Are we waiting for Wave 5?

The bitcoin bottom is far from conclusive. Are we in for another leg down?

The Elliott Wave principle is widely used for trading on traditional markets and crypto, though it has its fair share of critics. Here, we give a brief overview of EW trading, and what it might mean for bitcoin.

Markets have a pattern to them. While it’s practically impossible to predict what’s going to happen on a short-term timescale, the longer the timeframe, the easier it is to see what’s going on. The macro trend is pretty obvious: we’ve been in a bear market since the start of 2018.

Within that macro trend, there tend to be different stages, which reflect overall market psychology. Ralph Nelson Elliott was an accountant who developed his theory about market movements in the 1930s. His ideas are still widely used today.

Each overall market ‘impulse’ is divided into five waves: three movements in the dominant direction, and two corrections in between these. Each wave has its own characteristics, and there are mini-waves within waves. While you can find out plenty more about Elliott Wave analysis online, here is one interpretation of what has happened with bitcoin since the start of last year:

• Wave 1: From the top at $20k to the February ‘capitulation’ at $6k. Much of the news was still bullish at this point, and many analysts said the bear market was over.
• Wave 2: The bounce from $6k to almost $12k – a significant correction from the fall from ATH.
• Wave 3: Typically the most prolonged and significant wave. This one took bitcoin from $12k right down to $3,100, eight months later.
• Wave 4: The reaction rally we’ve just seen, from $3,100 back to $4,200.
• Wave 5? The final move down, from $4,200 to a bottom that would be at least as low as $3,100, and likely lower.

Either way, a corrective wave after the fifth wave and the end of the overall impulse is likely to see bitcoin trading back at the bottom of wave 3. This would align with many analysts’ predictions of stability in the $3k range.

The markets have a way of making fools of as many people as possible. Many traders ignore or dismiss Elliott Wave principles. There are no guarantees in trading, but don’t discount it out of hand.

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