XRP Richard Wyckoff (Re-accumulating Schematic)Hello Traders!
Boy do I have a treat for you today!
What you are looking at here is a Schematic founded by the late Richard Wyckoff, a mogul to the history of technical analysis and stock trading or as most of us would refer to him as... the
"OG" of getting his paper up. As legend has it, Wyckoff being the savvy trader he was in the early 1900's, noticed that markets had became rather manipulated thus, being very difficult for the average trader to be profitable. Wyckoff was no average joe you see, he'd been working in the stock market from a very young age, grabbing print outs of stock ticker updates at a firm in New York as a kid, picking up a wealth of knowledge along the way. Which later in life helped him develop what we refer to today as Wyckoffian Logic. This is what we are here to discuss today. Idk if you're a fan of stories and theories that make you go hmmm but, if you are you will enjoy the rest.
Ok, lets get to the meat and potato's of the story here. As I said before, Wyckoff developed a trading strategy based on what he saw as market makers (or as Wyckoff referred to them as " The Composite Man" and developed a heuristic device to help understand price movements in individual stocks and markets as a whole which he dubbed the "Composite Man*" .) working in unison against the rest of the market. This did not sit well with him...
Now, if you are new to trading, let me be the first to tell you that even with the best TA (Technical Analysis) skills in the world you will still get your profit split by a market maker from time to time this should be expected. To minimize your losses and maximize your profits having a strategy is imperative. Tools such as using proper risk management approaches that fit your risk tolerance and not over allocating your funds is extremely helpful against this an all aspects of being profitable. The main reason the market maker is able to create liquidity from your trades taking your funds making them his/hers (For someone to make money in the market another has to lose money in the market) is the psychology behind trading, your fear, your greed and everything in between. Richard Wychoff developed such a strategy to offset the fears, manipulation and to instead gain from the devices used against you in the markets and gain along with the market makers. Wyckoff advised retail traders to try to play the market game as the Composite Man played it. In fact, he even claimed that it doesn't matter if market moves “are real or artificial; that is, the result of actual buying and selling by the public and bona fide investors or artificial buying and selling by larger operators.” (The Richard D. Wyckoff Method of Trading and Investing in Stocks, section 9M, p. 2)
Below is the general understanding of a part of this logic as displayed in the chart I have published for you. The chart is only half played out so you will be able to see how the development of this study, the gain if its knowledge and the application of this specific Re-Accumulation Schematic produced by the late Richard Wyckoff can help you become a better trader in a whole.
A few things that Wyckoff noticed in his years of being involved in markets and watching the activities of these "Large Operators" or Market Makers he compiled a few observations about them and details the retail trader MUST understand to become a successful trader.
1) The Composite Man carefully plans, executes and concludes his campaigns.
2) The Composite Man attracts the public to buy a stock in which he has already accumulated a sizeable line of shares by making many transactions involving a large number of shares, in effect advertising his stock by creating the appearance of a “broad market.”
3) One must study individual stock charts with the purpose of judging the behavior of the stock and the motives of those large operators who dominate it.
4) With study and practice, one can acquire the ability to interpret the motives behind the action that a chart portrays. Wyckoff and his associates believed that if one could understand the market behavior of the Composite Man, one could identify many trading and investment opportunities early enough to profit from them.
Understanding a WYCKOFF PRICE CYCLE is key to understanding how markets work in a whole. The chart that I have presented to you is part of this cycle but is only one schematic in part of the whole larger price cycle. The chart I presented is as stated before the "Re-Accumulation" of the asset which is a continuation schematic of an asset the market maker (Composite Man) plans to mark up. Whether this be done by advertising bullish news on TV, articles that speak of rumors of mergers of a company.... or in this case my thought is the rumor of XRP being relisted on exchanges and the potential of Ripple Labs winning the case the SEC filled against them a year ago now. The photo below represents a simple view of the price price action an asset will have within the broader cycle.
As in the chart that I posted, there are 5 phases in which I will help you understand. The phases are as follows.
Phase A: Phase A marks the stopping of the prior downtrend. Up to this point, supply has been dominant. The approaching diminution of supply is evidenced in preliminary support (PS) and a selling climax (SC). These events are often very obvious on bar charts, where widening spread and heavy volume depict the transfer of huge numbers of shares from the public to large professional interests. Once these intense selling pressures have been relieved, an automatic rally (AR), consisting of both institutional demand for shares as well as short-covering, typically ensues. A successful secondary test (ST) in the area of the SC will show less selling than previously and a narrowing of spread and decreased volume, generally stopping at or above the same price level as the SC. If the ST goes lower than that of the SC, one can anticipate either new lows or prolonged consolidation. The lows of the SC and the ST and the high of the AR set the boundaries of the TR. Horizontal lines may be drawn to help focus attention on market behavior, as seen in the two Accumulation Schematics above.
