Introduction to Wyckoff : Is DOGE ready to breakout?1. Who is “Wyckoff”?:
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Richard Demille Wyckoff (November 2, 1873 – March 7, 1934) was considered one of the five “titans” of technical analysis, along with Dow, Gann, Elliott and Merrill. At age 15, he took a job as a stock runner for a New York brokerage. Afterwards, while still in his 20s, he became the head of his own firm. He also founded and, for nearly two decades wrote, and edited The Magazine of Wall Street, which, at one point, had more than 200,000 subscribers.
Wyckoff was an avid student of the markets, as well as an active tape reader and trader. He observed the market activities and campaigns of the legendary stock operators of his time, including JP Morgan and Jesse Livermore. From his observations and interviews with those big-time traders, Wyckoff codified the best practices of Livermore and others into laws, principles and techniques of trading methodology, money management and mental discipline.
Wyckoff's research claimed many common characteristics among the greatest winning stocks and market campaigners of the time. Wyckoff also has techniques he believed offered advantages when markets were rising or falling (bullish and bearish). Wyckoff offered a detailed analysis of the "trading range", a posited ideal price bracket for buying or selling a stock. One tool that Wyckoff provides is the concept of the Composite Operator , another is Volume based analysis .
2. Who is the Composite Operator / The Composite Man?:
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“…all the fluctuations in the market and in all the various stocks should be studied as if they were the result of one man’s operations. Let us call him the Composite Man, who, in theory, sits behind the scenes and manipulates the stocks to your disadvantage if you do not understand the game as he plays it; and to your great profit if you do understand it.” (The Richard D. Wyckoff Course in Stock Market Science and Technique, section 9, p. 1-2)
Based on his years of observations of the market activities of large operators, Wyckoff taught that:
The Composite Man carefully plans, executes and concludes his campaigns.
-The Composite Man attracts the public to buy a stock (financial asset) in which he has already accumulated a sizable line of shares by making many transactions involving a large number of shares, in effect advertising his stock by creating the appearance of a “broad market.”
-One must study individual stock charts with the purpose of judging the behaviour of the stock and the motives of those large operators who dominate it.
-With study and practice, one can acquire the ability to interpret the motives behind the action that a chart portrays. Wyckoff and his associates believed that if one could understand the market behavior of the Composite Man, one could identify many trading and investment opportunities early enough to profit from them.
Many traders and investors who follow the Wyckoff Method treat the Composite man as a real entity, for Cryptocurrency holders this might be seen as a whale who controls the price. In the case of DOGE, we are treating Elon Musk as the controller of Doge lurking in the shadows, we dont want to be on the wrong side of the Composite Mans campaign. Wyckoff himself did not find it necessary to define a importance between the Composite man being an imaginary being, a creation of one's own mind or a real entity, but defined an importance towards “Thinking” like the Composite Man, by thinking like a “Large Operator” we change our Psychology.
But what does this mean?
In the book titled, “The Compound Effect” by Darren Hardy (Founder of Success Magazine) there is a section titled “Find Your Fight” in Chapter 3, in this section Darren describes how hate is often as strong as a motivating force as love, but why is this relevant?
A person who is in love may do crazy things, but so will a person who is consumed by hate, as both are powerfully motivating forces. By creating a “Enemy” (Someone to hate) our mindset changes to a defensive manner, we are now in “Battle” with our Enemy. Here is a quote from the book, which is one of my favorite's:
“Contrary to social correctness, it can be good to hate. Hate disease, hate injustice, hate ignorance, hate complacency, and so on. Sometimes identifying an enemy lights your fire. Some of my greatest motivation, determination, and dogged persistence came when I had an enemy to fight. In history, the most transformation stories and political revolutions came about as a result of fighting an enemy. David had Goliath, America had the British. Luke had Darth Vader…”
And as traders; we have The Composite Man… In this example on DOGE we could think of Elon Musk himself as the Composite Man, as he is one of the major influencers driving the price of this Cryptocurrency.
