What is Wyckoff Accumulation?
Developed by Richard Wyckoff in the 1930s, the Wyckoff Schematic helps traders to study the supply and demand of an underlying asset. This is possible through the analysis of an asset's footprint illustrating the control of smart money.
Such players take action in these ranges to build orders before making the price move. In our example, we will use the Wyckoff Accumulation to illustrate Bitcoin's current price action.
What is clear during the Accumulation phase is that while the price remains flat in a macro-scale, it shows strength for buyers. Understanding such phase and patterns of the market allows investors to find a suitable buying position.
To apply the Wyckoff Accumulation theory properly, there are a few rules to follow:
1. Use daily price charts for a more accurate interpretation of strong support and resistance.
2. Identify market direction based on supply and demand. To simply understand:
- When Demand is superior to Supply: Price moves up
- When Demand is inferior to Supply: Price moves down
- When Demand is equal to Supply: No change in price
Bitcoin has been in a downtrend for the past weeks and many of the market participants believe that it is oversold. KDJ, RSI, MACD in the daily are showing signs of a potential reversal. At the time of writing, Bitcoin is at a fear and greed index of 10. Therefore, we can confidently say that while price is stagnant for Bitcoin, price is expected to move up once demand exceeds supply.
3. Understand the significance of cause and effect. In this case, Wyckoff differentiates accumulation and distribution:
- Accumulation (cause) leads to an uptrend (effect)
- Distribution (cause) leads to a downtrend (effect)
4. Study the importance of volume. Trading volume shows sentiment, the current trend has a greater chance of continuing. On the other hand, if the volume doesn’t support the price action, it will create a divergence in the price, leading to a stop or change in direction. In our case, all price action is supported by volume. But it is decreasing, therefore suggesting a potential reversal.
Phases to identify in a Wyckoff Accumulation:
PS — Preliminary Support: The preliminary support appears after a long bearish trend.
SC — Selling Climax: The selling climax is described as a huge sell off, breaking the PS. Price may close far from the low with a long-wicked candle.
AR — The Automatic Rally: The price reverses and recovers from the selling pressure.
ST — The Secondary Test: After the AR, the price will go lower again but controlled.
SPRING — The Spring: In this phase, the price will perform a hard test of recent lows that will mislead traders. In this moment, it is believed that we are in this moment of the Wyckoff Accumulation! To confirm this movement, Bitcoin requires a test and make a higher low!
AS — Accumulation Schematic: The last stage of the accumulation cycle. The price should break out from the range with an impulsive bullish pressure and confirm the upcoming bullish trend.
Hope this short tutorial is helpful to navigate the cryptoverse in a moment where the market is in extreme fear! Trade safely and do drop a like if you enjoyed this article!
Developed by Richard Wyckoff in the 1930s, the Wyckoff Schematic helps traders to study the supply and demand of an underlying asset. This is possible through the analysis of an asset's footprint illustrating the control of smart money.
Such players take action in these ranges to build orders before making the price move. In our example, we will use the Wyckoff Accumulation to illustrate Bitcoin's current price action.
What is clear during the Accumulation phase is that while the price remains flat in a macro-scale, it shows strength for buyers. Understanding such phase and patterns of the market allows investors to find a suitable buying position.
To apply the Wyckoff Accumulation theory properly, there are a few rules to follow:
1. Use daily price charts for a more accurate interpretation of strong support and resistance.
2. Identify market direction based on supply and demand. To simply understand:
- When Demand is superior to Supply: Price moves up
- When Demand is inferior to Supply: Price moves down
- When Demand is equal to Supply: No change in price
Bitcoin has been in a downtrend for the past weeks and many of the market participants believe that it is oversold. KDJ, RSI, MACD in the daily are showing signs of a potential reversal. At the time of writing, Bitcoin is at a fear and greed index of 10. Therefore, we can confidently say that while price is stagnant for Bitcoin, price is expected to move up once demand exceeds supply.
3. Understand the significance of cause and effect. In this case, Wyckoff differentiates accumulation and distribution:
- Accumulation (cause) leads to an uptrend (effect)
- Distribution (cause) leads to a downtrend (effect)
4. Study the importance of volume. Trading volume shows sentiment, the current trend has a greater chance of continuing. On the other hand, if the volume doesn’t support the price action, it will create a divergence in the price, leading to a stop or change in direction. In our case, all price action is supported by volume. But it is decreasing, therefore suggesting a potential reversal.
Phases to identify in a Wyckoff Accumulation:
PS — Preliminary Support: The preliminary support appears after a long bearish trend.
SC — Selling Climax: The selling climax is described as a huge sell off, breaking the PS. Price may close far from the low with a long-wicked candle.
AR — The Automatic Rally: The price reverses and recovers from the selling pressure.
ST — The Secondary Test: After the AR, the price will go lower again but controlled.
SPRING — The Spring: In this phase, the price will perform a hard test of recent lows that will mislead traders. In this moment, it is believed that we are in this moment of the Wyckoff Accumulation! To confirm this movement, Bitcoin requires a test and make a higher low!
AS — Accumulation Schematic: The last stage of the accumulation cycle. The price should break out from the range with an impulsive bullish pressure and confirm the upcoming bullish trend.
Hope this short tutorial is helpful to navigate the cryptoverse in a moment where the market is in extreme fear! Trade safely and do drop a like if you enjoyed this article!