What Are Wyckoff’s Three Laws?

1- The Law of Supply and Demand

The Law of Supply and Demand is a basic economic concept, not unique to the Wyckoff Method. The Wyckoff Method focuses primarily on how traders can analyze supply and demand to make informed trades. Specifically, this law involves three principles:

- Prices rise when demand is greater than supply.

- Prices drop when demand is less than supply.

- Prices do not significantly change when demand equals supply.

2- The Law of Cause and Effect

The Law of Cause and Effect is Wyckoff’s rule that says that every change (effect) is caused by certain factors occurring in the market (cause). Wyckoff states that price rises are the result of an accumulation phase, not random occurrences. Similarly, price drops result from a distribution phase. The cause — accumulation or distribution — is what creates the price effect.

3- The Law of Effort vs. Result

The Law of Effort vs. Result is used to determine whether a particular market trend will continue. This law compares the trading volume (effort) to the price action (result). Simply put, the purpose of this law is to highlight that most traders should only put in the effort to make a trade for a particular result. If the price action is reflected in the trading volume, then the market is in harmony when it comes to supply and demand. However, a lot of sideways trading and very little price action can foreshadow a reversal.