Cause and Effect — Point & Figure Charts
Master Wyckoff's Cause and Effect principle using Point & Figure charts. Learn to measure the 'cause' (accumulation/distribution range) to project the 'effect' (price target).
Cause and Effect
Master Wyckoff's Cause and Effect principle using Point & Figure charts. Learn to measure the 'cause' (accumulation/distribution range) to project the 'effect' (price target).
Richard Wyckoff developed his method in the 1930s by studying how JP Morgan, Jesse Livermore, and other "composite operators" manipulated markets. Modern SMC and ICT concepts are DIRECTLY derived from Wyckoff principles. Understanding Wyckoff is understanding the ROOT of institutional trading.
Wyckoff's Three Laws
1. Law of Supply and Demand
- Price rises when demand > supply
- Price falls when supply > demand
- Balance = range (accumulation or distribution)
2. Law of Cause and Effect
- Every move (effect) requires preparation (cause)
- The size of the cause determines the size of the effect
- Accumulation range → Markup. Distribution range → Markdown.
3. Law of Effort vs Result
- Volume (effort) should confirm price movement (result)
- Divergence between effort and result = institutional manipulation
- High volume + no movement = absorption (smart money at work)
Practical Application
Identifying Institutional Phase
- Is the market in accumulation, markup, distribution, or markdown?
- Where are we within the current phase?
- What event comes next in the sequence?
Entry Strategy
- Buy during accumulation (at Spring or LPS)
- Sell during distribution (at UTAD or LPSY)
- Confirm with volume analysis (VSA principles)
- Align with higher timeframe phase
Risk Management
- Stop loss below Spring (for longs) or above UTAD (for shorts)
- Position size based on phase confidence
- Scale in during confirmation events (SOS, SOW)
Wyckoff schematics are IDEALIZED templates. Real markets rarely follow them perfectly. Look for the PRINCIPLE behind each event, not the exact visual pattern. Phase identification is more important than event labeling.