Image edited by me on Pixlr.com

Hello dear Steemians, I hope you all are doing well. This week has been amazing for us because it has provided us a great opportunity to learn new concepts about cryptocurrency and how we can make precise moves by use of indicators. Today, I am going to write my homework post for my professor @fendit, and its topic is Wyckoff Trading Method. So let’s start

Introduction

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The Wyckoff Method is a technical analysis technique used in navigation of financial markets based on the study of link between supply and demand. It was conceived and founded by Richard D. Wyckoff, a market analyst and trader in 1888. Richard Wyckoff was a stock runner for 15 years. This trading method shows that prices can be forecasted and expected by evaluating volume-, pricing- and time-related data which lead to an understanding of supply and demand. He concluded that when we are about to reach the end of the accumulation zone, the optimal period for placing long orders is when prices are being marked. On the other hand, when we see that supply is growing higher than demand, it is the optimal time to make short orders. Thus, we can optimize the timing of the market while placing orders or thinking about certain assets.

1) Share your understanding on "Composite Man" and the fundamental laws. What's your point of view on them?

Understanding Composite Man.

Composite man is a hypothetical market persona that Richard D. Wyckoff proposes to assist traders in understanding market psychology better. He gave this idea as an imaginary representation of a self-centered, single individual who can control the market. He called it as a composite man. It made investors to virtually correlate it with financial entities that play an important role in the market. I believe this concept of composite man would make the pricing of assets on the market easier for us to understand. Prior to the idea of composite man, it was difficult to analyze market situation because it was controlled by big investors and traders that had direct influence on market trends. The Wyckoff procedure reveals the intents of stock super dealers, who he called Composite operator or composite man. This approach is based on analysis of trade volume and prices on the tape. Itsbehavior noticed through volume and price changes was regardedto hold the secret to predicting future markets. These observations have led him to assume that there were three different laws on the stock exchange and four phases of price cycle.
First I will discuss his price cycle and then fundamental laws that play a vital role in understanding key concepts.

Accumulation

We can understand from the word ‘accumulation’ means to gather. In this phase, the composite man gathers all assets before other investors to start the trade. It can be called as a warm up phase also, because the composite man organizes himself and his assets before jumping into trade. Here in accumulation, fluctuations in market price and volume are least so there is no need to worry about variations.

Upward or Markup Trend

The composite Man tries to increase the price once the accumulation has ended and the supply is scarce. Since there is greater volume and movement in this asset, the price increase is likely to also attract more investors.

Distribution

In this phase of distribution, the chart will show sideways swings as the Composite Man sells his stake very slowly, until the demand is fully absorbed and the price has peaked.So, the holdings of the composite man will be sold to only a few buyers in this time.

Downward or Markdown trend

We can understand from the term ‘downward’ the means, the composite man tries to decrease price after he has sold his holdings at high prices. Here, the supply will dominate the demand because other investors also try to sell their holdings. It is opposite of markup trend. If one has understood markup or markdown, it is easier for him to understand other.
Now I shall discuss three fundamentals laws in Wyckoff trading strategy:

1) The Law of Supply & Demand

This law states that, if supply is scarce, the value of that thing shall be increased such that supply must satisfy the demand. Or, if there's excessive amount, the value will decrease so that the demand required to absorb that supply can be attracted.

2)The Law of Cause & Effect

According to this law, there must be a certain cause that has affected the price and it is an effect caused by a source. The impact is directly related to this cause. For example. Best price movements occur when sufficient time is available to permit a distribution or accumulation phase (or in other words a cause).

3) The Law of Effort vs. Result

Last but not the least, this law states that, if the effort exists (volume move), the result (pricing) must be proportionate and cannot be isolated from that effort. And if is not proportionate, it means other principles are in action, and it also an indicator. Thus, the price and volume in movement should be in keeping touch with each other. We should see a lot of moving if we've got a lot of volumes.

My Views on these fundamental laws

The first two laws are commonly knows and applied in daily life economics. So it is not a rocket science to conceive or understand them. We know the fact the crypto markets are much volatile and it is a play of professional traders who understand the psyche of the market. I would say supply and demand laws in crypto are different as compared to other economic analyses. If I talk about, law of cause and effect, I believe yes, it is true because there is always a source to cause an effect. It can be anything like a devastating news in market that can effect price. In law of effort vs. result, we learn what is happening when we don't see the move. We are the detector here and use our instruments to assess the result (price) in the appropriate effort (volume).

2) Share a chart of any cryptocurrency of your choice (BTC or ETH won't be taken into account for this work) and analyze it by applying this method. Show clearly the different phases, how the volume changes and give detail of what you're seeing.

To demonstrate the Wyckoff trading strategy and its price cycle, I will use a ZIL/BNB price chart of 15 min time frame.

Screen taken from Binance application
From the above demonstration of price cycle, we can notice that in accumulation phase the composite man is preparing himself to gather the assets. Next, he tries to push up the market and price goes up that shows a markup trend. In this phase, the composite man sells his assets to get profits. In distribution phase, the composite man slows down his selling positions but other investors also try to sell their holdings. So we can see least price fluctuations here. In Markdown phase, the composite man tries to pull down the price and here the supply is more than the demand and investors try to sell their assets at low prices.

Conclusion

This trading strategy helps to predict the prices on the basis of market volume (Supply and demand). The price cycle is divided into four phases; accumulation, markup, distribution and markdown trends. These phases help to observe the entry and exit points in trade and also analyze price movements in market. The application of fundamental laws that I have discussed above, make it easier to understand the behavior of market.