The Crypto market with its strong fluctuations and huge profit potential attracts a large number of investors to participate. However, to be successful in this field, equipping yourself with knowledge and trading skills is extremely important. One of the effective technical analysis tools trusted by many investors is Elliott wave extensions. Let’s explore Crypto Trading the Elliott wave principle, how to count waves, and instructions for trading according to this theory.
Learn Elliott wave extensions on the Crypto Trading platform
What are Elliott wave extensions and what are their outstanding advantages? Let’s learn more about it with Crypto Trading!
What are Elliott wave extensions?
The Elliott wave extensions model is a variation of the basic Elliott wave model on the Crypto exchange, in which wave 3 has a longer length than normal, often expanding 1.618 times or 2.618 times compared to wave 1. This model often appears when the market tends to increase or decrease strongly.
Advanced Elliott Wave Rules of Operation
The Elliott Wave Principle posits that crowd psychology, or collective investment psychology, and investor sentiments constantly swing from optimism to pessimism and back again in a natural pattern. This shift is reflected in price patterns in the market, regardless of trend level or time frame.
Elliott wave patterns all follow these rules:
- Wave 2 retraces and the Elliott wave falls but does not exceed the starting point of wave 1.
- In the three main waves 1 – 3 – 5, wave 3 is never the shortest.
- Wave 4 must not penetrate the price area of wave 1.
The Relationship Between Elliott Wave Structure and Fibonacci
Ralph Nelson Elliott, the developer of the Elliott Wave Theory, recognized a repeating structure in market price movements. He described this structure as a series of waves following a certain trend, called Elliott waves.
Interestingly, this Elliott wave pattern was developed before Elliott discovered its connection to the Fibonacci sequence. He later noticed that the ratios in the Fibonacci and Elliott waves appeared frequently in the Crypto market.
From this, Elliott concluded that “The overall Fibonacci sequence is the basis of the Wave Principle”. In this view, the numbers in the Fibonacci sequence can be used to identify potential support and resistance levels in the market, helping investors make more informed trading decisions.
See more: Elliott wave: learn principles, trade effectively
Advanced Elliott Wave Analysis on Crypto Exchange
What are the prominent structural models of Elliott wave extensions? Let’s analyze the Elliott wave indicator with Crypto exchange.
Elliott wave structure pattern motivates
The Elliott Wave model describes cyclical price movements and crowd psychology. It helps investors predict Crypto market trends. In an uptrend, the impulse wave structure consists of 5 waves. To accurately identify Elliott waves, three mandatory rules must be followed:
- Wave 2: The bottom point cannot be lower than the starting point of wave 1
- Wave 3: Never the shortest of the 3 bullish waves (1, 3, 5)
- Wave 4: Cannot be lower than the price of wave 1
Advanced Elliott Wave Model Corrects ABC on Crypto Exchange
After completing 5 impulse waves, the market enters a correction phase with at least 3 bearish corrective waves (ABC). This correction can be more complicated depending on the waveform and sometimes lasts longer than 3 waves.
Specifically, the Corrective Wave model in the Elliott wave theory is a tool to help determine the main trend of the market. This model includes three prominent wave types in Crypto: wave A, wave B, and wave C.
- Wave A is the first down wave in a corrective cycle, usually a short but strong wave, with a clear downward momentum. After Wave A, the market may have a small recovery, known as Wave B.
- Wave B is a short-term bullish wave that occurs between wave A and wave C. Wave B usually retraces part of wave A. Although it is a bullish wave, its upward momentum is usually not as strong as the downward momentum of wave A.
- Finally, after wave B comes wave C, the final bearish wave in the corrective cycle. Wave C is usually the strongest and longer bearish wave in Crypto markets. Once wave C is complete, the market usually returns to the previous major trend.
According to Elliott’s theory, there are up to 21 corrective wave patterns from simple to complex. However, most of these patterns develop from the following three main patterns.
Zig Zag Wave Pattern on Crypto Trading Platform
Zig-Zag is made up of 3 waves named A, B, and C. Which wave B is usually the shortest wave when trading on the Crypto exchange? The outstanding feature of Zig-Zag is the sudden change in price movements. After experiencing a strong decline in wave A, the market seems to want to recover with wave B going up but only temporarily, giving way to wave C to continue the correction trend.
Interestingly, Zig-Zag can repeat itself, forming double or triple Zig-Zag patterns. This provides traders with potential trading opportunities on the Crypto exchange. However, it should be noted that Zig-Zag is only a part of a complex Elliott wave pattern. Therefore, accurate analysis and prediction require patience and skill.
Elliott wave extensions in the flat pattern
Flat Wave, also known as flat pattern, is a corrective wave, alternating between strong impulse waves, bringing a period of lull and balance to the market.
