Steemit Crypto Academy – Season 2 - Week 6 - Post for @fendit

When it comes to cryptocurrency investment and trading, there are a lot of trading strategies and indicators that are used in order to predict the prices of cryptocurrencies so as to make more profit from the market. The Elliot wave theory is one of the many indicators that have proven to be very beneficial to cryptocurrency traders. However, there is no right or wrong way in trading and also there is no perfect strategy or tool for forecasting the prices of cryptocurrencies. Every tool and strategy have their own pros and cons, hence that is why good traders make use of various tools and strategies into to make the best trading decisions.

Elliott Wave Theory

The Elliot wave theory is basically a type of price forecasting tool or tool for technical analysis that is used a lot by traders to predict the prices of cryptocurrencies based on repetitive patterns and behavior of the market. The theory was created by Ralph Nelson Elliot as an effective tool for predicting future prices of assets based on the predictable and repetitive patterns which the market follows. The Elliot Waves theory in cryptocurrency basically suggest that in the cryptocurrency market, the price movements always follow a predictable and repetitive pattern. Using the Elliot Waves, there are two main types of waves known as impulse waves and corrective waves.

Image created by me

What's the application of this theory?

The Elliot Waves theory is also applied in the cryptocurrency world. The application of the Elliot Waves theory is basically during price forecasting of cryptocurrency assets. The Elliot Waves theory suggests that the cryptocurrency market always follow a set of predictable and repetitive patterns that form a wave-like pattern. The Elliot Wave theory is a really powerful theory and technical analysis tool that shows that the market can be predictable and hence, it is possible to accurately predict the future prices of a cryptocurrency asset.

To forecast the future prices of any cryptocurrency asset

This is one of the main applications of the Elliot waves theory as it is a price forecasting tool. For investors and traders, the Elliot waves theory is beneficial because the trader can study the repetitions of the market and use that to forecast the next price action of any cryptocurrency.

To determine the best entry and exit points

This is one of the applications of the Elliot waves theory. The Elliot Wave theory is a really powerful theory and technical analysis tool that can help a cryptocurrency trader determine the best entry and exit points. This is great because a trader can be able to predict whether the market will be bullish or bearish so as to know when to buy or sell.

To determine the best level to set stoploss

We all know that stoploss is one of the best tools and game changers for traders especially for cryptocurrency traders in a highly volatile cryptocurrency market. The Elliot waves theory can help a cryptocurrency trader determine the best level to set stoploss when entering a trade so as to either make the most profit or reduce loss.

What are impulse and corrective waves?

Impulse Waves

Impulse waves is one of the waves types in the Elliot wave theory and have their own unique characteristics. In the Elliot waves theory, the large pronounced trend are mostly the impulse waves. The impulse waves basically move in a 5 way sequence and mostly have the 1-5 numbering. The 1,3,5 numbering have an upward movement and the 2,4 numbering have a downward movement.

Corrective Waves

Corrective waves are also unique and are different from the impulse waves. Corrective wave is basically a wave that moves counter to the trend regardless of the market direction. This means that if a trend is in an uptrend or bullish trend and the wave moves in a counter direction, then it is a corrective wave. Same if the market is in a bearish trend and the wave moves in a counter direction then it is still a corrective wave. In the Elliot waves, the corrective waves are lettered a,b,c. Also, corrective waves can come in either form, either a zigzag which is when the letter b wave is shorter than both letter “a and c waves”, Flat which is when all the waves are the same in length or Triangle which is when the letter a wave is greater than the letter b wave which is greater than letter c wave or “wave c”.

How to easily spot the different waves

Spotting the different waves is quite easy if the Elliot waves theory is utilized correctly. Since we know that the pattern of the Elliot waves, it becomes easier to spot the different waves on any cryptocurrency chart. The “wave 1” is seen to as the first impulse waves which is now followed by 5 sub waves before the “wave 2” follows. The “wave 2” can be seen to be moving down, however, it doesn’t reach the base level or the point at which the waves started.

“Wave 3” is clearly seen as the longest of all the impulse waves and would not be the shortest impulse wave. Wave4 is seen moving down, however, it should not go below the “wave 2”. “Wave 5” is known as the final impulse wave. The corrective waves follows the wave5. In the corrective waves, “wave a” and “wave c” move in a counter direction of the trend. When the market is bullish, “wave a” and “wave c” go in the opposite direction. While “wave b” go in the same direction as the trend.

My thought on this theory

For me, this is basically my best strategy or theory when it comes to predicting the prices of any cryptocurrency assets. I find it the most likely to produce accurate results when it comes to forecasting the future prices of any cryptocurrency. The cryptocurrency market has proven to always follow a noticeable and repetitive pattern which makes it easier to try to predict the next move of the market. However, it is also important to know that no theory can 100% predict the next market action or movement because in cryptocurrency world, anything can happen and nothing is certain.

While the Elliot waves theory has proven to be a very technical analysis tool and powerful strategy, it is still not perfect and can still be wrong. It does a great job in helping investors and traders have a general idea of the next market movement, but it is still not a 100% accurate theory because the crypto market is also heavily dominated by sentiments which can alter any prediction at an instance. That is why it is important for traders and investors to make use of multiple technical analysis tools and indicators when trying to predict the cryptocurrency market.

Spotting Elliot Waves Using HNT/USDT Pair

For this demonstration, I will be using the HNT/USDT pair on tradingview. From the chart, you can see the elliot waves. I decided to draw lines to show the different waves such as impulse and corrective waves. The impulse waves are basically the waves with the numbering 1,2,3,4,5 while the corrective waves are the waves with the lettering a,b,c.

HNT/USDT pair on tradingview

HNT is a very popular cryptocurrency project with a lot of trading volume and liquidity and is listed on the binance exchange. From the chart, the impulse waves in the Elliot wave started from $6.764 and the wave1 at $7.883, wave 2 at $7.033, wave 3 at $9.653, wave 4 at $8.298, wave 5 at $9.877. The corrective waves in the Elliot waves, wave a at $7.861, wave b at $8.612 and wave c at $6.675.

Conclusion

The Elliot Waves have shown to be a reliable tool in getting a general view of the market trend and market movements. However, it is not a 100% accurate tool that guarantees success. Every tool have their own downsides and can be wrong, which includes the Elliot waves. In my opinion, it is important for traders and investors to make use of multiple technical analysis tools and indicators when trying to predict the cryptocurrency market. Combining the Elliot waves theory with other strategies and tools would most likely produce a better result.

@fendit