Scenarios, Probability and Confirmations

The Wyckoff Method allows you to anticipate unexpected scenarios in the market. The dynamics of supply and demand are often counter-intuitive, and it’s extremely important to train your mind to recognize weird formations that diverge from classical models. Especially in low-liquidity environments, where institutional presence is not consistent, maintaining flexibility of interpretation is a valuable skill: accumulation often occurs in the terminal part of the range on the way up, selling climaxes are not very visible, and so on.

However, the ability to spot or predict uncommon scenarios alone is not enough. What’s more important for a trader is to identify the points of confirmation and invalidation of our analysis. Sometimes, the highest probability scenario is just in front of you and all you need is simply to track the points of confirmation.

What’s next for Bitcoin? The current formation in the chart below is what we call in WTC a Tepee distribution. We have encountered it several times in the history of this instrument. After an extremely profitable rally, institutions urgently unload their positions in Phase A and become inactive. The rest of the formation is marked by low volume. Supply and demand both decrease, giving the illusion of a bullish texture, but each time price tries to commit above an important supply level, it fails. After the break of the ice, we are now in an established downtrend. Until we see a price commitment above specific supply levels on increasing demand and retracing on decreasing supply, our bias will still be to the downside.

Look now what happened on the recent big up-bar on Friday, October 25^th. The exhaustion of supply throughout the formation was unmistakable. Bullish news from China and short-covering before the weekend triggered one of the biggest up-bars in two years (the chart has a logarithmic scale). Is this bar a change of behavior of the market? The up-bar has not committed through the previous supply zone, and the persistence of supply at the level marked in red suggests a reaction. Was Friday the 25^th the final point of excitement of weak hands? The test is now in progress; its failure will definitively confirm this. If the test fails, we expect further continuation to the downside. At the moment, we stay with the downtrend. A low-probability bullish scenario is still in the cards, and we will analyze it in our next posts. So far, it’s extremely important to judge the quality of supply and the result of a possible move to the downside. You will find our updated analysis on our new Bitcoin Tradingview thread.