually going up.

So that was an incorrect labeling.

So second point of fear, after the first
point of fear, defined phase C.

And from there, we have a minor sign of
strength, a bunch of LPSs, by the way,

lots of trade here that we've done with
our students.

And then a major sign of strength
defined by the highs, the long -term

reaccumulation, still shows a lot of
strength, suggesting a continuation in a

very favorable way.

And that's exactly what's happening.

A very interesting pattern where the
volume signature is going down and the

price is going up. I want you to think
about this for a week, and then when we

meet next time, we may have a chance to
discuss this. If not next time, then in

two weeks we will discuss this.

But I want you to ask yourself a
question.

Why would the price go up so
significantly without any of the

signs of the demand being?

and increasing.

All right. Last one, I believe.

A down slope.

And nothing really of big interest here.
Maybe

a small climactic run into the backing
up action before

the backing up action. So I'll just
suggest that we're going to have some

of consolidation as a backing up action.

So these are small nuances that we need
to catch in order for us to think how

the structure would develop. And
obviously here in this small structure,

would be thinking, okay, well, here is a
trading range, phase A, B, B, phase C,

sign of trend, and a backing up action.

So our points of entry are all going to
be after phase C, on the way up.

And then here we're going to be entering
on these two wires.

So again, our tactics are going to be
very logical, very sequential in the

way how we enter in this position. The
logic behind our points of entry is

to be such that each entry has to
confirm the previous entry.

And that way we are controlling our
risk.

Obviously, you know, we should have also
tactical rules and

decision -making in place when our
patterns fail, because they will. We

be always correct.

And short -term, we could be correct,
and then long -term, we could be

incorrect, and that's what... could
produce potential loss. So we need to

mitigate that risk both on the technical
level and from the money management

point of view.

Again, something that we will be
discussing later on in the course and

specifically in practicum, there's going
to be a lot of discussions about that.

All right, guys.

That's it for today, all of the slides.
So again, the homework.

Let me just go to that slide.

The homework is our Apple labeling.

And then next time, we're going to start
our discussion of volume and price

analysis.

So it's exciting because this is
probably one of my favorite topics, not

in the method, but in trading itself and
the analysis.

So I'm looking forward to that.

All right, guys, that's it for today.

I'll see you in a week, and I'm looking
forward to receiving all of your

homework. Thank you, guys.

Bye -bye.