The application of Elliott Wave Principle may provide valuable insight into the future price action of Bitcoin, by examining and counting past wave patterns.
Each wave feature unique corresponding market behavior which help shed light on where the top cryptocurrency is its market market cycle. And according to this new analysis, it’s not where most people think. Check out the video or read more below
Understanding Elliott Wave Principle in Bitcoin
The Elliott Wave Principle is a technical analysis tool that seeks to identify repetitive patterns in financial markets. It divides price movements into waves, each representing a specific phase of market behavior. These waves follow a predefined structure and provide clues about the market sentiment and potential price targets.
In the context of Bitcoin, the Elliott Wave Principle suggests a particular progression of waves and corresponding market behavior. Wave 1 marks the initial rebound from undervalued levels, indicating the recognition of Bitcoin’s potential.
Wave 2 represents a retest of previous lows without establishing a new low, implying continued negative sentiment. The absence of a new low in wave 2 often prompts increased participation in wave 3, which tends to be the longest and strongest wave. Positive news cycles and growing fundamentals support the upward momentum of wave 3.
Wave 4 signals the end of the growth phase, characterized by profit-taking activities. It is generally viewed as a disappointing wave, as the valuations fail to meet investors’ expectations despite the enthusiasm witnessed during wave 3.
Wave 5 represents the final advance, accompanied by improved performance and fundamentals. However, it typically falls short of reaching the same strength as wave 3. Wave 5 is often driven by psychological factors, such as fear of missing out (FOMO), leading to excessive overvaluation.
Based on the above descriptions alone, what wave does it sound like Bitcoin is in?
Bitcoin fits the channeling technique in the diagram | BTCUSD on TradingView.com
What The Current Wave Count Suggests
In the above video and chart, the channeling technique displayed could project a possible wave 5 target. Given the current bearish sentiment and the significant number of investors who believe the Bitcoin cycle has concluded, wave 5 in the current cycle may witness an unprecedented emotional surge, contributing to substantial overvaluation.
Claims that the Bitcoin cycle has already completed based on premature assessments of market tops are refuted by the Elliott Wave Principle. The projected top of the channel derived from connecting the parallel lines of wave 2 and 4 indicates that the end of wave 5 did not align with these expectations.
Furthermore, the below chart explains the proper wave counts of two different types of corrections. Wave 2 and 4 commonly feature “alternation,” where one correction is typically a sharp zig-zag, or a sideways triangle or flat correction.
A zig-zag exhibits a lower high, while flat corrections have a higher high, much like the second 2021 BTCUSD “top.” This once again points to a wave 4 correlation and wave 5 ahead.
Alternating styles of corrections in crypto | BTCUSD on TradingView.com
The Final Advance And Beyond
So what happens after the final advance? Bear markets and corrective waves within the Elliott Wave Principle are typically composed of three waves, labeled as ABC.
These corrective waves aim to balance the preceding impulsive waves. The termination point of a correction is expected to fall within the range of the previous wave 3 and 4, providing a potential price range for Bitcoin’s correction phase.
The final chart below demonstrates where along wave 5 and the final advance Bitcoin is now. According to the Elliott Wave Principle, larger waves subdivide into smaller degree waves. Thus, identifying the completion of the current lower timeframe correction is crucial before making any predictions about future price movements.
The lower degree sub-waves suggest Wave (2) of 5 is in progress. Much like a larger degree wave 2, investors expect more downside and for the bearish corrective phase to continue. When a lower low isn’t made, everyone piles into wave (3). This indicates that there could be plenty of upside left in Bitcoin after an extended downtrend.
The final advance and beyond | BTCUSD on TradingView.com
Crypto Cycle Conclusion
Understanding the progression of waves and their corresponding market behavior allows investors to make more informed decisions. A proper wave count could suggest that Bitcoin is entering its final advance, or is possible well into it.
Unfortunately, a more significant bearish turn in crypto is inevitable. Therefore, it is important to exercise patience and await confirmation before drawing definitive conclusions. But before it happens, BTCUSD could surprise the market to the upside so long as a new low isn’t made. Watch the video for the full explanation.
Tony is the author of the CoinChartist (VIP) newsletter. Follow @TonyTheBullBTC & @coinchartist_io on Twitter. Or join the TonyTradesBTC Telegram for exclusive daily market insights and technical analysis education. Please note: Content is educational and should not be considered investment advice. Featured image from iStockPhoto, Charts from TradingView.com
