Wyckoff Method Says Bitcoin (BTC) Price Has Already Bottomed

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In today’s analy­sis, BeIn­Cryp­to looks at the Wyck­off schemat­ics, which can explain the cur­rent accu­mu­la­tion phase of the Bit­coin (BTC) price. This pat­tern, known from tra­di­tion­al mar­kets, has already been used to cor­rect­ly iden­ti­fy the peak of the cryp­tocur­ren­cy bull mar­ket in 2021.

How­ev­er, if Wyck­off accu­mu­la­tion is to play out accord­ing to its basic pat­tern, Bit­coin should not fall below the Nov. low at $15,476. More­over, in the near future, the largest cryp­tocur­ren­cy needs to reclaim sup­port at $18,000 and then move towards $22,500.

What Does Wyckoff Schematics Mean?

Richard Wyck­off (1873–1934) pro­posed his clas­sic ana­lyt­i­cal pat­tern. He was one of the pio­neers of mod­ern tech­ni­cal analy­sis, founder of the Mag­a­zine of Wall Street and a trad­er in tra­di­tion­al stock mar­kets. It was in the analy­sis of these mar­kets that the dia­gram became popular.

The struc­ture of a typ­i­cal Wyck­off schemat­ics con­sists of a series of sharp up and down price move­ments that form a kind of extend­ed dis­tri­b­u­tion or accu­mu­la­tion. This pat­tern often occurs after long-term declines or increas­es in a giv­en asset. One of the tops or bot­toms of the pat­tern is the peak or bot­tom for the select­ed peri­od of price action. Once it is reached, the trend revers­es and the decline or increase accelerates.

In order to make good use of the Wyck­off schemat­ics, one must first rec­og­nize it cor­rect­ly. For this, trad­ing ranges, volatil­i­ty of the asset and trad­ing vol­ume are used. Based on this, appro­pri­ate buy­ing or sell­ing deci­sions are made. The main prin­ci­ple here is grad­ual sell­ing dur­ing the dis­tri­b­u­tion peri­od and grad­ual buy­ing dur­ing the accu­mu­la­tion peri­od. Rough­ly speak­ing, the two peri­ods are mir­ror images of each other.

Dis­tri­b­u­tion is a side­ways mar­ket trend that takes place after a long uptrend. It is a phase in which smart traders and big insti­tu­tion­al play­ers try to sell their posi­tions with­out push­ing the price down too much.

Wyckoff distribution / Source: school.stockcharts.com
Wyck­off dis­tri­b­u­tion / Source: school.stockcharts.com

Accu­mu­la­tion is the exact oppo­site of dis­tri­b­u­tion. Accu­mu­la­tion is a side­ways mar­ket trend that occurs after an extend­ed down­trend. It is a phase in which smart traders and big insti­tu­tion­al play­ers try to buy posi­tions with­out mov­ing the price up too much.

Wyckoff accumulation / Source: school.stockcharts.com
Wyck­off accu­mu­la­tion / Source: school.stockcharts.com

Wyckoff accumulation in 6 phases

The Wyck­off schemat­ics pro­vides detailed guid­ance for iden­ti­fy­ing peri­ods of accu­mu­la­tion and dis­tri­b­u­tion. These can be deter­mined based on cer­tain pat­terns that appear with­in these range bound trends. In this way, the entire schemat­ics can be divid­ed into six phas­es. While they are anal­o­gous for both peri­ods below we present how Wyck­off accu­mu­la­tion proceeds:

1. Pre­lim­i­nary Sup­port (PS)

A pre­lim­i­nary sup­port is a lev­el that forms after a sig­nif­i­cant drop in mar­ket prices. Insti­tu­tions and traders try to take long posi­tions after a strong decline. It will be dif­fi­cult for the mar­ket to fall below this lev­el due to strong buy­ing pressure.

2 Sell­ing Cli­max (SC)

A sell­ing cli­max is char­ac­ter­ized by a sharp decline below ini­tial sup­port. Pan­ic sell­ing is absorbed by big insti­tu­tion­al play­ers or smart traders. It often goes hand in hand with FUD and neg­a­tive mar­ket news.

