Elliott Wave Crypto: Ride the Waves of Market Psychology
Markets move in waves driven by collective psychology. Elliott Wave gives you a roadmap—know where you are and where price is likely headed.
- Elliott Wave: trends move in 5 waves (impulse), corrections in 3 waves (ABC). Patterns repeat fractally.
- Wave 3 is the money wave—strongest and longest. Enter at end of Wave 2 for best risk/reward.
- Thrive helps identify wave structures and potential wave completion points.
Explore Elliott Wave Patterns
Click through key Elliott Wave patterns:
Five-wave structure moving in trend direction. Waves 1, 3, 5 are impulse (trend direction). Waves 2, 4 are corrective (counter-trend). Wave 3 is typically longest and strongest.
Structure
Wave 1 → Wave 2 → Wave 3 → Wave 4 → Wave 5
Trading Approach
Wave 3 is the money wave—enter at end of Wave 2. Wave 2 typically retraces 50-61.8% of Wave 1. Wave 4 typically retraces 38.2% of Wave 3. Wave 5 often equals Wave 1 in length.
Counting waves wrong is easy. Wave 2 can't retrace more than 100% of Wave 1. Wave 3 can't be shortest. Wave 4 can't overlap Wave 1 price territory (in most cases).
What Is Elliott Wave Theory?
Elliott Wave proposes that markets move in predictable patterns. These patterns are driven by collective investor psychology—optimism and pessimism ebb and flow in recognizable waves. Trends unfold in 5-wave impulses; corrections unfold in 3-wave patterns.
The theory is fractal: each wave contains smaller waves with the same structure. A Wave 3 on the daily chart contains its own 5 waves on the hourly. This allows analysis across timeframes.
The Impulse Wave (1-2-3-4-5)
Wave 1
Initial move in new trend direction. Often unnoticed. Sentiment still bearish (in new uptrend) or bullish (in new downtrend). Smart money positioning.
Wave 2
Correction of Wave 1. Can retrace up to 100% (but typically 50-61.8%). "Dead cat bounce" thinking. Sentiment still with old trend. Entry opportunity.
Wave 3
The money wave. Strongest, longest, most powerful. Cannot be shortest. Everyone recognizes trend—retail joins. Often extends to 161.8% of Wave 1.
Wave 4
Correction of Wave 3. Typically shallow (38.2%). Cannot overlap Wave 1. Consolidation before final push.
Wave 5
Final move. Momentum often diverges (warning of reversal). Can truncate or extend. Ends with correction (ABC).
| Wave | Character | Fibonacci | Trading Approach |
|---|---|---|---|
| Wave 1 | Initial move | Varies | Hard to catch |
| Wave 2 | Correction | 50-61.8% retrace | Entry for Wave 3 |
| Wave 3 | Strongest | 161.8% extension | Ride it |
| Wave 4 | Shallow pullback | 38.2% retrace | Entry for Wave 5 |
| Wave 5 | Final push | = Wave 1 or extend | Watch for top |
The Corrective Wave (ABC)
After 5-wave impulse comes 3-wave correction:
Wave A
First leg down (in bull correction) or up (in bear correction). Often mistaken for pullback in trend.
Wave B
Counter-move. Often retraces significant portion of A. Can be a trap—looks like trend resuming but it's not.
Wave C
Final correction leg. Usually equals Wave A in length. Ends correction—trend resumes. Watch for divergence at C terminus.
Trading Elliott Waves
The Wave 3 Entry
Best trade in Elliott. Enter at end of Wave 2 (61.8% retracement zone). Stop below Wave 1 start. Target: 161.8% extension or higher. Ride the strongest wave.
The Wave C Entry
Enter at end of ABC correction for trend resumption. Wait for Wave C to complete (often at support + Fibonacci confluence). Enter with trend. Target new impulse wave.
Common Mistakes
- Forcing counts: Not everything is Elliott. Some moves don't fit—accept ambiguity.
- Ignoring rules: If count breaks rules, count is wrong. Re-analyze.
- Single wave focus: Use multiple timeframes. Higher TF context matters.
- No confirmation: Elliott gives roadmap, not certainty. Use with other analysis.
Frequently Asked Questions
What is Elliott Wave theory?
Theory that markets move in predictable wave patterns driven by collective psychology. Trending moves have 5 waves (impulse). Counter-trend moves have 3 waves (corrective). Patterns fractal—waves contain sub-waves.
What is an impulse wave?
Five-wave structure moving in trend direction. Waves 1, 3, 5 move with trend. Waves 2, 4 are corrections against trend. Wave 3 is usually strongest and longest.
What is a corrective wave?
Three-wave structure (ABC) moving against main trend. Wave A and C move against trend. Wave B moves toward trend (temporary). Corrections come in many forms: zigzags, flats, triangles.
What are the rules of Elliott Wave?
Wave 2 cannot retrace more than 100% of Wave 1. Wave 3 cannot be the shortest of waves 1, 3, 5. Wave 4 cannot overlap price territory of Wave 1 (in most cases). Breaking rules = wrong count.
Which wave is best to trade?
Wave 3 is the money wave—strongest, longest, most profitable. Enter at end of Wave 2 for Wave 3 entry. Also: end of Wave 4 for Wave 5, end of Wave C for trend resumption.
How accurate is Elliott Wave?
Subjective—different analysts often have different counts. Works better as framework than prediction. Use with other analysis for confirmation. Wave counts can be wrong; have stops.
How do Fibonacci levels relate?
Waves often retrace/extend to Fibonacci levels. Wave 2 often retraces 50-61.8% of Wave 1. Wave 3 often extends to 161.8% of Wave 1. Wave 4 often retraces 38.2% of Wave 3. Fibs help project targets.
Is Elliott Wave good for crypto?
Crypto shows clear Elliott patterns on higher timeframes. The emotional retail market creates textbook waves. Lower timeframes can be noisy. Use on 4H+ for cleaner counts.