Chainlink - Did We Just Witness Wykoff Accumulation?

4 февр.

To all my fellow traders, speculators and gamblers, its been some time since my last post.
I hope you've all been well, and most importantly, bathing in huge profits :)

It seems like Chainlink followed textbook Wykoff Accumulation Schematics.
Not the most perfect schematics, notably PS ( Prelim Support) falling a little short of the soon to be Resistance Lines.
In addition, BU only touched the resistance turned support once before rocketing up.
However the first PS does line up with the BU and subsequent SOS (Show Of Strength)
Phase A includes a number of additional ST ( Secondary Test) which is common after the SC (Selling Climax) stage. The selling Climax should've marked the lowest point, but price action made a lower low after the AR (Auto Rally) But it was merely a 19c difference.
Price still stayed within the TR(Trading Range) and bounced from the support lines.
The AR also marked the highest point within the trading range.
These are all minor discrepancies as price action continued to follow Wykoff theory.
We had multiple touches of the Support / Resistance lines, along with a perfect Spring (Final Shakeout/Bear Trap), Test and LPS, followed by a BU + SOS.
It took approximately 533 days from the SC (Selling Climax) to the TR (Trading Range) breakout,
The longer the accumulation period, the stronger the "Spring".

Does this mean price will continue north? Not necessarily, we've all seen these schematics fail. After all, Chainlink is up over 305% since the $4.65 Spring/Shakeout/Bear Trap lows.
That would've made an awesome long entry.
However, price is still way below its $53 ATH, so anything is possible.
Having a quick look we could see that price is currently at resistance levels.
A break from the 19$ range could initiate further upside.
Like the majority of the market, the crypto king (BTC) will probably dictate Chainlinks next move.
If we are to follow Wykoff theory, we could expect further upside.

I made a post back in May 22' private post titled "Link... Whales have been accumulating"
I remember reading many articles at the time that stated big players were buying up Chainlink.
Price action also found support at various Fibonacci levels, in addition to strong buy signals.
RSI Levels were at record lows, in addition to a whopping 90% correction at the time.
Unfortunately, I never got around to publishing that idea, it would've made a fantastic post.

I am no expert on Wykoff theory, so I've included information taken from various online sources.
Hopefully it helps, Much love and lots of profits to you all.

What is Wyckoff Accumulation?

Each cycle in the market begins with accumulation. This phase is marked by a range trend, where the market is relatively stable and rangebound. During this phase, institutional investors buy the stock at lower prices. Also, the volume tends to decline in this phase because the buying interest gradually absorbs the selling pressure.

Another way to confirm accumulation is to look at the support level. You may notice higher lows, indicating that the buyers are gaining power. Slowly, the trading volume begins to rise. This is a key indicator of the shift in sentiment and suggests a breakout trend.
As the accumulation progresses, you may see signs of strength in the price action, where the asset breaks above the trading range’s upper boundary.
This breakout often indicates that the market is ready for an upward move.

During the Wyckoff Accumulation process, smart money builds substantial positions at favourable prices before the broader market realizes the potential for an upward move.
The accumulation may resemble a “compressed spring” on the chart.
The longer it is, the better the indication of a breakout.

Markup: The second phase of accumulation is the markup, which follows a breakout.
According to Wyckoff, traders should find entry points through the pullback zones in this phase.

Wyckoff Events

PS— Preliminary Support, where substantial buying begins to provide pronounced support after a prolonged down-move. Volume increases and price spread widens, signalling that the down-move may be approaching its end.

SC— Selling Climax, the point at which widening spread and selling pressure usually climaxes and heavy or panicky selling by the public is being absorbed by larger professional interests at or near a bottom. Often price will close well off the low in a SC, reflecting the buying by these large interests.

AR— Automatic Rally, which occurs because intense selling pressure has greatly diminished. A wave of buying easily pushes prices up; this is further fueled by short covering. The high of this rally will help define the upper boundary of an accumulation TR.

ST— Secondary Test, in which price revisits the area of the SC to test the supply/demand balance at these levels. If a bottom is to be confirmed, volume and price spread should be significantly diminished as the market approaches support in the area of the SC. It is common to have multiple STs after a SC.

Springs or shakeouts usually occur late within a TR and allow the stock’s dominant players to make a definitive test of available supply before a markup campaign unfolds. A “spring” takes price below the low of the TR and then reverses to close within the TR; this action allows large interests to mislead the public about the future trend direction and to acquire additional shares at bargain prices.
A terminal shakeout at the end of an accumulation TR is like a spring on steroids.
Shakeouts may also occur once a price advance has started, with rapid downward movement intended to induce retail traders and investors in long positions to sell their shares to large operators.

Test— Large operators always test the market for supply throughout a TR (e.g., STs and springs) and at key points during a price advance. If considerable supply emerges on a test, the market is often not ready to be marked up. A spring is often followed by one or more tests; a successful test (indicating that further price increases will follow) typically makes a higher low on lesser volume.

SOS — Sign Of Strength, a price advance on increasing spread and relatively higher volume. Often a SOS takes place after a spring, validating the analyst’s interpretation of that prior action.

LPS—Last Point of Support, the low point of a reaction or pullback after a SOS. Backing up to an LPS means a pullback to support that was formerly resistance, on diminished spread and volume. On some charts, there may be more than one LPS, despite the ostensibly singular precision of this term.