A great article on the Composite Man can be located here for further education:
www.wyckoffanalytics.com
3. Wyckoff Schematics
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A trading range (Sideways Movement, Zig Zag) shows us an equilibrium between buyers and sellers, and the Wyckoff Theory & Schematics give us clues to which probable direction the price may head out of the horizontal moving price structure.
Each Trading Range can be an important Phase in the larger Market Cycle, giving us potential clues and hints within the overall trend.
The Wyckoff Schematics help us identify the different between Accumulation and Distribution Trading Ranges (Or Re-accumulation or Redistribution) - In a Trading Range the price Zig Zags up and down until eventually a breakout occurs, using the Wyckoff Accumulation Schematic we can see there are some clues in the similarities of the chart and the schematic that tell us Dogecoin may be ready to at least test of the upper bounds of the Trading Range.
It is important to note that most Trading Ranges start with obvious characteristics (and they can be slanted and still work well, although hard to identify to some, the first characteristics of the Trading Range (TR) help us identify that we are now moving in a sideways trend, we will delve into these characteristics below,:
When paired with the Wyckoff 9 Buying and Selling Tests (Visit my Mastering the Wyckoff Method post linked below to learn more) - the Wyckoff Schematics are a great tool to help measure potential entries, exits, risk and to read the price movement in general.
By splitting the TR (Trading Range) into 3 parts; Support - Resistance and the Middle Range (50%) we can easily measure risk and generate low risk trading ideas, the trading range can almost be seen like a map or a layout for our trades.
There are four types of Trading Ranges: Accumulation , Re-Accumulation , Distribution & Redistribution. In this idea we are going to cover the first two ranges which are the bullish ones.
The Five Phases :
By splitting our Schematics into 5 key phases, the characteristics become easier to recognize and identify. We also know the optimal place to enter our trade so we have a lesser probability of our stop loss being hit when entering a trade via the Wyckoff Method. Remember this when moving forward in this section.
Each Trading Range is Analysed in 5 key phases:
Phase A: The trading range (TR) is created (example above)
Phase B: The Supply & Demand of the TR is tested
Phase C: Deviation outside TR or Final point before reversal
Phase D: The new trend begins
Phase E: The trend continues
In phase D & E, the obvious “Change of Trend” is evident, refer to this infographic below and you can see how a trend contains Higher Highs, Higher Lows (HH, HL) or Lower Lows, Lower Highs (LL, LH), which is usually represented by the SOS & LPS characteristics (Sign of Strength & Last Point of Support).
We can clearly see the different phases on the chart of DOGE. This is one of the rare examples that does match up to a "Wyckoff Schematic" perfectly, but that does not mean that every single trading range will fit the schematic, each range is to be treated unique, although many have recognizably similar characteristics. A Wyckoff Schematic is not a chart pattern, it is a system that is used to analyze a financial asset (or assets) that is inside a TR (Trading Range) which allows us to make a educated decision and risk calculation based on the current characteristics we see on the TR, a TR may not look like the below linked "Schematics" but may still have all the characteristics of that said Schematic, try to keep a open mind when using this concept.
Considering that most of the Crypto markets are green/bullish right now its only logical to assume that DOGE has actually completed its Phase C and has started Phase D, which will be confirmed by a strong volume up move from the 0.5 (50% aka Middle) of the Trading Range.
Accumulation :
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In accumulation, the shares purchased outnumber those sold.
There are roughly 9 characteristics that help us identify that we may be inside of an Accumulation Range:
1. PS (Preliminary Support) the first Support area that was lost, creating the upper bound of the TR.
2. SC (Selling Climax) the climactic action that is bought up quickly creating the lower bound of the TR. It is a strong example of Effort vs Result usually, with abnormally large selling volume, but no further downside.
3. AR (Automatic Rally) a low volume, quick reaction visiting the other side of the TR, usually indicating short covering.
