Wyckoff 2.0 (Structures, Volume Profile, Order Flow) - pages 105-156 digest

(Source in French; terms kept in French/English. Covers: end of Part 4 Auction Theory, supply/demand law, order types, Order Flow tools and their critique, Part 5 Volume Profile start.) Figures not opened; descriptions come from captions/text only.

1. CONCEPTS

Volume (p105): activity, quantity of an asset exchanged; suggests interest or lack of interest at levels. The more active a zone, the more value the participants attribute to it.
Prix + Temps + Volume = Valeur (p105): price discovers new levels; time spent = acceptance of the new zone; volume generated confirms participants built a new value zone where they trade comfortably. Continual re-evaluation needed; knowing where value is defines market condition and the operational ideas.
Perception of value (p106): market alternates between horizontal development (equilibrium, agreement between participants, price = value) and vertical development (disequilibrium, trend, value-seeking, price and value do not coincide; price advances and value follows or not = acceptance / rejection).
In equilibrium, fairest price is mid-range; extremes above/below are unfair/not accepted (p106). Upper extreme = expensive for buyers, cheap for sellers -> pushes price back to fair zone; lower extreme = cheap for buyers, expensive for sellers -> bounce (p107). This is typical range trading.
Acceptance vs rejection of a new zone (p107): acceptance = price holds (takes time) and contracts trade between buyers and sellers (volume), shown by some sideways price; rejection = price quickly returns to old value zone, lack of interest, sharp reversal. Price leads the other two variables; time first, volume last confirm.
Horizontal developments end when participants no longer agree on value; vertical developments end when price reaches a zone where agreement exists again (p107). Theory is universal, any market/timeframe.
Four stages of market activity (Steidlmayer) (p108): (1) Trend phase: vertical development, price imbalance in one direction. (2) Stopping phase (phase d'arrêt): traders appear in opposite direction, trend stops, upper and lower limits of range established. (3) Sideways phase (latéralisation): horizontal development, trading around stopping price within new equilibrium range. (4) Transition phase: price leaves the range, new value-seeking disequilibrium; may be reversal or continuation. Then new cycle. Seen on all timeframes. Through stage 3 a "p/b"-shaped profile is observed (developed later).
Mapping to Wyckoff Phases A-E (p109): 1 stop previous trend, 2 build the cause, 3 evaluate the opposition, 4 launch trend move, 5 confirm directionality (diagram: stop trend -> build cause -> evaluate opposition -> initiate trend move -> confirm directionality). Author: Wyckoff implicitly worked these concepts; Wyckoff = only TA approach grounded in Auction Market Theory and law of supply/demand.
Law of supply and demand (p110): demand > supply -> price rises; supply > demand -> price falls; balanced -> price unchanged.
Error 1 (p111): "prices rise because more buyers than sellers". False: always same number of buyers and sellers (every buy needs a sell). Key is attitude, aggressive or passive.
Error 2 (p111): calling everything buying "demand" and everything selling "supply". Real offer (supply) and demand = limit orders resting in ASK and BID columns awaiting execution = liquidity.
BID / ASK / Spread / liquidity (p112): BID column = resting buy limit orders (where sellers also hit); highest = Best BID. ASK column = resting sell limits; lowest = Best ASK. Spread = ASK - BID, liquidity indicator; lower spread = more liquid. Liquidity = amount of volume an asset trades. Trade the most liquid assets: harder for a single large trader to move price (anti-manipulation). Avoid thin assets where one institution moves price easily (p112-113).
Aggressive participants (p114): liquidity takers, market orders, hit Best BID / Best ASK; the true engine of the market, they initiate transactions. Passive participants: liquidity makers, limit orders; sellers place in ASK, buyers in BID.
Price movement (p115-116): needs aggressive participation. Passive orders express intent and can stop a move but cannot move price. INITIATIVE: to rise, buyers must lift all offers at a level and keep buying aggressively to force price up a level; only market buys (or crossing orders that become market buys, e.g. Stop Loss of shorts) can raise price; passive buy orders only slow a decline. Mirror for decline (market sells or Stop Loss of longs).
EXHAUSTION (épuisement) (p117): lack of interest on the opposite side facilitates movement. Absence of offer (fewer contracts on ASK) lets price rise with very little buying power; retreat of demand (fewer on BID) lets price fall with very little selling initiative.
