In today’s review, BeInCrypto Looks at Wyckoff patterns that may explain the current bullish phase of the Bitcoin (BTC) price. This pattern, known from traditional markets, has already been used to correctly identify the peak of the cryptocurrency bull market in 2021.
However, if the Wyckoff rally plays out according to its underlying pattern, Bitcoin should not fall below the November low of $15,476. Moreover, in the near future, the largest cryptocurrency should reclaim the support at $18,000 and then move towards $22,500.
What does Wyckoff Schematic mean?
Richard Wyckoff (1873-1934) proposed his classic analytical model. He was one of the pioneers of modern technical analysis, the founder of the Magazine of Wall Street and a trader in traditional stock markets. It is in the analysis of these markets that the chart became popular.
The structure of typical Wyckoff patterns consists of a series of sharp up and down price movements that form a kind of extended distribution or accumulation. This pattern often occurs after long-term declines or increases in a particular asset. One of the tops or bottoms of the pattern is the top or bottom for the selected price action period. Once it is reached, the trend reverses and the decline or growth accelerates.
In order to make good use of Wyckoff schemes, one must first understand it properly. For this, trading ranges, asset volatility and trading volume are used. Based on this, relevant buying and selling decisions are made. The main principle here is gradual selling during the distribution period and gradual buying during the accumulation period. Roughly speaking, the two eras are mirror images of each other.
A breakout is a side market trend that occurs after a long uptrend. This is a stage where smart traders and big institutional players try to sell their positions without lowering the price too much.
Accumulation is the opposite of distribution. A rally is a side market trend that occurs after an extended downtrend. This is a stage where smart traders and big institutional players try to buy positions without pushing the price too high.
Wyckoff assembly in 6 stages
Wyckoff charts provide detailed guidance for determining the accumulation and distribution cycles. These can be identified based on certain patterns that appear within the trends associated with this range. Thus, all schemes can be divided into six stages. Although they are analogous for both periods below, we present how Wyckoff stacking proceeds:
1. Primary Support (PS)
Initial support is a level formed after a significant decline in market prices. Institutions and traders try to take long positions after a strong decline. It will be difficult for the market to fall below this level due to strong buying pressure.
2 Sales Climax (SC)
A sell peak is characterized by a sharp decline below initial support. Panic selling is mastered by large institutional players or smart traders. It often goes hand in hand with FUD and negative market news.
3 Automatic Rally (AR)
An automatic rally is an upward movement that occurs after a selling peak is reached. Prices rise, but fall rapidly after reaching a local peak. The highest point of these increases often coincides with the initial support level (1), which now acts as resistance. After this stage, trader activity decreases and the bearish sentiment weakens.
4 Intermediate Test (ST)
After the automatic rally, a secondary test takes place. This indicates that the price of an asset has reached a market bottom. It is common for several secondary tests to occur as the market tests the strength of the buyers.
A spring to life
The bow is a strong and decisive blow that often occurs during the build-up phase. Grades will often fall below SC and ST levels. The loss of the trading range is short-lived. Price bounces back quickly to confirm a false breakout. The big players cheat the retailer and force them to buy the assets at a lower price. The Wyckoff assembly is confirmed at this stage.
6 Signal of Power (SOS)
A strength signal occurs after spring and indicates the return of bullish sentiment to the market. At this stage, the price recovers the initial support area of the entire Wyckoff rally. Sometimes its recovery is preceded by a Last Support Point (LPS) phase, which is a retest of previous resistance. The strength phase sign confirms the dominance of buyers and the beginning of an uptrend.
Wyckoff stacking on Bitcoin chart
Popular cryptocurrency market analyst @StockmoneyL It recently suggested that Bitcoin may currently be undergoing successive stages of Wyckoff accumulation. In it’s his tweetit compares the daily BTC price from mid-May 2022 to now with the Wyckoff model.
According to this comparison, Bitcoin has already passed through the first four phases of the Wyckoff rally and experienced a sell-off peak (SC) in the $18,000 area. It is currently in phase 5 and is also in the spring phase, which is the lowest point of collection.
If this is indeed the case, the BTC price should not fall to $15,476 on November 21. Moreover, it should quickly restore the SC field and confirm it as a support. We can conclude that the current phase (spring) was only a false breakout and the price managed to return to the accumulation range.
Going forward, the BTC price will have to try to recover the $22,500 area – the peak of the AR phase was reached in July and retested in mid-September. On the other hand, the final confirmation of the end of the Wyckoff rally will be a retracement of the PS level near $26,000, which is May’s lower resistance.
A fall of Bitcoin from the current bottom to $15,476 will cause this version of the Wyckoff stack to be rejected. Similarly, BTC price staying below $18,000 for too long will also falsify this pattern.
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