The Wyckoff Method on the CMT Exam
The Wyckoff Method, developed by Richard D. Wyckoff in the 1930s, provides a structural framework for analyzing market phases. It is tested on CMT Level 2 and Level 3 and builds directly on Dow Theory concepts.
For the full exam guide, see the CMT Exam Guide 2026.
Wyckoff's Three Laws
1. Law of Supply and Demand
Price moves up when demand exceeds supply, and down when supply exceeds demand. Volume analysis measures the effort, and price movement measures the result.
2. Law of Cause and Effect
The "cause" (accumulation/distribution) determines the "effect" (trend). The wider the trading range, the further the subsequent move. This is analogous to Point & Figure horizontal counts.
3. Law of Effort vs. Result
Volume (effort) should confirm price (result). When effort exceeds result, the trend is weakening — a key divergence concept.
Accumulation Schematic
The Wyckoff accumulation model identifies five phases (A–E) within a trading range:
Phase A: Stopping the Downtrend
- Preliminary Support (PS): First buying appears
- Selling Climax (SC): High-volume selloff / capitulation
- Automatic Rally (AR): Short-covering bounce
- Secondary Test (ST): Retests SC on lower volume
Phase B: Building the Cause
- Trading range established between SC and AR
- Institutional accumulation occurs
- Volume tests for support/resistance
Phase C: Testing
- Spring: Price dips below support, quickly reverses — shakeout of weak holders
- Springs on low volume are most bullish
Phase D: Markup Begins
- Sign of Strength (SOS): Price breaks above resistance on expanding volume
- Last Point of Support (LPS): Pullback to former resistance (now support)
Phase E: Trending Phase
- Full markup trend underway
- Identified using trendlines and moving averages
Distribution Schematic
Mirror image of accumulation:
- Preliminary Supply (PSY) → Buying Climax (BC) → Automatic Reaction (AR) → Secondary Test (ST) → Upthrust After Distribution (UTAD) → Sign of Weakness (SOW) → Last Point of Supply (LPSY) → Markdown
Wyckoff vs. Dow Theory
| Concept | Dow Theory | Wyckoff Method |
|---|---|---|
| Market phases | 3 phases | 5 phases (A–E) |
| Volume focus | Confirms trend | Effort vs. result |
| Key signal | Confirmation | Spring / upthrust |
| Scope | Broad market | Individual securities |
| Analysis level | Primary trends | Micro-structure |
Exam Application
- Level 2: Identify accumulation/distribution phases on charts, recognize springs and upthrusts
- Level 3: Integrate Wyckoff with behavioral finance and risk management in essays
Practice Wyckoff analysis with our question bank. Full guide: CMT Exam 2026.
Wyckoff Accumulation Schematic — Price & Volume Phases
Selling Climax (SC) → Automatic Rally (AR) → Spring → Sign of Strength (SOS)