Wyckoff and Volume Spread Analysis Climactic Price Action Algorithmically Applied to the Cryptocurrency Market

9 Pages Posted: 9 Nov 2020

Date Written: October 25, 2020


In 1910 Richard D. Wyckoff proposed that any professionally traded market moved in what he termed “Price Cycles” and that these cycles could be predictably and reliably navigated to produce consistent profit. According to Wyckoff, these cycles were signified by imbalances in supply and demand which can be identified by analyzing price action, volume and time. Wyckoff theorized that the major imbalances in a market are created primarily by large, sometimes institutional investors, whom he termed the “Composite Operator (or Man)”, not by a natural ebb and flow in the activities of small retail traders. The idea that the markets are professionally manipulated and large movements were always the results of these actions was a significant contribution to the world of investing by Wyckoff, “...all the fluctuations in the market and in all the various stocks should be studied as if they were the result of one man’s operations. Let us call him the Composite Man, who, in theory, sits behind the scenes and manipulates the stocks to your disadvantage if you do not understand the game as he plays it; and to your great profit if you do understand it.” (The Richard D. Wyckoff Course in Stock Market Science and Technique, section 9, p. 1-2). The main cycle illustrated by Wyckoff begins with an “accumulation phase” wherein the Composite Operator (CO) accumulates large amounts of shares in a stock, spreading their stock buys over time within a relatively narrow range of prices. Once the accumulation is complete, the CO marks up the price far beyond the previous range; ending with a “distribution phase” wherein the CO sells the previously accumulated shares at higher prices and spread over a narrow range of prices to the mass of retail traders who’ve now been enticed by the large rise in prices to jump into the market and buy indiscriminately. My hypothesis is not only that the same cycles and methods of price manipulation exist in the Cryptocurrency market but that there are indications of Composite Operator activity in the form of climactic or excessive price and volume changes which can be algorithmically isolated and traded to profit from the effect of these climactic changes on prices at an abnormal rate of return.

Keywords: cryptocurrency, Wyckoff, VSA, climactic price and volume, price cycles, abnormal return

JEL Classification: G170

Suggested Citation

Gray, Omar, Wyckoff and Volume Spread Analysis Climactic Price Action Algorithmically Applied to the Cryptocurrency Market (October 25, 2020). Available at SSRN: https://ssrn.com/abstract=3714083 or http://dx.doi.org/10.2139/ssrn.3714083

Omar Gray (Contact Author)

Greypool Inc. ( email )

24A Trolley Square Suite 1445
Wilmington, DE 19806
United States

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