Bitcoin's November Crash: Bringing Clarity to the Crypto King
Being on the right side of major cryptocurrency moves is not easy, period. But a few things can help.
by Nico Isaac
Updated: November 29, 2018
The next time you have a family gathering, if you want to bring a loud dinner table discussion to a screeching silence, ask if anyone can explain how cryptocurrencies work.
Cue crickets chirping.
Let's be honest. Almost no one understands how the strange, unregulated world of digital currencies works.
Even the experts are stumped by the exact logistics involved in cryptocurrencies, with one news source comparing them to "a sort of mystery" with no loyalty to traditional rules.
That's the bad news.
But there's good news -- namely: You don't have to understand how cryptocurrencies work in order to predict them. You can use recent prices. If you've seen a crypto chart with 1-2-3-4-5's and A-B-C's on it, you know what I'm talking about.
How do Price Patterns Help Crypto Traders?
Finding patterns in market prices isn't that complicated. There's a terrific method for doing it. And, for those who use the tool, it's a powerful trading weapon that increases the odds of success tremendously.
To explain how price pattern recognition works, I've lifted an excerpt from Crypto Trading Guide: 5 Simple Strategies to Catch the Next Opportunity:
(Editor's note: This report is currently available for free download here. Highly recommended reading.)
Strategy #1: Stand Apart from the Crowd's "Madness"
The 2013 Amazon Finance bestseller, Visual Guide to Elliott Wave Trading, states,
"If you aim to be a consistently successful trader, then you must have a defined forecasting methodology -- a simple, clear, and concise way of looking at markets to predict what's coming. Guessing or going on gut instinct won't work over the long run.
"If you don't have a defined methodology, then you don't have a way to know what constitutes a buy or sell signal."
For thousands professional and individual traders around the world, that methodology is the Elliott Wave Principle. If you're new to it, you can summarize its basic tenets as follows:
- Group psychology swings from excessive optimism to pessimism, and back again
- In the markets, group psychology forms repeating patterns in price charts
- Because these price patterns repeat, they are also predictable
Once you know which of the 13 known Elliott wave patterns your market is in, you can make a probability-based forecasts as to what's next.
Case Study: Using an Elliott Wave Triangle to Catch a Bitcoin Breakout
Let's take a look at one of the 13 patterns and how it helped traders prepare for a major move, in real time. A Triangle happens to be one of the most tradable patterns for Elliott wave traders because once the pattern finishes, it's followed by a short, swift "thrust" that propels prices in the opposite direction.
Here's how the most popular book on Elliott wave analysis describes the pattern's traits:
"A triangle appears to reflect a balance of forces, causing a sideways movement that is usually associated with decreasing volume and volatility. The triangle pattern consists of five, overlapping waves A-E." -- Frost & Prechter, Elliott Wave Principle -- Key to Market Behavior [link to EWP Club report]
So, what does this look like on a real-life Bitcoin chart from an expert Elliott wave analyst?
On November 4, after months of trekking sideways, Elliott wave analyst Jim Martens [see our Cryptocurrency Pro Service] set the stage for a powerful, post-triangle thrust lower in the chart and analysis below:
"Favoring lower in a thrust from a wave B triangle to complete wave C. It should break 5777 (5755 futures) towards new lows to complete the bear market."
Notice the 5-wave sideways pattern, labeled a-b-c-d-e, similar to the right-hand idealized pattern above. Notice how the moves are contained within a wedge-shaped trendlines. An now, notice how the market thrust out of this triangle....selling off from 6540 to below 3700.
Again, we didn't need to know how Bitcoins work to be on the right side of this move. An understanding of Elliott waves is what it took to catch this big move.
To learn more about how to use Elliott waves in your crypto trading, check out Crypto Trading Guide: 5 Simple Strategies to Catch the Next Opportunity (Free, signup required).