On June 3, we took a closer look at bitcoin.
This time, we’ll be analyzing Ethereum. Ethereum is the second-largest cryptocurrency network.
With a market cap of nearly $470 billion, only bitcoin is bigger.
And just like with bitcoin, we’ll be analyzing Ethereum using the Elliott Wave Principle (EWP).
EWP is a theory developed by American accountant Ralph Nelson Elliott. Mr. Elliott was a stock market analyst active in the 1930s.
Elliott discovered that the market seemed to trend and reverse in recognizable and predictable patterns.
Several analysts have added to Elliott’s original body of work over the years, including myself. Today, his theory applies to many different markets, including cryptocurrencies.
Here’s how it all works…
Tracking Ethereum Effectively
According to the EWP, markets trend and reverse in a predictable manner. You can follow along on this chart…
The trending phase of the market has 5 “waves.” Waves 1, 3, and 5, push the market in the direction of the larger trend.
Waves 2 and 4, on the other hand, see the market pull back against the direction of the larger trend.
Once we have a completed 5-wave cycle, we’ll see a counter-trend pullback in 3 waves. This pattern repeats itself over and over and over again.
We use numbers (1, 2, 3, 4, 5) to label the trending waves. And we use letters (A, B, C) to label the countertrend components once a 5-wave cycle is complete.
With that in mind, let’s look at where Ethereum sits within its current wave cycle.
As you can see, Ethereum is very similar to bitcoin.
Just like bitcoin, Ethereum has completed 4 waves, and we have one more wave higher to go before a larger pullback is likely to take place.
And just like we did with bitcoin, we’re going to apply the same targeting technique to figure out where this final wave 5 in Ethereum is likely to go.
To do so, we need to take the measurements of waves 1 and 4 first.
That’s because wave 5 tends to be approximately equal in length to wave 1. We can start measuring the projected length of wave 5 from the price point where wave 4 ends.
In the case of Ethereum, wave 1 nearly saw the crypto double in value with a move higher of 93%.
This means from the wave 4 low of $2,880, we should look for wave 5 to stage approximately another 93% advance.
That gives us a target in Ethereum of around $5,550.
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Always Manage Your Risk With Cryptos
This is the part where I say just because we have a great target to aim for, it doesn’t mean we should blindly hope that Ethereum gets there.
Cryptocurrencies are notorious for being volatile. It’s possible we fall short of the target. At the same time, it’s also possible we exceed the target and go even higher.
That’s why the money in trading is always made through strong risk management.
One of the best things traders can implement is a trailing stop loss system. A trailing stop loss simultaneously locks in gains while limiting your downside risk.
And with a market as volatile as Ethereum, it’s very wise to make use of a trailing stop as if prices continue trading higher.
Happy trading,
Imre Gams
Analyst, Market Minute