4. ST (Secondary Test) a secondary test of the initial Demand Area created by the SC.
5. Spring (Fake Out) & Test or LPS (Last point of Support). Spring is usually a great example of Effort vs Result. Spring is then confirmed by a test of Support. LPS (Last Point of Support) occurs when price revisits the recent Demand (Support) area, usually a former Resistance. The term may be used in a plural manner, with multiple LPS forming the Higher Lows that make up the basis of a market trend.
6. JAC (Jump Across the Creek) the Creek is an imaginary line created by the previous downtrend (similar to a Moving Average), we want to see the price “Jump” across the creek.
7. LPS (Last Point of Support) occurs when price revisits the recent Demand (Support) area, usually a former Resistance. The term may be used in a plural manner, with multiple LPS forming the Higher Lows that make up the basis of a market trend.
8. SOS (Sign of Strength) is an abnormally large volume signature upwards price movement which confirms the Spring or LPS.
9. BU/LPS (Back Up / Last Point of Support) occurs when price revisits the recent Demand (Support) area, usually a former Resistance. The term may be used in a plural manner. The SOS & LPS together form the Basis of a Uptrend, see this image for reference: ibb.co . The final LPS before leaving the Trading Range should start the Uptrend. The LPS can sometimes move to the 50% of the Trading Range.
We should then enter the Mark Up phase as described at the start of this article. Remember; Accumulation is the Cause, Markup is the Effect.
We can clearly see on the chart that DOGE matches the Accumulation Schematic #2 linked below. We can clearly see we have gone through two key phases on DOGE, and are at least at Phase C if not Phase D which leads me to the conclusion that Dogecoin is about to enter (or will be entering) the Mark Up phase quite soon. If it pushes towards the resistance with a abnormally large volume bar the SOS (Sign of Strength) will be confirmed.
Examples & Links :
Accumulation Schematic #1:
school.stockcharts.com
In this schematic, the Spring is located in the end of the TR, showing trapped sellers.
Accumulation Schematic #2:
school.stockcharts.com
In this schematic, there is no Spring action, instead the price starts moving upwards from the LPS Area (Last Point of Support), the Spring (in this case, ST) is located at the middle of the TR, showing trapped buyers.
Example of Accumulation #1 Analysis (Click image, press play to see the result!):
Example of Accumulation #2 Analysis:
Re-accumulation :
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After Accumulation, comes Re-Accumulation. Where after a extended upside move, a repeated sideways movement occurs which leads to another extended upside move.
Re-Accumulation is known also as a Trend Continuation.
The characteristics are almost identical to Accumulation, except the previous price movement leading up to the trading range is upwards :
Here are the characteristics explained :
1. PS (Preliminary Supply) the first selling area creating the Trading Range.
2. BC (Buying Climax) the climactic action that is sold up quickly creating the upper bound of the TR. It is a strong example of Effort vs Result usually, with abnormally large buying volume, but no further upside.
3. Shakeout (Fake Out to the downside trapping sellers) (I have marked this as SC, to simplify the process as a Shakeout is quite similar in its characteristic.
4. AR (Automatic Rally) a low volume, quick reaction visiting the other side of the TR, usually indicating short covering.
5. ST Area (Secondary Test Area) a secondary test of the initial Demand Area created by the Shakeout.
6. Spring (Fake Out) or LPS (Last point of Support) A Spring occurs when price falls underneath the Trading Range, triggering stop losses and usually inducing investors to Panic Sell, (this is the most profitable area to buy). Spring is then confirmed by a test of Support. Spring is usually a great example of Effort vs Result. LPS (Last Point of Support) occurs when price revisits the recent Demand (Support) area, usually a former Resistance. The term may be used in a plural manner, with multiple LPS forming the Higher Lows that make up the basis of a market trend.
7. JAC (Jump Across the Creek) is when the price “Jumps” across the Trading Range, giving us a final clue before the breakout occurs. The “Creek” is an imaginary line formed from the projected path of the previous price swing highs, this can be used similar to a Moving Average.