BU—“Back-Up”. This term is short-hand for a colourful metaphor coined by Robert Evans, one of the leading teachers of the Wyckoff method from the 1930s to the 1960s. Evans analogized the SOS to a “jump across the creek” of price resistance, and the “back up to the creek” represented both short-term profit-taking and a test for additional supply around the area of resistance. A back-up is a common structural element preceding a more substantial price mark-up, and can take on a variety of forms, including a simple pullback or a new TR at a higher level.

Each Phase Explained.

Phase A: Phase A marks the stopping of the prior downtrend. Up to this point, supply has been dominant. The approaching diminution of supply is evidenced in preliminary support (PS) and a selling climax (SC). These events are often very obvious on bar charts, where widening spread and heavy volume depict the transfer of huge numbers of shares from the public to large professional interests. Once these intense selling pressures have been relieved, an automatic rally (AR), consisting of both institutional demand for shares as well as short-covering, typically ensues. A successful secondary test (ST) in the area of the SC will show less selling than previously and a narrowing of spread and decreased volume, generally stopping at or above the same price level as the SC. If the ST goes lower than that of the SC, one can anticipate either new lows or prolonged consolidation. The lows of the SC and the ST and the high of the AR set the boundaries of the TR. Horizontal lines may be drawn to help focus attention on market behaviour.

Sometimes the downtrend may end less dramatically, without climactic price and volume action. In general, however, it is preferable to see the PS, SC, AR and ST, as these provide not only a more distinct charting landscape but a clear indication that large operators have definitively initiated accumulation.

In a re-accumulation TR (which occurs during a longer-term uptrend), the points representing PS, SC and ST are not evident in Phase A. Rather, in such cases, Phase A resembles that more typically seen in distribution (see below). Phases B-E generally have a shorter duration and smaller amplitude than, but are ultimately similar to, those in the primary accumulation base.

Phase B: In Wyckoffian analysis, Phase B serves the function of “building a cause” for a new uptrend (see Wyckoff Law #2 – “Cause and Effect”). In Phase B, institutions and large professional interests are accumulating relatively low-priced inventory in anticipation of the next markup. The process of institutional accumulation may take a long time (sometimes a year or more) and involves purchasing shares at lower prices and checking advances in price with short sales. There are usually multiple STs during Phase B, as well as upthrust-type actions at the upper end of the TR. Overall, the large interests are net buyers of shares as the TR evolves, with the goal of acquiring as much of the remaining floating supply as possible. Institutional buying and selling imparts the characteristic up-and-down price action of the trading range.

Early on in Phase B, the price swings tend to be wide and accompanied by high volume. As the professionals absorb the supply, however, the volume on downswings within the TR tends to diminish. When it appears that supply is likely to have been exhausted, the stock is ready for Phase C.

Phase C: It is in Phase C that the stock price goes through a decisive test of the remaining supply, allowing the “smart money” operators to ascertain whether the stock is ready to be marked up. As noted above, a spring is a price move below the support level of the TR (established in Phases A and B) that quickly reverses and moves back into the TR. It is an example of a bear trap because the drop below support appears to signal resumption of the downtrend. In reality, though, this marks the beginning of a new uptrend, trapping the late sellers (bears). In Wyckoff's method, a successful test of supply represented by a spring (or a shakeout) provides a high-probability trading opportunity. A low-volume spring (or a low-volume test of a shakeout) indicates that the stock is likely to be ready to move up, so this is a good time to initiate at least a partial long position.

The appearance of a SOS shortly after a spring or shakeout validates the analysis. As noted in Accumulation Schematic #2, however, the testing of supply can occur higher up in the TR without a spring or shakeout; when this occurs, the identification of Phase C can be challenging.

Phase D: If we are correct in our analysis, what should follow is the consistent dominance of demand over supply. This is evidenced by a pattern of advances (SOSs) on widening price spreads and increasing volume, as well as reactions (LPSs) on smaller spreads and diminished volumes. During Phase D, the price will move at least to the top of the TR. LPSs in this phase are generally excellent places to initiate or add to profitable long positions.

Phase E: In Phase E, the stock leaves the TR, demand is in full control and the markup is obvious to everyone. Setbacks, such as shakeouts and more typical reactions, are usually short-lived. New, higher-level TRs comprising both profit-taking and acquisition of additional shares (“re-accumulation”) by large operators can occur at any point in Phase E. These TRs are sometimes called “stepping stones” on the way to even higher price targets.

Who Was Richard Wykoff?

Richard Demille Wyckoff (1873–1934) was an early 20th-century pioneer in the technical approach to studying the stock market. He is considered one of the five “titans” of technical analysis, along with Dow, Gann, Elliott, and Merrill.
At age 15, he worked as a stock runner for a New York brokerage.
Afterward, while still in his 20s, he became the head of his firm.
He also founded and, for nearly two decades, wrote and edited The Magazine of Wall Street, which, at one point, had more than 200,000 subscribers.
Wyckoff was an avid student of the markets, as well as an active tape reader and trader.
He observed the market activities and campaigns of the legendary stock operators of his time, including JP Morgan and Jesse Livermore.
From his observations and interviews with those big-time traders, Wyckoff codified the best practices of Livermore and others into laws, principles, and techniques of trading methodology, money management, and mental discipline.

Mr. Wyckoff observed numerous retail investors being repeatedly fleeced.
Consequently, he dedicated himself to instructing the public about “the real rules of the game” as played by the large interests, or “smart money.”
In the 1930s, he founded a school that would later become the Stock Market Institute.
The school's central offering was a course that integrated the concepts that Wyckoff had learned about identifying large operators' accumulation and distribution of stock with how to take positions in harmony with these big players.
His time-tested insights are as valid today as they were when first articulated.

Speculative Setup, DYOR.