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ETHUSD 1D – An Extensive Analysis - Carefully Bullish

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The past few days, I have been taking a closer look at ETHUSD on the 1D and 4HR scales. In this post, I’d like to take you through my findings and explain how these translate to a trading strategy for ETHUSD for the upcoming period.
Disclaimer: For those looking for concrete trading ideas, you might want to scroll down to the end of this post to the various scenarios presented there. These scenarios, of course, are my personal opinions. Making trades based on these opinions is your own choice, and I shall not bear any responsibility for the consequences. This should go without saying, but I’m saying it nevertheless.

Degree: Cycle
Starting at the highest level (for which I have chosen Cycle), I can clearly see a Wave 1 and Wave 2. At a first glance, it would appear that Wave 2 has ended a little while ago, but we’ll get back to that later when we consider the present developments and how these might proceed.
The first two waves (as visible at the moment of writing) can be drawn as such:

As I wrote earlier, I enjoy doing a more extensive analysis, so I took the liberty of getting some numbers that might be of interest at a later juncture, as well information from various indicators.

Wave 1 of the Cycle Degree
Wave 1 of the Cycle degree starts around the 24th of April 2017, lasting until the 13th of January 2018, making a total of 264 days. It makes a move from $53 to a high of $1424, or $1371. A very interesting point to note here is that, contrary to other major players in the cryptocurrency market such as BTCUSD, BCHUSD and IOTAUSD (I’m sure there are more to mention), ETHUSD’s wave 1’s end does not occur until well into the second half of January 2017. It would appear at a glance that ETHUSD lags behind other major coins in this respect.

At the start of wave 1 of the Cycle Degree the RSI is 64,1, and 76,9 at the end. An interesting observation about the RSI is that it made an even higher peak very shortly before to 85,2 on the 9th of January. Throughout Wave 1 itself, there are various peaks in the RSI exceeding its ending RSI of 76,9, as visible on the screenshot below:

ATR has a value of 3,4 at the start of Wave 1 and rises to 130,9 at its termination:

An interesting note here is that ATR has not reached its peak at the end of Wave 1, but will do so in upcoming Wave 2.

When we look at volume, we observe various spikes throughout this wave, a growth in volume around the start of November 2017 which seems to decline from January 2018. I have increased the input value for the MA on volume to 20 to soften the impact of price extremes (in black). In addition, I have added an EMA of 15 for volume in purple, making more interesting increases in volume easier to see.

Note

Wave 2 of the Cycle Degree
Wave 2 starts on the 13th of January 2018 and is a lot shorter in duration than Wave 1 of the Cycle degree. For now, I’ll assume that the end of Wave 2 was on 1st of April 2018, giving this wave a duration of 78 days. Wave 1 of the Cycle Degree has a duration of well over three times the duration of Wave 2 of the Cycle Degree. Or, to be more precise, Wave 1 lasts 3,38 longer than Wave 2.
Wave 2 drops from $1424 to $358, a move of $1066. This makes for a retracement of 77,8% of Wave 1 of the Cycle Degree, very close to the 78,6% Fibonnaci retracement level.

Wave 2 of the Cycle Degree starts with an RSI of 76,9 and drops to no more than 19,7 at its termination. Two days before that, an even lower RSI is seen at 18,5. However, contrary to Wave 1, there aren’t any other peaks (downwards this time of course) throughout Wave 2, and the slightly lower value of 18,5 two days before termination is almost neglectable. Nevertheless, an observation I like to keep in mind throughout further analysis.

ATR starts out at 130,9 and moves back to 52,9 at termination, dropping around 40%. At the start of Wave 2, ATR climbs up to 161,9 as the downmove starts. Another high is visible at a value of 163, which as we will see later marks the end of wave (W) of the Primary degree.

When we consider volume (for which I refer you back to an earlier screenshot), we see that Wave 2 generally has declining volume until the beginning of March 2018, after which volume increases again for the last leg down to the termination point. The visible peaks coincide more closely with endings waves of a lesser degree than they did in Wave 1, but more on that later.

With these numbers and thoughts, let’s direct our attention to one lesser degree, the Primary Degree.

