Your Trading Coach is an Australian trader by the name of Lance Beggs. I took the following notes from videos he has on his website at http://www.yourtradingcoach.com/

It is a four-part series entitled Introduction to Technical Analysis

Part A – Market Environment

The 4 stages of the market according to the Wyckoff Method:
1. Accumulation (aka Basing aka Stage 1)
2. Mark Up (aka Advancing aka Uptrend aka Stage 2)
3. Distribution (aka Top Area aka Stage 3)
4. Mark Down (aka Declining aka Stage 4)

Accumulation is:
• A period of sideways price movement forming a market bottom.
• It can be visibly identified by a series of peaks or troughs defining a sideways range.
• Supply and demand are generally balanced leading to a consolidation of price around this same general area.
• On the longer timeframes, the market will exhibit decreasing volumes as traders won’t be interested in an investment that provides no opportunity.
• However, larger and more professional investors will view this as a period where they can safely and slowly build a large position so as to not make their buying behaviour public until prices eventually break higher (when you may see volume increasing).
• Also evident in periods of Accumulation would be rapid rejection of breaks to new lows.

Mark Up is an uptrend; a period of rising price, even as it cycles through peaks and troughs. The general trend will be up driven by higher demand from traders seeking opportunity.

Like Accumulation, Distribution is a period of sideways price movement, the difference being that Distribution is a topping pattern. Supply and demand is once again generally balanced and there is price consolidation. Eventually the sideways pattern becomes evident to everyone and so interest wanes. But by this time, the professionals have sold off their positions leaving amateurs with their late positions before interest completely dries up, supply overwhelms demand, and the price falls through the base of distribution.
Also as with Accumulation, in periods of Distribution there will be evidence of rapid rejection of breaks to new highs.

Mark Down is a period of falling price; a downtrend. It usually cycles through peaks and troughs. It will continue until professionals have offloading their positions and the investment enters a new period of accumulation.

It’s important to remember that the Wyckoff Method is only a model and a model is a generalisation. It will describe the market well at times, but not always. It is FAR FROM PERFECT.

For example, what may seem to be a period of Distribution may instead turn out to be Re-accumulation with the price entering directly into another Mark Up period. Similarly, a period Accumulation may instead turn out to be Redistribution with another period of Mark Down following.

In fact, the Wyckoff Method does identify periods of Re-accumulation and Redistribution.
Further analysis is required to determine periods of Re-accumulation and Redistribution rather than Distribution and Accumulation. And sometimes you just won’t know until it’s over.

Because of this, many analysts choose to look at the charts with an even simpler model, one where the market is in one of only two environments, Trending or Ranging.

Ranging is non-trending, directionless sideways movement.

Trending being periods of directional movement, either up or down.

The most difficult part of trading is identifying when the market is going from one stage to the next. The point is rarely clearly defined and is most often clouded in ambiguity.

Part B – The Swing High/Low Structure

Prices do not move in a straight line. They have Upswings and Downswings and between them Swing Highs (aka Peaks or Pivot Highs) and Swing Lows (aka Troughs or Pivot Lows)

Q: How do we define Swing Highs and Swing Lows?
A: Either Discretionary or Mechanical (it’s your preference – both work fine as long as you approach it with consistency)

Using the discretionary method (i.e. if it looks like a Swing High or a Swing Low to you, then it is one) will result in different result for different traders, depending on which point they choose to identify as Swing Highs or Swing Lows. Again, both are valid.

With a Mechanical approach, you can establish rules such as:

• A price bar forms Swing High if :
o it is preceded by two bars having lower highs, and;
o it is followed by two bars having lower highs (the tips of the candlestick).

• A price bar forms Swing Low if :
o it is preceded by two bars having higher lows, and;
o it is followed by two bars having higher lows.

Swing Highs or Swing Lows may not always form a symmetrical v-shape. The preceding and following bars don’t have to be lower or higher than each other, just the Swing High or Swing Low bar.

If consecutive multiple bars of the same price have the correct configuration of preceding and following bars (two to the left, two to the right), this would also be considered a Swing High or a Swing Low.

Why two bars? This is simply preference. You could increase the number to reduce the amount of Swing Highs and Swing Lows. Between 2 and 5 are common.

Part C – Trends & Ranges

Q: Why is trading with the trend important?
A: Because it provides more opportunity for profit and is more forgiving of poor entries.

Because trends tend to persists, identification of a trend offers a clue as to the most likely direction to the right of the chart.

Expect the trend (up, down or sideways) to continue until you see evidence that it has failed.

There are 3 main ways to define a trend:
1. Swing High/Low structure
2. Trendlines
3. Moving Averages

Choose one to use exclusively and become an expert or use all three in tandem to confirm each other.

For a Swing High/Low structure, we have an uptrend when we see a series of higher Swing Highs and higher Swing Lows until the structure is broken.

When does a trend end. Various methods exist to identify trend failure.

One simple method says that an uptrend ends when the structure forms a lower Swing High followed by a lower Swing Low (not simply where a Lower Low appears first). A downtrend ends when the structure forms a higher Swing Low followed by a higher Swing High (not simply where a higher Low appears first).

A Range is a series of approximately equal Swing Highs and Swing Lows.

A trend ends when the structure produces a Swing High and a Swing Low that is beyond the boundary of the range. You may call the end of a trend earlier (i.e when the first Swing High or Swing Low is produced), but it will only be confirmed when both are produced.

