Stop Predicting & Start Reversal Following

Most of the time, when a trend ends, the market ends up consolidating in a range for a period before a new trend begins.

At the end of an uptrend, you typically see a loss of steam and volume and lower highs before the market settles into a tight range. After the downside break of this range, we commonly see the actual "reversal" that many traders are looking for.

This brings us to Richard Wyckoff and his concept of the Market Cycle.
Wyckoff's market cycle has four stages: accumulation, markup, distribution, and markdown.

The premise behind Wyckoff's Market Cycle is that "smart money" manipulates the market so it can sell to the "dumb" retail money at just the right time, as early as possible. This ensures that retail is always holding the bag, and smart money captures the meat of the move.

In Wyckoff's analysis, price and volume are the two most crucial indicators. While we may choose to apply others, these two should serve as our primary study points.

The problem with identifying accumulation or distribution is distinguishing between a random trading range and actual accumulation or distribution. One subtle signs Wyckoff analysts use are springs and upthrusts.
Reversals are some of the trickiest setups to trade. They unfold differently in each asset class and according to the current market sentiment.

While they can reward us hugely, being wrong in a reversal trade can be quite painful. Nobody likes being on the wrong side of an aggressive trend.

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