Note

Primary Degree
I have drawn the waves for ETHUSD on the 1D chart on Primary Degree as follows:

As with the Cycle Degree, let’s have a look at the characteristics of the individual waves, shall we?
I shall at this point use the notation 1 and 2 for the waves on the Cycle Degree, and (1), (2), (3), (4), (5), (W), (X), and (Y) for the individual waves of the Primary Degree. This is not completely according to the standard notation of the degrees, but I have to consider the limitations of the editor that I am presently using.
As an extra note, I shall first give general information on the waves, and then add the corresponding screenshots for RSI, ATR and volume. This will make it easier to look up the corresponding values on the indicators while I describe them.

Wave (1) of the Primary Degree
Wave (1) starts at the 24th of April 2017 and ends on the 12th of June 2017, lasting 49 days. It makes a move from $53 to $412 for a total of $359.

Wave (2) of the Primary Degree
Wave (2) starts on the 12th of June 2017 and ends on 14th of September 2017, lasting 94 days (almost twice as long a duration as (1)). I believe It can best be described as a rising triangle, trying to break the $400-level (but rejected at its first attempt in the beginning of September). Wave (2) moves from $412 to $198, a move of $214. However, its lowest point can be found at $136 on the 16th of July, a move of $276 from the top of (1).
The termination point of (2) makes for a retracement of 50% of the previous wave (1). The lowest point wave (2) at $136 would make a retracement very close to the 78,6% Fibonacci level.

Wave (3) of the Primary Degree
Wave 3 comes into our lives on the 14th of September 2017, and makes a hefty move to a high of $863 on the 19th of December 2017, lasting slightly longer than wave (2) with a duration of 96 days, and lasting almost twice as long as (1). It makes a total move of $665 dollar. Its high at $863 is almost twice as much as the high of (1) at $412. Though (3) seems to start slowly, crawling towards the $400-level that previously in (2) showed resistance, it gains momentum very soon after breaking this level. After breaking the $400-level, we hover between the levels $400 and $500 for a few days until the move to $863 is set in.
Wave (3) is an extension of well over 161,8% of wave (1), which should bode well (in general) for upcoming wave (5).

Note

Wave (4) of the Primary Degree
Wave 4 starts on the 19th of December 2017 and has an extremely short duration with 3 days as it ends on the 22nd of December, bringing the price for ETHUSD back to $492 (a move of $371). With a difference of only $80, it nearly seems to retrace into the area of wave (1). In its relation to wave (3), wave (4) has a retracement of around 55%, placing it firmly in the area between the 0,5 and 0,618 Fibonacci levels.
The nature of wave (4) should not be surprising considering the general nature of the market around this time; a lot of sharp and long movements occurred throughout many cryptocurrencies at this time, and ETHUSD was no exception. The sharp V-top formed by wave (4) seems a good example of alternation according to Elliot when we compare it to the more ‘laid-back’ and steady nature of wave (2).

Wave (5) of the Primary Degree
With wave (3) being an extension of well over %161,8 of wave (1), wave (5) should not have surprised us too much. It has a short duration compared to (1) and (3) with a total of 22 days, starting at the 22nd of December 2017 and ending on the 13th of Januari 2018. After the sharp move down made by wave (4) to $492, wave (5) picks up the pace again in a final sprint, making a move of no less than $932 to its high of $1424 on the 13th of December 2018. This makes it an extension of well over 327,2% of wave (1), and an extension of 150% of wave (3). Wave (5), according to this wave count, is the largest of the three impulse waves. However, with wave (3) not being the shortest, this should not be a concern and does not invalidate the wave count.

Note

Wave (W) of the Primary Degree
On the 13th of January, our bullrun reaches its end. A V-top starts off wave (W), leading us down from $1424 to $565, a move of $859. Ending on the 6th of February, wave (W) has a duration of 24 days. Compared to wave 1 of the Cycle Degree, it has a retracement of almost exactly 61,8%. Once again, Fibonacci seems heavily in play in ETHUSD. At its end, (W) shows yet another V-bottom, launching us into wave X.

Wave (X) of the Primary Degree
Wave (X) is relatively shortlived, lasting a total of 12 days, with its end on the 18th of February. It brings the price back from $565 to $979, approaching the psychological $1000-pricelevel yet rejected there. It has a retracement of almost 50% to wave (W). It has the shape of a sharp bearish triangle, an advanced signal of the last wave down, (Y) of the Primary Degree.

Wave (Y) of the Primary Degree
Apparently not satisfied with the retracement brought on by wave (W) of 61,8, wave (Y) brings us down into even lower pricelevels, making a move of $621 down from $979 to $358. Starting on the 18th of February, it lasts until the 1st of April, giving it a duration of 42 days. This brings its retracement of wave 1 of the Cycle Degree almost exactly to 78,6%, adding another score on the board for Fibonacci. Wave (Y) also extends very close to this Fibonacci-level for wave (W), missing it by about 7,5% (but still, close).

