Pre Script -This is an unbiased analysis based on multiple year Elliott wave cycles, turning out to be slightly bearish. Some spoon feeding will be done in this post keeping in mind the traders who are new to trading like me and are willing to learn to stack up BTC . Experienced traders can right away jump into Technical Analysis section of this post.
Waves nomenclature :
Multiple year cycle in charts - I, II, II, IV, V, A, B, C, D, E
Primary waves - (1), (2), (3), (4), (5), (a), (b), (c)
Intermediate waves - 1, 2, 3, 4, 5, a, b, c
Read the first point in the below "Educational" section and jump directly to the "Technical analysis" section of this post.
Educational :
1) Elliot wave theory is one of the best methods for market analysis which when combined with trading strategies like Price action, Trend following, Swing trading, etc., gives the best results for traders. I suggest you to understand this theory before you proceed further in this post. If you do not know the basics of this theory, here is a link for a quick read - elliottwave-forecast...elliott-wave-theory/ . Have a look at the diagrams in this link to know how different types of impulses and corrections look like.
2) In zigzag correction, ABC correction is a 5-3-5 structure i.e., A has 5 sub waves, B has 3 sub waves and C has 5 sub waves.
3) In Flat correction, ABC correction is a 3-3-5 structure i.e., A has 3 sub waves, B has 3 sub waves and C has 5 sub waves.
4) In regular flat, wave B = 90% fib retracement of wave A. In running flat, wave B = 123.6% fib retracement of wave A. In expanded flat, wave B = 123.6% fib retracement of wave A.
5) There are 4 types of triangles - a) Ascending - Top flat, Bottom rising, b) Descending - Top declining, Bottom flat, c) Contracting or Symmetrical - Top declining, Bottom rising, d) Expanding or reverse symmetrical - Top rising, Bottom declining
Technical Analysis :
Part A : Considering wave B has topped out at 14000 usd
In the above chart I drew the multiple year motive and corrective elliott waves. We are yet to finish this cycle. A look at the volume levels will give you the clear picture. The current volume levels are very much below the levels of the fifth wave. Also the volume levels of the wave B are lower than that of wave A. This gives us a confirmation that we are still in the correction phase of this cycle. We shall analyse whether this correction is going to be a flat one or a zigzag one or triangles. God(imaginary) have to help us if this correction becomes complicated to become a double three or a triple three. For now, we shall hope that this correction is a simple one and proceed with analysis. The analysis in this part A sub section is done by considering that the Wave B topped out at 14000 usd. In part B sub section, analysis is done considering that the wave B has not yet topped.
Now have a look at wave A in below chart. It is a 3 wave structure. This is directly a textbook pattern. If you want to argue with me saying it is a 5 wave structure, I am ready with a source to support my point. Source : Chapter 3 - The basic patterns that describe corrective market movement of the book Mastering Elliott Wave Principle by Constance Brown.
Read point no 2, 3 and 4 in Educational section of this post.
Considering that the wave B has topped. As wave A is a 3 wave structure, we cannot expect a zigzag correction in this cycle. Now two possibilities are left - Flat and triangles. For a flat ABC correction, wave B should have topped out in the 90%-123.6% fib retracement levels of wave A. But as the 14000 usd level where the wave B topped at is just the 61.8% fib retracement of wave A, we cannot expect this to be a flat correction as well.
Now, the only possibility left is the triangles. But there are four types of these triangles(read point no 5 in educational section) and so we have four possibilities again. We shall eliminate one by one as we did earlier. We have to be clear that in triangles, there will be 5 waves A,B,C,D,E(not just A,B,C).
Possibility 1 - Ascending, Top flat and bottom rising :- As Wave B topped out at 14000 usd, the possiblty of forming this kind of triangle is ruled out.
Possibility 2 - Descending, Top declining and bottom flat :- If the top is to decline, the trend line drawn connecting the fifth wave top and wave B top can act as a resistance. Let us not worry about timelines in this post. In general, this types of triangle happens when wave B retraces 50% or less than 50% of wave A fib levels. But the wave topped out at 61.8% fib retracement of wave A. So the possibility of these triangles formation is there but minimal.
Possibility 3 - Contracting or Symmetrical - Top declining and bottom rising :- The trend line drawn in possibility 2 can as act as resistance. The trend line drawn connecting the 1800usd level during july 2017 and the wave A bottom(3200usd level) can act as a support level. This type of triangles are generally seen in markets.
