Bitcoin Forum

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Disclaimer: The information's contained in this explanation is the result of my understanding of Elliott Wave Theory and may contain some errors. Search and confirm about it.

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Table of contents

      1. What is Elliott Wave? (#post_point1)
      2. Cycles and waves (#post_point2)
      3. The theory (#post_point3)
      4. Basic rules on impulse (#post_point4)
      5. How to trade? (#post_point5)



What is Elliott Wave?

It was developed by Ralph Nelson Elliott to describe price movements in financial markets. Its principle is based on the idea that financial markets tend to follow specific patterns, whatever the time frame in which they observe and identify patterns of repeated fractal waves.

Elliott waves can be used to analyze financial market cycles and can be used in investor psychology, highs and lows in prices, and other collective factors.


Cycles and waves

The psychological behavior of trading is reflected in the form of waves rather than simple straight lines which is one of the biggest features of Elliott theory. It is a reflection of the Elliott studies of Charles Dow's work, in which the Dow theory states that stock prices usually move in waves.

It can be used as a tool for technical analysis and trying to determine market cycles and trends, but it is not a trading technique but rather a theory that may help in predicting market behavior.

Elliott saw that with each direction there are usually impulsive waves (five waves), followed by a corrective wave in the opposite direction (three waves).

https://a.c-dn.net/c/content/dam/publicsites/igcom/uk/images/ContentImage/Elliott-Wave-theory-explained-example4.png

Source: https://www.ig.com/en/trading-strategies/elliott-wave-theory-explained-180830

This pattern repeats itself indefinitely on ever smaller scales, regardless of time scale.


The theory

Each impulsive movement will be followed by a corrective move. Where the first five waves can be represented by impulsive movements (called numbers 1-5) that move in the direction of the main trend. The next three waves provide corrective waves called A, B, and C.

https://comparic.com/wp-content/uploads/2015/09/ao-1024x5371-696x365.png

Source: https://comparic.com/elliott-wave-theory/

Once the 5-3 move is complete, we have completed a single cycle.

The awesome oscillator can also be used to identify waves, as it compares the rate of change in prices. It can also be used to form the 5 wave using the 7-period moving average (DMA) and the 5-period shift to the right.

Basic rules on impulse

https://comparic.com/wp-content/uploads/2015/09/fala-impulsu1-1024x534.png

Source: https://comparic.com/elliott-wave-theory/

• Wave 2 never retraces more than 100% of wave 1;
• Wave 4 retraces more than 100% of wave 3;
• Wave 3 always goes beyond the end of wave 1;
• Wave 3 cannot be the shortest of the three impulse waves.
• Wave 4 is not in wave 1 area.

https://a.c-dn.net/c/content/dam/publicsites/igcom/uk/images/ContentImage/Elliott-Wave-theory-explained-example1.png

https://a.c-dn.net/c/content/dam/publicsites/igcom/uk/images/ContentImage/Elliott-Wave-theory-explained-example2.png

https://a.c-dn.net/c/content/dam/publicsites/igcom/uk/images/ContentImage/Elliott-Wave-theory-explained-example3.png

Source: https://comparic.com/elliott-wave-theory/

Elliott illustrated a series of categories for waves, which show when you will see the same patterns in both the long-term and short-term charts:

• Supercycle: (about 40 to 70 years)
• Cycle: one year to several years
• Intermediate:weeks to months
• Minor: weeks
• Minute: days
• Minuette: hours
• Sub-minuette: minutes

How to trade?

It can be used successfully if the following two conditions are met. It can also be used effectively with Fibonacci retracements.

• One-way pulse start and irregular correction.
• Impulse and correction as zigzag.

Look for the pulse as a quintuple movement in any direction, check if the end of the pulse is an additional three-wave structure (50%, 62% and 75%.)
Place your stop loss above the critical retracement level 75 and you can take profits by setting a third wave range based on the first wave.

https://comparic.com/wp-content/uploads/2015/09/irr-trzy-1024x549.png

Another scenario:
Look at rule three, and look for the fourth wave to be relatively shallow, with 23.6% -50% levels of particular interest. We can also look for the correct A, B, C move to be a 50% -61.8% retracement of the full impulse 1-5.