Note concerning the wave count:
I am aware that it would be possible to count the waves differently, possibly by moving the end of wave (3) much further towards the end of the year 2017. However, I believe that both the volume counts, the shape of corrective waves (2) and (4) and the overall shapes of the waves justify the count I have layed out here thus far. I would, however, be happy to receive feedback and suggestions from others to improve my future analysises!

Note

Now that we have examined the shape and duration of the various waves of the Primary Degree, I wanted to take another look at RSI, ATR and Volume to see if these indicators hide additional information.

RSI
When we examine the RSI at Primary level, various peaks and valleys align clearly with the various wavepoints:

Again, for the sake of numbers, the RSI at the various wavepoints:

Start of (1): 64,7 Start of (W): 76,8
End of (1): 88,9 End of (W): 39,9
End of (2): 29,3 End of (X): 50,8
End of (3): 83,7 End of (Y): 19,7
End of (4): 54,3
End of (5): 76,8

There are, I believe, a few general observations to be made for RSI:

1. RSI stays above the 50-line during wave (1). RSI zigzags around an ascending diagonal, making several peaks above 80 before coming to the termination of wave (1), resembling a double top;
2. RSI during wave (2) descends towards the lower 30 halfway through, bounces back up to above the 70-line, before making a double bottom at the 30-line at the termination point of wave (2);
3. During wave (3), RSI zigzags along a rising diagonal, reaching a peak of 83,3 shortly before a period of sideways trading that lasts around three weeks before a steep climb to the termination point of wave (3). Again, we see a double top.;
4. Wave (4) is a very sharp dive down, but stays above the 50 level. Just as in wave (2), a double bottom can be seen before the swift climb of wave (5);
5. Wave (5) is the only of the waves (1), (3) and (5)that shows a failure to make a double top, instead showing a head and shoulders, with the apex of wave (5) being the top of the right shoulder. Momentum for the upmove, it would seem, has reached its limits here;
6. Wave (W) shows the first break of the 50-line into the bearish area since November 2018. It makes a move for the 30-line, but is rejected sharply at 34,9;
7. Wave (X) makes a valiant attempt to break the 50-line, and succeeds for a short moment before descending again. After breaking, it moves down sharply again.
8. Wave Y is the first to break the 30-line for RSI on the 1D chart for ETHUSD since December 2016 (not shown on the screenshots), with a valley at 18,5 on the 29th of March 2018.
9. Observing the RSI for (1), (3) and (5), we can see declining momentum as (1), (3) and (5) peak somewhat lower every time. If we add trendlines to the overall shape of RSI (green and red lines), we see two very clear triangles:

10. In waves (W),(X) and (Y) we do not see the same double tops and bottoms as in impulse wave 1 of the Cycle Degree. We do, however, see peaks/valleys just a day or two before the waves end.

Though there are plenty of more observations to be made, I’d like now to move on to ATR.

Note

ATR
In the screenshot below, we see the movement o f ATR throughout the various waves:

I’d like to keep my general observations regarding ATR short and to the point:
1. ATR shows a constant rise across the termination points of waves (1), (2), (3), (4) and (5). From (2) to (3), and (4) to (5) show the steepest climbs;
2. We can see a double top occuring during wave (W) after the end of wave (5), showing large sell-offs athis point. After that, ATR declines steadily, even after the end of wave (Y).
3. ATR bounces off 40 after the end of wave (Y), which was first broken during wave (1) with what appears to be a head and shoulders formation on the ATR.
4. ATR presently seems to be on the ascent again.

Volume
Ah, volume. An indicator that I could spend hours looking at. Please note that in the analysis I will be referring to waves of the Intermediate level. As I do not believe that adding the Intermediate degree will add much to this analysis, I will let the reader be the one to draw these waves if they so wish.

With that in mind, let us observe the behavior of volume on the Primary Degree:

What do we notice about volume in the different waves?

