Wyckoff's three laws

Wyckoff studied the great operators of his day by reading price and volume on the ticker tape. He boiled what he saw down to three fundamental laws. Every part of his method, from the schematics in chapters 3 and 4 to the springs in chapter 5, rests on them.

1. The law of supply and demand

When demand is greater than supply, price rises. When supply is greater than demand, price falls. When they are roughly balanced, price moves sideways. Simple, but it tells you what to watch: is buying or selling pressure in control right now, and is that changing?

Wyckoff read this from the relationship between price and volume: rising prices on rising volume show demand in control; falling prices on rising volume show supply in control.

2. The law of cause and effect

A move needs a cause. In Wyckoff's view, the cause is built during a sideways trading range, where large operators quietly accumulate or distribute a position. The effect is the trend that follows. The longer and wider the range, the bigger the cause, and the larger the move that can come out of it.

Wyckoff traders used point-and-figure charts to estimate that move from the width of the range. The exact counting method matters less than the principle: big ranges lead to big moves.

3. The law of effort versus result

Volume is effort; price movement is result. When they agree (big volume, big move) the move is genuine. When they disagree, something is happening beneath the surface. Heavy volume with very little price progress means someone is absorbing all that effort, often a sign the move is about to stall or reverse. Chapter 6 goes deeper.