[Wyckoff Trading Method] - Phase 1 (Wyckoff Cycle Theory) 🏝️
Wyckoff has a total of 12 phases, which is a complete trading system, worth praising ❤️, collecting 📖, continuing to learn and watch repeatedly ⏰. If you have questions, please leave them in the comments, and I will reply ~
1️⃣ Basic definition:
Wyckoff believes that the market is driven by human nature and capital, and that changes in market prices exhibit cyclicality. The Wyckoff Cycle Theory describes how the relationship between supply and demand and psychological behaviors drive prices to move through a complete cycle.
🌟 Supply and demand relationship: The market price is determined by the relationship between supply and demand. When demand exceeds supply, prices rise; conversely, they fall. What we need to do is judge whether this phase is dominated by demand or supply, which is crucial.
🌟 Psychological behavior: Chasing rises and selling on dips is human nature. Investment markets aim to organize and eliminate this human nature, but individual investors cannot do this. The main funds manipulate prices to influence retail investors' psychology, thereby completing the harvest.
In summary: Institutions or the main funds buy at low levels and distribute to retail investors at high levels, going through stages (accumulation - re-accumulation - mark-up - distribution - re-distribution - decline), then cycle again into the next Wyckoff cycle, repeating endlessly.
2️⃣ Wyckoff market four phases
1) Accumulation phase
When the market is in a low-level sideways consolidation, the main funds (institutional investors) quietly accumulate chips and gradually build positions.
Key characteristics:
-- Price fluctuation range is small, market sentiment is generally sluggish.
-- Trading volume is relatively sluggish, but there may be slight increases in localized areas (main funds' accumulation behavior).
-- The main funds use panic selling, false breakouts, and other means to collect chips.
-- Towards the end of the phase, prices gradually form a trend of higher highs and higher lows.
Objective: The main funds collect enough chips at lower prices to prepare for the subsequent rising phase.
2) Rising phase
After the main funds complete their accumulation, they begin to push up prices, attracting market attention and prompting retail investors to chase the rise.
Key characteristics:
-- Prices break through the accumulation phase's sideways range and continue to rise.
-- Trading volume increases, market sentiment shifts from sluggish to optimistic.
-- A large number of retail investors enter the market, driving prices higher.
Objective: The main funds may not sell a large amount at this stage but instead continuously push up prices to attract more following orders (retail investors) to enter the market, raising future profit margins.
3) Distribution phase
The main funds distribute at high prices, gradually selling chips to retail investors chasing the rise.
Key characteristics:
-- Prices consolidate sideways at high levels, forming a distribution range.
-- Trading volume gradually increases, but prices struggle to make new highs.
-- The main funds create a false image of market strength (such as false breakouts) to attract retail investors to chase the rise.
Objective: To successfully distribute most of the chips to retail investors without triggering a significant market correction.
4) Declining phase
After the main funds complete distribution, the market enters the declining phase, and prices return to low levels.
Key characteristics:
-- Prices break below the distribution phase's sideways range and begin to decline.
-- Trading volume increases, market sentiment shifts from optimistic to panic.
-- Retail investors panic sell, further exacerbating the price decline.
Objective: The main funds observe at this stage, waiting for prices to fall back to low levels to enter a new cycle of accumulation.
🌟 Wyckoff cycle chart 🌟
[Accumulation illustration] (Image source: Internet)
[Distribution illustration] (Image source: Internet)