It’s been a brutal couple of weeks for the crypto market. Everything from Bitcoin to shitcoin has shed billions of dollars leading to a 60% crash across the board. The worst part is that every time it looks like the crypto market is recovering some sort of fud manages to make the news, which causes another massive sell-off.
Then when all hope seems lost and you’re convinced cryptos dead the trend suddenly reverses and the fomo strikes back. Now, it’s almost as if someone is trying to make you feel fear & greed at just the right time to move the market in a way that makes them money and leaves you empty-handed.
This has been both a meme and a common saying in the crypto space for many years and it sounds like nothing more than a conspiracy theory. But what if I told you that this is exactly and that there is even a way to predict these market moves in the advance.
Today, I’m going to tell you about the Wyckoff Method, and how you can use it to protect your crypto portfolio and your sanity.
Disclaimer: All the content converted from Coin Bureau’s “Crypto Market Manipulation! Wyckoff & WHALES!” video after getting the whole permissions.
Technical Analysis Basics
To understand the Wyckoff Method, you need to be familiar with the basics of technical analysis trading. Now, I know this trading stuff can be overwhelming, but I promise to keep it simple and use plain English.
The Candlestick price charts we see today were invented by a Japanese rice merchant named Honma Munehisa almost 300 years ago.
Red candles mean that the price went down within a certain timeframe and green candles mean that the price went up within a certain timeframe. The wicks on each end of a candle show you the highest and lowest prices traded during a time period according to the time frame. So one candle on the daily is one day, on the hourly, it’s one hour, and so on.
As a rule of thumb, a long week at the top of a candle means a lot of people sold and a long week at the bottom of the candle means a lot of people thought the dip.
The thicker part of the price candle is called the body, and this shows you where most of the trading happened during that time period.
Back in Honma’s day, these candlesticks were drawn out by hand, and over time, he noticed some price patterns would pop up over and over again.
The price pattern, see identified back then continue to be seen today and this is because they fundamentally reflect patterns of human emotion, namely Fear & Greed.
While there are hundreds of candlestick patterns some of the most common are triangles, wedges, and flags. Now, almost all candlestick patterns are drawn using lines of support and resistance.
Support and resistance lines are usually drawn in one of two ways by using the highest and lowest prices across a certain time period or by looking at where prices clustered in the past.
The line, on top, is the resistance line, and the line below is the support line. In theory, when the price touches a resistance line it will drop, and when it hits a support line it will bounce.
If the price drops below a support line, then that support becomes a new zone of resistance, and if it goes above a resistance line, then that resistance becomes a new zone of support.
This can sound pretty arbitrary, but it makes more sense when you realize that what you’re measuring is fundamentally how people feel about the price and direction of that crypto coin or token.
Let’s use an ascending triangle as a simple example of what I mean by this. Here you can see that the resistance line is more or less flat whereas the support line is going up.
If you were to translate what the market is saying into plain English, some of us think this crypto isn’t worth more than the resistance price but more of us are starting to think it might be.
When the resistance line meets the support line in an ascending triangle, you can think of it like, two groups of people coming together to decide whether the fair price for that crypto is above or below resistance.
More often than not the result of this convergence is something called a breakout where the price suddenly spikes to the upside or downside depending on the longer-term trend.
Naturally, if the long-term trend for the price of that asset is for it to go down, the triangle will likely, break to the downside and vice versa.
In the context of cryptocurrency long term usually means weeks or months, and you can usually tweak these time settings on the top left-hand corner of the trading terminal of your favorite exchange.
Zooming out makes it easier to spot the long-term price trend and makes it easier to identify its strong zones of price support or resistance.
These longer-term support and resistance lines are extremely important as they basically show you where most traders think crypto becomes too cheap or too expensive, relative to its fair value.
In terms of technical indicators, the only two you need to understand for the purposes of this post are trading volume (VOL) and moving averages (MA).
Trading volume is used by traders to confirm, whether a price pump or drop is legit or not, and like the price the size of each candlestick tells you how much volume is traded during that time period.
Red bars mean sell volume and green bars mean buy volume.
Moving average (MA) indicators show you the average price of that crypto over three different time periods. In this case, the chart is set to daily meaning the MA is showing me the average price over 7 days, 25 days and 99 days.
You can think of moving averages as being more mathematical versions of support and resistance lines.
Moving averages are probably the most widely used indicator by traders as they offer a less fuzzy view of what the fair price for a crypto coin or token is likely to be.
The Wyckoff Method
Now that you hopefully have some idea of how technical analysis trading works. Ask yourself this. What happens when every trader is relying on the same patterns and indicators? The short answer is that it makes it very profitable for someone to come in and disrupt the market by pushing the price above or below where most people expected it to go.
