Crypto Academy for Week 8 - Homework Post for @fendit | by @adenijiadeshina

“Composite Man” what it means

Richard D. Wyckoff was one of the majir contributors to the firld of technical analysis. Wyckoff’s “composite Man” has been of immense help to cryptocurrency traders.

He proposed a device to help understand price movements In individual stocks and the market as a whole, which he called “composite man”.

To be able to come out victorious in the cryptocurrency market, those who buy goods who buy goods in small or large quantities should treat the market as a game in respect to the theory of composite man.

He attracts the public to buy a stock. With the understanding of the market behavior of the composite man, one could identify many trading and investment opportunities early enough to profit from them according to Wyckoff.

With all of these said, composite man therefore is:

A term initiated to know how market fluctuation affects prices.
Composite man allows investors, and buyers to get advantages in the money market.

Operations of a particular person behind the scenes refer to “composite man”.
When an investor or buyer gets into the money market, he or she needs to know some information about the money market, which leads them to composite man.

Composite man vs the market–how to approach the market

(1). Determine the current standing and possible future trends of the market:

trends are important in the world of marketing, with the probability of a product changing according to trends. How are we even sure that the current way the market is and would be won’t be affected? With composite man approach this is solved to know the standing of studied markets.

(2). Select stocks that are compatible and with greater percentage: stocks that are the best or have the greater percentage in terms of demand or supply volumes are preferred to one that’s not. The stock’s percentage could be determined based on certain criteria.

(3). Select a cause that equals your minimum Objectives: cause equals effect which leads to objectives being taken. The objectives you may have set leads you to use the composite man theory because as objectives are set based on stocks, price levels are added to help you make profit at last.

(4). Determine the stock’s readiness in trade: trading with a non-responding stock is evitable as everything about the money market is to make money.

(5). Time how you react to a potential turn in market value of products

Fundamental laws of “Composite Man” by Wyckoff

Wyckoff stated three laws that are fundamental in the theory of “composite man” the laws are meant to help people understand how market works by following the theory of :

(1). Law of demand and supply: this law applies to the fact that when the prices of goods at the money market increase; get inflated, which in turn leads to a lower quantity of goods asked for. To gain profit, therefore, means prices and quantity of goods demanded should be in equilibrium.

Even though the law of demand refers to responses of buyers and investors to goods and stocks, supply is slightly different as it could be both abnormal in which,
“…the higher the price the higher the quantity supplied, and vice-versa” or it may be normal making the supply of goods lower as price increases, or higher as price decreases”. Price cycle by Wyckoff explains how this happens as it was a theory created mainly for price supply and demand of goods and commodities.

(2). Law of cause and effect: the law of cause and effect can be seen as the force of accumulation and distribution within a trading range. The cause is the horizontal point while the effect is the distance price. Determine the current position of the market to get this

(3). Law of effort–versus result: this provides an early warning of a possible change in trend shortly. The divergence between volume and price often signals a change in direction of a price trend.

Everything said and theorized by Richard D. Wyckoff was definitely from studying humans and the money market for a very long time. Still used in today’s money market, both the operators behind the scenes and contending investors, buyers, brokers, and sellers, all have a role to okay in the money market.

SHOWING THE DIFFERENT PHASES

 Before relieving to you the different phases or stages involved, we need to know what actually are these phases. The phases are majorly classified into four different phases: Accumulation, Uptrend, Distribution and Downtrend. 

The Accumulation: This is the first phase, it involves the accumulation of large amount of assets by the composite man prior to most investors. This accumulation is done step by step to prevent the significant change in price. This phase is is usually indicated by a sideways movement. Volume is said to be accumulated when the day's closing price is greater than the previous day's closing price. As a result, the term Accumulation day.

Uptrend: At this second phase after the composite man has held enough assets and the distributing force is exhausted, he begins to drive the market up, causing the coming trend to attract more investors which leads to an increase in demand. During the uptrend, there are multiple phases of accumulation which we may call Re-accumulaton phases, where the bigger trend stops and joins together before continuing it's upward trend or movement.
Just as the market moves up, also other investors are advised or encouraged to also buy more assets. With time even the general public becomes happy and excited to get involved too. At such a point, the demand is seen to be extremely or excessively higher than its supply.

Distribution: At this second phase, the composite man begins to share or distribute his holdings (held assets). He sellls his beneficial positions to those are entering the system or market freshly. Ordinarily, the distribution phase is also indicated by a sideways movement that assimilates demand until it gets depleted. Also, the volume is said to be distributed when the day's closing price is lower than the previous day's closing price. Thus, the term Distribution day used by many traders/ investors.

Downtrend: Just after the distribution phase, the market begins reversing to the downside. This means that the composite man is done selling a good certain amount of his shares or assets, he begins to drive the market down. After some time, the demand becomes much lower than the supply, and we have the downtrend being made. Just as the uptrend, the downtrend may also have a re-distribution phase(s). These are primarily short-term consolidation in between large price drops. They may also consist of Dead Cat Bounces or the BULL Traps, where many buyers get trapped, hoping for a reverting trend that does not occur. When the trend is finally finished, there begins a new accumulation phase.

Let's take a look at the Litecoin chart below :

As we can see there are 4 phases to this cycle that this composite man act on looking at the chart above.

▪️ Firstly, we can observe the plummeting of the price of assests at point B, and we can clearly see that the price moves sideways with no much change in volume.

▪️ At the second phase, the uptrend, we can see a huge upward trend of the assests with almost no bearish phases and and investors sell of positions to avoid greater losses .

▪️ Thirdly, at the resistance phase, the price has reached it's peak and investors begins to sell of their assets.

▪️ Lastly, at the downtrend phase , we can see that the price is falling drastically. As more investors sell at losses with the fear of even greater loss as their resistance signals have been consistently broken.

Details of what I am Seeing.

I observed and found some interesting and useful details concerning this different phases; firstly, It shows that it follows the law of demand and supply. It shows that prices rise as soon as demand is greater than supply and prices drops when supply is greater than demand. The is one of the primary principles of financial markets, which is also certainly not different in Wyckoff work.

Fundamentally, the Wyckoff technique allows investors to execute logical decisions instead of acting out of emotions. The extensive work of Wyckoff gives investors and traders a series of means or tools for lowering risks and raising their chances of their financial probability. Nevertheless, there is still no full proof method when it comes in investing, so, one should always be ready for the risks attached especially concerning high volatile cryptocurrency markets.

@fendit