Steemit Crypto Academy - Season 2, Week 8 [homework post for professor @fendit] Wychoff theory

Here, the bearish stage sets in. After the composite man had emptied his hoarding, he begins to bid substantiously at a lower price, and because he has succeded in melting the uptrend and distribution phases, investors who wouldn't want to lose at large would start to sell off their investment and the composite man will start hoarding again in preparation for another round of a new phase, and the price of the asset begins to move in a downtrend/bearish manner. Smiles

It's mandatory for every students in the high class to study Economics as a subject in my country, so I think I still remember the law of demand and supply that states that demand is the rate at which consumers wish to buy a particular product or commodity at different price. When the price of commodity increases, the willingness of the seller to sell more of his goods increase. , and this depends on two factors, which are taste and the ability to afford the commodity. And supply is the ability to provide the quantity needed by consumers which is determined by sellers action. In the law of demand and supply propounded by Wyckoff in his theory, it's similar, because if there is excess supply due to excess selling pressure, there would be a decrease in price, and there would be an increase in price if there is a buying pressure caused by excess demand

During the Ebola epidemy, some people spread the rumor that bathing with salt would prevent the disease. Within few days, the price of salt sky rocketed and it became a scarce commodity. That's just the law of demand and supply. The rate at which people demand for salt increased and the supply was limited, so it affected the price in an uptrend manner. Also, during the period they said Beans killed people in the Northern part of Nigeria, no one was interested in buying Beans for some period. Those selling Beans could get market for their goods and they started selling at a cheaper price. The law of demand and supply is more of a practical we encounter in our daily life, and it plays a lot of role in the crypto and forex market as well

It is pure and glaring that every cause in the market leads to a corresponding effect. If we look at the accumulation and distribution phases, one thing always lead to another. The distribution stage gives rise to the downward movement (Markdown), which causes decrease in price and also the accumulation stage causes an uptrend movement with an increase in price, so we can say: The accumulation and distribution is the cause, while the markup and the markdown is the effect

Once effort is put into anything, there must definitely be a result. So in the financial market, any effort must also yield a result. The trading volume of asset is the criteria used to measure the effort to know whether it is positive or negative, which is the result. When the volume is high (Effort), there would be a big price move(Result). Likewise when the volume is low (Effort), the price move will pullmet. The higher the volume, the higher the price goes and vice versa. This is related to the law of demand and supply

Wychoff method is a good tool that explains many things about the market and it gave a lot of insight on how to go about trading with a reasonable percentage of bagging some profit at the end of each trade. Traders can use the price cycle to recognize the uptrend, and downtrend movement, through the accumulation and distribution stages. It helps traders to position themselves for the next likely price tendency. As sweet and interesting as the wychoff method, we cannot still trust it 100% because there is no sure thing in forex and crypto trading because they move with a high level of volatility, which sometimes would move in an unexpected way even after applying the wychoff method. So we need to be vigilant, do the right thing at the right time, and play our game well

Whenever we see that the price action is transiting from accumulation to markup stage. We should enter the market and take our profit when we see the markup transition (At the right time). Why the composite man is able to play his game well is because many traders didn't know the right entry and exit point. Many enter the trade at the wrong time and the end up falling into the category of the markdown period. In order to make a good use of Wychoff method, we should use other indicators as well to know when the right entry and exit point. The MACD (Moving Average Convergence Divergence ), RSI, StchasticsRSI, and so on are good indicators that would help to determine many factors before entering a trade

As for me, I like using the StochasticRSI to know my exit and entry point accompanied with Support and resistance level. As they say

Only one indicator of technical analysis cannot be successfully used to predict the movement of the market. If other indicators are used together, I'm sure to a reasonable degree that prediction would make a whole lot of sense for the trader. I would say the composite man is the big game in the Wychoff method. The more we understand his game, the better we perform in the market

From the above image, the blue line in the blue circle represents the accumulation process. If you notice well, you will discover that the line is in a slanting form and the bottoms increase. The small yellow circle is the point where the breakout starts and it is called the Wychoff spring. It goes lower than other zigzag wave drawn. And according to the Wyckoff cycle, the wychoff spring is the point where the price action dipped below the accumulation channel and goes beyond the distribution channel before a real breakout is created

Immediately after this, the markup starts. The green line shows the bullish movement of the asset (ADA/BNB). As the composite man take his profit by selling at higher price as the market go up, some investors buy and buy at higher price, and at some point, there was a re-accumulation, though very small. In fact, it's almost not noticeable. I use the pink line to show the slight move. The market isn't that balance from that point because it shows lots of ups and down before the distribution phase sets in according to the graph. The distribution page (labelled and designed with purple color) is where the composite man balance with his profit after he has emptied his wallet by selling off ADA coin, and before the other traders could say Jack Robinson, the Markdon phase begins because the law of supply has set in because when supply is high and demand is limited, the price will begin to fall. As the price falls, the composite man buy back and the market keeps crashing and coming down

The first image before this was from Binance, while the one above is from Bittrex. From the image, we can see the accumulation phase wherenthe blue line is drawn. It w3as followed by the uptrend, with several re-accumulation on the way up, before it got to the distribution level, followed by the markdown and re-distribution before the steep markdown. All these are the stages the market pass through at all time

Richard Wychoff was a man of honour. He developed the Wychoff method that most traders use today and he based his research on price cycle. The important Wychoff rules stated is of uttermost important likewise the law of demand and supply, cause and effect, then effort and result. The four phases /stages of the wychoff price cycle is also an important part that would not be neglected (Accumulation, markup, Distribution and markdown.). We should not also forget that volume is important while trading the market using the Wychoff price cycle. Also, the trading strategy is to open trade with respect to the accumulation and markup or from distribution to markdown especially in forex. Only the markup is favourable in crypto trading

In conclusion, I've learnt a lot from the Wychoff method, and I really appreciate professor @fendit for bringing us this wonderful topic. The research made in the course of gathering this homework is helpful and the fact is this: Everything I've learned has become a part of me and it will dwell forever. I never regret the time spent to put this homework together. Infact, I'm more than grateful