Reversals - 3 stages (p118-119): 1 Exhaustion, 2 Absorption, 3 Initiative. As price rises buyer interest falls (too expensive), seller interest rises; vice versa on decline. Market moves toward the point where supply and demand equalize. Reversal of an uptrend: buyers' lack of interest (exhaustion) + first entry of large passive sellers (absorption) + seller aggression (initiative). Mirror for bullish reversal: seller exhaustion, passive positioning absorbing selling, aggressive buying on the ASK. This 3-step protocol = accumulation and distribution processes on any timeframe.
Order types (p120-122): Market (aggressive, executes at Best BID/ASK, entry guaranteed, price not). Limit (passive, price guaranteed, execution not; cancellable until filled). Stop (passive trigger; becomes Market at level, fills at best available). Stop-Limit (stop trigger then limit at a specific level; operates like Limit afterwards). Uses: Buy Market = enter long / close short. Buy Stop (above price) = enter long / close short by Stop Loss. Buy Limit (below price) = enter long / close short by Take Profit. Buy Stop Limit (pending below price after level reached) = enter long / close short by TP. Sell Market = enter short / close long. Sell Stop (below price) = enter short / close long by SL. Sell Limit (above price) = enter short / close long by TP. Sell Stop Limit (above price after level reached) = enter short / close long by TP.
Advanced instructions (p123-124): OCO, OSO, Market-To-Limit, Market-If-Touched (buy below / sell above current price), Limit-If-Touched (buy above / sell below), GTC (here defined as session-duration then cancelled; broker-dependent), GTD, IOC, FOK (no partial fill), AON (stays active until fully filled or cancelled), ATO, ATC.
Order-flow tool families (p125): pending orders = Order Book / Depth of Market (DOM); executed orders = Time & Sales (tape) and Footprint.
Order Book (p126-127): all resting liquidity. Level II shows only ~10 levels above/below; deeper liquidity visible only at Level III (liquidity providers). Visible liquidity is not real liquidity: only Limit orders appear; Market orders are never observable; Stop orders not visible until triggered; some advanced instructions hidden; cancellable any time.
SPOOFING (p127): placing large contract size in BID/ASK limit columns with no intent to execute (cancelled as price nears), to look like an "insurmountable barrier" and push price the other way. Example: usual ~50 contracts per level, suddenly 500 -> others see it as too costly to trade through, lose interest, price goes opposite direction. Limit orders influence price indirectly by influence, not by execution.
ICEBERG orders (p128): large limit order split into small displayed portions to hide true size; typically institutions executing passively in a price range via algos without moving price against themselves; one single large source, not a group. When the displayed part fills, it refills quickly. Clearest example of absorption: aggressive buy markets hit an iceberg's sell limits and price cannot rise (absorption of buying); sell markets blocked by buy limits that consume all (absorption of selling).
Time & Sales (p129-130): real-time stream of executed orders (time, price, contracts). Useful to spot "big trades"; modern versions group fills into blocks attributing to the same trader. Advantage over Order Book: shows past, so not manipulable. Trading on tape alone needs huge experience and concentration.
Footprint (p131): what most people mean by "Order Flow" (term is actually general). Graphical display of tape data: contracts executed at each price level inside each candle. Quantifies buyer/seller interaction; balance/imbalance, column of highest volume. Configurable by candle type (time, range, volume, rotation/tick) and representation (Profile, Delta, Imbalance, Histogram, Ladder, BID/ASK). Searches for imbalances, recoveries, initiatives, unfinished auctions, clusters, big trades. Author: very subjective; do not trade on it alone (p132).
Delta (p133): volume traded on BID minus volume traded on ASK over a period; positive/negative accordingly (sign convention stated as volume ASK - BID in effect: ASK-dominant = positive). Can be displayed per candle around a zero axis, or cumulative delta (continuous line). Updated each executed order so it has wicks at its extremes (a lower wick = at some point BID dominance was extraordinarily large, then ASK trading took over, causing the reversal). Common error: assuming ASK volume = buying and BID = selling with directional intent.
Order matching basics (p134-135): a buy marries a sell; an aggressive order marries a passive one; only aggression is reflected on BID/ASK columns. Stop orders become market when executed; Stop-Limit becomes Limit when stop price reached. Buy Market matches first Sell Limit on ASK -> displayed on ASK. Sell Market matches Buy Limit -> displayed on BID. The column depends on the initiating order.