Sometimes the downtrend may end less dramatically, without climactic price and volume action. In general, however, it is preferable to see the PS, SC, AR and ST, as these provide not only a more distinct charting landscape but a clear indication that large operators have definitively initiated accumulation.
In a re-accumulation TR (which occurs during a longer-term uptrend), the points representing PS, SC and ST are not evident in Phase A. Rather, in such cases, Phase A resembles that more typically seen in distribution (see below). Phases B-E generally have a shorter duration and smaller amplitude than, but are ultimately similar to, those in the primary accumulation base.
Phase B: In Wyckoffian analysis, Phase B serves the function of “building a cause” for a new uptrend (see Wyckoff Law #2 – “Cause and Effect”) . In Phase B, institutions and large professional interests are accumulating relatively low-priced inventory in anticipation of the next markup. The process of institutional accumulation may take a long time (sometimes a year or more) and involves purchasing shares at lower prices and checking advances in price with short sales. There are usually multiple STs during Phase B, as well as upthrust-type actions at the upper end of the TR. Overall, the large interests are net buyers of shares as the TR evolves, with the goal of acquiring as much of the remaining floating supply as possible. Institutional buying and selling imparts the characteristic up-and-down price action of the trading range.
Early on in Phase B, the price swings tend to be wide and accompanied by high volume. As the professionals absorb the supply, however, the volume on downswings within the TR tends to diminish. When it appears that supply is likely to have been exhausted, the stock is ready for Phase C.
Phase C: It is in Phase C that the stock price goes through a decisive test of the remaining supply, allowing the “smart money” operators to ascertain whether the stock is ready to be marked up. As noted above, a spring is a price move below the support level of the TR (established in Phases A and B) that quickly reverses and moves back into the TR. It is an example of a bear trap because the drop below support appears to signal resumption of the downtrend. In reality, though, this marks the beginning of a new uptrend, trapping the late sellers (bears). In Wyckoff's method, a successful test of supply represented by a spring (or a shakeout) provides a high-probability trading opportunity. A low-volume spring (or a low-volume test of a shakeout) indicates that the stock is likely to be ready to move up, so this is a good time to initiate at least a partial long position.
The appearance of a SOS shortly after a spring or shakeout validates the analysis. As noted in Accumulation Schematic #2, however, the testing of supply can occur higher up in the TR without a spring or shakeout; when this occurs, the identification of Phase C can be challenging.
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 (SOSs) on widening price spreads and increasing volume, as well as reactions (LPSs) on smaller spreads and diminished volumes. During Phase D, the price will move at least to the top of the TR. LPSs in this phase are generally excellent places to initiate or add to profitable long positions.
Phase E: In Phase E, the stock leaves the TR, demand is in full control and the markup is obvious to everyone. Setbacks, such as shakeouts and more typical reactions, are usually short-lived. New, higher-level TRs comprising both profit-taking and acquisition of additional shares (“re-accumulation”) by large operators can occur at any point in Phase E. These TRs are sometimes called “stepping stones” on the way to even higher price targets.
*“…all the fluctuations in the market and in all the various stocks should be studied as if they were the result of one man’s operations. Let us call him the Composite Man, who, in theory, sits behind the scenes and manipulates the stocks to your disadvantage if you do not understand the game as he plays it; and to your great profit if you do understand it.” (The Richard D. Wyckoff Course in Stock Market Science and Technique, section 9, p. 1-2)
NOW... that you have a general understanding of this theory, how it works and how I have applied it to this chart on XRP, it is important that you understand what XRP is, what function it has as a real world application as well as what this tech would be replacing and is a competitor to.
What Is XRP?
XRP is a cryptocurrency designed as an alternative to Bitcoin, with a focus on facilitating trustless, instant and cheap cross-border payments. Like Bitcoin, XRP relies on a public ledger, called XRP Ledger, for storing transaction details.
However, the payment network built on the ledger does not utilize mining to validate and record new transactions. Instead, the XRP Ledger requires trusted validator nodes to reach consensus in record time and maintain the transaction ledger — roughly every 3 to 5 seconds. These trusted nodes are collectively called the Unique Node List or UNL.
Therefore, unlike Bitcoin and its proof-of-work consensus protocol, the XRP Ledger utilizes a consensus mechanism based on the Federated Byzantine Agreement (FBA) model.
Since the XRP ledger does not require mining, its native token, XRP, was premined at a very early stage of its development. A total of 100 billion XRPs were premined and launched in 2013. Today, over 46 billion of the total XRP supply is in circulation. Note that in addition to XRP it is possible to transact with other currencies in the Ripple ecosystem.
Before we dive into the history of this digital asset, it is important to know the difference between XRP, Ripple and RippleNet. As discussed earlier, XRP is the ecosystem’s native token. RippleNet, on the other hand, is the digital payment network that runs on the public distributed ledger, called XRP Ledger. Ripple is a for-profit company that controls the development and marketing of RippleNet.
How Does XRP Work?
