Fundamental Tenets of Wyckoff's Theory:
Accumulation and Distribution
According to Wyckoff, the market experiences phases of accumulation (accumulating assets) and distribution preceding major price shifts. During accumulation, institutional traders (known as 'smart money') collect the asset, while in the distribution phase, they exit the market.
Price and Volume Analysis
A core aspect of Wyckoff's theory involves analyzing the relationship between price and volume. A surge in volume concurrent with a price shift can indicate either the strength of a trend or a potential reversal.
Key Levels and Control Points
The theory identifies crucial support and resistance levels that serve as control points. These levels play a vital role in determining potential shifts in price control.
Phases of Trend Development
Wyckoff outlined three phases of trend development: accumulation, distribution, and price movement. He suggested that traders use this insight to decide when to enter the market.
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