Wyckoff Accumulation & Distribution

2023年8月30日

The Wyckoff Method, pioneered by Richard Wyckoff, a prominent figure in the early 1900s stock market, remains a powerful technical analysis-based trading approach. This article delves into the intricacies of the Wyckoff Accumulation and Distribution phases, fundamental to this method.



Who was Richard Wyckoff?

Richard Wyckoff, a highly successful American stock market investor of his time, stands as a pioneer in technical analysis. He transitioned from accumulating personal wealth to addressing what he perceived as market injustices, devising the Wyckoff Method to empower traders against market manipulation. Through various platforms like his own Magazine of Wall Street and Stock Market Technique, Wyckoff disseminated his insights.



The Wyckoff Method:

Wyckoff proposed that markets undergo distinct phases: Accumulation and Distribution. These phases guide traders on when to accumulate or distribute their positions, forming the core of the method.




The Wyckoff Accumulation Phase:

This phase materializes as a sideways, range-bound period subsequent to a prolonged downtrend. During this stage, significant players seek to establish positions without causing dramatic price drops. The accumulation phase comprises six integral components, each serving a vital role:

1. Preliminary Support (PS): As signs of the downtrend ending emerge, high volume and wider spreads surface. Buyers initiate interest, suggesting the end of selling dominance.
   
   
2. Selling Climax (SC): Characterized by intense selling pressure and panic selling, this phase represents a sharp price decline. Often, price closes well above the lowest point.
   
   
3. Automatic Rally (AR): Late sellers experience a reversal, driven by short sellers covering positions. This phase sets the upper range limit for subsequent consolidation.
   
   
4. Secondary Test (ST): Controlled retesting of lows with minimal volume increase indicates potential reversal.
   
   
5. Spring: A deceptive move resembling a downtrend resumption, designed to deceive and shakeout participants.
   
   
6. Last Point of Support, Back Up, and Sign of Strength (LPS, BU, SOS): Clear shifts in price action mark the transition into the range's start. A rapid, one-sided move signifies buyer control, often following the spring.
   

Wyckoff Distribution Cycle:

Following Accumulation, the Wyckoff Distribution phase unfolds. This cycle consists of five phases:

1. Preliminary Supply (PSY): Dominant traders initiate selling after a notable price rise, leading to increased trading volume.
   
   
2. Buying Climax (BC): Retail traders enter positions, driving further price increase. Dominant traders capitalize on premium prices to sell.
   
   
3. Automatic Reaction (AR): The end of the BC phase brings a price drop due to decreased buying. High supply causes a decline to the AR level.
   
   
4. Secondary Test (ST): Price retests the BC range, assessing supply and demand balance.
   
   
5. Sign of Weakness, Last Point of Supply, Upthrust After Distribution (SOW, LPSY, UTAD): SOW signals price weakness, LPSY tests support, and UTAD might occur near cycle's end, pushing the upper boundary.
   

Wyckoff Reaccumulation and Redistribution Cycles:

Reaccumulation occurs during uptrends, as dominant traders accumulate shares during price pauses. Redistribution, during downtrends, begins with sharp price rallies as short sellers capitalize.

Dominant traders strategically enter positions during these rallies.



Wyckoff's Foundational Concepts:

Law of Supply and Demand:
Prices rise when demand is high and supply is low. Prices fall when supply is high and demand is low. Balanced supply and demand lead to stable prices.

Law of Cause and Effect:
Price changes are driven by specific underlying factors. Price rises result from accumulation phases, while drops arise from distribution phases.

Law of Effort vs. Result:
Trading volume should match price movement. Deviations signal potential shifts in market sentiment or upcoming opportunities.



The Wyckoff Method is relevant to all markets, including cryptocurrencies like Bitcoin, where supply and demand play a crucial role in influencing price movements.

2023年8月30日

註釋

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