Wyckoff Schematics broken down
Back last year I posted an educational post on the Wyckoff Distribution schematic I was seeing on Bitcoin. This was the logic behind the "Rocket Call" back last March.
It was knowing where to search for an accumulation (which it was not) or a distribution. There are a couple of tell tail signs outside of Wyckoff literature that can assist in knowing which is which for various reasons (not for this post).
So at the 60k marker first time around, I could see the logic for a Distribution and it revealed it's hand very early on. I wrote this educational post around the topic.
Knowing Wyckoff - it's more to do with human psychology than technical analysis - many people said at the time, oh it's 100 years old, can't work in crypto etc, etc. Unfortunately as the human race, we are getting dumber and dumber, making these schematics almost more valuable in today's markets.
After we had our move "Rocket" post. I covered another educational post hinting at the accumulation phase - naturally, the price drops and rises as the waves.
In this post I covered the key for the terminology used in these schematics.
Below you will see some info on the phases of an accumulation schematic.
Accumulation Schematic
Phase A
The selling force decreases, and the downtrend starts to slow
down. This phase is usually marked by an increase in trading
volume. The Preliminary Support (PS) indicates that some buyers
are showing up, but still not enough to stop the downward move.
The Selling Climax (SC) is formed by an intense selling activity as
investors capitulate. This is often a point of high volatility, where
panic selling creates big candlesticks and wicks. The strong drop
quickly reverts into a bounce or Automatic Rally (AR), as the
excessive supply is absorbed by the buyers. In general, the trading
range (TR) of an Accumulation Schematic is defined by the space
between the SC low and the AR high.
As the name suggests, the Secondary Test (ST) happens when the
market drops near the SC region, testing whether the downtrend is
really over or not. At this point, the trading volume and market
volatility tend to be lower. While the ST often forms a higher low in
relation to the SC, that may not always be the case.
Phase B
Based on Wyckoff’s Law of Cause and Effect, Phase B may be
seen as the Cause that leads to an Effect.
Essentially, Phase B is the consolidation stage, in which the
Composite Man accumulates the highest number of assets. During
this stage, the market tends to test both resistance and support
levels of the trading range.
There may be numerous Secondary Tests (ST) during Phase B. In
some cases, they may produce higher highs (bull traps) and lower
lows (bear traps) in relation to the SC and AR of the Phase A.
Phase C
A typical Accumulation Phase C contains what is called a Spring. It
often acts as the last bear trap before the market starts making
higher lows. During Phase C, the Composite Man ensures that
there is little supply left in the market, i.e., the ones that were to sell
already did.
The Spring often breaks the support levels to stop out traders and
mislead investors. We may describe it as a final attempt to buy
shares at a lower price before the uptrend starts. The bear trap
induces retail investors to give up their holdings.
In some cases, however, the support levels manage to hold, and
the Spring simply does not occur. In other words, there may be
Accumulation Schematics that present all other elements but not
the Spring. Still, the overall scheme continues to be valid.
Phase D
The Phase D represents the transition between the Cause and
Effect. It stands between the Accumulation zone (Phase C) and the
breakout of the trading range (Phase E).
Typically, the Phase D shows a significant increase in trading
volume and volatility. It usually has a Last Point Support (LPS),
making a higher low before the market moves higher. The LPS
often precedes a breakout of the resistance levels, which in turn
creates higher highs. This indicates Signs of Strength (SOS), as
previous resistances become brand new supports.
Despite the somewhat confusing terminology, there may be more
than one LPS during Phase D. They often have increased trading
volume while testing the new support lines. In some cases, the
price may create a small consolidation zone before effectively
breaking the bigger trading range and moving to Phase E.
Phase E
The Phase E is the last stage of an Accumulation Schematic. It is
marked by an evident breakout of the trading range, caused by
increased market demand. This is when the trading range is
effectively broken, and the uptrend starts.
There is an awful lot more when it comes to understanding Wyckoff - such as volume, but it is too much to put in a handful of posts. These posts are done to give you an insight into trading Wyckoff.
Another useful post on this topic is this below;
People tend to look at Wyckoff on a Tick chart, a 1min or 15 minute chart - the same rules apply and are potentially more beneficial and applicable on the higher timeframes, seeing a weekly move play out in terms of a schematic could take several months. It's all about knowing what to look for.
