BitcoinEducation
Bitcoin Wyckoff [Accumulation & Distribution] — ⚠️Possible 24000
Updated
This trading method was developed by Richard Wyckoff in the early 1930s. It consists of a series of principles and strategies originally designed for traders and investors. Wyckoff devoted much of his life to studying market behaviour, and his work still influences much of modern technical analysis (TA).
Currently, the Wyckoff method is applied to all types of financial markets, although it was originally focused only on stocks, but I find it amazingly good on cryptocurrency market and Bitcoin
During the creation of his work, Wyckoff was inspired by the trading methods of other successful traders (especially Jesse L. Livermore). Today he is in the same respect as other key figures such as Charles H. Doe and Ralph N. Elliott.
Wyckoff's Three Laws
The first law states that the value of assets begins to rise when demand exceeds supply, and accordingly falls in the opposite order. This is one of the most basic principles in the financial markets, which does not exclude Wyckoff in his works. We can represent the first law as three simple equations:
Demand > Supply = Price Increases
Demand < Supply = Price Falls
Demand = supply = no significant price change (low volatility)
In other words, Wyckoff's First Law assumes that the excess of demand over supply leads to higher prices, since there are more buyers than sellers. But in a situation where there are more sales than purchases, and supply exceeds demand, it indicates a further drop in value.
Many investors who use the Wyckoff method correlate price movement with bar volume as a way to better visualize the relationship between supply and demand. This often helps to predict the future movement of the market.
Personally I recommend use higher timeframes and indicators like ADL and Stochastic RSI.
The second law states that the differences between supply and demand are not coincidences. Instead, they reflect preparatory actions as a result of certain events. In Wyckoff's terminology, the accumulation period (cause) ultimately leads to an uptrend (effect). In turn, the distribution period (reason) provokes the development of a downtrend (consequence).
Wyckoff used a unique technique of plotting patterns on charts to assess the potential consequences for specific causes. In other words, he created methods for determining trading targets based on periods of accumulation and distribution. This allowed him to assess the likely expansion of the market trend after exiting the consolidation zone or trading range (TR).
Wyckoff's Third Law states that changes in price are the result of total effort that is reflected in trading volume. In the case when the growth of the asset value corresponds to the high trading volume, there is a high probability that the trend will continue its movement. But if the volumes are too small at a high price, the growth will most likely stop and the trend may change its direction.
For example, let's imagine that the bitcoin market starts to consolidate with very high volume after a long bearish trend. High trading volumes indicate more demand, but sideways movement (low volatility) suggests little outcome. If a large number of bitcoins change hands and the price does not fall significantly, this may indicate that the downtrend may end and there will soon be a reversal.
To sum up, the Wyckoff Method allows investors to make smarter and more logical decisions without relying on their emotional state. His extensive work provides traders and investors with a range of tools to reduce risk and increase their chances of success. However, there is no single, reliable methodology when it comes to investment. You should always approach all trades with caution and take into account all potential risks, especially in the highly volatile cryptocurrency market.
Best regards
Artem Shevelev
Currently, the Wyckoff method is applied to all types of financial markets, although it was originally focused only on stocks, but I find it amazingly good on cryptocurrency market and Bitcoin
During the creation of his work, Wyckoff was inspired by the trading methods of other successful traders (especially Jesse L. Livermore). Today he is in the same respect as other key figures such as Charles H. Doe and Ralph N. Elliott.
Wyckoff's Three Laws
- The law of supply and demand
The first law states that the value of assets begins to rise when demand exceeds supply, and accordingly falls in the opposite order. This is one of the most basic principles in the financial markets, which does not exclude Wyckoff in his works. We can represent the first law as three simple equations:
Demand > Supply = Price Increases
Demand < Supply = Price Falls
Demand = supply = no significant price change (low volatility)
In other words, Wyckoff's First Law assumes that the excess of demand over supply leads to higher prices, since there are more buyers than sellers. But in a situation where there are more sales than purchases, and supply exceeds demand, it indicates a further drop in value.
Many investors who use the Wyckoff method correlate price movement with bar volume as a way to better visualize the relationship between supply and demand. This often helps to predict the future movement of the market.
Personally I recommend use higher timeframes and indicators like ADL and Stochastic RSI.
- The law of cause
The second law states that the differences between supply and demand are not coincidences. Instead, they reflect preparatory actions as a result of certain events. In Wyckoff's terminology, the accumulation period (cause) ultimately leads to an uptrend (effect). In turn, the distribution period (reason) provokes the development of a downtrend (consequence).
Wyckoff used a unique technique of plotting patterns on charts to assess the potential consequences for specific causes. In other words, he created methods for determining trading targets based on periods of accumulation and distribution. This allowed him to assess the likely expansion of the market trend after exiting the consolidation zone or trading range (TR).
- The Law of the Connection of Efforts and Results
Wyckoff's Third Law states that changes in price are the result of total effort that is reflected in trading volume. In the case when the growth of the asset value corresponds to the high trading volume, there is a high probability that the trend will continue its movement. But if the volumes are too small at a high price, the growth will most likely stop and the trend may change its direction.
For example, let's imagine that the bitcoin market starts to consolidate with very high volume after a long bearish trend. High trading volumes indicate more demand, but sideways movement (low volatility) suggests little outcome. If a large number of bitcoins change hands and the price does not fall significantly, this may indicate that the downtrend may end and there will soon be a reversal.
To sum up, the Wyckoff Method allows investors to make smarter and more logical decisions without relying on their emotional state. His extensive work provides traders and investors with a range of tools to reduce risk and increase their chances of success. However, there is no single, reliable methodology when it comes to investment. You should always approach all trades with caution and take into account all potential risks, especially in the highly volatile cryptocurrency market.
Best regards
Artem Shevelev
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