1. Strong selling on high momentum (I have preferred momentum vs. for some time now, so I use a 3,10,16 rather than ), this is where accumulation begins by the SM (Smart Money-Institutional Investors), they aren't interested in buying the offer, just the bid at this time, thereby forming PS (preliminary support) for the stock once the intense selling weakens.
2. The shorts have started to take profit at this point and accumulation increases, some buying on the offer by the SM, but mostly by amateurs trying to catch a reversal early.
3. Price tests the PS level, mostly amateurs shorting into SM accumulation, I refer to this level as SC (Selling Climax), a bit different than strict Wyckoff followers, because its on lower momentum than the PS level. This attempt will be on significantly lighter momentum, because its amateurs, who trade in much smaller size than the SM. The SM is just taking advantage of accumulating at a better price.
4. The AR (Automatic Reversal), is where the SM is just pushing the amateurs until they "puke", forced to close their short positions by buying, adding fuel to the reversal. Plus, more profit taking from the shorts at higher prices. Characterized by a new high versus level 2. SM accumulation is increasing, but not to a huge extent yet. Amateurs are buying looking for that rare V shaped reversal to prior major resistance (which they probably won't get).
5. Some profit taking from scalpers and swing traders cause the reversal to weaken, plus some amateur shorts entering, and some SM testing the supply. This level is a ST (Secondary Test) of the SC at level 3. Generally, on weak momentum. This is likely to be the first higher low made. Leading to the first corrective against the longer term bear trend in place.
6. Amateurs entering long as price breaks above the AR level. The SM looking to take profits on some of their accumulation position as a scalp, and/or all of their position if the trade was a swing trade. The SM is selling into the amateurs buying the breakout. This breakout will fail the majority of the time.
7. At this point, buying weakens because there is no SM involved. So price pulls back and tests the ST at 5. No real significant selling, some accumulation by the SM is occurring at this point, this leads to the next point at 8.
8. This is where demand is being tested, TOD (Test of Demand), to see if a major reversal will occur now or later. Some SM buying at the offer occurs, but if no support from other buyers comes in to break the resistance at 6, then they are happy to wait and accumulate more at a lower price.
9. This when a new low occurs versus level 5. The weak longs are exiting and/or entering short thinking the reversal has failed and we are resuming the longer term . This is where the SM continues accumulating their position for the possible reversal (keep in mind, a reversal is not a guarantee, we often don't know if its a reversal or a continuation until level 9 plays out). If this level makes a strong move for the upper at 6, then it's a SP (Spring) and the reversal is likely to continue into a new MU (Mark Up) phase. But if the reversal fails to make new highs, then price will most likely reverse back into the direction of the longer term , at which point the SM will close their positions, leading to a strong MD (Mark Down) phase. Until the process begins all over again.
Ran out of characters, good trading all.