Ethereum Wyckoff Accumulation Schematics Analysis

15 באוק׳ 2020

In this post, I'll be analyzing Ethereum's Tether pair (USDT), using the Wyckoff Method.

What is the Wyckoff Method?
The Wyckoff Method was developed by Richard Demille Wyckoff, a famous technical analyst of the early 20th century.
He proposed the idea that markets can be understood through a detailed analysis of its supply and demand, which is seen through price action, volume, and time.
He developed the idea of correctly anticipating and judging the direction and magnitude of a move out of a trading range.

Why does Wyckoff's Method work so well in cryptocurrency markets?
We can see Wyckoff's accumulation and distribution schematics working best when applied to cryptocurrency markets.
This is mostly because his theory assumes a "composite man", a being who, in theory, sits behind the scenes and manipulates the asset to your disadvantage if you don't understand the game he plays, and to great profit if you understand it.
He event went as far as to say that it doesn't matter whether the market moves are real or not; whether it happens by real buying or selling, or artificial buying or selling by investors.
As such, the Wyckoff Method is a perfect fit for a heavily manipulated market, such as the cryptocurrency market, as it allows traders to think like a whale.
In the cryptocurrency market, thinking like a whale (a composite man) will help a trader profit tremendously.

Terminology
- Preliminary Support (PS): This is where substantial buying begins to provide pronounced support after a prolonged downtrend.
- Selling Climax (SC): This is the point at which widening spread and selling pressure usually climaxes and heavy panic selling by the public is being absorbed by larger professional interests near the bottom.
- Automatic Rally (AR): This is where intense selling pressure is greatly diminished.
- Secondary Test (ST): A point in which price revisits the area of the Selling Climax (SC) to test the supply and demand balance at these levels.
- Sign of Strength (SOS): A point where the price advances on increasing spread and relatively higher volume.
- Last Point of Support (LPS): The low point of a reaction or pullback after a SOS.

Analysis
- Ethereum's chart on the 4h time frame can be interpreted from Wyckoff's accumulation schematics.
- Phase A: This phase marks the stopping of the prior downtrend. Up to this point, supply has been dominant.
- Phase B: This phase serves as a function of a new uptrend. This is where professional interests accumulate, at relatively low prices, in preparation for the next markup.
- Phase C: This is where stock prices go through a decisive test of the remaining supply, allowing smart money investors to confirm a markup
- Phase D: If the analysis is correct, this is the phase in which consistent demand dominates supply
- Phase E: The asset breaks out, leaving the trading range, and the markup is obvious to everyone in the market.

Counterarguments
- While Ethereum seems to consolidate in a bull flag pattern, it currently seems to lack the strength and momentum required to break through the resistance zones, to complete its markup.

- Nonetheless, the weekly chart remains dominantly bullish
- While there is a lack of momentum on the shorter time frames, it could be said that Ethereum has secured its significant support levels
- It could also be said that the Wyckoff Accumulation is taking place within the support zone of the weekly chart, indicating signs of bullishness.

Conclusion
While it's difficult to rely solely on the Wyckoff Accumulation Schematics for a clear picture of where Ethereum is headed next, it definitely help shed light on the price movement from an alternative perspective. Given that more volume flows into Ethereum, and the trend is supported by strength and volume, we could see the accumulation complete with a markup.