Hello back again at INDODAX Academy with Fay. This time, Fay wants to talk about the Wyckoff pattern!
Richard Wyckoff developed this pattern in the early 20th century.
Wyckoff’s pattern is a theory that explains the key elements in developing price trends.
This pattern is characterized by periods of accumulation and distribution.
There are four phases in the Wyckoff pattern, namely the accumulation, markup, distribution, and markdown phases.
The Wyckoff pattern is based on the concept of price movement being influenced by the forces of supply and demand.
During the accumulation phase, prices will move within a certain range because investors accumulate an asset at a relatively low price.
After the accumulation of the markup phase begins with prices that will rise sharply.
Then, in the distribution phase, asset prices will tend to move within a certain range again. This shows that investors are selling these assets at relatively high prices.
After the next distribution, it will enter a markdown or decline phase where the price drops sharply.
The Wyckoff pattern can help traders and investors to identify potential price movements, especially for the short term.
These patterns are often combined with other technical indicators to ensure stronger buy or sell signals.
Wyckoff defines the rules for use in conjunction with the accumulation, markup, distribution, and markdown phases.
So, the two rules in the Wyckoff pattern can help you identify the location and significance of prices in a wide spectrum of an uptrend, downtrend, and sideways markets.
Markets and individual securities never behave the same way twice.
Trends unfold through similar price patterns that reveal various sizes, details, and extensions.
Each incarnation changes quite surprisingly from the previous pattern, so market participants tend to need clarification.
Some modern traders refer to this as the shape-shifting phenomenon, which is always one step ahead of the pursuit of profit.
Wyckoff’s Second Rule
The importance of price movements for comparison with past price behavior.
The best way to evaluate today’s price action is to compare it to behavior that occurred yesterday, last week, last month, or even last year.
As a result of this rule, analyzing one day’s prices in a vacuum would lead to wrong conclusions.
In addition to the above rules, some rules are no less important.
Wyckoff sets out simple but powerful observational rules for trend recognition.
This shows that there are only three trends: rising, falling, and flat.
Then for the time frame, there are short-term, medium-term, and long-term.
Wyckoff’s theory of market cycles also supports Wyckoff’s method of defining how and why stocks and other securities move.
This is based on Wyckoff’s observations of supply and demand and if a security’s price moves in a cyclical pattern of four distinct phases.
From the discussion above, it can be concluded that Wyckoff has phases consisting of accumulation, markup, distribution, and markdown.
These phases represent trader behavior which also tells the direction of future stock price movements.
The accumulation phase occurs when institutional investors increase their purchases and drive demand.
As interest develops, range trading shows higher lows as prices position themselves to move higher.
With buyers gaining strength, the price will be pushed through the upper levels of the trading range.
In this markup phase, the chart will show a consistent uptrend.
Wow, that’s interesting! Next, what are you going to talk about? See you in the next video!