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
It was knowing where to search for an accumulation (which it was not) or a distribution. There are a couple of tell tail signs outside of Wyckoff literature that can assist in knowing which is which for various reasons (not for this post).
So at the 60k marker first time around, I could see the logic for a Distribution and it revealed it's hand very early on. I wrote this educational post around the topic.
Knowing Wyckoff - it's more to do with human psychology than technical analysis - many people said at the time, oh it's 100 years old, can't work in crypto etc, etc. Unfortunately as the human race, we are getting dumber and dumber, making these schematics almost more valuable in today's markets.
After we had our move "Rocket" post. I covered another educational post hinting at the accumulation phase - naturally, the price drops and rises as the waves.
In this post I covered the key for the terminology used in these schematics.
Below you will see some info on the phases of an accumulation schematic.
Accumulation Schematic
Phase A
The selling force decreases, and the downtrend starts to slow
down. This phase is usually marked by an increase in trading
volume. The Preliminary Support (PS) indicates that some buyers
are showing up, but still not enough to stop the downward move.
The Selling Climax (SC) is formed by an intense selling activity as
investors capitulate. This is often a point of high volatility, where
panic selling creates big candlesticks and wicks. The strong drop
quickly reverts into a bounce or Automatic Rally (AR), as the
excessive supply is absorbed by the buyers. In general, the trading
range (TR) of an Accumulation Schematic is defined by the space
between the SC low and the AR high.
As the name suggests, the Secondary Test (ST) happens when the
market drops near the SC region, testing whether the downtrend is
really over or not. At this point, the trading volume and market
volatility tend to be lower. While the ST often forms a higher low in
relation to the SC, that may not always be the case.
Phase B
Based on Wyckoff’s Law of Cause and Effect, Phase B may be
seen as the Cause that leads to an Effect.
Essentially, Phase B is the consolidation stage, in which the
Composite Man accumulates the highest number of assets. During
this stage, the market tends to test both resistance and support
levels of the trading range.
There may be numerous Secondary Tests (ST) during Phase B. In
some cases, they may produce higher highs (bull traps) and lower
lows (bear traps) in relation to the SC and AR of the Phase A.
Phase C
A typical Accumulation Phase C contains what is called a Spring. It
often acts as the last bear trap before the market starts making
higher lows. During Phase C, the Composite Man ensures that
there is little supply left in the market, i.e., the ones that were to sell
already did.
The Spring often breaks the support levels to stop out traders and
mislead investors. We may describe it as a final attempt to buy
shares at a lower price before the uptrend starts. The bear trap
induces retail investors to give up their holdings.
In some cases, however, the support levels manage to hold, and
the Spring simply does not occur. In other words, there may be
Accumulation Schematics that present all other elements but not
the Spring. Still, the overall scheme continues to be valid.
Phase D
The Phase D represents the transition between the Cause and
Effect. It stands between the Accumulation zone (Phase C) and the
breakout of the trading range (Phase E).
Typically, the Phase D shows a significant increase in trading
volume and volatility. It usually has a Last Point Support (LPS),
making a higher low before the market moves higher. The LPS
often precedes a breakout of the resistance levels, which in turn
creates higher highs. This indicates Signs of Strength (SOS), as
previous resistances become brand new supports.
Despite the somewhat confusing terminology, there may be more
than one LPS during Phase D. They often have increased trading
volume while testing the new support lines. In some cases, the
price may create a small consolidation zone before effectively
breaking the bigger trading range and moving to Phase E.
Phase E
The Phase E is the last stage of an Accumulation Schematic. It is
marked by an evident breakout of the trading range, caused by
increased market demand. This is when the trading range is
effectively broken, and the uptrend starts.
There is an awful lot more when it comes to understanding Wyckoff - such as volume, but it is too much to put in a handful of posts. These posts are done to give you an insight into trading Wyckoff.
Another useful post on this topic is this below;
People tend to look at Wyckoff on a Tick chart, a 1min or 15 minute chart - the same rules apply and are potentially more beneficial and applicable on the higher timeframes, seeing a weekly move play out in terms of a schematic could take several months. It's all about knowing what to look for.
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
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