Possibility 4 - Expanding or reverse symmetrical - Top rising and bottom declining :- For this triangle to happen, first the wave B should have completely retraced wave A. But the wave B topped at 61.8 % fib retracement of wave A. So this possibility is ruled out.
Overall, we have only two possibilities for correction of which one is less likely and the other is more likely. But this is only when we consider that the wave B has already topped out at 14000 usd. Now lets consider the other case in part B.
Part B : Considering wave B has not yet topped
Wave A is a 3 sub-wave structure. If we are going to have to a simple ABC correction, there is to be a 3-3-5 structure which means that the wave B will be subdivided into 3 waves (a)-(b)-(c) and wave C into 5 waves. But one can easily see that the current rally of wave B from 3200usd to 14000usd has 5 waves not three. This can make us think that the wave B still has some upside potential after the abc correction.
This will throw at us numerous possibilities for correction like
1)For ABC correction - We can have a)expanded flat, b)regular flat, c)running flat. These happen if the wave B tops above 20000 usd level or slightly below that level.
2)For ABCDE correction - We can have the ones which were ruled out earlier - a)Ascending- Top flat, bottom rising and b) Expanding or reverse symmetrical - Top rising, bottom declining. These happen if wave B tops at the 20000 usd level.
A lot of analysis can be done if we go on like this. We shall end it here. One has to consider the BTC dominance also while making analysis. But I did not draw any correlation with it in this post. I will try to write another post as a continuation to this one where I will be drawing the convergence and divergence of BTC dominance to the possibilities analysed here. In my previous post, I did an analysis based on BTC .D where I did not consider multiple year Elliott wave cycles. It was my first analysis on BTC after learning Elliott wave theory. I shared the link below.
Summary : If the elliott wave theory guidelines are hard and fast rules, we can expect the part B to play out in the future. But as you know, they are not hard and fast rules and just guidelines, we can also expect the part A to play out in the future. I have seen a market where wave A and B both having 5 sub waves each, printed the contracting triangles pattern. Have a look at it below. This tells us that the markets can do anything and we are its puppets. One has to realise that except for possibility 2 of part A and flats(expanded and regular) of part B, the other possibilities of correction when printed on the chart look like a part of the new bull market cycle.
Post script : Although the analysis done here is not a financial advice, I would not say "Do your own research". What if your research sucks?? Just kidding. Yeah, I am a fan of Richard Heart's humour. Also taking financial advice from a 22 year old can be painful. My trading journey started 3 months back. Been working hard to improve my TA. I am always ready for discussion. I am greedy to learn than to earn at this point of time. Warming up for 2 year long bull market ahead of us.
Waves nomenclature :
Multiple year cycle in charts - I, II, II, IV, V, A, B, C, D, E
Primary waves - (1), (2), (3), (4), (5), (a), (b), (c)
Intermediate waves - 1, 2, 3, 4, 5, a, b, c
Read the first point in the below "Educational" section and jump directly to the "Technical analysis" section of this post.
Educational :
1) Elliot wave theory is one of the best methods for market analysis which when combined with trading strategies like Price action, Trend following, Swing trading, etc., gives the best results for traders. I suggest you to understand this theory before you proceed further in this post. If you do not know the basics of this theory, here is a link for a quick read - elliottwave-forecast...elliott-wave-theory/ . Have a look at the diagrams in this link to know how different types of impulses and corrections look like.
2) In zigzag correction, ABC correction is a 5-3-5 structure i.e., A has 5 sub waves, B has 3 sub waves and C has 5 sub waves.
3) In Flat correction, ABC correction is a 3-3-5 structure i.e., A has 3 sub waves, B has 3 sub waves and C has 5 sub waves.
4) In regular flat, wave B = 90% fib retracement of wave A. In running flat, wave B = 123.6% fib retracement of wave A. In expanded flat, wave B = 123.6% fib retracement of wave A.
5) There are 4 types of triangles - a) Ascending - Top flat, Bottom rising, b) Descending - Top declining, Bottom flat, c) Contracting or Symmetrical - Top declining, Bottom rising, d) Expanding or reverse symmetrical - Top rising, Bottom declining
Technical Analysis :
Part A : Considering wave B has topped out at 14000 usd
In the above chart I drew the multiple year motive and corrective elliott waves. We are yet to finish this cycle. A look at the volume levels will give you the clear picture. The current volume levels are very much below the levels of the fifth wave. Also the volume levels of the wave B are lower than that of wave A. This gives us a confirmation that we are still in the correction phase of this cycle. We shall analyse whether this correction is going to be a flat one or a zigzag one or triangles. God(imaginary) have to help us if this correction becomes complicated to become a double three or a triple three. For now, we shall hope that this correction is a simple one and proceed with analysis. The analysis in this part A sub section is done by considering that the Wave B topped out at 14000 usd. In part B sub section, analysis is done considering that the wave B has not yet topped.