8. SOS (Sign of Strength) is an abnormally large volume signature upwards price movement which confirms the Spring or LPS.
9. LPS (Last Point of Support) occurs when price revisits the recent Demand (Support) area, usually a former Resistance. The term may be used in a plural manner. The SOS & LPS together form the Basis of a Uptrend, see this image for reference: ibb.co . The final LPS before leaving the Trading Range should start the Uptrend. The LPS can sometimes move to the 50% of the Trading Range.
We should then enter the Mark Up phase as described at the start of this article. Re-accumulation = Cause, Mark Up = Effect
Inception: Accumulation as Re-accumulation :
Did you know that you can use Accumulation as Re-Accumulation? I can already sense the future comments coming... "But wait, what?! That doesnt make sense, Accumulation is found after a downtrend!"
So let me explain..
As I stated above, Wyckoff Schematics are not a chart pattern, they are a system to identify the characteristics and generate a trading opportunity from a range. I repeat this sentence because by using a more open minded perspective we can clearly see that Re-Accumulation in this sense (Reference the original DOGE chart above and compare with below) it actually fits the characteristics of both Accumulation & Re-accumulation-
that's because Re-accumulation can appear as Accumulation (Just as Wyckoff Redistribution can appear as Distribution, learn more about this by visiting the link below this article "Mastering the Wyckoff Method".)
In the image below we can see that MANAUSDT looked like Accumulation Schematic #2, yet was actually Re-accumulation due to the previous uptrend.
Examples & Links :
Traditional Re-accumulation Schematics:
ibb.co
(Credit: Roman Bogomazov / www.wyckoffanalytics.com)
Example of Traditional Re-accumulation #2 Analysis: (Press Play!):
Failure of Schematic :
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Wyckoff based trades can also fail.
It is also important to note that Wyckoff Schematics are not a guarantee, as with any trade or investment they can fail aswell.
In this example below (Click+Press Play!) we can see that the Accumulation on BATUSDT did have a strong breakout, but never entered into a correct markup phase and then "failed" when the price came back inside of the TR (Trading Range):
4. Conclusion:
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Not only does the Wyckoff Method teach the novice Investor/Trader the techniques, foundations and methods needed to analyze the market, it also helps create a system and mindset towards observing and timing the market, which allows the trader to be much more rationalized and organized in their train of thought as well as much more risk averse.
By using the Wyckoff based analysis on Dogecoin we can clearly see this token has potential for more upside, although we do need to be cautious as a significant pullback on Bitcoin could easily “Fail” the “LPS” action of the TR (Trading Range) in the original analysis image above, if that occurred then the best move is to wait it out and see how the buyers react to the lower prices.
What would a successful accumulation breakout look like on DOGE?
Well lets look at the historic chart of DOGE here, we can actually see that we made quite a similar Accumulation Trading Range earlier, in 2019, breaking out with a clear SOS and LPS in 2021. That Accumulation was the start of the Mark Up Phase which now leads up to todays current chart (check the top right, that's us now!).
So if this Accumulation is valid, we are looking for DOGE to visit the 0.20 cent area in the shorter term time frame, pushing against the Trading Range with a strong sign of buying volume hinting breakout. This could then lead to the beginning of a new Mark Up Phase.
Learn more about the Wyckoff Method:
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If you truly want to master your knowledge in this spectacular method, then I highly recommend you visit my idea (Click on the image below): Mastering the Wyckoff Method, where I cover almost all of the popular techniques used by Wyckoff (Including Distribution & Redistribution) and explain to you how you can apply these concepts on your charts, you don't want to miss this idea below!
www.tradingview.com
You can also subscribe to my Trading view profile for regular Wyckoff based updates.
I hope you enjoyed my explanation of the Wyckoff Method - Thank you and if you found this writeup insightful, educational and informative. Don't forget to subscribe to my Trading view profile for regular Wyckoff based updates. Like & Comment so others can also potentially see and benefit from this post, if you wish to see these concepts in action, I recommend visiting my signature as well.
