Ever noticed how big money makes more money, and the smaller investors always seem to get fleeced? You’re not the only one. So did Richard Demille Wyckoff, a stock broker and one of the early figures behind the discipline of technical analysis. Something of a prodigy on Wall Street, in the course of his work he noticed the chart patterns that signalled how large players were positioning, almost always at the expense of retail traders. By learning how to align their trades with big money, though, ‘ordinary Joe’ traders could emulate their success.
His method has proven successful in any large and liquid market in which institutional and large investors are active, stripping money from retail traders as they make profits. What’s true of the regular markets is especially true of bitcoin, where emotion and a lack of regulation have led to a lot of inexperienced investors losing badly.
Wyckoff had a number of important insights, and this overview is well worth reading. One of the most relevant for our purposes is the Wyckoff Accumulation, which occurs at the end of a bear market, before the next price rise. With bitcoin down 65% from its high and currently trading in a range, studying his method could prove profitable. It is especially interesting since we know that big money is piling in and positioning to come in right now.
Looking at the chart for bitcoin this year, you should immediately recognise the pattern. The Selling Climax occurred on 6 February, with the brief but high-volume spike below $6,000. We then saw the Automatic Rally back above $10,000. The Secondary Test, and further tests, took place in April and after. And at the present time, it looks like we’re forming a Spring, a shakeout below the Trading Range we’ve established between about $6,000 and $10,000. Of course, judging where that is going to end is a different matter; bitcoin’s signature volatility makes it hard to know whether $6,000 or $4,500 will be the bottom.
All of that paves the way for the next bull market, which has its own jumps in price and pullbacks, and culminates in a Distribution phase at the top, just as a bear market ends with an Accumulation phase.
Wyckoff’s insights are keenly relevant right now, and used well will help you make a good entry point as the bear market plays out its final stages. Add it to your toolbox – and good luck!
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