Steemit Crypto Academy Week 14: Homework Post for Crypto professor @fendit | Elliot Wave Theory
Hello, Steemians. I am happy to be here at the Steemit crypto academy to learn again about the crypto space and I am glad I have read the lecture from crypto professor @fendit as the professor talked about the topic "Elliot Wave Theory" and I will be working on the task associated with the lecture.
A.i. Application of Elliot Wave Theory
The introduction of this special theory is of great importance in making good decision of investment in the crypto space. How? It is used to determine the trend of a crypto market to monitor the trend and possible slight change of direction that took place when the asset was moving in a direction.
With this strategy, a trader can easily study the price movement of the asset determining the previous price reached before there was a slight trend change due to sell/buy in a bearish/bullish trend change. And through correct study, the trader would be able to predict the next price movement of the asset to setting proper entry and exit price for a trade.
And on the correction path, a trader can easily take note of the previous price movement to set stop loss as to control loss in the market. It's not about getting greedy to take excess profit in the crypto market but applying effective stop loss is also very important and this method is useful for a user to properly set a stop loss price for the asset.
A.ii. What are impulse and corrective waves? How can you easily spot the different waves?
Impulse waves
According to the study, the impulse waves is of 5 different waves (points) and how it works is that it moves in the trend direction of a crypto market thereby opening a position in the crypto market and on its way experiences a little trend change due to sell for example, in a bullish market trend which occurred when some traders sell off their assets to take profit and this would have the asset reach another point before it continues in the previous trend to open another high in a bullish market.
Corrective waves
I talked about the impulse waves that has 5 waves which tends to embark on a correction journey and this is indicated with another points tagged A, B and C and it happens after the 5 waves of the impulse waves. Something special to note about the corrective waves is that they move in an opposite direction to the trend of the previous impulse waves with the A and C having an identical trend while B differs to the two.
For emphasis, impulse waves comes first and followed by the corrective waves, and both often move in different direction. As the name corrective sounds, it's an implication of change from the former trend (impulse wave).
How to Spot the waves?
The first step is to detect the first point which is the Wave 1 and proper studying of the pattern will easily reveal other waves. I said it before that for example, in a bullish market, after the first point (Wave 1) there would be a little change in the trend which indicates a point where some traders sell off some/all their assets to take profit and this would pull the price down a bit to manifest the second wave (2) and so on. Below would be some basic things to note when using this method on an asset pattern.
Note that in study of the pattern:
A trend change that produces Wave 2 must not have the wave 2 go down to reach the opening position of Wave 1. Wave 2 must still be above the Wave 1.
The wave that follows 2 which is Wave 3 must be the longest one amongst the waves.
Wave 4 must not pull back to the Wave 1 level.
A.iii. What are your thought on this theory? Why?
My thought on this theory is that it is a very great tool that can be effective enough if the trader properly detects all the waves without mixing up as it opens up different positions with comfort and allows the trader to mark out different positions and make a prediction of the price movement of the asset he/she is studying. Overall, I see it as an effectively way that gives a trader the opportunity to make decisions on which position to take in the market of an asset.
Why do I think this theory is effective?
As the waves took off from wave 1, it opens support and resistance to the wave 2.
The opened supports throughout the entire waves (5) gives the trader the idea of where to make entries from.
The different exit price are also revealed to the trader in the process for the trader to project his/her.
While proper stop loss is revealed through the waves if the trader carefully studied the waves.
The above points are the reasons behind why I believed this theory is effective to making trading decisions in the market.
B. Analysing a Coinchart- STEEM/BTC
Setting up my tradingview to see the price behaviour of the STEEM/BTC asset, employing the Elliot Wave Theory, I was able to see a complete Impulse and Corrective waves on the coin chart and I quickly mark out different points which would been shown in the screenshot below.
As observed in the chart above, in the STEEM/BTC bullish market, I set and marked where the bull run began which is Wave 1 which is an opening point for impulse waves and the trend goes on until it was slightly changed because of sale by some of the coin holders creating the Wave 2. Not quite long after that, the trend changes in the bull direction and the longest Wave 3 was formed in accordance to the Elliot wave theory. Wave 4 also showed up in the bear direction but it didn't reach Wave 1 and that works well for the theory, and finally Wave 5 took a race to hit a price above Wave 4 which completes the impulse waves.
After the complete Impulse waves (5 waves), it was followed by the corrective waves when the wave A showed up in a direction opposite to the Wave 5 produced from Impulse waves and Wave B also comes up in a bullish trend and shortly after, Wave C goes down in the same direction with Wave A and that completes the Corrective waves as well.
Conclusion
The Elliot wave theory is a very great tool that makes the process of marking out points of entry and exit with comfort by studying the price movement of an asset on the coin chart. It's a tool that is very effective for gaining knowledge for a wise trading decision if the user studying the chart can be able to properly carry out the analysis without mixing things up. I appreciate crypto professor @fendit for this lecture she taught us.
Regards,
Cc: @fendit
Thank you for being part of my lecture and completing the task!
My comments:
Nicely done :)
It's always a pleasure to read your work, as you're so precise and accurate on your answers! I wish you had developed a bit more your tasks, as I'm sure this is really easy for you!
Still, nicely done :)
Overall score:
7/10