Elliott is “Ralph Nelson Elliott,” an American financial analyst in the 20th century, famous for his creation of the “Elliott Wave Theory,” a technical analysis tool used to predict financial market movements, including cryptocurrencies.
First: Types of Waves
The movement is divided into two main waves:
1. Impulse Waves:
It consists of 5 waves moving with the direction (either up or down).
• Wave 1, 3, 5: Major Direction
• Waves 2, 4: Internal correction within the trend
Example: When Bitcoin rises from 20K to 30K, it does not rise in a straight line. It goes up a bit, corrects, and then continues.
2. Corrective Waves:
It consists of 3 waves (A-B-C) moving against the general trend.
• A: Start of the correction
• B: Temporary rebound
• C: Completion of the decline
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Secondly: Why is it important?
• Defines the start and end of the trend
• Gives you early entry opportunities after the correction ends
• Reinforce your decision with secondary indicators (like RSI or MACD)
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How do we identify waves? (Simply)
• Look at the overall trend: if the market moves in a pattern of 5 waves, it's likely a driving wave.
• If the market starts to calm down and moves in 3 fragmented waves, that’s when a corrective wave begins.
• Use smaller timeframes (like 15 minutes) if you are scalping, or larger timeframes for day trading.
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Quick Tips:
• Wave 3 is always stronger and longer – and many people enter it.
• Wave 4 is calmer – do not enter aggressively.
• If you see A-B-C corrective, prepare for a driving wave afterwards.
