My Bi-Weekly Update for my chart, titled, "Bitcoin History From 2011 to Present Day Using Wyckoff Method." Someone said in a message ABOUT THE CHART ABOVE, "Neat but how can one trade based on this, good for hindsight???" So, I will provide a brief explanation below:
The purpose of Wyckoff Method is to gain an understanding of market conditions in an effort to determine the trend and supply/demand ratio in order to determine what phase of Accumulation or Distribution we are in while being aware of what events can potentially occur in each phase. Being aware of what occurs in each phase SHOULD lead one to adjust their trading strategy based on events that occur in each phase to minimize risk.
Most importantly, good indicators and an excellent understanding of how to use those indicators should be applied to help determine when a particular event within a phase is about to come to a close or begin in order to make your trade accordingly. Here's an example of what occurs in each phase for 2012 Accumulation Schematic:
Breakdown of each phase in the Accumulation Schematic that began in 2012:Breakdown of each phase in the Accumulation Schematic that began in 2015:We are currently in Phase D of a Wyckoff Accumulation Schematic.
Phase D: If we are correct in our analysis, what should follow is the consistent dominance of demand over supply. This is evidenced by a pattern of advances ("Sign of Strength" moves above previous resistance) on widening price spreads and increasing volume, as well as reactions ("Last Point of Support" moves that test previous resistance that becomes support) on smaller spreads and diminished volumes. During Phase D, the price will move at least to the top of the Trading Range. "Last Point of Support" in this phase is generally an excellent place to initiate or add to your bags and/or initiate profitable long positions.
Having a good understanding of HOW to use your indicators can help one determine when a "Sign of Strength" is potentially drawing to a close in order to potentially sell or initiate a profitable short position. Having a good understanding of HOW to use your indicators can also help one determine when a "Last Point of Support" event is about to begin so one can buy more coins again and/or initiate a profitable long position.
This was only a BRIEF explanation of HOW one would use Wyckoff Method IN CONJUNCTION with good indicators. There are other things to take into consideration as well. Such as, what kind of trader are you? What amount of time do you have to trade to determine what kind of trader you can AFFORD to be in order to minimize risk? What event has or is about to occur within a Phase of a schematic in order to have an idea of what to anticipate THEN have a look at your indicators to see if what you "anticipate" has a high potential of occurring. If that potential appears highly likely, then prepare to make the trade WHILE keeping in mind other factors to avoid making mistakes and reducing/managing risk.
Money management also plays a large role in managing risk. Which is why it's also important to determine what amount of time you can invest to trade to determine what KIND of trading you will initiate. For instance; If you determine you have time to scalp in very short time frames, a number of things have to be considered to determine if market conditions are conducive for scalping. I'm not going to get into details. I said this would only be brief. More details will be on my website in the near future.
Happy Trading and Stay Awesome!
David