I finally got the time to write down this analysis that's on my head since my first post for Stellar Lumens (XLM) possible Bullish and Bearish Scenario. As I told you in my recent posts that I'm too lazy to draw the line for you, so, today I'll write down everything and try to explain it using words only.
Before we begin this long Article, make sure you read it carefully till the end to fully understanding the point and using it as one of your potential trading strategy. I would also be much appreciated if you could consider to Follow my Binance Square, Like and Share this Article. So, without further ado, let's start by understanding Elliott Wave Theory in a simple word first.
Eliott Wave Theory in Simple Word
Eliott Wave Theory suggests that market prices move in repetitive patterns called waves, driven by investor psychology. These patterns consist of:
Impulse Waves (1, 3, 5, A, C): Move in the direction of the main trend, consisting of five sub-waves.
Corrective Waves (2, 4, B): Move against the main trend, consisting of three sub-waves (A, B, C).
Just like that, you can search on Google for the more explanation about it, let's move on to XLM now.
Analyzing The XLM/USDT Chart
I usually used the 4 hours, Daily and 3 Days timeframe to set up my analysis. So, in 3 Days timeframe chart, here's a breakdown of the potential Elliott Wave counts:
Potential Impulse Wave Up (Early Stage):
The significant upward spike from the lower levels could be the start of a new impulse wave (possibly wave 1).
The subsequent decline could be a corrective wave (wave 2).
If this is the case, we should expect a strong wave 3 to follow, pushing the price significantly higher.
Potential Corrective Wave Down (Ongoing):
Alternatively, the upward spike could be a corrective wave (B) after a prior decline (A).
The current decline could be the start of a wave C, which would complete a larger corrective pattern.
In this scenario, we should expect the price to continue falling.
Indicators and Confirmation
To help confirm which scenario is more likely, let's look at the indicators. I use 3 Days Timeframe Chart and this indicators is based on the chart by the time of this writing. Here's it:
EMA (Exponential Moving Averages):
The price is currently below all three EMAs (7, 25, 99), indicating a potential downtrend.
However, if the price breaks above these EMAs, it could signal a bullish reversal.
MACD (Moving Average Convergence Divergence):
The MACD is negative (-0.0169), suggesting bearish momentum.
If the MACD line crosses above the signal line, it could indicate a bullish shift.
RSI (Relative Strength Index):
The RSI values (25.1919 and 41.6995) are relatively low, indicating that the asset may be oversold.
A move above 50 on the RSI could signal increasing bullish momentum.
STOCHRSI (Stochastic RSI):
The STOCHRSI values (11.0683) also indicate that the asset may be oversold.
Now that we have those indicators, let's make 2 possible scenario.
Scenario Analysis and Trading Decisions
Scenario 1: Impulse Wave Up (Long)
Entry: Wait for confirmation of a wave 3. This could be a break above the recent high and the EMAs, accompanied by a bullish MACD crossover and a rising RSI.
Stop Loss: Place the stop loss below the potential wave 2 low to protect against further downside.
Target: Project potential wave 3 targets using Fibonacci extensions based on the wave 1 and 2 measurements.
Scenario 2: Corrective Wave Down (Short)
Entry: If the price continues to decline and breaks below recent support levels, consider a short position.
Stop Loss: Place the stop loss above a recent high to protect against a potential reversal.
Target: Project potential wave C targets using Fibonacci extensions based on the wave A and B measurements.
Fibonacci Retracements
Alright, now that we have speculated the potential move of XLM using Eliott's and used some indicators as well as the possible scenario. Let's pinpoint The Key Levels and the potential of The Fibonacci Retracement zones based on it.
Key Levels
Resistance (Recent High): The recent high point around 0.6374 is a crucial resistance level. A break above this level could signal a potential bullish reversal and the start of an impulse wave up.
Support (Recent Low): The recent low point around 0.0757 is a critical support level. A break below this level could indicate a continuation of the corrective wave down.
Current Price: The current price of 0.3013 is a significant level to watch. If the price can hold above this level, it could indicate potential bullish momentum.
Fibonacci Retracement Levels
To determine potential retracement levels, we need to consider the recent significant price swing. Let's assume the recent upward spike from 0.0757 to 0.6374 is a potential wave 1 or a corrective wave B.
If the upward spike is a wave 1:
23.6% Retracement: Approximately 0.5042
38.2% Retracement: Approximately 0.4216
50% Retracement: Approximately 0.3565
61.8% Retracement: Approximately 0.2914
78.6% Retracement: Approximately 0.1878
If the upward spike is a corrective wave B:
These same levels would apply, but they would represent potential targets for a wave C decline.
Applying Fibonacci in This Context
Potential Wave 2 Retracement: If the upward spike is wave 1, the current decline could be wave 2. We'd watch for the price to find support at one of the Fibonacci retracement levels (particularly the 61.8% or 78.6%) before potentially resuming the uptrend.
