Richard Wyckoff is the newspaper economics and investment content editor. Wall Street MagazineHe developed the Wyckoff model from his research in the 1930s, although he was older than Indonesia. But this theory is still used today. in fact Now this theory doesn’t just apply to the stock market. But also the Forex market and even cryptocurrencies.
So what is the Wyckoff Pattern and how is it applied? Check out the following comments:
What is the Wyckoff pattern?
The Wyckoff pattern, also known as the Wyckoff cycle, is an overall stock market price action pattern. This pattern is based on Richard Wyckoff’s analysis of supply and demand moving in the stock market at the time.
According to Wyckoff, stock market movements can be divided into four phases: the cumulative phase, the markup phase, the sell phase. and the discount period. However, during these 4 phases, the stock market price may decline.
Here is a breakdown of some marketing steps based on the wyckoff model:
1. Accumulation period
The Wyckoff cycle begins with the accumulation phase. This phase begins when investors flock to open the same positions in the asset. so that the price of an asset increases or decreases significantly Some references This phase may end with the existence of side trend about the price of the asset
2. Markup distance
This phase represents the continuation of the existing trend in the accumulation phase. which means If demand in the accumulation phase is strong and prices go up, in this phase other investors will enter the asset market and push prices even higher.
On the other hand, if what happens in the cumulative phase is sell Appreciation and asset prices fall. Investors will sell more of their assets. As a result, asset prices declined to the point of being uncontrollable.
3. Distribution period
The underwriting phase occurs as many investors who have entered the market earlier start making profits. As a result, the price of the asset cannot break through the new high. result in reversal
In the case of a down market This dispersion phase can occur when the price starts to decline due to sell The strong group started to reverse because a number of investors did not cut their losses, so in some cases this phase is often similar to the accumulation phase.
4. Markdown distance
The Markdown phase, or Downtrend, occurs when an asset’s price does not reach a new high and instead reverses, Wyckoff said the decline will intensify and eventually end when the market has a wide trading range. The end of this sale period indicates the formation of a new accumulation phase.
In his research, Wyckoff found several interesting laws or rules in the investing world, namely:
1. Market movements and securities prices are not exactly the same.
Wyckoff’s first law is that the movement of a security’s price and its market capitalization are generally not exactly the same. This means that the market repeats only the 4 wyckoff patterns above, but with unlimited changes in price, volume and trading context.
For this reason, investors and traders must be careful to observe technical and fundamental indicators. to be able to determine at what stage the instrument they are buying
2. The importance of the instrument price movement can only be known by comparing it with its historical value.
in other words The importance or not of an asset’s price movement can only be determined by looking at the horizontal price.
For example, if Share A’s price increases from 1000 to 1500 per share in just 1 day, then Share A’s price increase can be very significant if in the past week it has only increased by 100 or 200 Rupiah. On the other hand, if during the same period he increased by 1200, the increase from 1000 to 1500 cannot be said to be significant.
In addition to the above two rules, Alan Farley from Page Investopedia It also said that wyckoff found one additional rule in the stock market. That’s the trend rule. Wyckoff divides trends into two types: time-based and shape-shifting.
Over time, trends are divided into 3 trends: short-term trends. medium term trend and long-term trends. As for shape, trends are also divided into three trends: up-down, and side-to-side. The existence of this trend theory encourages other scientists to Create various technical indicators on the basis of price trends
In addition to producing a portfolio in the form of discovering capital market cycles and rules, Wyckoff also found methods or tips for selecting the desired instrument. Here is a summary of Richard Wyckoff’s selection of preferred securities:
1. Determine overall market conditions
The first step is to determine overall market conditions. This market condition can be determined by analyzing the supply and demand occurring in the stock market and overall economic conditions. In the case of the stock market in Indonesia You can follow this step by analyzing JCI supply and demand.
2. Choose stocks whose price moves according to the direction of market movement.
This means that if JCI is rising, you can also choose to invest in stocks that are rising in price as well. In fact, if you can, choose stocks with higher growth rates than JCI.
3. Choose stocks that are entering the cumulative phase.
The third tip is that you should choose stocks that are entering the cumulative phase. This means that the share price will go up. So you like it if you open a buy position and the share price will go down. So it will benefit you if you are a short seller.
4. Make sure stock price trends are ready to change.
If you have selected stocks that are entering the accumulation phase. You need to be sure that the trend of the stock price will change soon, whether it goes up or down. The way to check is to analyze the technical and fundamental factors behind the stock.
5. Let the price action run until the desired profit is reached.
In other words, the investment will be more profitable if done over a fairly long period of time. It will be better if you buy Stocks are rebounding. Go up and potential rallies. Remember to set Stop Loss and Take profit when the results of your analysis show that the price of the instrument in the market will go down.