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Trading should avoid looking for highs and lows, but if you have to look for highs and lows, Wyckoff’s principle of effort and results may be useful.
The effort and result principle provides early warning of changes in trends .
A mismatch between volume and price is often a signal that a trend is about to change. For example, after a large period of rise, the stock continued to increase in volume, but the increase in the stock price was shrinking. This phenomenon shows that the dealer is shipping.
The effort and result principle reflects the divergence between volume and price changes. At key positions, volume represents bull or bear effort that yields no corresponding results—prices rise or fall, indicating that someone is selling or buying dips. That is: the price does not rise when the volume increases, or the price does not fall when the volume increases.
1. April 21, 2022, LUNA 4-hour chart
The neckline of the M head was tested before, but the heavy K-line did not bring about a similar price increase as the previous K-line.
2. 4.5.22, LUNA 2-hour chart
The right head of the M head, the volume is flat, but the price is down.
3. 5/12/22, GMT 2-hour chart
After the explosion volume fell, the transaction volume of this root was also large, but the price stopped falling.
4. On May 19, 2021, BTC 1 hour chart
The explosive amount of pins established a short-term bottom.
Summarize
It is necessary to be cautious when looking for highs and bottoms, but if identified by the principle of effort and results, it can provide trading opportunities with extremely high profit and loss ratios.
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