Now have a look at wave A in below chart. It is a 3 wave structure. This is directly a textbook pattern. If you want to argue with me saying it is a 5 wave structure, I am ready with a source to support my point. Source : Chapter 3 - The basic patterns that describe corrective market movement of the book Mastering Elliott Wave Principle by Constance Brown.
Considering that the wave B has topped. As wave A is a 3 wave structure, we cannot expect a zigzag correction in this cycle. Now two possibilities are left - Flat and triangles. For a flat ABC correction, wave B should have topped out in the 90%-123.6% fib retracement levels of wave A. But as the 14000 usd level where the wave B topped at is just the 61.8% fib retracement of wave A, we cannot expect this to be a flat correction as well.
Now, the only possibility left is the triangles. But there are four types of these triangles(read point no 5 in educational section) and so we have four possibilities again. We shall eliminate one by one as we did earlier. We have to be clear that in triangles, there will be 5 waves A,B,C,D,E(not just A,B,C).
Possibility 1 - Ascending, Top flat and bottom rising :- As Wave B topped out at 14000 usd, the possiblty of forming this kind of triangle is ruled out.
Possibility 2 - Descending, Top declining and bottom flat :- If the top is to decline, the trend line drawn connecting the fifth wave top and wave B top can act as a resistance. Let us not worry about timelines in this post. In general, this types of triangle happens when wave B retraces 50% or less than 50% of wave A fib levels. But the wave topped out at 61.8% fib retracement of wave A. So the possibility of these triangles formation is there but minimal.
Overall, we have only two possibilities for correction of which one is less likely and the other is more likely. But this is only when we consider that the wave B has already topped out at 14000 usd. Now lets consider the other case in part B.
Part B : Considering wave B has not yet topped
Wave A is a 3 sub-wave structure. If we are going to have to a simple ABC correction, there is to be a 3-3-5 structure which means that the wave B will be subdivided into 3 waves (a)-(b)-(c) and wave C into 5 waves. But one can easily see that the current rally of wave B from 3200usd to 14000usd has 5 waves not three. This can make us think that the wave B still has some upside potential after the abc correction.
1)For ABC correction - We can have a)expanded flat, b)regular flat, c)running flat. These happen if the wave B tops above 20000 usd level or slightly below that level.
2)For ABCDE correction - We can have the ones which were ruled out earlier - a)Ascending- Top flat, bottom rising and b) Expanding or reverse symmetrical - Top rising, bottom declining. These happen if wave B tops at the 20000 usd level.
A lot of analysis can be done if we go on like this. We shall end it here. One has to consider the BTC dominance also while making analysis. But I did not draw any correlation with it in this post. I will try to write another post as a continuation to this one where I will be drawing the convergence and divergence of BTC dominance to the possibilities analysed here. In my previous post, I did an analysis based on BTC .D where I did not consider multiple year Elliott wave cycles. It was my first analysis on BTC after learning Elliott wave theory. I shared the link below.
Summary : If the elliott wave theory guidelines are hard and fast rules, we can expect the part B to play out in the future. But as you know, they are not hard and fast rules and just guidelines, we can also expect the part A to play out in the future. I have seen a market where wave A and B both having 5 sub waves each, printed the contracting triangles pattern. Have a look at it below. This tells us that the markets can do anything and we are its puppets. One has to realise that except for possibility 2 of part A and flats(expanded and regular) of part B, the other possibilities of correction when printed on the chart look like a part of the new bull market cycle.
Post script : Although the analysis done here is not a financial advice, I would not say "Do your own research". What if your research sucks?? Just kidding. Yeah, I am a fan of Richard Heart's humour. Also taking financial advice from a 22 year old can be painful. My trading journey started 3 months back. Been working hard to improve my TA. I am always ready for discussion. I am greedy to learn than to earn at this point of time. Warming up for 2 year long bull market ahead of us.
Trade active:
Currently, There is this buzz about BTC not falling below 8000 level. This is only one of the possibilities that was discussed in this post. If part B were to play out, market will complete wave B, which will look like a resumption of bull market to everyone. But we know there is wave C which has to be completed in the correction. We shall make a case study of FOMO, volume, wave C of this cycle as time goes.
Comment:
Here is the chart for point no 2 of part B where top flat and bottom rising correction happens -
