BTCUSD- Understanding Structures in the Crypto MarketHi all,
I felt compelled to spend quite a bit of time to create what I believe is an incredibly comprehensive guide to understanding the movements of the market. If you're tired of getting burned on every run, then look no further. Let's begin.
You might notice a handful of purple and black bars in this chart- their purpose is to designate "structures", or zones of heavy resistance/support. They might take a moment to get a grasp of, but once you understand how to define them, it becomes easy, and you'll be to start predicting where a run will end with scary accuracy.
To define a structure, you will essentially want to cover the .5-.618 region of a wave, although since waves rarely retrace exactly in that zone, you may want to expand your structures out a bit to cover wicks and outliers. Anyways, the easiest way to define your structure is simply by recognizing what our trend is. Would you be able to look at a chart and tell me when we've seen a bullish reversal or a bearish reversal? If not, it's quite easy; to spot a bullish reversal, look for a break above the previous high. To spot a bearish reversal, look for a break below the previous low. Obviously terms like "high" or "low" can be quite subjective, as there's a near infinite ways of looking at the charts, but having a bit of some background on Elliot Wave theory, Fibonacci retracements, and reversal candlestick patterns will help you recognize when a reversal is happening. The easiest way to try and find a reversal is by seeking out a definitive high and definitive low, and creating a Fibonacci retracement structure between the two. Let me go into detail a bit further below.
If you reference the first picture above the chart, you'll see 3 blue arrows with a Fibonacci and a purple box. This is showing what a bullish trend would look like. To set up this structure, you must determine what your wave of interest is. In this example, we create our points based on the first arrow. In an uptrend, you will start your retracement from the top to the bottom, rather than the bottom to the top. The reason you want to do this is because you are retracing DOWN, so you want your retracement wave to head to the .618 in its respective direction. Anyways, as you can see, the second blue arrow is a retracement wave, and you can see that it touches the .618, ends, and then proceeds to start the third wave. Because we made a bounce off of the .618, we have confirmed continued bullish momentum. if we were to do a convincing close below the .618, this would more than likely indicate that a trend reversal is commencing. Understand that at times, we can be faked out by this, but this is the nature of trading. If you have a good trading strategy, you don't need to worry about losing trades every so often, so it's better to put your faith into something that's quite accurate rather than trade with no strategy in play.
To keep in short (pun intended), whenever you are in a downtrend, the opposite applies to that of the uptrend; you will start your retracement from the bottom to the top. The same deal applies with the downtrend as it does the uptrend, in that a rejection of the .618 will most likely point to continued bearishness. Using these bullish and bearish wave structures are incredibly power tools that not only help you minimize losses, but they also give you the confidence to stay in a trade for longer than you might have realized was possible. Remember, if there's no clear signal of a trend change, then the trend will continue.
So with these tools in hand, I went through every noticeable wave structure since the 3000 dollar range and determined wave lengths, which can be done by finding .5-.618 regions that appear to have found a lot of activity. For the most part, determining your wave structure will come down to common sense, but it takes a bit of practice to know where a wave starts and where a wave ends.
If you look at each structure found in the chart, you'll notice they all start in different positions. I positioned each of them to reflect the date in which they first were established. As you can see, this is an incredibly powerful tool to have at your disposal, because it predicted the top in March, it predicted the top in May, and it predicted the top in July. Something tells me that this has predicted the top in September, too, but I'll let you guys figure that out ;). Additionally, the support structure (bottom purple bar) shows the rejection that we experienced in February, June, and August.
I don't want to give too many details about my opinions or thoughts on what we have here, because this is meant to be educational over anything, but I hope that this helps you guys get a better understanding of what makes the market move the way it does. Feel free to message me if you have any questions, and be sure to shoot this a like if you dig what you've read. Happy trading!
