TLDR BTC’s recent price dump scared a lot of investors but there is a bullish way to frame it. Comparing the chart of the recent months to a Wyckoff accumulation pattern, we see remarkable similarities. In the coming weeks, we will get clarification whether the recent dump is indeed the so-called ‘spring’ that flushes out the final sellers and sets us up for new all-time highs.
People lately have been freaking out over recent price action. BTC has broken below the range it has been in for 4 months. It also broke below the 200-day moving average. While this seems bearish, there is a chart pattern, the Wyckoff reaccumulation pattern, that sheds some bullish light on the price action. Maybe this dump was just a psy-op to shake people out?
The Wyckoff Price Cycle
You’ve probably come across the term Wyckoff. Richard Wyckoff was a stock market trader active in the early 1900s. He observed that the prices of stocks move in a cyclical pattern of four distinct phases:
Accumulation, markup, distribution, and markdown. For example: a markup (an uptrend) in price is preceded by a period of accumulation. A period of distribution eventually results in a downtrend.
The Accumulation Phase
The accumulation phase is what interests us here. A new market cycle starts with this phase. It is usually characterized by a sideways movement. Accumulation is a gradual process, and price doesn’t move significantly.
Let’s zoom in on a typical accumulation phase.
By the way, you’ll find many slightly different drawings of such an accumulation phase. But they are roughly the same and can be broken down into smaller sections.
Phase A: Still in the final stages of a bear market, the power of the sellers decreases, and the downtrend starts to slow down.
Phase B is the consolidation stage, in which smart investors accumulate what they can.
Phase C: typically, this stage of the accumulation phase contains what is called a spring. It is the last ‘bear trap’ before the higher lows start.
Phase D: trading volume and volatility are increasing and at a certain point, the price will break above the resistance levels. The SOS in the image stands for Sign of Strength. Here’s another variant of an accumulation chart:
The above version of the accumulation phase has been pulled up a lot recently. First, because the accumulation phase follows an uptrend, like BTC. Also because of its so-called ‘creek’, which resembles the recent BTC chart.
Now let’s look at that chart.
The recent Bitcoin price action for sure shares similarities with the Wyckoff accumulation pattern. It’s been bouncing between its range highs and lows and has seen a recent slide down or ‘creek’, leading to a breakdown of the range, which could potentially be a spring.
Let’s zoom in on the spring. Before a breakout occurs, you often will see a final test of the support level within the trading range. This test is a “spring” or “shakeout”: a sharp decline in price, often flushing out leverage. This price move will clear out the remaining weak hands and create a strong foundation for the subsequent advance. Here’s an example of an accumulation phase with a spring. It’s the chart of LINK from 2022/23.
You see that this chart doesn’t mirror the template for accumulation phases in exact detail….
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
