Bitcoin prices are shockingly close at their 2017 peak. It has caused panic, fear and despair on the crypto market. However, could this violent fall be just a zig-zag correction in a textbook? What does the next step for crypto markets look like?
Bitcoin Price Action Following Deadly ZigZag Pattern
Although the consensus was that Bitcoin and cryptocurrency had become an asset, it has been proven wrong. The recent crash reminded us that digital assets still remain highly speculative. Speculative assets are driven by pure emotion, since there aren’t ideal ways to fundamentally price Bitcoin yet. The majority of on-chain signals remain bullish, despite the more than 70% drop from November’s peak.
Elliott Wave Theory was first developed in 1930s and is a better way to predict price action. According to Wikipedia, “Elliott Wave Principle posits that collective trader psychology, a form of crowd psychology, moves between optimism and pessimism in repeating sequences of intensity and duration. These mood swings create patterns in the price movements of markets at every degree of trend or time scale.”
Similar Reading: Bitcoin drops to 18-months lows. Has the market seen its worst?| Bitcoin Drops To 18-Months Lows, Has The Market Seen The Worst Of It?
More simply put, bull and bear phases alternate in a predictable manner through what Elliott referred to as “waves.” The theory outlines that markets move up between a motive phase and corrective phase. The primary cycles that are motivated include five sub-waves. Waves 3, 5, and 6 are impulse waves following the primary market trend, while waves 2, 4 and 5 are corrective phase. The motive wave (a bullish market cycle), ends with wave 5. It then moves to a corrective phase (and bear market).
There are many motivation waves, which can take on different forms and cause corrections that can prove confusing. The latest Bitcoin correction could, however, be a classic zig-zag, depending on how it unfolded from an emotional perspective.
BTCUSD might have performed a zig-zag corrective move| Source: BTCUSD on TradingView.com
Can BTCUSD Get a Relief Rally Finally?
The 3-wave corrective pattern of the zig-zag is called ABC. Subdivided into a 535 pattern, it’s a 3 wave pattern. Referred as A, the first movement down is a 5 wave impulse move, based solely on emotional reactions. Wave B, in this example, is described as moving up and sucking in new bullish position that eventually get taken out of the C-wave. Also impulse movements driven by fear or panic are C-waves with a zigzag.
Once they’re complete, market prices can rise again. It is difficult to imagine at this point in the pattern that a reversal is possible given the extreme switch in investor sentiment, but that’s often when recoveries emerge from disbelief.
Bitcoin Weekly RSI Sets Record For Most Oversold In History, What Comes Next?| Bitcoin Weekly RSI Sets Record For Most Oversold In History, What Comes Next?
Elliott Wave Theory is a theory that examines patterns in investor sentiment. These patterns are useful for profit, but they can often only be identified once the pattern has been completed. The recent down spiral is it really a downward zigzag pattern?
Follow @TonySpilotroBTC on Twitter or join Telegram from TonyTradesBTCFor exclusive market information and technical analysis education, subscribe to our newsletter. Please note: Content is educational and should not be considered investment advice.
Featured Image from iStockPhoto. Charts from TradingView.com