Topic 7: Volume / Real Volume (Refresher Lesson 2) — Wyckoff Springs & Upthrusts

Core Concept

Wyckoff's Springs and Upthrusts help recognize fake breakouts and avoid risky trades. Professional traders don't follow the crowd — they sell breakouts instead of buying them. Buy springs (bounces from below support), sell upthrusts (rejections from above resistance).

Springs (Bullish Reversal at Support)

A spring drops below the support level of a trading range, then quickly bounces back. It's a trap for sellers — looks like downtrend continuing but it's actually the end.

Three Categories of Springs:

Number 3 Spring (BEST — trade immediately):

Shallow penetration below support
LOW volume compared to previous down moves
Shows sellers are EXHAUSTED
BUY immediately

Number 2 Spring (wait for secondary test):

Deeper penetration under support with somewhat larger volume
Sellers still in abundance during the break
Wait for price to move 1/3 back into the trading range
Secondary test: down move on higher volume retracing less than half the rally
BUY on the secondary test

Number 1 Spring (DON'T BUY — look to sell):

Wholesale breakdown below support on MUCH larger volume
Do NOT buy
Look to sell short if rally stops at or below prior support (now resistance)
Sell if move back occurs on ~half the volume of initial breakdown

Upthrusts (Bearish Reversal at Resistance)

Mirror image of springs. Price moves above resistance then drops back.

Number 3 Upthrust (BEST — sell immediately):

Penetration of resistance at relatively high volume
Price returns almost immediately to average level in range
Called "upthrust after distribution"
SELL immediately

Number 2 Upthrust (wait for secondary test):

Larger rally past resistance on higher volume
Wait for secondary test before selling
Price should move back ~1/3 into the trading range
Secondary test: rally on light volume retracing less than half the reaction

Number 1 Upthrust (DON'T SELL — it's a real breakout):

Legitimate upside breakout, usually high volume
Look to BUY on pullback that halts at or above prior resistance (now support)
Buy if volume is no more than half the initial breakout volume

Key Quote

"You can make a living by trading Springs and Upthrusts"

Homework

2 charts showing clear spring/upthrust with category (1, 2, or 3) identified.

Key Takeaway for Bot

Volume during the break determines if it's real or fake
Low volume break = fake (spring/upthrust) = trade the reversal
High volume break = real breakout = trade with the break
This is directly applicable to gold delta bot: contract volume at support/resistance tells us if the break is real or a trap