Very thankful:  https://comparic.com/author/przemyslaw-jarzabek/

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Source

Code:

https://www.ig.com/en/trading-strategies/elliott-wave-theory-explained-180830
https://comparic.com/elliott-wave-theory/
https://elliottwave-forecast.com/elliott-wave-theory/
https://www.investopedia.com/articles/technical/111401.asp
https://www.investopedia.com/terms/e/elliottwavetheory.asp#:~:text=Key%20Takeaways,that%20oppose%20the%20larger%20trend.
https://academy.binance.com/economics/an-introduction-to-the-elliott-wave-theory

Appreciated the effort but there are already several threads that do talks about this Elliott Wave Theory:

This is for year 2018
https://bitcointalk.org/index.php?topic=2711461.0

This is for 2019
https://bitcointalk.org/index.php?topic=5128394.0

and some discussions on here
https://bitcointalk.org/index.php?topic=49462.0

If I may add to the topic, the way you could use the Elliott wave is to determine the start of the wave and the end of the wave. It all depends on your perspective, and different traders would have different results with their waves because it’s dependent on their choices. I think that’s what it is that is lacking in your post, not just a simple theory would get yourself successful on it.

Everyone should know that in trading, it’s better to have great discipline in their risk management rather than their strategic approach to trading. Maybe you could create a topic like that as well.

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I think other strategies could be better discussed here, not the repeating ones. Besides, is it the best strategy for a beginner to trade with? I don't think so.

To be fair those are all speculation threads. They apply EW to Bitcoin and other instruments, but they aren't tutorials on EW itself. They don't really teach you the rules and guidelines, or any of the basics.

The OP is a good summary of the basics, but impulses and simple corrections are just the tip of the iceberg. Complex corrections are where things get really fun. :P

Check this out for an idea of how complicated it gets: http://www.wavemagician.com/rules.htm

I tried learning and trading Elliot waves back when I was trading stocks or forex and I found it very accurate and everything as long as it was in highsight. Then I decided to use it in forward/real live trading and it didn't help at all. The issue is you have no reason of knowing what wave you are in. You might think you are in one wave but you might still be in the previous wave.

It got so difficult and confusing that I just stopped using it all together as a TA. I just use moving averages and trendlines and basic support/resistance. Right now its all about market sentiment and TA won't help you with that. Basically stocks go up, go long on bitcoin and do the reverse if true.

If Trump wins election then go long on bitcoin and crypto and there isn't any TA that will predict that. Just use it as a guide and not much more. This is how you can survive the markets.

I think this forum covers a lot more, about: theory, charts, Anasila and predictions and how to trade Elliott Waves.

However, for some reason all the topics that discuss Elliott waves, are neglected, maybe people are currently having a headache seeing too many graphs and predictions, maybe the crypto community currently needs something accurate and real.

Addendum: some topics about Elliott, which is already a ghost town, with no inhabitants.

Topic: Can Elliott Waves Really Predict the Price of Bitcoin? (https://bitcointalk.org/index.php?topic=910310.0)

Topic: The Elliott wave theory (BTC) (https://bitcointalk.org/index.php?topic=4536525.0)

Topik: Prinsip gelombang Elliott (https://bitcointalk.org/index.php?topic=2269806.0)

Topic: Elliott Wave Predictions with Charts (https://bitcointalk.org/index.php?topic=456030.0)

Either I have to read and get started or I need a little vacation to get rid of the graph for a while that makes my nerves boil.

You always need to have multiple potential EW counts in mind. That includes recognizing, for example, that an impulse can have 5 sub-waves or it can extend into 9 sub-waves. That sort of speaks to what you're saying about not knowing which wave you're in. I understand the frustration of that. You need to constantly apply the rules and guidelines to adjust your count and rule out previous possibilities as new price action comes in.

The greatest value of EW is that it provides a bird's eye view of the market cycle, like Wyckoff analysis. The value isn't so much for short term, intraday trading which is inherently unpredictable. It keeps you on the right side of the prevailing trend, tells you when to expect reversals, or whether to expect a counter trend trap vs. a legitimate trend reversal, things like that.

It's not infallible though. It's just another tool in the tool box. I like that its harmonics and Fibonacci levels make beautiful confluence with other classical TA methods. When my EW counts, oscillators, candlestick analysis and reaction to S/R on multiple time frames all agree, there is usually a big trading opportunity brewing.

It is incredibly funny that you wanted to share elliot wave theory and make it for "dummies" which it is not for, believe me regular people are a lot more stupid than you think they are, they barely can read a full sentence without getting bored and focusing on something else, rarely they end up reading and also understanding it.

But at the same time you are not really at the right place for this neither, read the part at the start that talks about "what is elliot wave" and you will see that this is usually for traditional markets. Could it work for bitcoin? Maybe, we don't know but we know that bitcoin is not like other markets so there is also a huge chance that this wouldn't work on crypto at all, it may literally be just as opposite of what it should be.