Elliott Wave Theory predicts prices in all sorts of markets, allowing investors to adjust their trading strategies based on historical trends.
What is Elliott Wave Theory?
Elliott Wave Theory is a price prediction model established by the accountant Ralph Nelson Elliott in 1934. The model is based on a common pattern Elliott discovered while studying the history of stock market price patterns.
What Elliott found was that price movements moved in up-and-down waves, broken up into groups of five and then three. The first set of five waves results in an overall positive trend, broken down as follows:
Wave one: Wave goes up, setting a new trend (wave one, along with three and five, are also known as impulse waves).Wave two: Wave goes down, correcting against the trend (waves two and four are also known as corrective waves).Wave three: Wave goes up with the trend, higher than before.Wave four: Wave goes down, correcting against the trend set by wave three.Wave five: Wave goes up, reaching a new peak.
The price movement will peak at the end of this set of five wave counts and begin to drop, leading to an overall negative trend. According to Elliott Wave Theory, the movement will drop in a set of three waves:
Wave one: Wave goes down, correcting against the trend.Wave two: Wave goes up a bit, retracing some of what was lost.Wave three: Wave goes down, correcting against the trend.
From here, Elliott claims the eight-wave principle will repeat, leading back into five waves, converging into three waves and so on. Also, according to Elliott Wave Theory, the second set of waves will never drop below the lowest point of the initial five waves. As a result, this theory states that barring any unforeseen price shifts, such as a rug pull, the price will continue to rise on a long-term basis.
Elliott argues that these market cycles can be seen across various time frames — that the eight-wave theory applies in a 15-minute trading period to an hour-long period, to a week-long, and so on.
How to use Elliott Wave Theory while trading in crypto
When using Elliott Wave Theory to trade in the cryptocurrency market, it’s important to note…
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