AAX Intelligence: Wyckoff Analysis of Bitcoin — AAX News & Insights
BTC/USD overview
BTC has recently become very hard to dissect, this is due to the lack of volatility. BTC has moved within a 10% trading range over the past month, failing to break above $10500 USD or below $8500 USD. A different type of trading method/outlook may be needed in order to see which direction BTC wants to move. For this we are going to use the Wyckoff trading method.
Richard Wyckoff was one of the major technicians of Wall Street alongside Dow, Gann and Elliot. His trading methods are used by many still today. He was an editor of the Wall Street magazine and founded his own firm in his 20s having worked as a stock runner since the age of 15. His trading tactics are based around market cycles and interest levels in certain stocks/assets.
Market cycles
His most famous creation was the Wyckoff market cycle which is a basic trading principle, allowing people to set their positions dependent on the supply and demand in the stock market.
Looking at BTC currently, it appears as though the Wyckoff market cycle may be applicable. It appears as though BTC is currently in the distribution area.
As demonstrated above you can see how well the Wyckoff market cycle fits BTC currently. Firstly the decline in volume during the overbought period represents a lack of demand for BTC. This lack of demand is also indicated by the RSI, as shown below.
The RSI has now fallen below 50–50 representing an equilibrium between the bulls and the bears. Currently, the bears are beginning to regain control which could see BTC begin to break down some of the support zones currently holding it in place.
Current BTC market cycle
The chart above shows how a BTC drop is imminent, BTC is showing weakness and that it is only a matter of time until BTC breaks below the support levels currently holding it in place.
Wyckoff distribution stage
PSY — Firstly, we find the BTC Preliminary Supply. This is where the volume expands after some larger market players begin to unload their BTC. However, this BTC is snapped up quickly due to high market interest.
Chart explanation
BC — After the PSY, we saw a Buying Climax (BC). BCs often coincide with positive news or a positive event happening, which in this case was the BTC halving.
AR — After the BC, an Automatic Reaction has occurred, seeing BTC lose value due extreme demand allowing BTC to breathe. At the time an AR appears to be a healthy minor retracement.
UT — An Upwards Test has then happened shortly after the AR. This is an attempted breakout of the BC resistance level. However, due to the lack of buying power remaining and the decrease in BTC demand the UT fails to break above the resistance line set by the BC. This test then confirms the resistance level. In this instance, the BC was not reached to set a secondary resistance line.
SOW — Sign Of Weakness. The SOW tested the support level set by the AR and PSY. This confirmed that BTC was struggling to push further, that was the end of the impulsive move up, showing that BTCs huge gains week after week were coming to an end. The SOW increased the validation of the support line set by the AR and PSY.
UTAD — Upwards Thrust After Distribution (UTAD) was seen after the SOW. This move up was matched by a breakout of volume. However BTC could not consolidate and move up with these gains. Instead BTC saw a huge sell off the next day. From the UTAD it confirmed that BTC was stuck within a trading range.
SOW (2) — We have recently seen another SOW after an extended period of clear BTC weakness. BTC attempted to test the support lines again with multiple wicks, coincided by a decreasing volume, showing a growing lack of interest in BTC.
LPSY — Last Point of Supply (LPSY). This was a move by BTC after a break of the downwards trend line. Likely the final push up to prevent the incoming downwards movement and allowing for larger players to exit if they wish to.
We can see how weak the LPSY move up was through the Fibonacci retracement levels. BTC hitting the 0.382, being unable to break above it. Then continuing its move down, relying on the previous trend line for support.
BTC Wyckoff phases
Currently, it appears as though we are in phase D. For BTC to move into phase E it must break below the support levels set by the SOW/AR/PSY. The current Wyckoff market cycle in play will be invalidated if BTC breaks clearly above $10500 USD. However if it remains in play and begins to move into phase E then a move down towards $7830 could be the first stop as demand<supply.
The move down — targets
If phase E plays out and BTC does not go against the odds and move above $10500 USD then a great way to create targets is through Pivot Points (PPs).
Currently BTC is in the S1 region of the PPs (bearish). BTC was unable to break above the centre pivot which is also the 0.382 Fibonacci retracement from the UTAD to the SOW (2)! Therefore BTC currently has no PPs supporting it until S1, which would require a break below the Wyckoff support levels and would result in phase E coming to light.
Conclusion
BTC is looking bearish through the Wyckoff analysis and could make downwards moves within the coming days. BTC controls the cryptocurrency market currently with HUGE dominance over alt coins as shown below.
The huge dominance of 62% means that if BTC moves, other altcoins will likely follow. Some altcoins may have very bullish outlooks and could squeeze in a huge move before BTCs move down (if the theory plays out). Although as mentioned before, if BTC makes a huge move down — so do most of the altcoins.
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This intelligence report is for marketing and educational purposes only. The views, analyses and projections are based on the independent research, but cannot be taken as a form of investment advice.
Originally published at https://blog.aax.com on July 20, 2020.