XRP was created by Ripple to be a speedy, less costly and more scalable alternative to both other digital assets and existing monetary payment platforms like SWIFT.
RippleNet’s ledger is maintained by the global XRP Community, with Ripple the company as an active member. The XRP Ledger processes transactions roughly every 3-5 seconds, or whenever independent validator nodes come to a consensus on both the order and validity of XRP transactions — as opposed to proof-of-work mining like Bitcoin (BTC). Anyone can be a Ripple validator, and the list is currently made up of Ripple along with universities, financial institutions and others.
Ripple Partnerships
One of Ripple's main use cases is to facilitate the cross-border transfer of money. In achieving this aim, Ripple has had many high-level partnerships with financial institutions that make use of its services. For example, before the partnership ended in March 2021, Ripple and MoneyGram worked together (MoneyGram used Ripple's cross-border payment and foreign exchange settlement product).
In June 2020, Banco Santander (one of the largest banks in the world) partnered with Ripple to use its One Pay FX service — a jointly developed cross-border payments system. And in November 2020, Bank of America was confirmed as a user of RippleNet, along Santander, Standard Chartered and others.
Controversies and Legal Crises
The first controversial incident associated with XRP was the development team’s decision to utilize a centralized business framework, which gives Ripple full control of XRP’s supply. The company therefore has the final say over the distribution and sale of the remaining supply of XRP. This, together with the underlying infrastructure of its payments ecosystem, are clear indicators that unlike Bitcoin, XRP is a centralized cryptocurrency.
This also fed into unease regarding the possibility that Ripple’s founders, Jed McCaleb and Chris Larsen, may have unduly capitalized on this centralized structure in allocating 20 billion XRP to the founding team.
Jed McCaleb left Ripple sometime between 2013 and 2014 to launch Stellar. As he himself owned 6.5 billion XRP, there were concerns that he might dump his holdings and start a chain reaction that could potentially crash the value of the digital asset. This prospect prompted Ripple and McCaleb to reach a formal agreement intended to settle the company’s concerns, which was later revised in 2016 following a lawsuit.
In 2014, Ripple introduced the balance freezer feature as a measure to confiscate or freeze all non-XRP currencies from users deemed to be violating anti-money laundering rules.
In essence, any of the Ripple Gateways or financial institutions serving as non-XRP currencies issuers on XRP Ledger can censor the balances of users, provided that such balances are not XRP-denominated. This implementation further reinforced the appreciable fact that the XRP ecosystem is somewhat susceptible to elements of centralization.
The first skirmish between Ripple and the U.S. regulatory authorities was in 2015: Ripple was fined $700,000 for not complying with the Bank Secrecy Acts in its sales of XRP tokens without seeking the required authorization. As part of the settlement, Ripple agreed to introduce Know Your Customer (KYC) checks for future XRP investors.
Ripple was then the subject of another lawsuit in 2017. Blockchain firm R3 accused Ripple of illegally terminating an agreement whereby R3 would purchase 5 billion XRP at an exchange rate of $0.0085 before September 2019. In response, Ripple filed a countersuit alleging that R3 had not kept up its side of the deal.
Conclusion
From this history, it is clear that the company has weathered some controversies and legal battles until this point, while simultaneously continuing to add high level institutions to work with RippleNet. It’s therefore perhaps less surprising that both the value of XRP and the popularity of the payments network remain reasonably resilient, even in the face of Ripple’s current difficulties with the SEC.
Now with a better understanding of what XRP is you must understand what ripple aims to do by understanding what SWIFT is as a company, tech and making the connection between XRP being a replacement for swift. For this I am going to leave you a link to their website and a brief understanding of what swift does.
www.swift.com
A few things you will want to look into is the ISO 20022 Global language... XRP has this tech. As well as the market cap of the transactions that Swift handles on a daily basis.
To keep it simple, and put it all in layman's terms to best understand and put together all of the information you have learned here today and gained on your own as well. Swift is a payment intermediary, so basically, when one bank wants to send another bank remittance at the end of the month, the tech between the two that is used is what Swift provides. To give you an understanding of the scale of this company... they handle M1 money on a daily basis. VISA and MASTERCARD use this tech. Now, keep in mind, XRP is hundreds of times faster than the tech SWIFT operates. The most important part is how much cheaper it would be to use XRP..... It would save world banks billions maybe even a trillion dollars a year. So put this into perspective, XRP is around a $46 billion dollar market cap. If it took over half of the payments that swift currently handles a day, XRP would be around a $4 trillion dollar market cap. If XRP is around $1 at a $50 billion dollar market cap and it went to a $40 T market cap.... XRP would be about $80 each. Now does the Wyckoff schematic make sense.... and even the SEC suing them make sense as well?
I hope you enjoyed this wealth of knowledge and i also hope it helps you grow financial wealth based on the research that you do and make decisions on here after.
As always, have a GREEN week!
Savvy
