Noticed a perfect example of a classic Wyckoff accumulation playing out on the 6H, and wanted to do an explanation of how instructional investors and whales define support and resistance zones and use them to shake out retail investors during accumulation.
The Wyckoff method plays out in every market that has institutional investors. Once defined, understanding it is a powerful card to have in your hand when you're trading. You'll notice from the volume profile on the right that the price action stays within defined support/resistance levels.
That's because the big buyers set the levels. This $31,500-$40,500 range is also the defining volume range in the distribution leading up to the ATH, making it a substantial level of support over the long term.
Reading volume is important when doing Wyckoff analysis as it will definitively tell you whether a move is false or not.
Understanding the psychology of greed and fear is important as well. Greed is the driving force of large investors to shake out smaller retail investors during uncertain market times. It works because retail investors tend to trade on emotion, becoming fearful when a large price drop takes place. Institutional investors can ignore emotion and and simply stick to their targets as they have a much larger financial cushion and the ability to act as market makers on a larger scale.
Once you understand the psychology of fear and greed in markets and how volume can be used to confirm price action, you can stop being fearful, stick to a strategy, and begin trading with the market movers instead of against them—as more often than not this is a losing battle.
The Wyckoff method plays out in every market that has institutional investors. Once defined, understanding it is a powerful card to have in your hand when you're trading. You'll notice from the volume profile on the right that the price action stays within defined support/resistance levels.
That's because the big buyers set the levels. This $31,500-$40,500 range is also the defining volume range in the distribution leading up to the ATH, making it a substantial level of support over the long term.
Reading volume is important when doing Wyckoff analysis as it will definitively tell you whether a move is false or not.
- Note that the uptrend in Phase D & E are for illustration. We may still have some bear market to come, but we are at the strongest region of support since the start of the bull run, so we may be turning around.
Understanding the psychology of greed and fear is important as well. Greed is the driving force of large investors to shake out smaller retail investors during uncertain market times. It works because retail investors tend to trade on emotion, becoming fearful when a large price drop takes place. Institutional investors can ignore emotion and and simply stick to their targets as they have a much larger financial cushion and the ability to act as market makers on a larger scale.
Once you understand the psychology of fear and greed in markets and how volume can be used to confirm price action, you can stop being fearful, stick to a strategy, and begin trading with the market movers instead of against them—as more often than not this is a losing battle.