Bitcoin (BTC) is currently going through a period of stabilization within the price range of $15,500 to $18,000, according to market analyst Stockmoney Lizards. The analyst cites the Wyckoff Accumulation, a well-known technical analysis pattern named after Richard Wyckoff, as the basis for this assessment. While the Wyckoff Accumulation is a reliable pattern for trading cryptocurrency, it is important to understand its phases and events.
The Wyckoff market cycle theory consists of four phases: accumulation, markup, distribution, and markdown. Each phase represents the actions of major players in the market. The accumulation phase occurs when large entities accumulate assets within a specific trading range. This leads to a decrease in supply and an increase in demand, causing the price to rally above the trading range. This sustained uptrend marks the transition to the markup phase.
To successfully implement the Wyckoff accumulation strategy, small investors must accurately identify the direction and speed of the breakout from the trading range. They can refer to a well-known accumulation schematic created by Wyckoff in the 1930s to assist them in this process.
Phase A of the accumulation phase indicates the exhaustion of the previous downtrend. It begins with preliminary support (PS), which signifies the start of significant buying activity and suggests the end of the bearish trend. This is followed by a selling climax (SC), where professional investors absorb the selling pressure and traders cover their short positions. The price then rebounds sharply to the automatic rally (AR) level, defining the upper boundary of the trading range. The price may also test the support levels around SC, known as a secondary test (ST).
It is common to have multiple STs in Wyckoff accumulation, leading to consolidation in Phase B. This consolidation indicates that institutional investors have been accumulating assets in anticipation of a markup event. Rebounds from SC-ST levels in Phase B typically have higher volumes, while pullbacks from AR levels have diminishing volumes, indicating a decrease in liquidity and preparation for Phase C.
Phase C begins with a “test” period, during which large investors assess the market for potential supply booms. The price rises cautiously during this period. The test period ends when the price breaks above the AR level, signaling a sign of strength (SOS). This is followed by a short-term correction towards the last point of support (LPS) in Phase D. Traditional analysts view LPS as an excellent entry point for investors and traders.
Phase E marks the exit from the trading range and entry into the markup phase of the Wyckoff market cycle.
When trading crypto using the Wyckoff accumulation pattern, it is important to note that not all setups lead to significant price rallies. Traders can employ a range-bound strategy by opening a long position on a bounce from the ST range and targeting the AR level as the primary upside target. A stop-loss can be placed below the ST level to minimize losses in case of a false breakout.
For more aggressive long positions, traders may require additional confirmation from fundamental catalysts related to the cryptocurrency asset. Cautious traders can wait for Phase D of the Wyckoff setup and enter a long position after the price breaks above the SOS point with convincing volumes. It is advisable to place a stop-loss below the SOS to exit the trade with smaller losses if the trend reverses.
It is important to note that this article does not provide investment advice or recommendations. Readers should conduct their own research and analysis before making any investment or trading decisions.