BitcoinShort
Bitcoin: Wyckoff Distribution Theory Explained 1H (Aug. 14)
Updated
X Force Global Analysis:
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In this analysis, we explore Bitcoin's hourly chart through the Wyckoff Distribution Theory.
Readers can refer to our previous Wyckoffian cycle theory below:
Analysis
- Wyckoff’s theory is guided by the fact that every change in the market is made up of waves of buying and selling that will go on as long as they can attract a following. Essentially, it's about understanding supply and demand at overbought and oversold regions for a breakout or a break down.
- Distribution is the process of distributing (selling) an asset at the desired (best) price over a time period.
- This is the direct opposite of accumulation where the market participants are looking to secure an asset at the lowest possible cost.
- Typically we see periods of distribution after uptrends.
- Distribution happens when an equilibrium has been reached in price after an uptrend, where price stalls and begins to form a range.
- After an uptrend we’d look for signs of distribution or reaccumulation.
Terminology
- PSY (preliminary supply): This is where large interests begin to unload shares in quantity after a pronounced up-move. Volume expands and price spread widens, signaling that a change in trend may be approaching.
- BC (buying climax): This is the point during which there are often marked increases in volume and price spread. The force of buying reaches a climax, with heavy or urgent buying by the public being filled by professional interests at prices near a top. A BC often coincides with a great earnings report or other good news, since the large operators require huge demand from the public to sell their shares without depressing the stock price.
- AR (automatic reaction): With intense buying substantially diminished after the BC and heavy supply continuing, an AR takes place. The low of this selloff helps define the lower boundary of the distribution TR.
- ST (secondary test): The point in which price revisits the area of the BC to test the demand/supply balance at these price levels. For a top to be confirmed, supply must outweigh demand; volume and spread should thus decrease as price approaches the resistance area of the BC. An ST may take the form of an upthrust (UT), in which price moves above the resistance represented by the BC and possibly other STs before quickly reversing to close below resistance. After a UT, price often tests the lower boundary of the TR.
- SOW (sign of weakness): A point observable as a down-move to (or slightly past) the lower boundary of the TR, usually occurring on increased spread and volume. The AR and the initial SOW(s) indicate a change of character in the price action of Bitcoin; supply is now dominant.
- LPSY (last point of supply): After testing support on a SOW, a feeble rally on narrow spread shows that the market is having considerable difficulty advancing. This inability to rally may be due to weak demand, substantial supply or both. LPSYs represent exhaustion of demand and the last waves of large operators’ distribution before markdown begins in earnest.
- UTAD (upthrust after distribution): A UTAD is the distributional counterpart to the spring and terminal shakeout in the accumulation TR. It occurs in the latter stages of the TR and provides a definitive test of new demand after a breakout above TR resistance.
Market Sentiment:
Long short ratios remain dominantly bullish at 69 to 31. The Crypto Fear and Greed Index is at 75, Greed.
What We Believe
Based on the Wyckoffian Distribution Schematic and the confirmation provided by the trading volume, we believe that a retest of 10.5k is highly likely to take place, especially given that Bitcoin has broken down from its rising wedge structure.
Let us know what you think in the comment section below
Trade Safe.
If you find our analyses to be helpful, make sure to support us by dropping a ‘like’
In this analysis, we explore Bitcoin's hourly chart through the Wyckoff Distribution Theory.
Readers can refer to our previous Wyckoffian cycle theory below:
Analysis
- Wyckoff’s theory is guided by the fact that every change in the market is made up of waves of buying and selling that will go on as long as they can attract a following. Essentially, it's about understanding supply and demand at overbought and oversold regions for a breakout or a break down.
- Distribution is the process of distributing (selling) an asset at the desired (best) price over a time period.
- This is the direct opposite of accumulation where the market participants are looking to secure an asset at the lowest possible cost.
- Typically we see periods of distribution after uptrends.
- Distribution happens when an equilibrium has been reached in price after an uptrend, where price stalls and begins to form a range.
- After an uptrend we’d look for signs of distribution or reaccumulation.
Terminology
- PSY (preliminary supply): This is where large interests begin to unload shares in quantity after a pronounced up-move. Volume expands and price spread widens, signaling that a change in trend may be approaching.
- BC (buying climax): This is the point during which there are often marked increases in volume and price spread. The force of buying reaches a climax, with heavy or urgent buying by the public being filled by professional interests at prices near a top. A BC often coincides with a great earnings report or other good news, since the large operators require huge demand from the public to sell their shares without depressing the stock price.
- AR (automatic reaction): With intense buying substantially diminished after the BC and heavy supply continuing, an AR takes place. The low of this selloff helps define the lower boundary of the distribution TR.
- ST (secondary test): The point in which price revisits the area of the BC to test the demand/supply balance at these price levels. For a top to be confirmed, supply must outweigh demand; volume and spread should thus decrease as price approaches the resistance area of the BC. An ST may take the form of an upthrust (UT), in which price moves above the resistance represented by the BC and possibly other STs before quickly reversing to close below resistance. After a UT, price often tests the lower boundary of the TR.
- SOW (sign of weakness): A point observable as a down-move to (or slightly past) the lower boundary of the TR, usually occurring on increased spread and volume. The AR and the initial SOW(s) indicate a change of character in the price action of Bitcoin; supply is now dominant.
- LPSY (last point of supply): After testing support on a SOW, a feeble rally on narrow spread shows that the market is having considerable difficulty advancing. This inability to rally may be due to weak demand, substantial supply or both. LPSYs represent exhaustion of demand and the last waves of large operators’ distribution before markdown begins in earnest.
- UTAD (upthrust after distribution): A UTAD is the distributional counterpart to the spring and terminal shakeout in the accumulation TR. It occurs in the latter stages of the TR and provides a definitive test of new demand after a breakout above TR resistance.
Market Sentiment:
Long short ratios remain dominantly bullish at 69 to 31. The Crypto Fear and Greed Index is at 75, Greed.
What We Believe
Based on the Wyckoffian Distribution Schematic and the confirmation provided by the trading volume, we believe that a retest of 10.5k is highly likely to take place, especially given that Bitcoin has broken down from its rising wedge structure.
Let us know what you think in the comment section below
Trade Safe.
Note
Zooming out to the daily chart, we can spot a few things:
- Bitcoin has been rejected by the mid-long term ascending trend line support, marked by the dotted while line
- The support (now turned resistance) has been tested numerous times throughout Bitcoin's consolidation and mark up phases from 3k levels, as marked by the purple circles
- We can also see that the channel (in orange), between 8.5k and 10.5k act as a strong area of confluence.
- Prices are currently struggling to break and close above the 0.786 Fibonacci retracement resistance again at 11.7k levels
- Should we see a corrective trend taking place soon, we could expect strong support at 10.5k, and 9.5k, as marked by the green areas.
- Especially, in the case of 10.5k, it has historical data of having acted as strong resistance, and currently converges with the Ichimoku cloud, as well as the second less steep trend line support marked in orange.
Trade safe.
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