Exit-order column table (p136-137): closing a short: manual Buy Market (ASK), stop loss = buy stop (ASK), take profit = buy limit (BID). Closing a long: manual Sell Market (BID), stop loss = sell stop (BID; text says "buy stop", evident typo), take profit = sell limit (ASK). Intent of BID-executed orders: aggressive selling, passive buying, manual close of a buy, stop loss of a buy, profit-taking of a sell. ASK-executed: aggressive buying, passive selling, manual close of a sell, stop loss of a sell, profit-taking of a buy.
Footprint imbalance (p138): e.g. green-background imbalance in favour of ASK at top of a rise followed by down reversal can be read as trapped buyers, short stop-outs, long profit-taking, or passive seller entries (absorption by sell limits) - probably some of each; delta likely negative -> divergence.
Delta divergence (p140-141): negative delta on a bullish candle or positive delta on a bearish candle. Example: bearish reversal candle with delta +235 (many aggressive buys blocked by passive sell limits, then little BID demand so a few aggressive sells drop price). Divergences implicitly identify a takeover (prise de contrôle).
Price and volume trader (p142): sees effort-vs-result anomaly: large number of executed orders accompanied by volume increase and narrow range (divergence), confirmed by subsequent reversal; may enter later but smoother trades, no need to decode order matching.
Participant types (p143): hedging, speculation, arbitrage orders all show on BID/ASK; only speculators return to defend a position entered aggressively. Adds opacity.
Volume Profile (p144): variant of Market Profile (J. Peter Steidlmayer, 1985, CBOT). Not an indicator; another way to represent volume data: contracts exchanged at each price level. Objective, needs no interpretation.
Market memory (p145): market has memory and tends to repeat behaviour; memory mostly short-term - newer trading zones matter more than older; first zone to consider after an imbalance trigger is the most immediate previous equilibrium zone; the farther price is from an acceptance zone, the less significant.
Composition (p146-147): horizontal histogram; length = contracts at price. Reference = normal distribution: symmetric, mean = median = mode at centre; 3 standard deviations each side; 1st SD = 68.2% of data, up to 2nd SD = 95.4%.
Value Area (VA): between Value Area High (VAH) and Value Area Low (VAL), first SD = exactly 68.2% of total volume of the profile; most traded = acceptance area. Outside VA = remaining 31.8% = rejection area. VAH/VAL act as support/resistance (interaction expected beyond them). Wide VA = broad participation; narrow VA = low activity.
Extremes (p148-149): High and Low of profile = key reference points. Completed auction (enchère achevée): thin trading toward the end, lack of interest as price moves farther from value, clear rejection; it is a Low Volume Node. Unfinished auction (inachevée): High Volume Node at the profile extreme; implies interest, suggests later revisit; the revisit may aim to finish the auction and reverse, or continue in that direction. In Market Profile: unfinished = Poor High / Poor Low = at least two TPOs at the extreme; finished = single TPO (Single Print).
VPOC (p150): Volume Point of Control, highest-volume level of the profile; most accepted/fairest price; anchor of VA calc; where large institutions accumulated. Always an HVN, but not every HVN is a VPOC. Price above VPOC = buyers in control; below = sellers in control.
VWAP (p150-151): average price of all contracts traded in a period = sum(contracts x price)/total contracts. Same volume traded above and below; equilibrium level, equal probability of up/down at touch. Plotted like a moving average; session, weekly or monthly anchoring (session for intraday, weekly/monthly for medium/long term). Institutions use it as execution benchmark (bought low if price below, high if above); they execute gradually and are judged against it. Standard deviations of 1 or 2 added to the mean show overpriced/underpriced; being at a given SD does not prevent continuation.
HVN (p152): peaks in the profile; balance, comfort for buyers and sellers. Past equilibrium zones act as magnets that attract price and hold it; good for target setting. Several HVNs can exist in one profile.
LVN (p152): valleys; imbalance/rejection, "unfair" prices; expected to cause rejection again, so support/resistance where to look for entries.
Two types of rejection at an LVN (p153): V-reversal (retournement en V): value perception unchanged; price refuses to quote there and returns to previous equilibrium; triggered by passive resting orders above the zone blocking the move then aggressive follow-through; visible as prominent wicks. Rapid displacement (déplacement rapide): value perception has changed (new information); price crosses LVN violently; caused by Stop Losses of opposite-side positions plus momentum strategies entering with market orders; visible as wide-range candles, usually with high volume.
Profile types (p154-156): three types (only Fixed Range described in these pages). Fixed range: drawn manually on any price action; not updated, analyses only volume within the chosen zone. Two uses: trends and ranges.