1. In wave (1), volume rises, falls, and then rises again until it reaches the end of wave (1);
2. Wave (2) shows three volume peaks that coincide perfectly with waves of an even lesser degree (Intermediate), the first peak in July 2017 where it hits the 78,6% retracement of wave (1). The second peak falls close to the end of Intermediate degree wave B, where wave (2) makes a double top at the $400 level. The third peak matches the end of wave (2) at the 50% retracement level of (1);
3. Wave (3) shows us the expected rise in volume typical for this wave. Two peaks before the end of the wave mark the beginning and end of the period of three weeks sideways trading in November-December 2017;
4. Wave (4) gives us another spike, not surprising for this sharp and swift correction;
5. Wave (5) shows a modest amount of volume compared to wave (3), which is also typical of this wave;
6. Wave (W) hesitantly starts off with a few red bars of volumes before a large spike as it drops down. This, I think, is typical of the end of a bull-wave; might we go higher? Is it really the end, should we sell? After the first few steps to the downside, our minds are made up and the selling starts. A similar situation is visible on wave B on the Intermediate degree in wave (W); volume declines as the first rush calms down, allowing us to climb back up before the V-top of Intermediate wave B in wave (W). The second rush then starts, showing a large increase in selling volume. The V-bottom of wave (W) also shows an enormous green spike; surely we’ve gone low enough, and the buyers start coming back in after we’ve hit support on the $600 level;
7. Wave (X) shows modest volume as we climb back up. Perhaps the market expects that wave (2) was done at the end of wave (W) with a simple ABC-correction, but nobody seems too sure.
8. Volume dips down at first after wave (X) at the start of wave (Y). However, as a triangle formed by wave (X) and start of wave (Y) is broken downwards, volume once again increases, and we move down even further. A large spike can be seen around the level of $543, just below the termination point of wave (W), declining swiftly again in a bearish flag. Volume then rises swiftly again in the last leg of wave (Y) as that flag is broken downwards as well.

Note

Scenarios and trading strategies
After all this analysis, I think it’s time to have a look at the development of ETHUSD for the past couple of weeks, and see how the information gained can help us prepare for a trading strategy. If this is the part you scrolled down after reading the introduction: welcome!

At a first glance, it would seem that after the end of wave (Y), we once again entered an uptrend. It is very possible that this is the start of wave 3 of the Cycle Degree. If that were so, then the price action of the last two months shows the potential of being waves (1) and (2) of the Primary Degree of wave (3) in the Cycle Degree. I’ve drawn this as such, using thinner lines until confirmation:

I will be labelling these possible waves 1 and 2 on a Primary level PW1 and PW2 to clearly distinguish them from waves presented earlier in this analysis.

Let’s first examine the general components that we see:

1. PW1 has all the characteristics of an impulse wave, confirming the suspicion that we are once again in an uptrend. It makes a move of $480 from $358 to $838. This is an extension of 127,2% of wave (1), a retracement of around 45% of wave 2 of the Cycle Degree, and a retracement of 78,6% of wave (Y);
2. The duration of PW1 is 35 days, starting on the 1st of April and ending on the 6th of May.
3. PW2 has made a move from $838 to $538 sofar, a total of $300. It retraces 61,8% of PW1, which matches previous retracement levels we’ve seen in the extended analysis. This bodes well for PW1 and PW2 being waves of the Primary Degree for a wave 3 on the Cycle Degree;
4. PW2 has, so far, developed into an zigzag, which again seems to act as confirmation.
5. PW2 has lasted from the 6th of May until the 25th of May thusfar, giving it a duration of 19 days so far.

When we take RSI into account first, we see the following:

Again, we see a double top at the end of PW1, as we saw in the waves in impulse wave 1 of the Cycle Degree. For me, this serves again as confirmation of an uptrend. PW2 has, as of yet, not shown a double bottom yet. This makes me suspect that PW2 isn’t quite finished yet as I write this analysis, with a present low of 36,1 made on the 23rd of May. We are presently in the zone under 50, just as we were in wave (2) on wave 1 of the Cycle Degree. Again, this similarity serves as confirmation for a developing Cycle wave 3 to me.
We can also at this point draw an ascending triangle similar to the one we saw earlier:

This triangle, however, would end around August, given the whole triangle a duration of around 4 months. This could indicate a much shorter wave 3 on the Cycle Degree that the wave 1 of the similar degree (about half of it, to be precise). This could very well be a likely scenario: waves 3 are known to be volatile and large movements, and with the memories of the previous wave 1 of the Cycle Degree still fresh in the collective minds, potential buyers might very well be around the corner. This would make wave 3 of the Cycle Degree shorter than wave 1 of the same degree, but then again, that does not have to contradict the possibility of a valid wave count, as long as wave 3 is not the shortest of the waves.

