Wyckoff’s Method Explained: Last Opportunity to Buy Bitcoin?

by Savan  |  July 7, 2021

Amidst the lousy performance by bitcoin for the last couple of weeks, several chartists have speculated an imminent upward trend. 

Since May 18, when bitcoin plunged to $30,000, many such octopus predictions have failed. Nonetheless, Richard Wyckoff, someone who died 87 years ago is seemingly pertinent to the future price of bitcoin.  

Who is Richard Wyckoff?

Richard Wyckoff, born in 1873, was a pioneer in studying the stock markets. He was considered one of the five titans, alongside Dow, Gann, Elliot, and Merrill, in technical analysis (TA). 

Wyckoff’s extensive market research led to the creation of several trading theories and techniques, particularly the Wyckoff Method. Originally focussed on stock markets, Wyckoff Method is now applied on all sorts of financial markets including crypto trading. 

Wyckoff’s Relevance to Bitcoin 

Bitcoin’s present volatility seen through the eyes of someone who lived a century ago gives investors a good picture of what the future looks like. 

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To make things simpler, Wyckoff came up with the concept of Composite Man. An imaginary identity of the market. The composite man represents the big institutions whose forces worked towards the disadvantages of small investors. The individuals somehow always bought and sold at the worst times while institutions made huge profits. 

According to Wyckoff, understanding how the composite man works is key to making profits. The same dynamics that existed back then can be seen with the crypto market today. Large institutional investors manipulate the market in their favour causing huge volatility. 

How does the Composite Man work? 

To understand how the composite man works, Wyckoff illustrates a simplified market cycle with four phases: accumulation, uptrend, distribution, and downtrend

During accumulation, the composite man accumulates assets before most investors. As markets move up, the uptrend phase, investors are encouraged to invest more. Next, the composite man starts selling his profitable positions during the distribution phase causing a downturn. This is when small investors panic and sell at a loss.  

When bitcoin fell by nearly 15%, long-term holders added 120,739 bitcoins between June 18th and 25th. Meanwhile, small investors unloaded 97,333 bitcoins out of fear and frustration, according to a report from Glassnode. 

Wyckoff’s Accumulation: Last Opportunity to Buy? 

The bitcoin market has been in doldrums since the mid-May crash. Wyckoff’s accumulation pattern could give investors a clue at the present and the future of bitcoin price.

  

The massive sell-out by investors out of fear and exhaustion (phase A) was followed by solid consolidation (phase B) at a discount by institutions. Experts believe that phase C is nearing its end, indicating a final opportunity to buy bitcoin at a lower price before the uptrend starts.

However enticing the resemblance between charts maybe, it is irresponsible to draw a final verdict. A near-future bull run is imminent, but ‘when’ is the real question. And only time can answer.

P.S: KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing.

 


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