Richard D. Wyckoff was born in 1873, and at the age of 15-years old, became a stock runner, scurrying back and forth on Wall Street. At age 25, he opened his own brokerage office which gave him close contact with a number of the most important and influential traders Wall Street has ever seen. He studied the market operations of Jay Gould, Jesse Livermore, J.P. Morgan, Andrew Carnegie, along with many others, all in an effort to develop his own approach to the market. These were men who studied the market, understood how and why it moved, and profited from it.
Wyckoff’s skills grew as he developed a deep understanding of what really makes the market, or a stock, move. In his approach, you will need a pencil, a daily newspaper with stock quotes, and a phone to call in your orders. You will also need months, and in some cases years of practice to develop the skills necessary to implement his approach. Why so long? Because the skills you will be developing are real. You will be separating yourself from the majority of people who are seeking instant gratification, only to find that what they had purchased simply doesn’t work. Professional athletes, musicians, artists or surgeons, do not develop their skills overnight. It takes dedication and persistence. This web site is dedicated to those special few individuals who recognizes that a deep understanding of how the market works, is essential to becoming a profitable trader.
I mentioned what this journey towards becoming a profitable trader is going to cost you: a pencil, a newspaper, and a phone. Well, I suppose we can all use the free stock quotes and charts that are all over the Internet, so we really won't need to buy a paper. The phone is also optional, as most orders can be made over your computer. You will, however, be required to purchase a pencil, read and study the lessons, and search your favorite website for charts. Then, you will be required to help others as you progress in your knowledge. This giving back is an important part of your growth as a trader. If you have read the story of "Jonathan Livingston Seagull" you will remember that the only way Jonathan could become a better flyer is by helping other seagulls get to their next level. The same is true here. You will need to contribute to this special community by visiting the Discussion Forum and engaging your colleagues in productive discussions...this is where the real learning occurs. The point is, that this is a safe place to improve our understanding of Wyckoff’s principles. We will have fun sharing information, files, and stories in the Discussion Forum. All, while deepening our understanding and helping others deepen theirs.
So, you say that you are a slow learner and are wondering if you can really do this. Let me offer you the following work:
In his book "Zen Mind, Beginner's Mind", Zen master Shunryu Suzuki approaches the question of fast and slow learners in terms of horses. "In our scriptures, it is said that there are four kinds of horses: excellent ones, good ones, poor ones, and bad ones. The best horse will run slow and fast, right and left, at the driver's will, before it sees the shadow of the whip; the second best will run as well as the first one, just before the whip reaches its skin; the third one will run when it feels pain on its body; the fourth will run after the pain penetrates to the marrow of its bones. You can imagine how difficult it is for the fourth one to learn to run.
"When we hear this story, almost all of us want to be the best horse. If it is impossible to be the best one, we want to be the second best." But this is a mistake, Master Suzuki says. When you learn too easily, you're tempted not to work hard, not to penetrate to the marrow of a practice.
"If you study calligraphy, you will find that those who are not so clever usually become the best calligraphers. Those who are very clever with their hands often encounter great difficulty after they have reached a certain stage. This is also true in art, and in life." The best horse, according to Suzuki, may be the worst horse. And the worst horse can be the best, for if it preserves, it will have learned whatever it is practicing all the way to the marrow of its bones.
Taken from Mastery by George Leonard
Published by the Penguin Group
And so it is true with developing an understanding of the stock market. There are companies that offer "get rich quick" programs that promise profitability with little or no effort. Just watch the lights and trade...kind of like a moth. However, if you want the real deal, you will have to do what every successful trader has done before you...learn how the market really works. There are no lights that blink on or off, turn colors, or whistles that tell you when to make a trade. There are no fancy computer programs to buy. What you need, is a willingness to study the principles as outline by one of the greatest stock market operators of all time, Richard D. Wyckoff.
His method is based on three never changing laws that govern all market behavior: The law of Supply and Demand, The law of Cause and Effect and The Law of Effort VS Result. The better you get at detecting these three laws operating in the market, the better trading performance you will have.
The Wyckoff approach has many strong parallels with the story of Sherlock Holmes in “The Sign of Four.” Take a moment to read how this master detective developed his observational stills and we will discuss it shortly.
The following is a dialogue from Watson:
The Sign of Four
The Science of Deduction
…I have heard you say that it is difficult for a man to have any object in daily use without leaving the impress of his individuality upon it in such a way that a trained observer might read it. Now, I have here a watch which has recently come into my possession. Would you have the kindness to let me have an opinion upon the character or habits of the late owner?'
I handed him over the watch with some slight feeling of amusement in my heart, for the test was, as I thought, and impossible one, and I intended it as a lesson against the somewhat dogmatic tone which he occasionally assumed. He balanced the watch in his hand, glazed hard at the dial, opened the back, and examined the works, first with his naked eyes and then with a powerful convex lens. I could hardly keep form smiling at his crestfallen face when he finally snapped the case to and handed it back.
‘There are hardly any data,’ he remarked. ‘The watch has been recently cleaned, which robs me of my most suggestive facts.’