3 Auto­mat­ic Ral­ly (AR)

An auto­mat­ic ral­ly is an upward move­ment that occurs after a sell­ing cli­max is reached. Prices rise, only to then fall quick­ly after reach­ing a local peak. The high­est point of these increas­es often coin­cides with the lev­el of ini­tial sup­port (1), which now acts as resis­tance. After this phase, trad­er activ­i­ty decreas­es and bear­ish sen­ti­ment becomes weaker.

4 Sec­ondary Test (ST)

A sec­ondary test occurs after an auto­mat­ic ral­ly. It indi­cates that the price of an asset has reached a mar­ket bot­tom. It is com­mon for sev­er­al sec­ondary tests to occur as the mar­ket tests the strength of buyers.

A Spring into Life

5 Spring

A spring is a strong and defin­i­tive shock that often hap­pens dur­ing the accu­mu­la­tion phase. Prices will often fall below SC and ST lev­els. The loss of the trad­ing range is short-lived. The price quick­ly returns to con­firm a false break­out. Large play­ers mis­lead retail­er, and to pur­chase assets at a low­er price. Wyck­off accu­mu­la­tion is con­firmed in this phase.

6 Sign of Strength (SOS)

A sig­nal of strength takes place after the spring and indi­cates the return of bull­ish sen­ti­ment to the mar­ket. In this phase, the price recov­ers the area of ini­tial sup­port of the entire Wyck­off accu­mu­la­tion. Some­times its recov­ery is pre­ced­ed by the Last Point of Sup­port (LPS) phase, which is a retest of pre­vi­ous resis­tance. The sign of strength phase con­firms the advan­tage of buy­ers and the start of an upward trend.

Wyckoff accumulation on the Bitcoin chart

Pop­u­lar cryp­tocur­ren­cy mar­ket ana­lyst @StockmoneyL recent­ly sug­gest­ed that Bit­coin may cur­rent­ly be pur­su­ing suc­ces­sive phas­es of Wyck­off accu­mu­la­tion. In his tweet, he com­pares the dai­ly BTC price from mid-May 2022 to now with the Wyck­off pattern.

Wyckoff Accumulation Bitcoin (BTC)
BTC/USD
Source: Twit­ter

Accord­ing to this com­par­i­son, Bit­coin has already passed through the first four phas­es of Wyck­off accu­mu­la­tion and expe­ri­enced a sell­ing cli­max (SC) in the $18,000 area. Cur­rent­ly, it is at the 5th phase and at the same time at the low­est point of accu­mu­la­tion, the spring phase.

If this is indeed the case, the BTC price should no longer drop below the bot­tom at $15,476 on Novem­ber 21. More­over, it should quick­ly regain the SC area and con­firm it as sup­port. We can con­clude that the cur­rent phase (spring) was only a false break­out, and the price man­aged to return to the accu­mu­la­tion range.

Going for­ward, the BTC price would have to attempt to regain the $22,500 area – the peak of the AR phase reached in July and retest­ed in mid-Sept. On the oth­er hand, the final con­fir­ma­tion of the end of Wyck­off accu­mu­la­tion would be the recov­ery of the PS lev­el near $26,000, which is the May low resistance.

A Bit­coin drop below the cur­rent bot­tom at $15,476 would lead to rejec­tion of this ver­sion of Wyck­off accu­mu­la­tion. Sim­i­lar­ly, a too-long stay of the BTC price below the $18,000 lev­el would also fal­si­fy this pattern.

For BeInCrypto’s lat­est cryp­to mar­ket analy­sis, click here.

Disclaimer

Bein­Cryp­to strives to pro­vide accu­rate and up-to-date infor­ma­tion, but it will not be respon­si­ble for any miss­ing facts or inac­cu­rate infor­ma­tion. You com­ply and under­stand that you should use any of this infor­ma­tion at your own risk. Cryp­tocur­ren­cies are high­ly volatile finan­cial assets, so research and make your own finan­cial decisions.



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