This is what Richard Wyckoff noticed over 100 years ago while working on Wall Street alongside Financial Titans by JPMorgan and Charles Dow.
Back then the average retail trader was constantly getting wrecked by institutions and large investors who would manipulate prices to essentially scare them out of their stocks and commodities.
To help people spots this market manipulation Wyckoff proposed that quote all the fluctuations in the market and in all the various stocks should be studied as if they were the result of one man’s operations. Let us call him the composite man who in theory, sits behind the scenes and manipulates the stocks to your disadvantage. If you do not understand the game as he plays it, and to your great profit If you do understand it.
Now does, this composite man sounds familiar. To be clear, Wyckoff's Method does not posit that large investors are conspiring together to manipulate the markets. All they’re doing is taking advantage of the market conditions that they see. In Wyckoff’s own words, they are playing by their own set of trading rules. Instead of looking at behavioral patterns they just look for areas that are packed with investors who are waiting to buy or sell.
For example, if they see that a bunch of greedy traders has set a 100x leverage position to go short on Bitcoin when the price drops under 40K, pushing past that price point and snapping back up means cheap liquidated BTC.
More importantly, this so-called smart money that dishes out the sort of dips we’ve seen recently does not actually want the assets it’s trading to go down to zero.
What they want is to suck out all the retail money in a market so that more of it can be injected back in later to their benefit. This actually ties into the basic sustainability of a bull run. If prices go up too quickly, they can only get so high before that growth becomes unsustainable.
A crash of some kind is required at some point to extend the length and It of a bull cycle. And that’s exactly what institutions want to cause when the market gets overheated.
Conversely, institutions don’t want the market to crash too much either. They’ll pump up the price if it stays too low for too long because they want to keep milking that cash cow of retail money.
Since the amount of money required to do something like breaker support or resistance line is so large. This makes institutional market activity quite easy to identify on a candlestick chart.
Like Honma Munehisa, Wyckoff thought that this institutional composite man would create the same four Price patterns with his buying and selling behavior.
Wyckoff Accumulation Price Pattern
Wyckoff's four institutional price patterns have been found in every tradable market ever since he defined them 100 years ago. They are accumulation, distribution re-accumulation, and re-distribution.
All of them play a role in the Wyckoff price cycle which you can see here.
Starting with accumulation you can see there’s a lot going on here. So let’s go through it one step at a time.
In Phase A of the accumulation pattern, you tend to have Preliminary Support or PS. You can think of this as being a pit stop on an otherwise aggressive price drop.
At the bottom of that downtrend, you will usually see a Selling Climax or SC. This is where the price goes so low that it scares weak hands into selling. The SC is often far below a key zone of price support.
Because the selling climax is caused by very strong short-term price manipulation. The rebound from the SC zone is often strong and in an Automatic Rally or AR.
Given that the average investor is feeling quite fearful even after this automatic rally prices will sometimes drop again for a Second Retest or ST.
In Phase B of the accumulation pattern, prices tend to move sideways within the trading range defined by the automatic rally and secondary test.
Since this is where institutions are buying the asset in question, the price will occasionally bounce outside of this trading range to keep retail investors uncertain about re-entering the market.
In Phase C of the accumulation pattern, it’s common to see a sudden downtrend ending with a spring a massive manipulated dip that scoops up any retail assets the institutions didn’t squeeze out earlier.
In Phase D of the accumulation pattern, the price finally starts to rebound and will sometimes correct one or more times in what is called the Last Point of Support or LPS.
The difference between the last points of support and secondary tests is that LPS dipped will have much lower sell volume, which proves that the selling isn’t serious.
Before exiting the accumulation pattern with Phase E, there will be a Sign Of Strength or SOS, which serves as confirmation that the price is likely to keep moving up.
The difference between sign of strength and any automatic rallies during the trading range is that SOS pumps will have much more buying volume confirming that the move upwards is genuine.
As the name suggests, the whole purpose of the accumulation phase is for institutions to buy as much of the asset as possible within a price Zone where the average investor and trader are paralyzed.
Wyckoff Distribution Price Pattern
Wyckoff's distribution pattern looks just as complex as his accumulation pattern, but it is just simple when you break it down bit by bit.
Usually, Phase A of a distribution pattern begins at the tail end of Phase E of an accumulation pattern. The first peak is the Preliminary Supply or PSY, which is where some retail traders start to sell.
This PSY point will be marked by relatively low selling volume. Around this time inexperienced investors start to come in and this causes the Buying Climax or BC shortly after the PSY.
