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Technical Analysis Trading Methods and Techniques (Collection) by Quint Tatro, Tracy L. Knudsen, Richard A. Dickson, Ed Carlson

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6. Building a Cause: How R.D. Wyckoff Uses Point and Figure Charts to Establish Price Targets

Thus far, we have described how Wyckoff’s laws of Supply and Demand and Effort vs. Result are useful tools in helping identify major market tops and bottoms. There is a third law, Cause and Effect, that is also an important component of a Wyckoff analysis. Briefly put, the Law of Cause and Effect states there is an equal and corresponding effect for every cause. In today’s terms, this law is often stated as “the bigger the base the bigger the rally.” For purposes of identifying major market tops and bottoms, the Law of Cause and Effect is useful in setting rough targets for bull and bear markets. For example, as prior chapters have illustrated, a new ...

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