Cause: liquidity building up
The longer price sits in a corridor, the more orders build up there and the stronger the exit will be.
Cause: liquidity building up — what it is?
The cause is the place where liquidity accumulates. Usually a range or a stretch where price hangs around one level for a long time, leaving more and more orders behind it.
The longer accumulation goes on, the more stops and resting orders build up. In Wyckoff's terms this is the second law: the size of the move is proportional to the size of the preparation.
The cause gives no signal by itself. It answers the question of what the move is even for, and hints at its scale.
Cause: liquidity building up — how it is built?
Look for stretches where price held around one level for a long time or traded in a narrow range. The width and duration of the accumulation give you a guide to the target: a short cause, a short move.
Cause: liquidity building up — common mistakes
Looking for the cause after the move has already happened.
Calling any sideways stretch a cause: what matters is the obviousness of the level, not the pause itself.
Expecting a move strictly proportional to the accumulation. It is an estimate, not a formula.
Confusing cause with effect: accumulation and collection are different phases.
Related to
Glossary
- liquidity
- a cluster of pending orders and stops in a particular zone. The fuel for large capital to move.
- range
- movement inside a horizontal corridor with no clear direction.
- long
- buying in expectation of a rise.
- accumulation
- the phase where a large participant builds a position inside a sideways range.
- Wyckoff
- Richard Wyckoff, author of the method for analysing the behaviour of large capital, formulated in the 1930s. Most of the Smart Money vocabulary is a renaming of his concepts.
- short
- selling in expectation of a fall. You sell what you do not own and buy it back cheaper.