How to Trade Crypto Using Wyckoff’s Accumulation Theory

On December 2, independent market analyst Stockmoney Lizards said bitcoin (BTC) had entered the process of bottoming out in its current price range of $15,500-$18,000, citing Wyckoff Accumulation.

Wyckoff Accumulation is a classic technical analysis setup, named after Richard Wyckoff, a pioneer of technical analysis in the first half of the 20th century, who broke down the market cycle into four distinct phases.

But is Wyckoff a reliable model, especially for cryptocurrency trading? Let’s find o.

What is the Wyckoff accumulation?

Wyckoff’s accumulation is one of the four phases listed in Wyckoff’s market cycle theory, the other three being markup, Distribution and stands out. Simply put, each phase determines when large entities determine the direction of the market.

The accumulation phase develops properly when large pockets increase their purchases and stimulate demand.

Due to increased interest, the price forms higher lows while trending higher. In doing so, the price pushes above the upper trendline of its trading range, moving into the markup phase of the Wyckoff cycle.

In other words, a sustained uptrend, as shown in the diagram below.

The phases of the Wyckoff market cycle. Source:

Events and accumulation phases

In the accumulation phase, the big players prepare their next bullish strategy by accumulating assets within a given trading range (TR). As they do, the assets being bought outweigh the assets being sold, leading to a drop in available supply which, in turn, helps prices rally above the TR.

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Therefore, retail investors undertaking the Wyckoff accumulation strategy must correctly identify the direction and speed of the exit from the TR.

Fortunately, they can build on a widely followed accumulation scheme created by Wyckoff in the early 1930s, as shown below.

Wyckoff’s accumulation diagram with its events and phases. Source:

Phase A reflects the exhaustion of the previous downtrend. It starts with preliminary support (PS) — a period in which substantial purchases begin alongside an increase in volumes — suggesting that downtrend coming to an end.

The downside bias fades after the price reaches its level selling point (SC)a point at which large professional investors begin to absorb selling pressure from the retail side and traders begin to cover their short positions.

As a result, the price rebounds sharply to its automatic rally (AR) level, which defines the upper limit of the Wyckoff trading range. Then price moves back to test levels around SC, sometimes even below for a so-called secondary test (ST) support.

BTC/USD 12-hour price chart showing a potential Wyckoff accumulation setup. Source: Stockmoney Lizards

It is common to have more than one ST in the Wyckoff accumulation, which drives the price into consolidation territory in phase B. Theoretically, this means institutional investors have accumulated assets in anticipation of a mark-up event.

Therefore, the rebounds of the SC-ST levels in Phase B usually accompany higher volumes. Conversely, pullbacks from AR levels see volumes decline, showing that liquidity is running out during bearish moves. In other words, the asset prepares for Stage C.

Phase C begins with “test“, where large investors scan the market for potential supply booms. In other words, the sudden arrival of sellers that risks invalidating all of Wyckoff’s logic. testing period.

The test period runs out when the price breaks above the AR level, thus showing the so-called sign of strength (SOS). This follows another short-term correction towards the last support point (LPS).

All of this price action is happening in Stage D of Wyckoff’s theory of accumulation, showing the predominance of demand over supply. As a result, mainstream analysts view LPS as an excellent place for investors and traders to enter the market.

In E-stagethe asset leaves the trading range completely to enter the markup phase of the Wyckoff market cycle.

How to Trade Crypto Using Wyckoff Accumulation

Not all of Wyckoff’s accumulation setups lead to massive price increases when it comes to the cryptocurrency market.

For example, the price of Bitcoin entered the SOS phase of its Wyckoff accumulation setup in early March 2020 when it traded near $9,000. But BTC/USD then fell below $5,000 in mid-March, snubbing bullish signals from Wyckoff in the wake of COVID-19. global market crash.

Bitcoin’s Wyckoff Accumulation Setup Failed from 2020. Source: TradingView

Traders can use a range-bound strategy to take advantage of moves within the Wyckoff accumulation trading range. They could do this by opening a long position on a rebound in the ST range while looking at the AR level as their main upside target.

Simultaneously, traders could place a stop-loss below the ST level to avoid larger losses in the event of a false breakout.

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On the other hand, traders looking to place aggressive long positions may need further confirmation from fundamental catalysts regarding the crypto asset.

For example, Bitcoin’s Wyckoff accumulation pattern between May 2021 and November 2021 caused prices to rise from around $37,000 to $69,000 (after a breakout in the E phase). The explosive gains were accompanied by a period of loose monetary policy and growing mainstream adoption.

Setup of Bitcoin’s Wyckoff accumulation from 2021. Source: TradingView

However, cautious traders can wait for the Wyckoff setup to reach phase D. They can enter a long position after the price breaks above the SOS point with convincing volumes. Of course, it is advisable to place a stop-loss below the SOS to exit the trade with lower losses if the trend reverses.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.