BTC - Correction - Elliott Wave Principle

COINBASE:BTCUSD   Bitcoin / U.S. Dollar
Hello, I wish to thank you for reading this analysis and I hope that you enjoy it. My original intent when writing this was to show, in detail, the rationale for my position, in clear, easy to understand, layman's terms as I have done many times before. As I worked through everything I came to the decision, that I would instead describe my analysis using the words of Robert Prechter and A.J. Frost, as written in their invaluable text, The Elliott Wave Principle (New Classics Library, 1978). All excerpts from the book will be marked in quotations, followed by citations of page ( pp .) and paragraph (par.) from which it was sourced. In this way, with a copy of the text one could follow and/or provide feedback in the case that I overlooked something. With that I begin with a quote from the Practical Application section of the book:

"Despite the fact that many analysts do not treat it as such, the Wave Principle is by all means an objective study, or as Collins put it, "a disciplined form of technical analysis ." Bolton used to say that one of the hardest things he had to learn was to believe what he saw. If you do not believe what you see, you are likely to read into your analysis what you think should be there for some other reason. At this point your count becomes subjective and worthless. How can you remain objective in a world of uncertainty? It is not difficult once you understand the proper goal of your analysis. Without Elliott , there appear to be an infinite number of possibilities for market action. What the Wave Principle provides is a means of first limiting the possibilities and then ordering the relative probabilities of possible future market paths." ( pp .94-95, par. 4-1)

I am inherently neither Bull nor Bear; I believe what the chart shows me and express my analysis as such, whether that be Bullish or Bearish , it is what I see and I believe what I see.

"The single most important rule that can be gleaned from a study of the various corrective patters is that corrections are never fives. Only motive waves are fives. For this reason, an initial five-wave movement against a a larger trend is never the end of a correction, only part of it." ( pp .41, par. 2) "Sharp corrections angle steeply against a larger trend." ( pp .41, par. 3)
This Daily candle chart shows my preferred count for the entire BTC Correction that began in December 2017. It can be seen that the Correction began with a steep, declining, Motive 5-Wave that took the price from All Time High to 5811. As plotted my count is an ABC , 5-3-5 formation, zigzag .

"... diagonal occasionally appears in the wave 1 of impulses and in the wave A position of zigzags...A leading diagonal in the wave 1 position is typically followed by a deep retracement." ( pp . 40 , par. 2)
A closer look at the 6 hour chart shows that the correction began with a leading diagonal for wave 1 down; the 18 hour chart below this also shows that diagonals have been common during the Correction.

"The A wave sets the tone for the B wave to follow. A five-wave A indicates a zigzag for wave B..." (p.81, par.2)
My count shows that wave B was a zigzag from 5811 to 11800...

"Within impulses, second waves frequently sport zigzags, while fourth waves rarely do." ( pp .42, par. 3)
Primary wave 2 of A and wave 2 of C are zigzags.

Comment: "An ending diagonal occurs primarily in the fifth wave position at times when the preceding move has gone "too far too fast," as Elliott put it. A very small percentage of diagonals appear in the C-wave position of A-B-C formations...In all cases, they are found at the termination points of larger patterns, indicating exhaustion of the larger movement.” (pp.37, par.2) “A contracting diagonal takes a wedge shape within two converging lines.” (par.3)

“Diagonal Rules: A diagonal always subdivides into 5 waves; An ending diagonal always appears as wave 5 of an impulse or wave C of a zigzag or flat…” (pp.87, par. 2) “In the contracting variety, wave 3 is always shorter than wave 1, wave 4 is always shorter than wave 2, and wave 5 is always shorter than wave 3.” (pp.88, par.1)
Currently wave 5 of 5 as plotted is conforming to the rules.
A quick note on price extremes and retracements of wave 4’s into wave 1’s in crypto: “In an impulse, wave 4 does not enter the price territory of wave 1. This rule holds for all non-leveraged “cash” markets. Futures markets, with their extreme leverage, can induce short term price extremes that would not occur in cash markets.” (pp.31, par. 4)
I think we can safely say that Bitcoin, and other cryptos, certainly fall into the category of an extreme leverage market.