‘You are right,’ I answered. ‘It was cleaned before being sent to me.’
In my heart I accused my companion of putting forward a most lame and impotent excuse to cover his failure. What data could he expect form an un-cleaned watch’
‘ Thought unsatisfactory, my research has not been entirely barren,’ he observed, staring up at the ceiling with dreamy, lack-luster eyes. ‘Subject to your correction, I should judge that the watch belonged to your elder brother, who inherited it from your father.’
‘That you gather, no doubt, from the H.W. upon the back?’
Quite so. The W. suggests your own name. The date of the watch is nearly fifty years back and the initials are as old as the watch; so it was made for the last generation. Jewelry usually descends to the eldest son, and he is most likely to have the same name as the father. Your father has, if I remember right, been dead many years. It has, therefore, been in the hands of your eldest brother.’
‘Right, so far,” said I. “anything else?’
‘He was a man of untidy habits—very untidy and careless. He was left with good prospects, but he threw away his chances, lived for some time in poverty with occasional short intervals of prosperity, and finally, taking to drink, he died. That is all I can gather.’
I sprang from my chair and limped impatiently about the room with considerable bitterness in my heart.
‘This is unworthy of you, Holmes,’ I said. “I could not have believed that you could have descended to this. You have made inquiries into the history of my unhappy brother, and you now pretend to deduce this knowledge in some fanciful way. You cannot expect me to believe that you have read all this form his old watch! It is unkind, and, to speak plainly, has a touch of charlatanism in it’
‘My dear doctor,’ said he. kindly, ‘pray accept my apologies. Viewing the matter as an abstract problem I had forgotten how personal and painful a thing it might be to you. I assure you, however, that I never even knew that you had a brother until you handed me the watch.’
‘Then how in the name of all that is wonderful did you get these facts? They’re absolutely correct in every particular.’
‘Ah, that is good luck. I could only say what was the balance of probability. I did not at all expect to be accurate.’
But it was not mere guesswork?”
“No, no: I never guess. It is a shocking habit—destructive to the logical faculty. What seems strange to you is only so because you do not follow my train of thought or observe the small facts upon which large inferences may depend. For example, I began by stating that your brother was careless. When you observe the lower part of the watch-case you notice that is not only dented in two places, but it is cut and marked all over from the habit of keeping other hard objects, such as coins or keys, in the same pocket. Surely it is no great feat to assume that a man who treats a fifty-guinea watch so cavalierly must be a careless man. Neither is it a very far-fetched inference that a man who inherits one article of such value is pretty will provided for in other respects.’
I nodded, to show that I followed his reasoning. “It is very customary for pawnbrokers in England, when they take a watch, to scratch the number of ticket with a pin-point upon the inside of the case. It is more handy than a label, as there is no risk of the number being lost or transposed. There are no less than four such numbers visible to my lens on the inside of this case. Inference—that your brother was often at low water. Secondary inference—that he had occasional bursts of prosperity, or he could not have redeemed the pledge. Finally, I ask you to look at the inner plate, which contains the keyhole. Look at the thousand of scratches all round the hole—marks where the key has slipped. What sober man’s key could have scored those grooves? But you will never see a drunkard’s watch without them. He winds it at night, and he leaves these traces of his unsteady hand. Where is the mystery in all this?
Now, lets review what we have read and we will compare it to the Wyckoff Method.
What did Sherlock Holmes observe and what did he deduce from his observations?
He observed:
That the watch had the initials H.W. on the back.
That the Initials matched the age of the watch.
That the watch was recently cleaned.
That it had numerous dents.
That it had numerous scratches on the keyhole.
That it had 4 ticket numbers scratched inside.
He deduced:
That the watch belonged to Watkins' older brother.
That Watkins' older brother was left money but threw it away.
That Watkin's brother was untidy.
That Watkin's brother was a drunk.
That Watkin's brother died from drinking.
In much the same way, we will observe certain market behavior, and be able to deduce important facts from that behavior. As in the case of Sherlock Holmes, we will be working on "the balance of probability." Like Sherlock Holmes, we will be basing our actions on "the character or habits" of the stock, and will also be "subject to correction."
The way to proceed through these discussions is by starting with Wyckoff's "5 Step Method" listed on the left-hand side of this page. Explore all the links within that section. Then proceed to "Bull Markets" following the same procedure, and so on, moving down the list to your left. You will be notified of important updates to these sections in our newsletter, so be sure you subscribe to it...it is free of course. And finally, be sure you visit the Discussion Forum as your colleagues will be posting important files, and will be talking about current market conditions, all in a common language that you will soon understand. Good Luck on your journey. You will soon feel comfortable in investing or trading because you will have developed a unique understanding that is shared by a special few.
"Study your charts not with an eye to comparing the shapes of the formations. Rather study your charts or tape from the viewpoint of the behavior of the stock, the motives of those who are dominate in it, and the successes and failures of the buyers and sellers as they struggle for mastery on every move."
Richard D. Wyckoff