DXY - 4H ANALYSIS
What is Wyckoff Distribution Cycle?
An accumulation cycle is typically followed by what is known as Wyckoff Distribution.
Wyckoff Distribution Schematic -
After the dominant traders have increased their position during the Wyckoff Accumulation cycle, they will sell off their positions when the asset’s price is high. The Wyckoff Distribution cycle will happen across five phases.
1. Preliminary Supply (PSY) - This phase typically occurs after a prominent price rise. Dominant traders will sell off large portions of their positions resulting in an increase in the trading volume.
2. Buying Climax (BC) - The increased supply causes retail traders to begin taking up positions. This demand causes the price to continue rising. Dominant traders can sell off their positions at a premium price. However, this phase relies on high demand from retail traders so that the selling off by dominant traders does not bring down the asset’s price.
3. Automatic Reaction (AR) - The end of the BC phase is marked by a price drop. This happens as fewer traders are buying up positions even though there is still a large supply available. The increased number of sell orders or supply causes the price to drop. It will eventually reach the AR level which is the lower price boundary of the Wyckoff Distribution Cycle.
4. Secondary Test (ST) - In this phase, the price rises back to the BC range. This is where traders are testing the balance of supply and demand. The top price of this test occurs when there is more supply than demand. As the price reaches the BC price range, less trading will occur.
5. Sign of Weakness, Last Point of Supply, Upthrust After Distribution (SOW, LPSY, UTAD) - The SOW occurs when the asset’s price falls near or below the initial boundaries of the respective Wyckoff Distribution Cycle. This occurs when there is more supply than demand and signals price weakness. Following the SOW is the LPSY. In this phase, traders are testing the support of the asset’s price at these lower levels. There may be a small rally, but any rallies will be difficult as the result of either too much supply or too little demand. The last possible phase is the UTAD, which is just what it sounds like. This phase of the Wyckoff Distribution Cycle is not guaranteed to occur, but if it does, it will typically occur near the end of the overall cycle. The asset’s price will increase as a result of increased demand and push the upper price boundary of the entire cycle.
Conclusion - The Wyckoff Market cycle is hotly debated in crypto circles. Some claim that the signs involved in a Wyckoff Accumulation can be seen in the market changes for certain crypto assets, and others disagree. Regardless, understanding the potential causes occurring in the market is helpful. Learning about methodologies that other traders use can prepare you for making your own trading decisions
An accumulation cycle is typically followed by what is known as Wyckoff Distribution.
Wyckoff Distribution Schematic -
After the dominant traders have increased their position during the Wyckoff Accumulation cycle, they will sell off their positions when the asset’s price is high. The Wyckoff Distribution cycle will happen across five phases.
1. Preliminary Supply (PSY) - This phase typically occurs after a prominent price rise. Dominant traders will sell off large portions of their positions resulting in an increase in the trading volume.
2. Buying Climax (BC) - The increased supply causes retail traders to begin taking up positions. This demand causes the price to continue rising. Dominant traders can sell off their positions at a premium price. However, this phase relies on high demand from retail traders so that the selling off by dominant traders does not bring down the asset’s price.
3. Automatic Reaction (AR) - The end of the BC phase is marked by a price drop. This happens as fewer traders are buying up positions even though there is still a large supply available. The increased number of sell orders or supply causes the price to drop. It will eventually reach the AR level which is the lower price boundary of the Wyckoff Distribution Cycle.
4. Secondary Test (ST) - In this phase, the price rises back to the BC range. This is where traders are testing the balance of supply and demand. The top price of this test occurs when there is more supply than demand. As the price reaches the BC price range, less trading will occur.
5. Sign of Weakness, Last Point of Supply, Upthrust After Distribution (SOW, LPSY, UTAD) - The SOW occurs when the asset’s price falls near or below the initial boundaries of the respective Wyckoff Distribution Cycle. This occurs when there is more supply than demand and signals price weakness. Following the SOW is the LPSY. In this phase, traders are testing the support of the asset’s price at these lower levels. There may be a small rally, but any rallies will be difficult as the result of either too much supply or too little demand. The last possible phase is the UTAD, which is just what it sounds like. This phase of the Wyckoff Distribution Cycle is not guaranteed to occur, but if it does, it will typically occur near the end of the overall cycle. The asset’s price will increase as a result of increased demand and push the upper price boundary of the entire cycle.
Conclusion - The Wyckoff Market cycle is hotly debated in crypto circles. Some claim that the signs involved in a Wyckoff Accumulation can be seen in the market changes for certain crypto assets, and others disagree. Regardless, understanding the potential causes occurring in the market is helpful. Learning about methodologies that other traders use can prepare you for making your own trading decisions
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