Perhaps finding an effective trading method is the key to your success in the volatile Crypto market. Among them, the most classic strategy trusted by many investors is Wyckoff method. So what is Wyckoff? How to do Wyckoff Trading in the most optimal way? Let’s find out the details of Crypto Trading through the following article!
Learn the history and applications of Wyckoff method
Wyckoff is a principle invented by the stock analyst of the same name Richard D. Wyckoff. So how did this theory come about? Read the following information for more details.
What is the concept and history of the formation of the Wyckoff method?
Wyckoff Trading is a trading method that includes rules, principles, and techniques. Thereby, it helps investors evaluate the market objectively and find the most potential stocks. This method includes the Spring and Upthrust model and the VSA analysis model. It is not only dedicated to the stock market but can also be applied to other currency and commodity markets.
In addition, the Wyckoff method is not only a stock trading system. It is also a remarkable discovery about the psychology and behavior of the market. The author Richard D. Wyckoff developed this method based on his detailed observations of how the market clearly reflects the psychology of investors. Especially since the method appeared, Wyckoff has laid the foundation for a unique and effective technical analysis system in the financial market.
The Importance of the Wyckoff method in Crypto
Trading according to the Wyckoff method not only helps traders predict market trends. It also emphasizes the importance of understanding investor psychology. Mr. Wyckoff believes that only when people have a deep understanding of the intentions and behaviors of the “Composite Man” can they succeed in stock trading. Above all, monitoring and analyzing the behavior of Composite Man is also the key to helping you understand the fluctuations of the Crypto market.
See also: Technical analysis: secret trade to increase profits
Theories applied in the Wyckoff method
Understanding the theories applied to the Wyckoff method is quite difficult for newbies. However, this will be easier if you read through the 4 cycles and 3 Wyckoff Trading rules summarized by Crypto Trading below.
4 Crypto Price Cycles in the Wyckoff Model
First of all, the 4 price cycles used in the Wyckoff model. This is one of the important concepts that helps traders understand market fluctuations. In which, the price cycle is divided into 4 stages, including:
- Accumulation – Stock accumulation phase:
This cycle usually starts after a period of decline. When Composite Man starts accumulating stocks at low prices. At this time, the market will fluctuate in a narrow price range. And this is the ideal time to buy for smart investors.
- Markup – Bullish Phase:
This cycle begins after a period of sudden price increase due to strong buying from Composite Man. At this time, the stock shows a rapid increase, accompanied by large liquidity. When the market sentiment increases with excitement, traders will start to pay attention to the stock.
- Distribution – Stock distribution phase:
Occurs when Composite Man sells stocks at high prices in preparation for a bearish cycle. The stock price then fluctuates within a price range with the appearance of distribution signs. This makes traders feel uncertain and warns of a possible bearish trend.
- Markdown – Discount Phase:
This cycle occurs when Composite Man sells stocks aggressively, causing prices to fall. When prices fall rapidly, accompanied by large liquidity, traders’ concerns and selling sentiment increase, leading to an increase in stock prices.
What are the 3 rules of Wyckoff method in Crypto?
Besides 4 price cycles, the Wyckoff method also relies on 3 basic rules to help traders recognize and predict market trends:
- Law of Supply and Demand:
This is the basic principle of trading (Wyckoff method). According to it, the price of an asset increases when demand exceeds supply and decreases when supply exceeds demand. It shows a relationship between the forces of supply and demand in determining price trends.
- The law of cause and effect:
This law describes the relationship between the factors that cause change and the results of that change. In Wyckoff’s context, this law is applied to the analysis of a situation to predict the results of the influencing factors.
- The Law of Effort – Results:
This principle describes the relationship between effort and reward. In Wyckoff, it is applied to assessing the level of effort the market is putting forth and the results obtained from that effort. This helps traders predict the price trend of an asset.
Trading strategies according to the Wyckoff method
To help traders trade better with the Wyckoff method. Crypto Trading has listed some effective trading strategies in Crypto. Specifically:
- Determine the market phase whether it is currently in the distribution or accumulation phase. Because it helps traders make buy/sell decisions based on understanding the situation.
- Identify support and resistance: Use price charts and technical analysis to set appropriate Stop-loss and Take Profit.
- Look at price and volume levels to learn about buy/sell signals.
- Principled risk and capital management to protect investment capital and optimize returns.
- Determine market entry/exit points based on compiled analysis.
In particular, these strategies can be tailored to suit specific market conditions and trading styles.
See more: MEXC: Open a MEXC account, invest effectively
5 Steps to Approach the Crypto Market Wyckoff method
As mentioned above, trading (Wyckoff method) is not just a system but a comprehensive process. So to approach the market, you need to follow these 5 steps:
- Step 1: Collect information
By analyzing news and events to understand the influencing factors. Thereby defining the context of the financial market at the present time. Then conduct technical analysis through charts, liquidity, and indicators… as a basis for trading decisions.
- Step 2: Assess the situation
Based on the Wyckoff method to distinguish Accumulation and Distribution phases. This helps traders understand the market and identify potential trends in price fluctuations.
- Step 3: Confirm the pattern and price trend
Before making a decision and predicting the trend, it is necessary to ensure that the price pattern is confirmed. Because trading in the direction of the market increases the trader’s chances of success.
- Step 4: Build a Crypto Strategy
Set trading goals in terms of profit and risk level to have the best strategy. Note that you should choose opportunities based on patterns and trends to limit transactions with a low probability of success.
- Step 5: Execute and manage transactions
Apply the built strategy to open orders, and set stop loss, stop profit, etc. Make sure to follow the strategy to protect capital and optimize profits.
What are some things to keep in mind when applying Wyckoff Trading?
Moreover, using the Wyckoff method also requires an understanding of knowledge and skills. Therefore, here are some important notes when Trading Wyckoff:
- You should not rely entirely on one method, you need to combine it with methods such as Swing Trading, Scalping… To better understand What is Swing Trading or Scalping… readers can follow the next articles of Crypto Trading.
- In addition, Wyckoff needs to consider many other news and event factors… The best tool to help you update DeFi news is DefiLlama.
- Accurately identifying the model helps to minimize risk and make the right decisions.
- Always maintain risk management set reasonable stop loss and take profit points.
- Never trade emotionally and be patient with your strategy.
- Continuously improve your knowledge and skills by practicing on a simulator account.
Summary:
In short, the Wyckoff method can provide a basic foundation for investors. From there, it helps them understand the interaction between supply and demand, the accumulation process… and leads them to the most correct decision. If you are still hesitant about investing in Crypto, then join Crypto Trading through the following articles. We will definitely help your Crypto Trading path become smoother and easier.
FAQs:
What is the Composite Man in Wyckoff method?
In Wyckoff Trading, the Composite Man is considered a big investors, who have influence on market fluctuations.
What markets can the Wyckoff trading method be applied to?
Wyckoff Trading can be applied to a variety of markets. Including Stocks, Cryptocurrencies, Forex, and Commodity Derivatives.
Should I fully apply the Wyckoff Trading method?
No, traders should combine Wyckoff with other methods such as Swing, Scalping… That helps them improve their ability to accurately predict Crypto price trends.