A flat wave is a structure consisting of 3 waves A, B, and C, with relatively equal width. Wave B often moves in the opposite direction of wave A, creating a rhythm that repeats the market rhythm. However, sometimes wave B can break out, surpassing the starting point of wave A. This brings interesting surprises to traders when participating in the Crypto exchange.
Flat waves appear at wave 4 in the 5-wave impulse model or after its end. It signals the end of an uptrend and potentially the beginning of a corrective trend. However, to accurately determine the role of Flat waves, investors need to combine it with other technical analysis factors to make an accurate assessment.
Advanced Elliott Wave in Triangle Pattern
A triangle is a five-wave corrective pattern. A triangle is a price correction that is “trapped” within two converging or diverging trendlines. A triangle consists of five waves that move against the main trend and usually move horizontally. Triangles can take many forms, including symmetrical, ascending, descending, and expanding triangles.
Some mistakes when trading with Elliott wave extensions
Mistakes traders need to pay attention to when trading with Elliott wave extensions
Mistakes when trying to adjust wave 2 on Crypto Trading
Many investors rush to conclude that Wave 2 ends when it reaches the Fibonacci retracement zone of Wave 1, leading to serious mistakes. The rule states: that as long as wave 2 does not exceed 100% of wave 1, it can still return to the bottom of wave 1 and then increase again.
To accurately determine the end point of wave 2, investors need to monitor prices. Only when the price surpasses the peak of wave 1 can wave 2 be confirmed to be complete.
Trying to draw an advanced Elliott wave from a subjective perspective
Elliott requires caution and adherence to principles to avoid making misleading predictions.
First, it is necessary to have a sufficient basis to identify Elliott waves. Drawing and predicting Elliott waves should only be done when there is sufficient price information, including at least wave 1 and wave 2. Lack of this information can lead to incorrect predictions of market trends.
Second, it is important to clearly distinguish between impulse and corrective waves. Impulse waves move in the direction of the main market trend, while corrective waves move against it. Correctly identifying the type of wave that is occurring is important in predicting potential reversal points.
Specifically, to predict when the market will end its uptrend and enter a correction phase. Traders need to determine the end point of wave 5. Wave 5 is usually the strongest impulse wave in the 5-wave sequence and ends at a high. After wave 5 ends, Crypto enters a correction phase that lasts for three ABC waves.
See more: Open an Bybit account – explore the crypto exchange
Wrong thinking when using Elliott wave extensions for trading
Using Elliott wave extensions to trade can lead to some misconceptions that can affect your investment decisions. Here are some examples of common mistakes when trading on Crypto exchanges.
- Over-reliance on the pattern: Some traders have absolute confidence in the Elliott wave pattern. This leads to ignoring other warning signals or opportunities outside the pattern.
- Forecasting too far ahead: Traders predict price movements further ahead than what the Elliott wave model provides. This leads to investment decisions based on uncertain assumptions.
- Inflexible: Elliott Wave requires awareness and adjustment of predictions as Crypto changes. Some traders are rigid, not adjusting their strategies when the market does not move as expected.
- Overuse of wave analysis: Some traders over-analyze waves and corrections. This leads to missing out on other trading opportunities.
- Misjudging the complexity: Elliott wave extensions can be complex and difficult to recognize. Investors may have difficulty distinguishing the waves and determining the exact phase, leading to incorrect decisions.
- Impatience: The Elliott wave pattern requires patience and discipline. Impatient traders enter trades too early or too late, out of step with the wave cycle.
summary
The Elliott wave extensions principle is an important support tool used by many traders. By applying Elliott waves, traders can take advantage of many opportunities and achieve high profits. This article by Crypto Trading aims to provide more information about this tool, helping you go further in trading, don’t forget to follow our upcoming articles to improve your trading experience!
FAQs:
What are the rules of Elliott wave operation?
- Wave 2 does not retrace beyond the starting point of wave 1 on the Crypto exchange
- Wave 3 is never the shortest wave among waves 1, 3, and 5 when trading
- Wave 4 does not penetrate the price area of Wave 1 in the market
Elliott cycle analysis extended when in an uptrend?
- Impulse Waves: Consists of 5 waves, numbered from 1 to 5
- Corrective Waves: Consists of 3 waves, denoted as A, B, and C
What are the relationships between Elliott and Fibonacci waves in Crypto?
Elliott Waves and Fibonacci are closely related in market analysis. Fibonacci retracement and extension levels help identify support and resistance points in Elliott waves. Elliott waves often follow Fibonacci ratios, such as wave 2 retracing 50% or 61.8% of wave 1, and wave 3 is often a 161.8% extension of wave 1. This helps predict price targets and reversal points.
