Wyckoff method – Price and volume relationships

Each day, the 1) price of the market or an issue is likely to move up or down on a close to close
basis. It does so either in a 2) price spread that is likely to be wider or narrower than the day before
and 3) volume that is likely to be either higher or lower than the day before. How these three
variables group themselves together determines that character of the action for that day and
whether it makes a bullish or bearish statement.

UPSIDE

If the price spread for a day is wider to the up side leading to a strong close on increased volume,
the advance is said to indicate demand entering. This action makes a bullish statement. If the
same price action occurs on reduced volume, the advance is said to be the result of a lack of
supply. This action also makes a bullish statement.

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If the price spread for a day is narrower to the upside, the action makes a bearish statement. If the narrower spread to the up side is combined with higher volume, the action is said to indicate the meeting of supply. If the volume is reduced,the action is said to indicate a lack of demand. Either combination tends to work against additional up side progress. That is why the statements made are considered to be bearish.

DOWNSIDE

If the price spread for a day is wider to the down side leading to a poor close on increased
volume, the decline is said to indicate supply entering. This action makes a bearish statement.
The same price action on decreased volume is said to be the result of a lack of demand. It also
makes a bearish statement.

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If the price spread for a day is narrower to the down side, it makes a
bullish statement. If the narrower spread is combined with high volume, the action is said to
indicate the meeting of demand. If the volume is lower, it is said to indicate a lack of supply.
Either combination tends to work against additional down side progress. That is why it makes a
bearish statement.

POOR CLOSES

Sometimes there are days that start out as wide spreads to the up side, but end with poor closes.
There can also be days that start out as wide spreads to the down side, but end up with strong
closes. These days are said to include intra-day failures. These failures change the character of
the action from what it might seem to be on the surface. A wider spread to the up side on
increased volume makes a bullish statement because it indicates demand entering if the close is
strong. However, if the close is poor, the indication is that the demand that was present initially
was either withdrawn or overwhelmed by supply. In both cases,the intra-day failure changes the
bullish statement to a bearish statement. However, being overwhelmed by supply is considered
to be more bearish than is having demand withdrawn. Intra-day failures that occur to the down
side on wide spreads and high volumes leading to strong closes change what would otherwise be
bearish statements into bullish statements. In these cases, the indication is that either the supply
was withdrawn or that supply was overwhelmed by demand. Demand overwhelming supply is
said to be more bullish than having supply withdrawn. Trying to interpret the exact meaning of
an intra-day failure can sometime be difficult if the action of the day is only looked at as a
whole. Viewing the intra-day action can assist in determining where the bulk of the volume was
present and that can help with the interpretation

 

Resource: http://www.wyckoffstockmarketinstitute.com/Archives/Price_Volume_Relationships.pdf