Wyckoff 101 — Part 2: The Composite Operator
If you haven’t read Part 1 in the series, you can check it out here: https://medium.com/@ColdBloodShill/wyckoff-101-part-1-the-background-fa543fc78870
I was going to start with a discussion of Accumulation for Part 2 of this series. But in truth it’s really important to understand the role of the Composite Operator (CO) in Wyckoff methodology. The reason being is that the CO is behind all of these markups and markdowns (according to Wyckoff anyway.) Once we look at the role of the CO the movements of Accumulation and Distribution will make more sense from a Wyckoffian perspective.
…all the fluctuations in the market and in all the various stocks should be studied as if they were the result of one man’s operations. Let us call him the Composite Man, who, in theory, sits behind the scenes and manipulates the stocks to your disadvantage if you do not understand the game as he plays it; and to your great profit if you do understand it.
As we know one of Wyckoff’s ideologies was to reveal the real reasons behind stock price movements. It was during his inquisition into this that revealed a group of better informed, more highly skilled investor and traders. These titans of trading have the ability to shape the market and completely control price. The market is their show, we are simply the ones playing along to their tune. These are the Composite Operators.
In truth, the CO is useful fiction. I enjoy the simplified theory, it provides narrative backing to the footprints we look to identify on charts. The CO is the story of the collective activities of a number of professional operations occurring at the same time. Wyckoffians tell the story of their actions and motives as though they are one giant operator. As someone who follows Wyckoff methodology it is my role to determine the actions of the CO through their activity on the charts. Wyckoff used to read tape in order to understand and reveal the motives of these huge trading operations.
Wyckoff could see their footprints in his charts (for the sake of modernity.) The stock market operations of these traders had common characteristics cycle after cycle.
The immense scale of their operations allowed the CO to arrive early in the Accumulation Phase for a stock and stealthily buy shares. The CO does not want to be discovered (before they deem it’s time to reveal their intentions), the aim at the beginning of Accumulation is to gather as many stocks as possible for the lowest price. They then need to balance that act by keeping price suppressed, they don’t want to force the price up themselves. Such Accumulation operations can take months. Huge amounts of capital are skilfully and quietly deployed at bottoms.
Wyckoff concluded that such operations, conducted on a large scale, would result in the chosen stocks rallying dynamically after the accumulation phase. These targeted stocks would move further, faster and longer than other stocks. These were the stocks worth owning.
We also see the flip-side of this in distribution structures where the CO is operating to sell stocks at the highest possible price before commencing a markdown process. During this process the CO is distributing stocks at the top price points and trying to maintain price before revealing their intentions and letting the markdown occur.
It’s a war-zone out there, super-traders are battling with other super-traders for the most desirable stocks (and those that the COs have finished with.) Secrecy in the conducting of a campaign is critical. The activities of these large competing super-traders became the focus of Wyckoff’s analysis. Through years of research he began to see their operations in the charts. Their actions could be completed with Sam Fisher stealth, but their footprints were seen all over the charts. They could not hide from Wyckoffian analysts who could see this evidence in two key areas, price and volume. I mentioned in the first Part of this series that as a Wyckoffian analyst they are the only pieces of information I require for my charts.
Composite Operators demonstrate skills and abilities in their campaigns that are not evident in most traders — as mentioned in the opening to this part, they also have the capital to shape the market. Wyckoff was determined to become like them in thought and action, and he did. If you can’t beat them, why not join them? The birth of the Wyckoff method stemmed from this motivation, understand what the “big boys” are doing and follow in their path. By repeatedly telling the story of the CO on the charts, it is possible to begin to think and act in unison. When you break it all down what Wyckoff was saying is the following:
The CO is accumulating or distributing stock, I want to analyse their footprint so that I am taking the same trades that they are. If the stock is being accumulated, I want to be buying. If the stock is being distributed, I want to be selling. By understanding this and analysing footprints on the charts, I can begin shaping my trades and positions to ensure I am in the same position as them (all be it with far less capital.)
Wyckoff advised retail traders to try to understand and play the market game as the CO played it. He went on to say, it doesn’t even matter if market “moves are real or artificial; that is, the result of actual buying and selling by the public and bona fide investors or artificial buying and selling by larger operators.”
In summary:
The Composite Man (Operator) carefully plans, executes, and concludes his campaigns.
The Composite Man (Operator) attracts the public to buy a stock in which he has already accumulated a sizeable line of shares by making many transactions involving a large number of shares, in effect advertising his stock by creating the appearance of a “broad market.”
One must study individual stock charts with the purpose of judging the behavior of the stock and the motives of those large operators who dominate it.
With study and practice, one can acquire the ability to interpret the motives behind the action that a chart portrays. Wyckoff and his associates believed that if one could understand the market behavior of the Composite Man (Operator), one could identify many trading and investment opportunities early enough to profit from them.
This should give you a solid background into the next Parts to this series which will follow on quite quickly from this. Accumulation and Distribution schematics are two areas that allow us to track the CO footprint in charts and distinguish their intentions.
You should have a pretty solid idea about who Wyckoff was and why he believed the role of the CO was so important in his thinking and methodology. We’ll add to that knowledge in the next part by assessing ways we look for the CO footprint, getting into some live charts to see it all in action.
If you have any questions or want to chat on anything TA/Wyckoff/Crypto, please feel free to send me a DM:
