Crypto Academy Season 2: Week 8 – The Wyckoff Method – by @fendit

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

The Wyckoff method and composite man are very popular strategies in technical analysis. As far as technical analysis is concerned, there are so many strategies and tools that have been created to help traders take advantage of the marker movements and make more profits. The Composite Man is one of the most used in the Wyckoff method. The idea behind the composite man by Wyckoff was to create an imaginary identity of the market. In the Wyckoff theory, he proposed that traders should learn and focus on the market and treat the cryptocurrency market like a single entity that was controlling the market. With that, it would be easier to follow the cryptocurrency market trends.

In the composite man, the single entity represents the market makers or can be referred to as the big investors in the market because they have a big influence in the market. The main goals of the composite man is to enter the market and buy low and exit the market and sell high. In the composite man concept, there are four phases that make up the market cycle which are the accumulation phase, the uptrend phase, the distribution phase and the downtrend phase. These phases complete the market cycle in the Wyckoff method or theory.

Source

Accumulation Phase

This is the first phase of the cryptocurrency market cycle. This phase is known as the accumulation phase because it is the phase where the composite man loads his bags and continues to accumulate more cryptocurrencies before the others. In this phase, the market might move horizontally or fluctuate up and down, but will mostly remain in similar price zones. As the composite man continues to accumulate gradually by buying at different price levels, the market only moves slightly.

Uptrend Phase

This is the second phase of the cryptocurrency market cycle. During the uptrend phase or bullish phase, there are more demand in the market and the selling force is suppressed which results to the price to increase. As more and more enter the market, the price continues to rise which attracts other investors which causes the market to become bullish. In the uptrend phase, the composite man is holding enough coins and is not selling, waiting for the right time to take profit. The uptrend phase might have multiple accumulations which is referred to as the re-accumulation. As price increases, earlier investors will sell off their holding, however, the high demand will suppress the selling pressure and cause the price to continue to move in an uptrend direction.

Distribution phase

This is the third phase of the cryptocurrency market cycle. In the distribution phase, the composite man has made enough profit from the increase in price, and starts to take profit by selling some of the coins. New investors buy these coins. The market is still bullish, however, the demand begins to diminish, the selling pressure from the composite man begins to suppress the demand and eventually, suppressing the demand. This causes the price to fall and the market begins to move in a downtrend.

Downtrend phase

This is the fourth and final phase of the cryptocurrency market cycle. This phase simply conforms that the market is in a downtrend or bearish. The composite man is selling his holdings to take profit, other investors sell out of FUD, and this causes the prices to continue to fall or move horizontally. This is as a result of the low volume caused by the decrease in demand. In this phase, there is also re-distribution because of the market movements and investors who think the market would begin to rise and fall into the trap. However, as the demand keeps reducing and the selling pressure continues to rise, the market continues to fall, creating multiple support levels.

Fundamental laws

The fundamental law play a key role in the Wyckoff method and consist of three laws. The law of supply and demand, the law of cause and effect and the law of efforts and results.

Law of Supply and Demand

This is the first law of the three fundamental laws. The law of demand and supply simply the main reason that determines the price in any cryptocurrency market. The relationship between demand and supply is what determines the price of any cryptocurrency asset. In simple terms, when the demand of a particular cryptocurrency is high, there is a greater chance of price increase. When the demand is higher than the supply or the rate of increase in demand is higher than the rate of increase in supply, price increases which causes the market to move upwards. When the supply is higher than the demand or the rate of increase in supply is higher than the rate of increase in demand, price decreases, this causes the market to move downwards. When the demand is equal to the supply, there are no significant price changes, hence price is either stable or move sideways.

The Law of Cause and Effect

This is the second law of the fundamental laws. In the law of cause and effect, it talks about that there is a relationship between the price movements and the actions that took place in the early stages. In simple terms, the law suggests that the changes in the supply and demand of any cryptocurrency doesn’t just happen at a random, instead it is as a result of past actions and events. Based on the Wyckoff method, it is the actions that took place in the accumulation or distribution phase that determines if the market will be bullish or bearish. Based on this, the accumulation or distribution phase are the cause and the uptrend and downtrend phase are the effects. The accumulation phase causes the market to move in an uptrend, and the distribution phase causes the market to move in a downtrend.

The law of efforts and result

This is the third law in the fundamental laws. In the law of efforts and results, price changes in the market is as a result of efforts. In simple terms, the law of efforts and results suggests that it is the price changes in either uptrend or downtrend is as a result of the efforts. For a trend to be maintained, the volume which is the efforts and price actions needs to directly proportional. Simply put, the trend in the market moves in a certain direction depending on the connection between the efforts and results. If the volume is high and the price is high, then the uptrend will be maintained. If the volume is low and the price is low, then the downtrend will be maintained. If there is a significant difference in the volume and price, then the market would most likely reverse upwards or downwards.

Share a chart of any cryptocurrency of your choice

I will be using the ENJ/USDT pair. From the chart, you can see that the different phases of the market cycle. The accumulation phase began at the region of $0.2263 price point. This is the phase where the composite man is accumulating ENJ. As more and more investors continue to invest and accumulate, the price began to rise which cause the ENJ market to move into an uptrend. In the Uptrend phase, the price went all the way up to $2.6693. As some investors begin to sell which brings the re-accumulation. The rate of demand continued to rise, suppressing the selling force, the price broke its resistance level and entered a new high.

The next phase was the distribution phase, You can see on the chart that correction and reversal took place at the end of the uptrend which was at the $3.5484 price point. In this phase, the composite man is has made enough profit and is now taking selling his holdings to take profit. The demand began to reduce, the selling force continued to increase, this began to cause the price to fall. As demand continued to reduce and more and more investors began to sell and take profit, the price entered into a downtrend. In the downtrend phase, we can see the re-distribution caused by investors who fell into the trap because they thought the market would bounce back up. The selling force suppressed the buying force, which pushed the price downwards

Conclusion

The Composite Man is one of the most used in the Wyckoff method, it is a concept that benefits the big investors who are able to move the market. When it comes to understanding market movements, the Wyckoff method comes into play. Understanding the fundamental laws is very important when it comes to investing or trading any cryptocurrency.

Task post for @fendit