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A Complete Guide On Trading Bitcoin Using Wave Analysis

bitcoin waves

Hi Traders and/or Crypto Fans,

Your attention is probably, just like everyone else, focused on how far Bitcoin’s price rise can reach. Will it crash at $10,000 or just keep growing till it hits a million?

Although this debate is far from boring, it could perhaps be more useful to understand how technical analysis can be applied to the relatively new and exciting world of cryptocurrencies to calculate entries and targets.

Today’s article in fact specifically focuses on the “Elliott Wave Theory”, which is a category of analysis that interprets the waves of price movements.

Do Cryptos Make Waves?

The simple answer is: yes.

Most financial instrument in fact do make wave patterns, including Bitcoin (BTC), BTC versus US Dollar (BTC/USD), crypto currencies, and other altcoins. Price moves continuously up and down on the charts, as the image below shows.

bitcoin waves 1

When price moves up and down as much as Bitcoin in general and the cryptocurrency pair BTC/USD in specific does, then analysts and traders can use the same tools and concepts as with other financial instruments.

In a way, this is an exciting development for both the trading community and crypto followers:

  • Traders can analyse and trade more currencies.
  • Crypto fans can use analytical tools like wave analysis to understand price movements.

In fact, friends of mine, who saw technical and wave analysis as “boring” and “dull” in the past, are all of a sudden showing a renewed interest in these techniques now that cryptos and Bitcoin have caught their attention.

Applying Wave Analysis to Bitcoin, BTC/USD

Wave analysis is simply the art and science of applying the Elliott Wave (EW) Theory to the charts. The EW Theory has, as you can imagine, rules and guidelines it works with.

I will not hide the fact that learning these guiding principles does require some time and effort. But there are benefits to gain when understanding how to read wave patterns correctly on the charts.

Let’s show a practical example of how crypto watchers can use wave analysis to their benefit to determine a potential trade setup with entry and exit.

bitcoin waves 2

In November 2017 Bitcoin fell quite dramatically against the US Dollar from $7770 to below $5500, which is clearly visible on the 1 hour chart. Wave analysts and traders could use the EW theory for catching a continuation of the established uptrend. How?

To understand the chart, you need to know that wave patterns unfold in 5 waves with the trend and 3 waves against the trend. They are labelled as 12345 with the trend and an ABC correction against the trend. Trends can be both up and down but Bitcoin is of course in a strong uptrend.

bitcoin waves 3

One of the key EW Theory rules is that wave 2 should never break the origin of wave 1. This means that in an uptrend price should not break below the bottom of wave 1 and in a downtrend price should not break above the top of wave 1. If price does break this point then the wave 1-2 analysis is invalidated and an alternative path becomes more likely.

With this knowledge in mind, EW analysts and traders would be looking at the BTC/USD 1 hour chart for signals that a wave 1 has started. The wave 1 is a price wave with the trend and therefore should move quickly when compared to counter trend price waves, which are often (but always)  corrective and choppy.

Wave analysts are on their guard when price bounces at a support level and starts to move back into the direction of the trend. This could indicate the end of a bearish retracement and the start of a new wave 1.

Traders can then use the EW Theory rule, which states that the origin of wave 1 should not break if price is in a wave 1-2, to their advantage. How? Traders can place a Fibonacci retracement tool on that wave 1 (from bottom to top in uptrend) and expect price to bounce at the retracement levels for a trend continuation without breaking the bottom (in uptrends).

bitcoin waves 4

As you can see from the chart above, this trade plan would have resulted in an excellent entry at $5664, a tight stop loss (exit point) below the bottom at $5445 (not triggered) and an impressive move up with plenty of space (going up to $8000). The risk was around $219 but the reward was more than $2300.

Wave Analysis and Wave Patterns.

The above example only shows one way of using the wave theory but there are in fact many more Elliott Waves rules and guidelines available, which can be used to your advantage.

Bitcoin and the BTC/USD chart is a volatile instrument but ultimately, it remains a price chart. One that traders can analyse and study, also or maybe especially with wave patterns.

In many ways, it’s an older world (technical analysis) mixing with a newer world (cryptos). For traders, Bitcoin offers an exciting expansion with new charts and trading opportunities. For Bitcoin and cryptocurrency enthusiasts, the world of technical and wave analysis offers an intriguing method of analysing price patterns.

Whether traders choose to engage with wave analysis on cryptocurrencies is of course everyone’s own choice, but in the near future, the combination of waves and cryptos seems to be an exciting one. Currently the approach is used for Elite CurrenSea’s forex trading system SWAT that has been showing exception results.


Simply because the crypto prices show big and continuous price waves, which offers trading opportunities for wave traders. For the time being I think that wave analysis and wave patterns will be a worthwhile tool and ally in the world of Bitcoin trading. Learning these EW patterns would in any case never hurt and only provide traders with more valuable tools and methods.

Wish you good trading,

Chris Svorcik


This is an article contributed to Young Upstarts and published or republished here with permission. All rights of this work belong to the authors named in the article above.

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