Potential Wave C Target: If the upward spike is wave B, the current decline could be wave C. We'd watch for the price to reach one of the Fibonacci retracement levels as a potential target for the completion of the corrective wave.
Possible Assumptions
Assumptions 1
Potential Wave 1: Let's assume the significant upward spike from approximately 0.0757 to 0.6374 is our potential Wave 1.
Potential Wave 2: The current decline from 0.6374 to 0.3013 is our potential Wave 2.
Okay, now let's calculating Fibonacci Retracement Levels for Wave 3, I did it for you!
We'll use the Fibonacci Extension tool to project potential Wave 3 targets based on the length of Wave 1 and the retracement of Wave 2.
Measure Wave 1:
Wave 1 low: 0.0757
Wave 1 high: 0.6374
Measure Wave 2 Retracement:
Wave 2 low: 0.3013
Now, we'll use these values to calculate the Fibonacci Extension levels:
161.8% Extension (Common Wave 3 Target - Most Likely):
- Wave 3 Target = Wave 1 Length 1.618 + Wave 2 Low
- Wave 3 Target = (0.6374 - 0.0757) 1.618 + 0.3013
- Wave 3 Target ≈ 1.2000
261.8% Extension (Strong Wave 3 Target - Rare):
- Wave 3 Target = Wave 1 Length 2.618 + Wave 2 Low
- Wave 3 Target = (0.6374 - 0.0757) 2.618 + 0.3013
- Wave 3 Target ≈ 1.8400
423.6% Extension (Extended Wave 3 Target - Extremely Rare):
- Wave 3 Target = Wave 1 Length 4.236 + Wave 2 Low
- Wave 3 Target = (0.6374 - 0.0757) 4.236 + 0.3013
- Wave 3 Target ≈ 2.7600
Key Fibonacci Extension Levels for Wave 3 (Bullish Scenario):
161.8%: Approximately 1.2000
261.8%: Approximately 1.8400
423.6%: Approximately 2.7600
Assumption 2
Wave 1: We'll still use the initial impulse from 0.0757 to 0.6374 as Wave 1.
Wave 3: We're now assuming the recent high of 0.6374 is the completion of Wave 3.
In this assumption, we have this summary as a result:
Potential Wave 4 Retracement Levels:
23.6%: 0.5048
38.2%: 0.4228
50.0%: 0.3565
61.8%: 0.2903 (we're in this zone for now)
Potential Wave 5 Extension Levels:
161.8%: 1.5462 (most likely we're going this way)
261.8%: 2.1079
423.6%: 3.0168
Assumption 3
The Bearish Scenario
In a bearish scenario, we're considering the possibility that the recent upward move was a corrective wave (likely a Wave B) within a larger downtrend. This means the current decline could be the start of a Wave C, which would likely push the price lower.
Identifying Key Levels for Fibonacci Retracement
For a bearish scenario, we'll focus on the retracement of the recent upward move (assuming it's a Wave B). We'll use the Fibonacci Retracement tool to find potential support levels where the Wave C decline might find a temporary bottom or pause.
High of Wave B: 0.6374 (Recent High)
Low of Wave A or Start of Wave B: 0.0757 (Recent Low)
Now, we'll calculate the Fibonacci Retracement levels based on these points. Common retracement levels are:
23.6% Retracement: Approximately 0.5048
38.2% Retracement: Approximately 0.4228
50.0% Retracement: Approximately 0.3565
61.8% Retracement: Approximately 0.2903
78.6% Retracement: Approximately 0.1878
Extended Retracement can also be happen which will drive us to 80%-90%drop.
Well, hope you're still here to read this long article till the end. Finally, I have a few important things for you to consider:
Wave Validation: Ensure that the wave count is valid before relying on these levels.
Market Conditions: Consider the overall market sentiment and news that could affect XLM.
Adjustments: Be prepared to adjust these levels if the wave count changes or if new price action emerges.
Risk Management: Always use stop-loss orders to manage risk and protect against potential reversals in Bullish and Bearish Scenario.
Remember, those abobe are potential levels based on my assumption only. Always be causious because this is not financial advise and should not be taken into one. Always trade responsibly and use proper risk management. Choose your position calmly, trade wisely and stick to your trading plan.
As for the last sentence. We all know that most of the coins/tokens are moving almost 80%-90% the same in comparison of Bitcoin Price Movement. So, this analysis can also be applied to Bitcoin, with the different Key Levels and Fibonacci Retracement.
Once we confirm the validation movement of Bitcoin, we can use it as indicator to trade based on the wave that we've analyzed here. So, by using Eliott Wave Theory and Fibonacci Retracement on Bitcoin, you can trade and apply them on Bitcoin itself,
as well as considering to open the same position with caution on Ethereum,
on BNB, XRP, ADA, many more coins/tokens taht maybe have 80%-90% movement altogether and not really against each other.
Well, I think I'm gonna end it here, as always, last but not least, wish you have huge luck and profit for your trade and may you always be happy, healthy and wealthy. Happy Trading and Cheers... 🍻