Formation of EW : BTC on downtrend
2025-02-08
Category: None

If Bitcoin (BTC) is in a downtrend, the formation of an Elliott Wave (EW) pattern typically follows a five-wave impulse structure (1-2-3-4-5) in the direction of the trend. Here’s a breakdown of how it forms in a bearish market:

Elliott Wave Formation in a Downtrend
Wave 1 (Initial Decline) – The first wave marks the beginning of the downtrend as sellers take control. This move is often sharp, driven by profit-taking or early signs of weakness.
Wave 2 (Retracement) – A corrective wave where price recovers slightly but fails to make a new high. This is typically a Fibonacci retracement (38.2% to 61.8%) of Wave 1.
Wave 3 (Strong Downtrend) – The most aggressive and extended wave, often fueled by strong selling pressure and panic. This wave typically extends 1.618x or more of Wave 1.
Wave 4 (Consolidation/Pullback) – A corrective move where the price stabilizes, often forming a flag or wedge pattern. It usually retraces 23.6% to 38.2% of Wave 3.
Wave 5 (Final Drop) – The last push down, often accompanied by decreasing volume and divergence in indicators (e.g., RSI or MACD). After this wave, a corrective ABC pattern may follow.
Trading Considerations
Short Entry: Look for entries after Wave 2 retracement, aiming to catch Wave 3.
Profit-Taking: Secure profits near the end of Wave 5, where reversal signals appear.
Confirmation: Use Fibonacci levels, trendlines, and volume analysis to validate wave formations.
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