The Wyckoff Method: A Quick Overview!
This is a quick take on the Wyckoff Method. This will serve as a basic idea of what the Wyckoff Method is and some basic items around this concept.
Crypto prices move up and down because of all different types of trends. These trends can move the market up, down, and sideways. Technical analysis and tools can help to make better decisions while trading. Lastly, sources from this article are located at the end , along with the disclaimer feel free to read them if you wish. Now let’s get on with this quick overview!
🔹What is The Wyckoff Method?
A TA approach to understanding the markets based on studying the demand and supply trends. First it was developed by Richard D. Wyckoff, a trader and market forecaster who started in the business in 1888 as a young stock broker. Wyckoff based his approach upon observations within the market to make better informed choices.
🔹The Wyckoff Method and More!
The Wyckoff method uses traders within the market, referred to as Composite Operators. This method gives analysis of trading volume corresponding with price as a correlation working together to form the basic market.
Wyckoff used volume and price movements to help predict where the market will move in the future. These ideas come together under these three rules:
1.Supply and Demand
Demand higher than supply rises prices. However, demand lower than supply causes a fall of price within the asset.
2.Cause and Effect
For the price of a market to change the effect, there has to be a cause. The effect is in direct correlation to that cause. Price movements happen when enough time has generated to create a period of distribution/accumulation.
3.Effort vs Results
If there is an effort such as volume up/down, the result within price must be in proportion to that effort and can’t be separate. If it is not there may be other items to consider. [Source]
Price action and the volume should trend together. If you have a lot of volume, movement within trends should be tied together . If you don’t see this maybe there are other factors to determine.
You must use tools to check results like price being tied together with volume.
🔹Trading assets using Wycoff
Traders can use this to buy in at the bottom and sell assets at the upper area of the market.
- Analyze position and historical trends
Look at supply / demand to predict future increases /decreases in price. For example, when demand is high price goes upward — when supply is higher price moves downward.
One way to determine supply and demand is to use Glassnode to show when increase supply has inflows to exchanges which may help determine supply/demand volume. Another is Bitcoin dominance to show when it is more likely to have increases in Bitcoin vs. altcoins. The higher Bitcoin dominance more like it has the overall feel of the market.
However, using one metric isn’t enough, make sure you predict using many indicators in order to make the right prediction while trading the market.
- Pick assets that trend accordingly to data
Picking a digital asset with a large data sample aka trading history of years not months is likely to give you greater data to analyze and make you more likely to make the right trade.
- Trade during volume cycles
When you know when most traders trade aka time period — day of the week and more. Then you can evaluate the ability to pick the volume/price trend that most fits within the supply and demand aspect. For example, if you see trading volume increases most on Tuesday night and falls on Friday middle day then one could indicate buying on Friday will yield a higher probability of trading during downtrends in the market or buying during non peak price action. The reverse is also evident by trading peak volumes you can ride the trend to sell higher and make a quick trade if you are looking for quickness within the market but be careful of buying the top of the price.
Prices of all digital assets change for all sorts of reasons. Depending on your ideas of historical value, trend/support lines, and more it’s up to your perspective how you trade and your strategy.
Concerning the Wyckoff method it is just another tool used by others to give you help to anticipate what markets may or may not do in the future. These three concepts above may allow you more information to buy/sell at the right time.
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Sources and disclaimer below:
Points of views and opinions within this article are not of HuobiGlobal and are intended only for educational purposes. As always do your own research and trade with your own strategy.
Trading in digital assets comes with high risks due to huge price fluctuations. Users should be fully aware of the risks associated with digital asset trading and make prudent trading decisions.
Huobi Global’ s announcements and information do not constitute investment advice, and Huobi will not bear responsibility or provide compensation for direct or indirect losses arising from trading decisions whilst relying on this information.