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After having first been on the roller coaster that Bitcoin went through, it seems as if we are experiencing another great RED day today. The amount of ETHEREUM brought into the exchanges today is enormous. It is starting to look like people don't want to sell Bitcoin anymore, but today it looks like a massive sale of Ethereum is starting. Would this mean people are going to trade their Eth for Bitcoin? Or is it just Eth's turn today to get pounded to a new All-Time Low. And what is the reason for this?
Is this the end of the bull market, is it a bear market from now on, is it a bear trap? What is it we are facing right now? What stage of the market are in now? And how do we handle this?
I see many opinions on Twitter, and I don't know what to believe anymore. One says, “The weekly close will confirm we are in a Bear Market now”, the other says “We're just getting started”. The positive people suddenly adhere to the Wyckoff Method. And seriously, I had NEVER heard of this. And certainly not in relation to crypto. It is something that has been around for a long time but has never been associated with cryptocurrency before as far as I know. Now I really don't want to claim that I have heard everything related to crypto trading. Absolutely not, I am still in the learning phase, and well… at the moment that is going with very hard wise lessons. The positive of this can only be that this will not happen to me again. Nor does it make me accept this loss and leave crypto.
It does make me take the time today to take a look at the Wyckoff method. Because if we have apparently had to deal with that now… then I want to know what I could possibly expect in the future.
The Wyckoff Method was developed by Richard Wyckoff in the early 1930s. It consists of a set of principles and principles originally conceived for traders and investors. Wyckoff has devoted much of his life to education, and his work continues to influence modern technical analysis (TA) a great deal. Although the Wyckoff Method was originally focused on equities, it is now used in many financial markets. And apparently the cryptocurrency market is now also included.
Wyckoff has done extensive research, which has led to the compilation of various theories and trading techniques. I will briefly discuss everything, because I myself can only tell what I can read about this method on the internet. And I don't feel like writing a full course at all. LOL. The only reason I'm writing this is to give you an idea of what might be going on. Because it is currently NOT fun for many, that will be clear. Although I can also understand very well that there are people who enjoy themselves to the full, because it is of course very cheap shopping at the moment.
The first law states that the price increases when the demand is greater than the supply and decreases when the opposite is the case. This is one of the fundamental principles of financial markets and certainly not only Wyckoff's work. The first law can be described with three simple equations:
Demand> supply = the price is increasing
Demand <supply = the price is falling
Demand = supply = no significant price change (low volatility)
In other words, Wyckoff's First Law suggests that more demand than supply causes price to rise, because more people buy than sell. But in a situation where there are more sellers than buyers, the supply exceeds the demand and the price falls.
Many investors who follow the Wyckoff Method compare price actions and volumes as a way to better visualize the relationship between supply and demand. This often provides insights into the market movements that will follow.
The second law states that the differences between supply and demand are not arbitrary. Instead, they follow periods of preparation and are the result of specific events. According to Wyckoff, a period of accumulation (cause) eventually leads to an uptrend (effect). The reverse is also true: a period of distribution (cause) will eventually lead to a downtrend (effect).
Wyckoff used a unique graph generation method to estimate the potential effects of a cause. In other words, he developed a method of defining trading targets based on periods of accumulation and distribution. With this he was able to estimate the possible continuation of a market trend after breaking through van a consolidation zone or a certain trading range (trading range, TR).
Wyckoff's Third Law states that the change in the price of an asset is the result of an effort, represented by its trading volume. If the price action is in harmony with the volume, there is a good chance that the trend will continue. But if the volume and price diverge significantly, the market trend is more likely to wind down or change direction.
For example, imagine the Bitcoin market starting to consolidate with high trading volumes after a long bearish trend. The high trading volumes are indicative of high effort, but the sideways movement (low volatility) suggests a small outcome. So a lot of Bitcoin change hands, but no major price drops follow. Such a situation could indicate that the downtrend is over, and a reversal is imminent.
Wyckoff created the idea of the Composite Man (or Composite Operator) as an imaginary identity of the market. He suggested that investors and traders study the stock market as if it were controlled by a single individual, making it easier to monitor the market trends.
In essence, the Composite Man represents the largest market makers, such as wealthy individuals and institutional investors. The Composite Man always acts in his best interest to ensure he can buy low and sell high.
The Composite Man is the opposite of most retail investors, who often lose money in the stock market, according to Wyckoff. However, according to Wyckoff, the Composite Man has a somewhat predictable strategy and investors can learn from it.
Let's use the Composite Man concept to illustrate a simplified market cycle. Such a cycle consists of four main phases: accumulation, uptrend, distribution and downtrend.
The Composite Man accumulates assets earlier than most investors. This phase is often characterized by sideways movement. The accumulation takes place gradually to prevent the price from changing significantly.
When the Composite Man owns enough stock and the supply has dried up, he starts pushing the market upward. The uptrend naturally attracts more investors, increasing demand.
There can be multiple stages of accumulation during an uptrend. We call these phases re-accumulation phases, where the broader trend temporarily stops and consolidates before continuing the upward movement.
When the market moves up, other investors are encouraged to buy. Ultimately, the general public will also be enthusiastic enough to participate. From this moment on, the demand is much greater than the supply.
Then the Composite Man starts distributing his shares. He sells profitable positions to those who enter the market late. The distribution phase is often marked by a sideways movement that absorbs the demand until it is exhausted.
Shortly after the distribution phase, the market moves downwards again. In other words, after the Composite Man has finished selling large numbers of his shares, he starts to push the market down. Ultimately, the supply far exceeds the demand and a downtrend arises.
As with the uptrend, there may be phases of redistribution in the downtrend as well. In fact, these are moments of brief consolidation between major price declines. There may also be so-called Dead Cat Bounces or bull traps, in which some buyers get stuck hoping for a trend reversal that does not take place. When the downtrend is finally over, a new accumulation phase begins.
For now my conclusion is that we are in a new accumulation phase right now. That means, we can go down further. We have to accumulate in this stage ... And if you're a trader, stop caring about the dollar value, just take it easy. Sell HIGH and buy LOW. We all took a big hit here when it comes to dollar value, but now it's time to accumulate more.
