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This week, an X (formerly Twitter) follower shared a link to a video of Robert Prechter teaching Elliott Wave Principle. The video is decades old, yet what he teaches still has plenty of relevance to what we’re experiencing currently in Bitcoin and altcoins, and it inspired the theme of this newsletter.
An Introduction to Elliott Wave Principle
To begin, let’s look at the basics of Elliott Wave Principle:
Following the 1929 Wall Street Crash, Ralph Nelson Elliott studied thousands of price charts. He discovered that markets aren’t made up of random movements, but instead follow predictable patterns across a variety of timeframes and degrees. The basic pattern in Elliott Wave Principle is five waves, with odd-numbered waves moving in the direction of the primary trend, while even-numbered waves are corrective. Three waves of building up and two waves of tearing down ultimately leaves room for progress AND fluctuation.
Within each odd-numbered wave, there are five smaller sub-waves which follow the same alternating wave patterns.
At least one wave per cycle tends to be extended, exhibiting more clear sub-waves. In most markets, wave 3 is usually extended. In commodities, however, wave 5 is more likely to extend.
Wave Personalities and Characteristics
Perhaps the most important part of Elliott Wave Principle, is the fact that waves exhibit certain characteristics or unique personalities that can help to understand where in a cycle the market is at.
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