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How to trade cryptocurrency using Wyckoff’s Accumulation Theory

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On December 2, independent market analyst Stockmoney Lizards He said bitcoin (BTC) is in the process of bottoming out within the current $15,500-$18,000 price range, quoted by Wyckoff Accumulation.

Wyckoff Accumulation is a classic setup of technical analysis, named after Richard Wyckoff, one of the pioneers of technical analysis in the first half of the 20th century, who divided the market cycle into four distinct phases.

But is Wyckoff a reliable pattern, especially for cryptocurrency trading? let’s find o.

What is a Wyckoff Accumulation?

Wyckoff accumulation is one of the four stages included in Wyckoff’s market cycle theory, with the other three stages being the signs, distribution and lower the price. In layman’s terms, each stage determines when large entities lead the market direction.

The accumulation phase develops right when large pockets boost buying and drive demand.

As a result of the interest increase, the price forms higher lower lows while heading more to the upside. In doing so, the price rises above the upper trend line of its trading range, and turns into the marking phase of the Wyckoff cycle.

In other words, an ongoing upward trend, as shown in the chart below.

Phases of the Wyckoff Market Cycle. Source: TradingCoach.co.in

Accumulation events and stages

In the accumulation phase, the big players are preparing for the next phase Taurus strategy By grouping assets into a specific trading range (TR). As they do, the assets bought outweigh the assets sold, which leads to less available supply which in turn helps the price to rise above the TR.

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Therefore, small investors who follow the Wyckoff accumulation strategy must correctly determine the direction and speed of movement outside the TR.

Fortunately, they can get help from a wide-tracked accumulation scheme created by Wyckoff in the early 1930s, shown below.

Wyckoff Accumulation Diagram showing its events and phases. Source: StockCharts.com

stage a Reflects the exhaustion of the previous downtrend. starts with Initial Support (PS) – the period when significant buying begins along with high trading volumes – indicating the predominance downward trend is coming to an end.

The downtrend fades after the price goes down to its level Oversold (SC)a point at which large professional investors begin to absorb selling pressure from the retail side and traders start covering their short positions.

As a result, the price rebounds sharply to a level automatic assembly (AR) The level, which defines the upper bound of the Wyckoff trading range. After that, the price returns to test the levels around the SC, and sometimes it even drops below it for the so-called Minor test (ST) of support.

The 12-hour BTC/USD price chart shows a possible Wyckoff accumulation setup. Source: Stockmoney Lizards

It is common to have more than one ST in a Wyckoff accumulation, which leads the price into the consolidation zone in phase B. In theory, this means Institutional investors Assets accumulate in anticipation of a markup event.

Therefore, the rebounds from the SC-ST levels in stage b They usually accompany larger sizes. On the contrary, pullbacks from AR levels are seeing decreasing volumes, which indicates that liquidity is being depleted on downside moves. In other words, the original is preparing for stage c.

Phase C begins witha test,” as large investors scrutinize the market for a potential supply boom. In other words, the sudden arrival of sellers that would invalidate the entire Wyckoff logic. As a result, the price rises cautiously during the test period.

The test period is exhausted when the price breaks above the AR level, thus the so-called sign of strength (SOS). This is followed by another short-term correction towards Last Point of Support (LPS).

The entire price action occurs in stage d From Wyckoff’s accumulation theory, showing the dominance of demand over supply. As a result, LPS is considered by traditional analysts to be an excellent place for investors and traders to enter the market.

in stage ethe asset leaves the trading range completely to enter the tick phase of the Wyckoff market cycle.

How to trade cryptocurrency with the Wyckoff Accumulator

Not all Wyckoff accumulation setups lead to significant price hikes in relation to the cryptocurrency market.

For example, Bitcoin price entered the SOS phase of the Wyckoff Accumulation Setup in early March 2020 when it traded near $9,000. But BTC/USD then fell below $5,000 by mid-March, ignoring Wyckoff’s bullish signals in the wake of COVID-19 led global market collapse.

A failed Wyckoff accumulation setup of Bitcoin since 2020. Source: TradingView

Traders can use a range bound strategy to take advantage of the volatility within the Wyckoff accumulation trading range. They can do this by opening a long position on a retracement of the ST range while looking to the AR level as their main bullish target.

At the same time, traders can place a stop loss below the ST level to avoid deep losses in the event of a false breakout.

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On the other hand, traders looking to place aggressive long positions may need additional confirmation from fundamental catalysts related to the crypto asset.

For example, the Bitcoin Wyckoff buildup setup between May 2021 and November 2021 sent the price up from around $37,000 to $69,000 (after the E-stage breakout). The explosive gains have been accompanied by a period of loose monetary policy and growing mainstream adoption.

Bitcoin Wyckoff backlog setup from 2021. Source: TradingView

However, cautious traders can wait for the Wyckoff setup to reach stage D. They can enter a long position after the price breaks above the SOS point with convincing volumes. Of course, it is advisable to place the stop loss below the SOS to exit the trade with less losses in the event of a trend reversal.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.