The 3-swing Retracement (or Complex Pullback) is a very common trend feature. The pullback features one Swing Low followed by a lower Swing High and then another lower Swing Low, triggering a downtrend even though the market is about to commence an Uptrend.

In the case of a 3-swing Retracement, you could:
• Accept the downtrend and re-assess once a new Swing High has been produced.
• Use a more conservative trend change method – e.g. ignore the lower Swing High as it did not lead to a higher High
• Be willing to subjectively override your objective rule-based definition (or stand aside if you are not willing to do this)
• Use a combination of trend definition methods (e.g Break of trendline, break of the Swing High/Low structure and a Moving Average cross)

Part D – Trendlines and Channels

A Uptrend is defined by a trendline drawn below price, joining a Swing Low with higher Swing Lows.

Two touches creates a potential Trendline. A third touch confirms the Trendline. And subsequent touches continue to validate the trend.

“We trust the trend until proven otherwise”

So, as the Trendline has defined the price well in the past, we can project a line that we can expect to define the market environment in the future and which may be used to provide trade opportunities should price offer a set-up in the vicinity of the Trendline.

The positioning of the line is quite subjective. It doesn’t need to exactly touch the low points of the Swing Lows. Instead, the line should be plotted for “best fit”. If you’re using a Candlestick chart, this may mean moving the Trendline up from the tail to touch the body of the candle (this does not invalidate the Trendline).

Similarly, a break in the Trendline which is not immediately rejected (i.e. a close that rallies back over the Trendline) does not signal an end of that trend.

How many breaks of the Trendline would signal an end to a trend? There is no easy answer. Every situation is unique and should be considered on its own merits.

I second close when the second is a narrow-range pause in price movement. Lance Beggs rarely accepts more than two.

So, when does a bullish Trendline become invalid? A break of a Trendline, with price acceptance (i.e. price holding) in the new area, breaks the trend. If the price has clearly broken the uptrend, the Trendline is no longer valid.

A Downtrend is defined by a trendline drawn above price, joining a Swing High with higher Swing Highs.

Two touches creates a potential Trendline. A third touch confirms the Trendline. And subsequent touches continue to validate the trend.

As with Uptrends, the positioning of the Downtrend line is quite subjective.

For a Trending Range/Sideways Trends we can draw a line of best fit through Swing Highs that are approximately at the same level and a line of best fit through Swing Lows that are approximately at the same level to define a sideways market.

Characteristics of a Trendline:

• Direction – indicating the trend and the (bullish or bearish) sentiment
• Angle of the slope – A steep slope shows more intense sentiment

  • o You may even want even show a steeper short term uptrend within a shallow longer-term uptrend
  • o The break of a steep slope may not break an uptrend if the price doesn’t invalidate the shallower Trendline. In fact, we expect the price to return to – and respect – the shallower Trendline.

• Length – A longer Trendline is regarded as more significant and therefore more reliable than the short Trendline.

  • o If a longer-term uptrend has had a steeper short term uptrend turn into a steep short term downtrend moving towards the longer-term Trendline (i.e. conflicting Trendlines) and are about to intersect.
  • o So, in the absence of any event that may have changed the sentiment of the market, we should expect the longer-term uptrend to hold.
  • o However, a break in the longer-term uptrend by a short-term downtrending line is considered a more significant event with greater potential for follow-though and a further move downwards.
  • o You will often see the interaction of longer and shorter Trendlines when dealing with multiple timeframes.

• Number of touches (closely related to the Trendline length) – The more times prices touch a Trendline, the more the Trendline is regarded as significant and reliable (and the more significance in the break of such a Trendline).

Q: What do you do if the Trendline no longer provides a “best fit”?
A: Adjust the line to better reflect the current price trend. You always want it to look exactly how you would plot the line if you were starting from scratch at that point. If it could fit better, then move your trendline.

Q: What is the trend after a confirmed break (ie. Acceptance of new prices) of a Trendline?
A: Look to the Swing Highs and Swing Lows and allow the market to define the new trend. Don’t assume the break implies a reversal of the trend (i.e. An uptrend swinging to a downtrend and vice-versa). Often that is the indeed the case, but you may see that you can fit a new uptrend or downtrend line to the new prices to define a new trend. Or you could see both an uptrend and a downtrend line in the new price movement, the intersection of which may confirm a trend. The takeaway here is that the break may just be a pause before a continuation of the original trend.

Q: What do you do when you just can’t read the trend?
A: Keep it simple and use common sense. Get a wider (longer term) perspective. You could also use it in combination with other tools, such as Swing Highs and Lows or a Moving Average Cross. But if it’s overwhelming and you simply can’t spot the trend, it’s best to define it as uncertain and simply stand aside until a clearer picture emerges.

Channels

If you have an uptrend defined by a Trendline and you take the first two prices which define the trend and then look to the highest price between these two Swing Lows and extend another line from there, parallel to the Trendline, you have a bullish Channel containing the swinging price action as it trends higher.

The parallel line is called the Channel Line, the Return Line or the Outside Line (with the Trendline also being called the Inside Line).

A bullish Channel is just the opposite.

Note that not all price action will fit neatly into a Channel. If it’s not obvious, then don’t mark the Channel.

But, if it is obvious, it adds some great benefits in price targets and counter-trend trade opportunities.

Like the Trendline, it’s okay to adjust the Channel for the best fit and don’t be worried about brief “excursions” through that break the line.

When you can define a Channel, typically seek to enter a trade while prices are in the lower third of the Channel and targeting somewhere in the upper third.