Wyckoff Distribution: BTC to the MOON!?!
More like BTC to it's doom and here's why. To be clear, I don't care if it goes up or down. I just trade it and do not hold any.
1. Potential Distribution pattern playing out:
Identifying the subphases of distribution within the context of the Wyckoff Method involves recognizing the transition from accumulation and markup to distribution and markdown in a stock's trading cycle. Distribution is the stage where after a prolonged uptrend, large investors start to sell their positions to the public before a downtrend begins. This phase is marked by specific subphases that indicate the shift in supply and demand dynamics. For the BTC scenario, here's how to identify each subphase:
Preliminary Supply (PSY)
Characteristics: An increase in volume and volatility suggests that large investors are starting to sell their shares. The stock may hit new highs, but these are often accompanied by noticeable increases in volume, indicating that supply is starting to overcome demand.
What to Look For: Look for signs of increased volume at price peaks and an initial increase in price spread (the difference between the high and low prices in a trading session), which may indicate the beginning of distribution.
Buying Climax (BC)
Characteristics: This subphase is a bit of a misnomer in the context of distribution, as it's more relevant to accumulation phases. However, in distribution phases, you might consider it as a "selling climax" where there is a sharp increase in volume and price volatility, indicating aggressive selling by large investors.
What to Look For: A rapid price increase to new highs on significantly high volume, followed by a sharp reversal. This indicates that the demand which drove the price up is no longer able to absorb the supply.
Automatic Reaction (AR) and Secondary Test (ST) in Distribution
Characteristics: After the climax, there's a reaction that sets the boundaries of the distribution range. The AR is the first significant pullback after the selling climax, indicating the initial balance between supply and demand. Secondary tests (STs) are attempts by the price to revisit the area of the climax or the reaction highs but with lesser volume, showing weakening demand.
What to Look For: Decreasing volume on rallies (STs) after the AR, indicating that buying pressure is diminishing. The price fails to reach previous highs or does so on significantly lower volume.
Sign of Weakness (SOW)
Characteristics: A move below the support level of the trading range on increased volume, indicating that supply is starting to dominate demand. This is a key sign that the distribution phase is well underway.
What to Look For: Price dips below the established support levels of the trading range on higher volume, followed by a weak rally that fails to reach the top of the trading range.
Upthrust After Distribution (UTAD) CURRENT PHASE
Characteristics: An upthrust occurs when the price moves above the resistance level of the trading range but then falls back into the range, failing to sustain higher levels. This is a bearish sign indicating that attempts to push the price higher are unsuccessful and that distribution is nearing its end.
What to Look For: A move above the trading range on low volume that quickly reverses, indicating a lack of demand at higher price levels. This often marks the final attempt to attract buying interest before a downward trend.
Last Point of Supply (LPSY)
Characteristics: The final phase of distribution, where the price makes a series of lower highs on diminishing volume. This indicates that the last remaining supply is being absorbed, and the market is ready to transition into a downtrend.
What to Look For: Decreased volume on rallies and the inability of the price to reach previous highs within the distribution range. This suggests that the selling is almost complete, and a downward trend is imminent.
2. Unrecovered Green Vector Candle Zones
If you take a look at the chart you will see brightly colored vector candles. These are areas of high volume, usually created by market makers. Looking back you can see that price always recovers these zones. Price has just recovered the red vectors from DEC 2021. You can see many cluster of green vectors candles that have not been recovered yet at the 30k, 20k, 17k, and as low as 4k. Many times these green vectors are market makers pushing prices higher to induce retail traders, but at the same time, the market makers are loading up on shorts. These unrecovered zones support the potential distribution phase as well.
1. Potential Distribution pattern playing out:
Identifying the subphases of distribution within the context of the Wyckoff Method involves recognizing the transition from accumulation and markup to distribution and markdown in a stock's trading cycle. Distribution is the stage where after a prolonged uptrend, large investors start to sell their positions to the public before a downtrend begins. This phase is marked by specific subphases that indicate the shift in supply and demand dynamics. For the BTC scenario, here's how to identify each subphase:
Preliminary Supply (PSY)
Characteristics: An increase in volume and volatility suggests that large investors are starting to sell their shares. The stock may hit new highs, but these are often accompanied by noticeable increases in volume, indicating that supply is starting to overcome demand.
What to Look For: Look for signs of increased volume at price peaks and an initial increase in price spread (the difference between the high and low prices in a trading session), which may indicate the beginning of distribution.
Buying Climax (BC)
Characteristics: This subphase is a bit of a misnomer in the context of distribution, as it's more relevant to accumulation phases. However, in distribution phases, you might consider it as a "selling climax" where there is a sharp increase in volume and price volatility, indicating aggressive selling by large investors.
What to Look For: A rapid price increase to new highs on significantly high volume, followed by a sharp reversal. This indicates that the demand which drove the price up is no longer able to absorb the supply.
Automatic Reaction (AR) and Secondary Test (ST) in Distribution
Characteristics: After the climax, there's a reaction that sets the boundaries of the distribution range. The AR is the first significant pullback after the selling climax, indicating the initial balance between supply and demand. Secondary tests (STs) are attempts by the price to revisit the area of the climax or the reaction highs but with lesser volume, showing weakening demand.
What to Look For: Decreasing volume on rallies (STs) after the AR, indicating that buying pressure is diminishing. The price fails to reach previous highs or does so on significantly lower volume.
Sign of Weakness (SOW)
Characteristics: A move below the support level of the trading range on increased volume, indicating that supply is starting to dominate demand. This is a key sign that the distribution phase is well underway.
What to Look For: Price dips below the established support levels of the trading range on higher volume, followed by a weak rally that fails to reach the top of the trading range.
Upthrust After Distribution (UTAD) CURRENT PHASE
Characteristics: An upthrust occurs when the price moves above the resistance level of the trading range but then falls back into the range, failing to sustain higher levels. This is a bearish sign indicating that attempts to push the price higher are unsuccessful and that distribution is nearing its end.
What to Look For: A move above the trading range on low volume that quickly reverses, indicating a lack of demand at higher price levels. This often marks the final attempt to attract buying interest before a downward trend.
Last Point of Supply (LPSY)
Characteristics: The final phase of distribution, where the price makes a series of lower highs on diminishing volume. This indicates that the last remaining supply is being absorbed, and the market is ready to transition into a downtrend.
What to Look For: Decreased volume on rallies and the inability of the price to reach previous highs within the distribution range. This suggests that the selling is almost complete, and a downward trend is imminent.
2. Unrecovered Green Vector Candle Zones
If you take a look at the chart you will see brightly colored vector candles. These are areas of high volume, usually created by market makers. Looking back you can see that price always recovers these zones. Price has just recovered the red vectors from DEC 2021. You can see many cluster of green vectors candles that have not been recovered yet at the 30k, 20k, 17k, and as low as 4k. Many times these green vectors are market makers pushing prices higher to induce retail traders, but at the same time, the market makers are loading up on shorts. These unrecovered zones support the potential distribution phase as well.
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