“The most important empirically derived rule that can be distilled from our observations of market behavior is that when the fifth wave of an advance is an extension, the ensuing correction will be sharp and find support at the level of the low of wave 2 of the extension.” (pp. 68, par. 3)
The daily chart above shows that after a retracement of 70%the price of Bitcoin bounced at less than 7% difference from the beginning of the previous wave 5, below the wave 2 price of 7802.99 (chart below).
The forecast tool used in the Daily chart above shows that both in price increase and time duration wave 3 was the largest of the previous formation, including the fifth wave extension to All Time High.

A look at the RSI, Elliott Wave Oscillator, and the MACD all show positive momentum continuing to rise.

In searching for signs of divergence, none was particularly found but the closest pattern showing is that of Regular Bullish Divergence, with nearly flat price lows and significantly rising RSI.

As the last chart (below) in this initial post I will restate the Contracting Ending Diagonal Rule: “In the contracting variety, wave 3 is always shorter than wave 1, wave 4 is always shorter than wave 2, and wave 5 is always shorter than wave 3.” (pp.88, par.1)
With that I expect BTC to test 7050 before retracing to 6679…before continuing on to the next major wave in the structure, Cycle Wave 3.
Comment: By the way...Cycle Wave 3 goes up.
Comment: BTC Daily Charts 4/11/18

Comment: "While volume tends to diminish as a diagonal of small degree progresses, the pattern always ends with a spike of relatively high volume..." The Elliott Wave Principle (pp.38, par.2)

Comment: BTC now in Wave 2 of 3

RSI Daily broke of wedge pattern

Daily MACD, MACD Histogram, and Elliott Wave Oscillator all Bullish
Comment: Hidden Bullish Divergence found on the 1 and 4 Hour charts...I anticipate a truncated C Wave near the 0.764 retracement level.
Comment: __________________________________________
Update 4/18/18
BTC Daily looking like a clear Wave 1 complete and in the middle of Wave 2

RSI, MACD, and MACD Histogram still very bullish...

My initial thoughts on the movement from 7820 to 8100 were that it was beginning Wave 1 of 3 and moving into sub-wave 4, with the secondary count having the move up as part of B Wave in a larger ABC Wave 2 correction...

The latter count of a larger ABC Wave 2 was confirmed by the distribution at 8155 down to 7950. So my current count has this movement as B Wave from 7822 to the top of the 5th wave at 8200, after which Wave C would begin retracing close to the end of A Wave at 7820.
Comment: 8200...and then some.
Comment: Updated count...still heading down C Wave
Comment: Current outlook...she's so bullish she just doesn't want to come down...
Comment: Interesting....
An ABC correction was anticipated at the High of 9040...
My count had the sideways corrective as a XWXYZ for Wave 2 of Wave 3...


Great education. Very much appreciated! Thank you!
+2 Reply
BTCookieMonster straightace
@straightace, Thank you!
Great writeup Junior. I wasn't sure if an ending diagonal can occur in a horizontal price movement so I looked all over and came up empty. Also of concern to me is the lack of a clear wave structure in the 3rd wave (or C as you labeled it) in the ending diagonal candidate. Ignoring EW for a second, I agree all the indicators and price action are looking super bullish. The concern is that this ends up being a triangle in a 4th wave or a B wave on the way down. Although, given everything else that seems highly unlikely, save for the uncanny resemblance to the 4th wave fractal in primary wave A. However, if it's a known fact that ending diagonals can move horizontally, then I'm inclined to go with that count given all the other bullish factors.

Huge sign to me is that most of the alts have more or less bottomed out and are showing strong base formations on their charts.
+2 Reply
BTCookieMonster DennisLeeBTC
@DennisLeeBTC, Thank you Sir, and great points
THIS!! I fully appreciate this breakdown. Thanks for the insight
+2 Reply
Keeping an eye on large rising wedge from the bottom and cautiously optimistic.
+1 Reply
The new chart style is insane. So clear with differentiating colors. I like it. nice job dude.
+1 Reply
@brett701, Thanks Broseph
+2 Reply
So bullish in wants to go
+1 Reply
Your teaching method is very helpful! Your analysis graphs combined with quotes from the book are really make EW so much better to grasp. Thank you for taking the time to do this!
+1 Reply
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