One analytical approach used by many traders is Wyckoff's Accumulation Theory. This article will explain how to trade crypto using Wyckoff's Accumulation Theory.
What is Wyckoff's Accumulation Theory?
Wyckoff accumulation is a concept developed by Richard Wyckoff, a famous market analyst, in the early 20th century. This is the process by which big investors or "smart money" accumulate assets in preparation for significant price increases in the future.
Simply put, Wyckoff's accumulation process is a way to identify market phases and anticipate significant price changes in the future. This can help investors to make better trading decisions and take advantage of opportunities in the market.
You can see the following example of an image showing a graph of Bitcoin's decline during the COVID-19 pandemic. This graph of Wyckoff accumulation will help novice and expert investors to determine what to do, whether to continue buying crypto with the consequence of experiencing small profits to losses or not buying it and waiting for conditions to improve in the next phase according to the new Wyckoff accumulation graph later.
Fig. 1 Bitcoin setting failure on Wyckoff accumulation in 2020 | source: TradingView
From the image above, you can understand several Wyckoff accumulation processes which consist of several stages or phases, which include:
1. Accumulation Phase (Accumulation Phase)
At this stage, large investors start buying assets gradually. Prices often hover within a certain range during this period, and trading volume may increase gradually. Even though prices may not change significantly, large investors continue to accumulate assets with the aim of taking advantage of future price increases.
2. Markup Phase (Markup Phase)
Once the accumulation period is over, the asset price usually begins to rise rapidly. This was caused by strong buying activity from large investors, which pushed the price up significantly. Trading volume usually increases sharply during this stage, indicating strong interest from the market.
3. Distribution Phase
After a significant increase in prices, large investors began to gradually sell their assets. Prices tend to hover within a certain range during this period, and trading volume may start to decline. While prices may remain high, weakness is starting to emerge in the market.
4. Tahap Markdown (Markdown Phase)
Once the distribution is complete, the asset price usually begins to fall rapidly. This was caused by strong selling activity from large investors, which pushed the price down significantly. Trading volume usually increases sharply during this stage, indicating strong selling pressure from the market.
In accordance with the phase explanation above, you can compare Wyckoff's accumulation of Bitcoin after 2020 which rose again in 2021 in line with improving post-COVID-19 conditions. By observing the graph of Wyckoff's accumulation, the investor knows that he can make a profit.
Below is a graphic image that you can see.
Fig. 1 Wyckoff accumulation setting on Bitcoin in 2021 | Source: TradingView
How to Trade Crypto Using Wyckoff's Accumulation Theory
Crypto trading using Wyckoff accumulation involves using the principles of Wyckoff analysis to identify trading opportunities in the crypto market. Here are the general steps for trading crypto using Wyckoff's accumulation concept.
1. Basic understanding of Wyckoff's theory
Before starting trading, it is important to understand the basic principles of Wyckoff Theory. This theory identifies four stages in the market cycle: accumulation, markup, distribution, and markdown. In the accumulation stage, large investors or "smart money" begin to accumulate assets at low prices. The markup stage witnesses significant price increases as large investors continue to accumulate. The distribution stage is when large investors start selling their assets to retail investors, while the markdown is the price reduction stage after distribution.
2. Chart Analysis
The next step is to analyze the price chart for the crypto asset you are interested in. Look for price patterns that resemble Wyckoff accumulation patterns, such as price consolidation within a certain range followed by significant price increases. Also identify the volume characteristics that correspond to each stage in Wyckoff's theory.
3. Confirm with Volume
Apart from paying attention to price patterns, also pay attention to trading volume. Increased volume during periods of price consolidation can be an indication of accumulation by large investors. Increasing trading volume as the price rises can confirm the continuation of the bullish trend.
4. Trading Plan
Based on your analysis of Wyckoff accumulations, create a trading plan that includes entries, profit targets, and stop-loss levels. Determine the ideal entry point, usually near the end of the accumulation period before a significant price increase. Also, make sure to set a stop-loss level to protect your capital.
5. Trade Implementation and Management
After creating a trading plan, execute trades according to the plan. Monitor price and volume charts regularly, and be ready to adjust your positions if market conditions change. Good risk management is the key to success in trading using Wyckoff's Accumulation Theory.
6. Evaluation and Learning
Once the trade is completed, review the results and learn from the experience. Review whether you have identified the Wyckoff accumulation correctly and whether your trade was successful or not. Use this experience to improve your trading skills in the future.
How to Buy Crypto from Bittime
You can buy and sell crypto assets easily and safely via Bittime. Bittime is one of the best crypto applications in Indonesia which is officially registered with Bappbeti.
To be able to buy crypto assets on Bittime, make sure you have registered and completed identity verification. Apart from that, also make sure that you have sufficient balance by depositing some funds into your wallet. For your information, the minimum purchase of assets on Bittime is IDR 10,000. After that, you can purchase crypto assets in the application.
Monitor price chart movements of Bitcoin (BTC), Ethereum (ETH ), Solana (SOL), and other cryptos to find out today's crypto market trends in real-time on Bittime.
Read Also:
7 Cryptocurrency Trading Strategies to Increase Profits
DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.
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