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Module 5 of 176 min read

Law of Cause & Effect

The second law — a trading range is the cause, and the move that follows is the proportional effect — and how Wyckoff traders estimate it.

After this module you'll be able to interpret a trading range as stored cause and reason about the size of the move it may produce.

Important: This is educational content only, not investment advice. Trading involves substantial risk of loss. Never trade money you cannot afford to lose.

The second law states that a period of preparation is the cause, and the trend that follows is the proportional effect. A large, well-built trading range stores more fuel than a small one and can produce a larger move.

A trading range as cause and the following move as effect
The sideways range is the cause; the move out of it is the effect.

Why the range is the cause

During accumulation the composite operator is absorbing supply; during distribution it is unloading. The longer this takes, the bigger the position being built or exited — and therefore the larger the move needed to realise it. Time and width in the range translate into distance in the trend.

Wyckoff traders traditionally used point-and-figure counts across a range to estimate targets, projecting the horizontal width of the cause into a vertical price objective. Modern traders often use it more loosely — a big base implies a big potential move, a small base a small one.

A trading range is stored cause; the trend that follows is the effect — bigger, longer ranges can fuel bigger moves.

Treat any count as a rough estimate, never a promise. Targets are frequently overshot or undershot, ranges can extend before resolving, and a projected objective is a planning aid — not a reason to ignore what price is actually doing on the way there.

Keep going

Important: This is educational content only, not investment advice. Trading involves substantial risk of loss. Never trade money you cannot afford to lose.