This is where institutions start to sell their assets to the newcomers, and this is the Automatic Reaction or AR price tip.
After some time, the institutions will ease off some of the cell pressure and the market will spike back up to form the Secondary Retest or ST, which is usually just below the BC retail rally.
This marks the beginning of Phase B in the distribution pattern, which is where institutions gradually begin selling off their assets to new and existing retail investors.
As with Phase B of the accumulation, pattern institutions will occasionally push up the price to keep retail interest and confidence high while they secretly sell.
In Phase C of the distribution pattern, we see something called the Upthrust After Distribution or UTAD.
Whereas the spring is meant to shake out the retail investors, the UTAD is meant to get as many retail investors to buy in as possible through the fomo it causes.
Institutions start to aggressively sell to these investors causing the price to fall. This price collapse continues in Phase D of the distribution pattern.
The brief pause in the drop is marked by the Last Point Pf Supply or LPSY and is followed by a Sign Of Weakness or SOW, which falls below the support line drawn by the automatic reaction.
Phase E of the distribution pattern usually blends with phase a of the accumulation pattern, which readies the market for another run-up.
As the name again suggests, the distribution pattern is meant to make it possible for institutions to sell large amounts of crypto while keeping retail interest high through occasional price manipulation.
There is just one big takeaway here and that’s that accumulation and distribution patterns can sometimes continue.
The two remaining Wyckoff patterns of re-accumulation and redistribution look the same as an accumulation and distribution in their beginning phases but just lead to another drop or pop.
As with regular price patterns, Wyckoff patterns weren’t always looked the same in practice as they do in theory. So keep this in mind before you take these patterns to be predictors of the crypto market.
Wyckoff Detected In Bitcoin’s Price
As you might have guessed the recent drop we saw with Bitcoin since be characteristic of the Wyckoff distribution pattern printed by institutions.
Another crypto YouTuber called one complication notice this distribution pattern almost a month before the crash and I highly recommend you check out his video about that when you get the chance.
To quote on complication the primary goal of the distribution pattern is to exhaust retail demand, which is exactly what most of us felt when Bitcoin was bouncing between the high 50K and low 60K.
If you look at what Bitcoin was doing on the daily chart you can clearly see that all the points Wyckoff distribution pattern are present.
Moreover, you can see the Bitcoins price slipped below all three moving averages and even fell below the strong support at 38K.
When you zoom in on the 15-minute chart, you can see the Bitcoin suddenly collapsed a 30K when it hit that 38K support line. To the untrained eye, it looked and felt like the end. Make no mistakes here. However, these are the doings of the composite man.
Another dead giveaway that whales are at play is something called the institutional candle. While not the early part of Wyckoff price patterns, institutional candles are any abnormally large candlesticks that push past price levels that are supposed to be strong zones of support or resistance.
Anyways, it’s quite clear that what we’ve seen over the last few weeks has been institutional market activity allow work off distribution. The question now is what comes next.
What Happens Next?
I’m not a professional trader by any means but it looks like the crypto market is entering an institutional accumulation phase.
In terms of the taxonomy, I described earlier the dip down to 30K was the selling climax in Phase A. The run-up back to 42K was the automatic rally and the recent drop back down to 31K was the secondary test.
This means we are about to enter Phase B, which could see a sudden run-up to the 45K range in the next few days assuming we’re not there already.
What’s interesting is that you can even see institutional accumulation and distribution patterns playing out on Bitcoin’s shorter time frames.
This is not all that surprising considering these very same patterns are frequently seen in Forex Trading on minute-to-minute time frames.
On that note, some crypto traders, believe that institutional manipulation of the crypto market is a relatively new phenomenon that began with the introduction of the CME futures markets in 2017.
This is because the sort of phenomena we see now the price is dropping significantly below almost every moving average and support zone, never happened in previous bull market dips.
Unfortunately, there’s no way of knowing for sure how long this accumulation phase will last but if the previous bull market is anything to go by, we should be back on track in the next couple of weeks.
Now that said I have a gut feeling that we’re going to see some more pain before we see any serious gains. This is because Bitcoin dominance is still extremely low.
If Bitcoin dominance is low like it is now, that means people are still greedy enough to be holding lots of altcoins.
This is a problem because it could send a signal to institutions that there’s more retail money left to be drained from the crypto market.
The Wyckoff Method has also become a hot topic in the crypto space, and I reckon the institutions have taken note of this newfound knowledge we have.
Once everyone in crypto catches on to what’s going on, how will the smart money react? I can’t say, but I know that I’ll be hodling my crypto either way.