Elliott Wave: five up, three down
Elliott Wave theory describes a trend as five waves: three moves in the trend's direction (1, 3 and 5) separated by two pullbacks (2 and 4). Three rules keep a count valid: wave 2 never retraces past the start of wave 1, wave 3 is never the shortest of 1, 3 and 5, and wave 4 does not overlap the top of wave 1. Wave 3 is usually the longest and strongest; wave 5 is often where excitement peaks.
The A-B-C correction
After a five-wave advance, Elliott expects a three-wave correction: A (the first decline), B (a relief rally that makes people think the uptrend is back) and C (a deeper decline that completes the correction). Corrections come in many shapes — zigzags, flats and triangles — which is part of why counts are so often redrawn.
Fibonacci retracements and extensions
Fibonacci levels measure how far a pullback retraces the move before it. The levels traders watch are 23.6%, 38.2%, 50%, 61.8% and 78.6%. Wave 2 commonly retraces 50–61.8% of wave 1; wave 4 often only 38.2% of wave 3. Extensions project how far a move might run: 1.618 times wave 1 is a common target for wave 3. These are zones where many traders act, not laws of nature.
Waves are people: the crowd at each stage
- Accumulation — flat or slowly rising: 'nobody cares'.
- Wave 1 — the first breakout: scepticism.
- Wave 2 — the pullback: 'it was a fake pump'.
- Wave 3 — the big expansion: attention returns.
- Wave 4 — consolidation: profit taking.
- Wave 5 — the final push: FOMO, hype, influencers, new buyers.
- Wave A — the first sharp fall: 'buy the dip'.
- Wave B — the relief rally: 'the bull market is back'.
- Wave C — the deeper fall: capitulation.
Divergence: when price and people disagree
Price alone hides how many people are behind a move. Comparing it with search interest, social mentions, new wallets, exchange flows, volume, funding rates or the Fear & Greed index can reveal a divergence. When price makes a higher high but interest or momentum makes a lower high, the move is running on fewer participants — a warning sign. Near bottoms the opposite can appear: extremely negative sentiment and falling selling volume while price stops making meaningfully lower lows. Neither is a guarantee or a timer.
Wyckoff: accumulation, markup, distribution, markdown
The Wyckoff method reads the same cycle through trading ranges and volume. Large players accumulate inside a range, often with a 'spring' — a brief drop below the range that shakes out sellers on high volume — before the markup phase. At the top they distribute to latecomers inside another range, often with an 'upthrust' above it, before the markdown. Volume is the evidence Wyckoff traders look for at each step.
The bigger cycle
Waves sit inside larger cycles. In crypto these include Bitcoin's roughly four-year halving cycle, global liquidity and interest rates, and risk appetite. Within a bull market, money has historically tended to rotate from Bitcoin to Ethereum, then to large-cap altcoins, and finally to small caps late in the cycle — often a sign of froth rather than a starting gun.
Harmonic patterns
Harmonic patterns — Gartley, Bat, Butterfly, Crab — look for specific Fibonacci ratios between five points labelled X, A, B, C and D. In a Gartley, AB retraces about 61.8% of XA, BC 38.2–88.6% of AB, and D completes near 78.6% of XA, marking a 'potential reversal zone'. They look precise, but they are subjective in practice and fail often.
How much to trust it
- Wave counts are made after the fact far more easily than before it; two analysts often count the same chart differently.
- Use them as maps of possibilities with clear invalidation levels, not as predictions.
- Combine price structure with volume, the bigger cycle and sentiment rather than relying on one method.
- Risk management — position size and where you are wrong — matters more than any count.
Questions people ask
What is Elliott Wave theory?
The idea that markets move in a repeating pattern of five waves with the trend followed by three corrective waves (A-B-C), driven by shifts in crowd psychology.
What are the main Fibonacci retracement levels?
23.6%, 38.2%, 50%, 61.8% and 78.6%. Traders watch them as zones where pullbacks may stop; 1.618 is the most common extension target.
What is a Wyckoff spring?
A brief move below an accumulation range that triggers stop losses and shakes out sellers before price reverses back into the range and begins to rise.
Does Elliott Wave work in crypto?
It can describe crypto's exaggerated sentiment swings well, but counts are subjective and frequently revised. It works best as one input with clear invalidation, never as a forecast.
What is bearish divergence?
When price makes a higher high but a momentum or participation measure makes a lower high, suggesting the advance is weakening.