Wyckoff Markdown

Markdown is the downtrend that follows distribution. Supply is in control. Rallies are sold. Volume, in the classical picture, expands on the declines and is lighter on the bounces. The phase is the bear-market leg, and it continues until a selling climax and a base give evidence of accumulation. Markdown is where traders who learned only the long schematic give the money back, because every bounce looks like the start of accumulation. Most bounces inside a markdown are reactions, last points of supply, not bases. A base requires the tests. A green day does not.

Trade markdown as a downtrend. Short rallies into broken support and into the underside of the distribution range. Take profits into climactic downside and into real higher-timeframe support, because markdowns have short-covering squeezes that are violent and brief. Do not buy the first climax. A climax can be followed by a lower climax. The long is the test of the low on lighter volume, after a rally and a return, and only if you are actually changing phase. Until then, a bounce is a bounce. Stops on shorts belong above the rally that should not be reclaimed. If that rally is reclaimed and the structure of lower lows breaks, step aside. The markdown may be pausing or ending. You do not have to be short for the entire decline to have traded it well.

Use the markdown label to keep yourself from buying every support in a falling market. Support can hold later. During the phase, support is a place to cover shorts and to watch for a failure, not a place to assume a new bull market. When a range does form at a low, switch to the accumulation checklist. Require the lighter test. If the test is heavier than the climax, the markdown is probably continuing, and the range was a pause.

Covering every short at the first red flag and then being unable to re-enter, so the method never participates in the leg it described. Also averaging down longs because "markdown is where smart money accumulates." They accumulate in a range, after the evidence, not on the way down by reflex. And staying short through a clear change of structure because the phase has a name. The name follows the evidence.

Markdowns include the fastest squeezes, and a short without a size limit will meet one. Volume signatures are imperfect. A decline on light volume can keep declining if demand is simply absent. The absence of effort is not the same as a result in your favour if you are trying to buy. As with the other phases, the schematic is a bias. The stop is the trade. A markdown does not owe you the full measured move of the distribution count if a major support is in the way.