2. RULES

Value change test (p107): after price leaves a value zone, judge acceptance (holds, time passes, volume trades, sideways) vs rejection (quick return to old zone, sharp reversal).
Range trading logic (p107): buy range lows / sell range highs while the range persists; ends when value agreement breaks.
Trade liquid assets only; avoid thin ones (p112-113).
Price rises only via aggressive buying / market buys / stops of shorts; falls via aggressive sells / stops of longs (p115-116). Absence of opposing liquidity eases moves (p117).
Reversal checklist (p118-119): Exhaustion -> Absorption (large passive entry opposite) -> Initiative (aggression opposite way). Bullish mirror equally.
Absorption of buying = buy markets hitting iceberg sell limits, price fails to rise; absorption of selling = sell markets blocked by buy limits (p128).
Do not read ASK-executed volume as buying intent nor BID as selling intent (p136-137). Order flow must be subordinated to context given by Wyckoff methodology (p139, p143); imbalances appear anywhere and give no edge alone.
Delta divergence anticipates reversals only "in the right place" (context zone) with absorption intention; not all divergences reverse (p141).
Bias from VPOC (p150): price above VPOC -> buyers control, prefer longs; below -> prefer shorts. Avoid trading in the vicinity of the VPOC (fluctuations around a consensus level until new information).
Before an upward break from a balance zone, want a completed auction (thin) at the bottom of the zone; if an unfinished auction (HVN) at the bottom, quarantine the scenario: expect price to revisit the low part first (p148). If in doubt completed vs unfinished, treat as completed (p149). Unfinished auctions should be very visual: abnormal cut in the profile distribution, often coincident with VA limits (p149). Market Profile: >=2 TPOs at an extreme = poor high/low; single TPO = completed.
VAH/VAL = support/resistance (p147). HVNs = magnets, targets (p152). LVNs = rejection zones to seek entries (p152).
Fixed range in a downtrend (p155): profile the whole impulse; look for the pullback to the impulse VPOC and evaluate trend-direction entry there (example: test of VPOC then renewed decline). In a Wyckoff range/structure: profile gives VPOC (control), VA and VAH/VAL; use them to seek the test after breakout of the structure.
Fixed range profiles do not update (p156). When multiple sessions' value areas overlap in a price range, draw one profile spanning all price action; its levels are more relevant.
VWAP: weekly/monthly for swing, session for intraday; SD bands (1-2) for over/underpricing; valid as fair-value only in balance (p151).

3. FIGURES

p106: horizontal vs vertical development diagram (balance box, then trend legs). No labelled detail extractable from text.
p108: four-stage cycle: Trend (vertical) -> Stopping (range limits established) -> Sideways (horizontal around stopping price) -> Transition (exit range, reversal or continuation) -> new cycle; profile shape "p/b" until stage 3.
p109: Wyckoff phase mapping list: stop previous trend; build cause; evaluate opposition; initiate trend move; confirm directionality.
p112, p117, p118-119, p126, p129, p131, p133, p140-141: order book, footprint, delta schematics (BID/ASK columns, ASK imbalance at top with reversal; bearish reversal candle delta +235). Not opened.
p146-147: normal distribution bell with 3 SD per side (68.2% / 95.4%), then real profile with VAH/VAL bounding 68.2% around the centre.
p148-149: completed auction (thin tail at extreme) vs unfinished (HVN at extreme).
p151: NinjaTrader chart with Session, Weekly and Monthly VWAP lines.
p152-153: composite profile with HVN peaks and LVN valleys; V-reversal (wicks) vs rapid displacement (wide, high-volume candles) through LVN.
p155: downtrend with fixed-range profile of impulse, price retests impulse VPOC then falls; second chart: range structure profile and post-breakout test of VPOC/VA.
p156: multi-session overlapping VA example.

4. WARNINGS

Visible order-book liquidity is not real liquidity; spoofing and icebergs distort it (p126-128).
Order flow is highly subjective; do not trade on footprint/delta alone (p132, p143). Same action shows on different columns depending on order type; aggressors vs closers cannot be told apart (p136-138). Positive delta with falling price and vice versa is common.
Not all delta divergences reverse; arbitrary use is a problem (p141).
Hedgers/arbitrageurs also trade and have no directional intent (p143).
Fixed-range profile does not update itself (p156). VWAP loses meaning once market is in imbalance (p151). Volume Profile quote: avoid trading around VPOC (p150). Old zones lose significance (p145).
Book's conclusion: Order Flow alone cannot provide context (where and which direction) (p143).

5. OPEN

Footprint "imbalance" ratio threshold not given; delta sign convention ambiguous (text says "difference between BID volume and ASK volume") and p136 typo "buy stop" for a long's stop loss.
"Completed vs unfinished" auction on volume profile (as opposed to TPO) has no numeric threshold for what counts as thin vs HVN.
"Near the VPOC" distance, SD bands for VWAP (1 or 2), and which profile type/session to pick are unspecified. Two of three profile types (session/composite etc.) not described in these pages (only fixed range, p155-156).
GTC definition given as session-length differs from usual meaning.

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