However, if wave PW2 isn’t done yet, we might end up with an even lower RSI, greatly lowering the slope of the ascending triangle and creating a much larger possible time period. I am, at present, leaning towards this scenario as it matches what I saw in the analysis and would respect present market sentiment in general for the past weeks, where bearish behavior has been very visible.

Note

ATR shows us the following:

We can see the ATR rising, as it did in the upwards movement of wave 1 of the Cycle Degree, again serving as confirmation of an uptrend. When we consider the shape of the ATR over the past weeks, we see a striking similarity with the shape of the ATR in waves (1) and (2) of wave 1 of the Cycle Degree. If this pattern were to continue, we’d expect a fall in ATR over the next week or so before we reach the end of PW2. If the patterns were to match exactly, we should see a bounce at the ATR level of 48 where PW1 ended, as the ATR zigzags around a rising diagonal.

Now let’s take a look at volume:

Similarities abound here as well. Halfway through PW1, we see a volume spike that would match the end of a wave 3 on an Intermediate Degree. The end of PW1 gives us a spike, then followed by declining volume until we see another increase in volume at the present ending of PW2. However, if we examine the volume in waves (1) and (2) of the Cycle Degree wave 1, we notice that the present volume more closely resembles the increase of volume seen in in the Intermediate Degree wave A and start of wave B of Primary Degree wave (2) then the end of wave (2), which shows a much larger spike in buying power. This, together with what we see in RSI and ATR, and the observation that retracements seen earlier in the analysis inhabit the area between 61,8 and 78,6%, presents me with two possible scenarios:

Note

Scenario 1:

Wave PW2 has come to an end, and will now start into PW3, meaning that this would be a good time to enter a long position for ETHUSD. When we extend PW1 with PW2 as it exists now for the start of PW3, that would mean a target between $1000 and $1200 for the presently developing wave PW3, based on an extension of 100-161% of PW1. A stop-loss underneath the low of the present PW2, let’s say $300, would be recommended of course.

Scenario 2:

Based on the information in the analysis, there is a second scenario that I find much more likely at present, which is that the present wave PW2 will keep correcting for a while, retracing to below its present low of $358. In doing so, it will make a double bottom on the RSI, have a dip in ATR, and show a larger selling volume before its end. It is possible that PW2 will not go below $358, as it did in wave 1 of the Cycle Degree various waves, but taking a long position right now might very well mean that your money would be stuck in a long sideways correction, defying the point of timed trading. For now, I’ll consider the possibility that PW2 will not go below $358 and create another flat as we’ve seen earlier in the analysis, like this:

Of course, PW2 might end at a higher price level than it is presently at, possibly 50% of PW1 (around the $600 level), meaning that profits would be lower than if you entered a long position right now. However, I foresee two risks in that:

1. First of all, as mentioned earlier, it might take PW2 quite a while to complete and move into PW3. This would keep funds tied up while giving a marginal extra profit;
2. PW2 might very well correct lower, aiming for the 78,6% Fibonacci level of PW1, giving a buyzone between $500 and $450.

These two scenarios lead me to my trading strategy:

1. I am going to wait for PW2 to develop further. If I see signs that PW2 will show more similarity to its counterpart in wave 1 of the Cycle Degree, I’ll slowly start adding to a long position. However, I shall build this position in small bites, taking into account the second part of my strategy;
2. Considering the possibility that PW2 might go down even further before heading into PW3, if PW3 moves below its present low of $538, I’ll be adding more to the position after that, targeting a buyzone of $500-$450;
3. Steps 1 and 2 will happen throughout the next couple of weeks, unless I see signs that we are presently in a wave 3 on the Intermediate Degree, using the information collected in the analysis concerning levels and indicators;
4. As a stop-loss, I would use the termination point of wave (Y) at $358;
5. As a first price objective, I would target an extension of 100-150% of PW1, using scaled orders to take maximum advantage of the possible price zone.

All in all, I dare say that this brings me to the simple conclusion that I am staying bullish for now, but shall bide my time to a) get confirmation of my suspicions and b) time my orders so that they spend as little time in the market as possible and are usable for other trades in the meantime.

PS: If you have read this entire analysis, and not just the trading scenarios and strategy, I really want to thank you! I have spent a lot of time writing this, and am eager to receive feedback to improve my trading and analytical skills.

Pvgeldrop

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