▶️▶️▶️ What is Wyckoff method? ◀️◀️◀️

3 мар. 2023 г.

▶️▶️▶️ What is Wyckoff method? ◀️◀️◀️

This trading method was developed by Richard Wyckoff in the early 1930s. It consists with series of principles and strategies originally designed for traders and investors. Wyckoff devoted much of his life experience for studying market behavior, and his work still influences much of modern technical analysis (TA). Currently, the Wyckoff method is applied to all types of financial markets, although initially it was focused only on stocks.

Richard has conducted a large amount of research that has led to the creation of several theories and methods of trading. This article provides an overview of his work and includes three fundamental laws.

✔️ Three Laws of Wyckoff ✔️



1️⃣ Law of supply and demand

The first law states, that the value of assets start rising when demand exceeds supply, and accordingly falls in the opposite direction. That's one of the most basic principles in the financial markets, that Wyckoff doesn't rule out in his writings. We can represent the first law as three simple equations:

📍 Demand > Supply = price Max;

📍 Demand < supply = price falls;

📍 Demand = supply = no significant
price change (low volatility).

In other words, Wyckoff's first law suggests, that an excess of demand over supply causes prices to rise because there are more buyers than sellers. But in a situation where there are more sales than buyers, and supply exceeds demand, it indicates a further drop in value.

2️⃣ Law of Cause and Effect

The second law states, that the differences between supply and demand are not a coincidence. Instead, they reflect preparatory actions resulting from certain events. In Wyckoff's terminology, an accumulation period (cause) eventually leads to an uptrend (effect). In turn, the distribution period (cause) provokes the development of a downtrend (consequence).

3️⃣ The law of connection between efforts and results

Wyckoff's third law states, that changes in price are the result of a collective effort that's reflected in trading volume. In the case when the growth in the value of an asset corresponds to a high trading volume, there is a high probability that the trend will continue its movement. But if the volumes are too small at a high price, the growth is likely to stop and the trend may change its direction.

❗️❗️❗️For example, let's imagine that the Bitcoin market starts consolidating with very high volume after a long bearish trend. High trading volumes indicate great effort, but sideways movement (low volatility) suggests little result. If a large amount of bitcoin changes hands and the price does not fall significantly, this may indicate that the downtrend may be ending and there will be a reversal soon.

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