Bitcoin (BTC) has recently been identified as potentially entering the Wyckoff Accumulation phase, according to independent market analyst Stockmoney Lizards. The Wyckoff Accumulation is a technical analysis pattern named after Richard Wyckoff, a pioneer in technical analysis during the early 20th century. This pattern divides the market cycle into four distinct phases: accumulation, markup, distribution, and markdown.
The accumulation phase occurs when major players in the market accumulate assets within a specific trading range. As they buy more assets than they sell, the available supply decreases, leading to a price rally above the trading range. Small investors who follow the Wyckoff accumulation strategy must correctly identify the direction and speed of the price movement out of the trading range.
To assist in identifying the Wyckoff accumulation pattern, traders can refer to an accumulation schematic created by Wyckoff in the 1930s. This schematic outlines the events and phases of the pattern, starting with the exhaustion of the previous downtrend in Phase A. This phase begins with preliminary support (PS), indicating that the bearish trend is nearing its end. The price then reaches its selling climax (SC), where large investors absorb selling pressure and traders cover their short positions. The price rebounds to its automatic rally (AR) level, defining the upper boundary of the trading range. It may then test the support levels again in a secondary test (ST).
Multiple secondary tests are common during the accumulation phase, leading to consolidation in Phase B. This consolidation indicates that institutional investors have been accumulating assets in anticipation of a markup event. Rebounds from the support levels typically occur with higher volumes, while pullbacks from the AR levels see diminishing volumes, signaling a decrease in liquidity.
Phase C begins with a “test,” where large investors examine the market for potential supply booms. The price rises cautiously during this period. The test period ends when the price breaks above the AR level, known as the sign of strength (SOS). This is followed by a short-term correction towards the last point of support (LPS), marking Phase D. Analysts consider the LPS a favorable entry point for investors and traders.
In Phase E, the asset breaks out of the trading range and enters the markup phase of the market cycle.
While not all Wyckoff accumulation setups result in significant price rallies in the cryptocurrency market, traders can employ range-bound strategies to profit from fluctuations within the trading range. Long positions can be opened on bounces from the support range, with the AR level as the primary upside target. Stop-loss orders can be placed below the support level to mitigate losses in case of a false breakout.
For more aggressive trading, additional confirmation from fundamental catalysts related to the cryptocurrency asset may be necessary. Cautious traders can wait for Phase D of the Wyckoff setup and enter a long position after the price breaks above the SOS point with convincing volumes. It is advisable to place a stop-loss below the SOS level to minimize losses in the event of a trend reversal.
It’s important to note that this article does not provide investment advice or recommendations. Readers should conduct their own research and analysis before making any financial decisions.