The Wyckoff methodology in depth is a trading method applied in coin trade analysis. This method is based on the belief that the market is dominated by “whales”. Investors will use it to predict and take advantage of market trends to place orders. If you are also wondering about the Wyckoff model, let’s find out with Crypto Trading right after this.
What is the Wyckoff methodology in depth?
Wyckoff methodology in depth is the name of the trading method invented by Richard Demille Wyckoff (1873-1934). He was considered a leading trader of his time and was honored by the trading community with the Wyckoff trading system.
In the simplest terms, the Wyckoff method is based on observing and evaluating the market behavior of smart money (i.e. money from “sharks” – big investors). From there, it is possible to predict asset prices and conveniently make trading decisions.
The main thesis of the Wyckoff model is based on the belief that asset prices are the most honest reflection of the balance of supply and demand in the market. Therefore, traders should prioritize focusing on analyzing supply and demand, and market psychology. Most importantly, observe the behavior of smart investors. That is the most effective way to analyze coin trading techniques and bring the greatest profit potential.
See more: Price action: surprisingly effective trading method
3 Rules of the Wyckoff methodology in depth
Looking at the Wyckoff trading method thesis, we can see that there are 3 main rules:
Supply and Demand: The Wyckoff Model’s Law of Determining Price Trends
Based on the correlation of supply and demand in the market, the price trend also changes. If demand is greater than supply, meaning there are more buyers than sellers, the price will increase and vice versa. By comparing the price and trading volume on the chart, Wyckoff will consider the correlation of supply and demand and make a decision to buy or sell.
Cause and Effect: The Law of Determining Price Targets in Wyckoff Trading
The second law of the Wyckoff methodology in depth is the law of cause and effect. This law states that the potential of a particular trend can tell investors the price target. To predict future price targets, Wyckoff used Point and Figure charts. Through this, he measured the cause (accumulation and distribution phases) and identified the effect (the distance the price has moved).
Effort – Results: Trend Forecasting Rules for Effective Coin Trading Technical Analysis
This third rule will give traders a signal of a possible price reversal in the near future. The current trend can stop or reverse if there is a change in price and trading volume. For example, after a strong price increase, there have been 3 trading sessions with increasing volume. However, the price still cannot surpass the previous high (i.e. no new high is formed), this can be a signal that the market is about to reverse.
Composite Man: Important in Wyckoff trading
In addition to the 3 rules in the Wyckoff methodology in depth, another very important content in the Wyckoff model system is the concept of Composite Man.
This term is used to refer to “shark” investors in the market. They are organizations, large capital investors, with great influence. For example, banks, credit institutions, and large financial companies. They can manipulate the market by buying at low prices, selling at high prices, and creating strong fluctuations in prices. According to Wyckoff, all price fluctuations in the market are the result of the impact of these “sharks”.
So how can small investors take advantage of the best investment opportunities?
According to Wyckoff, traders need to study and practice regularly analyzing price action on charts. From there, they can closely follow the actions of the “whales”. When they understand their movements, traders can take advantage of trading in the same direction as them.
It is not easy to understand how Composite Man works. Therefore, traders need to be patient, practice regularly, and pay attention to large, sudden price fluctuations. That is a sign that they are manipulating and surely the price will move in the way they want.
Composite Man behavior analysis is similar to the VSA analysis technique. Traders should also learn what is VSA because this is also an extremely effective trading strategy.
How to approach the market with the Wyckoff methodology in depth
In the Law of Cause and Effect, we mention the stage where investors perceive the cause. This stage is to observe the accumulation and distribution of the market. According to Wyckoff, investors should observe the trading range (TR). That is the position where the previous trend is paused, and supply and demand are balanced.
At this point, Composite Man will begin to prepare for the accumulation and distribution phase. When accumulating, there will be more buying. When distributing, there will be more selling. The intensity of the price when it breaks out of the Trading Range will depend on this phase.
Thus, the Wyckoff method will help traders predict:
- Price trend after accumulation and distribution phase
- Price intensity when breaking out of TR
- Price target that the trader wants in the next trend
And to do this, traders will approach the market with 4 steps:
- Identify current trends and supply and demand balances to predict potential trends.
- The price must meet the condition that the “cause” (ie the accumulation and distribution price) is greater than the minimum target level set by the trader.
- Assess whether the price is ready to break out of the trading range, has a new trend started.
- Determine the right time to enter the market when 3/4 of the given conditions are satisfied.
See more: Instructions for opening an OKX exchange account
Notes when using Wyckoff trading
What is the key point in the modern Wyckoff strategy? It is that traders must analyze the Wyckoff model in the accumulation and distribution phases. From there, they can recognize important signals and price models and make the safest trading decisions.
In addition, the whales can manipulate the market with unpredictable moves. If the trader does not grasp the right moment, it is easy to miss the opportunity. Staying close to the market to monitor the developments and make quick decisions is very important to succeed with this strategy.
Another thing to note is that the Wyckoff pattern is quite complex. It has many variations and its diagram is not easy for new traders. Sometimes there may be a tendency for fake trends to appear. Therefore, traders should also combine it with some other technical indicators to avoid being fooled by fake signals.
Conclude
The Wyckoff methodology in depth is one of the core coin trading technical analysis methods. In addition to the content that Crypto Trading brings, traders can also learn more about this method through books and newspapers, by referring to real transactions from experienced traders. Please leave a comment below this article if you need more necessary information.
FAQs
What is the most basic principle of the Wyckoff method?
That is, all price fluctuations are influenced by the “sharks” in the market.
What stages would a complete Wyckoff diagram consist of?
The Wyckoff model will go through 4 main stages: Sideway (Accumulation) – Price increase – Distribution – Price decrease.
What is the most basic rule of Wyckoff trading?
That is the law of supply and demand – it is taken as the core, the focus and all price action will be determined based on this point.
