Wyckoff Logic: Finding Entry into a MarketsteemCreated with Sketch.

in #money6 years ago

Richard Wyckoff (1873-1934):

Richard Wyckoff is one of the most respect stock market analysts of all time. Wyckoff operated as a trader, student, and educator of financial markets. He even ran a Wall Street magazine that had over 200,000 subscribers. His main interest was in the logic behind price action in the markets. In particular, Wyckoff took notice of how retail investors were constantly taken to the cleaners. He made it his main focus to educate the average retail investor about how "smart money" (banks and other big players) was moving in and out of the markets. 

The Composite Man:

Wyckoff recognized that smart money moves into markets almost simultaneously. For educational purposes, Wyckoff created the "composite man" as a tool to depict the movements of markets as the result of the actions of one "composite" man.

 Based on his years of observations of the market activities of large operators, Wyckoff taught that:
  • The Composite Man carefully plans, executes, and concludes his campaigns.
  • The Composite Man attracts the public to buy a stock in which he has already accumulated a sizeable line of shares by making many transactions involving a large number of shares, in effect advertising his stock by creating the appearance of a “broad market.”
  • One must study individual stock charts with the purpose of judging the behavior of the stock and the motives of those large operators who dominate it.
  • With study and practice, one can acquire the ability to interpret the motives behind the action that a chart portrays. Wyckoff and his associates believed that if one could understand the market behavior of the Composite Man, one could identify many trading and investment opportunities early enough to profit from them.

Source

Wyckoff Logic:

Here we have a diagram of the market phases developed by Wyckoff. It's important to remember Wyckoff's emphasis on supply and demand, cause and effect, and effort.

Wyckoff Logic Applied to the Dow Jones:

Here I did a bit of drawing on the Dow Jones Industrial Average weekly charts of how Wyckoff's logic would apply to this current market. I do believe that we have just entered a distribution phase that will have a lot of volatility with just sideways movement for the most part. 

Wyckoff Logic Applied to Gold:

Here I have done a drawing applying Wyckoff's logic to the gold price. In my opinion, it is currently in the accumulation phase.

Wyckoff Logic Applied to Bitcoin:

Bitcoin is currently in a mark down phase, clearly. It must successfully break into a positive upward trend for it to be in a stage appropriate for accumulation.

The Accumulation Phase: 

In this phase, there is a high supply with low demand. The effect of high supply and low demand is rock bottom prices. This phase occurs at the bottom of a nasty bear market. Usually, because of the downturn, the asset has become hated and the average retail investor is too scared to touch it. This is when smart money enters. Wyckoff taught the general public to enter the market during accumulation phases.

The Mark Up Phase: 

This phase occurs when the supply of an asset has been diminished from the quiet buying of the composite man.  The demand then picks up when retail investors start taking notice of the upside of the underlying asset. Their demand and purchasing then send the price higher and initiates the first "pop" upwards of a bull market.

The Distribution Phase: 

During this phase, demand stays the same, while supply increases. This causes prices to start leveling off while the composite man "distributes" his assets into the hands of the retail investors. It's common for the average Joe to jump into the market right about now and get fleeced.

The Mark Down Phase:

During the mark down phase, supply is at an all time high, meaning that the sellers outweigh the buyers and investors are panicking to get out of the market. This is the phase where an asset changes course and enters a down trend, or bear market. By the time this occurs, the composite man has already taken his profits with some hefty gains.

Overview:

One of my main goals in life is to help the average person understand the general market cycles. It's not complicated to learn, in fact it's pretty simple. The only issue is that there is a lot of misinformation out there causing people to enter markets at the wrong time. Wyckoff does an excellent job of breaking down the basics of market phases for the average retail investor. Out of all revered market analysts, my views align with Wyckoff's the most.

Disclaimer: I am not a financial advisor. The articles that I write are for educational purposes only. Do your own research and hold yourself accountable for the investments that you choose to make.

Thanks for Reading!



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