BTCUSD - The Big Diagonal. 4 Ways from here.....
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Price action over the last few days has helped solidify and reduce the number of permutations on the wave count and has also highlighted short term risks. The reason has been the appearance of a diagonal within the current price structure starting 26 Feb.
A diagonal has a few characteristics:
- Wave 1 longer than 3 which is longer than 5
- Wave 4 over laps 1
- Wedge like shape
A diagonal must either be a Leading Diagonal (Waves 1 or A) or an Ending Diagonal (Waves 5 or C). Following this principle, we have four likely wave counts unfolding, none of them look attractive in the short term. Before we look at that, let's review the price action in the triangle.
It started getting interesting at the top of Primary Wave (3) 11,529 with a smaller Ending Diagonal indicating the wave had completed.
The correction ended with a nice Contracting Triangle at Primary Wave (4) but also took the 4th wave within the region of the initial Primary Wave (1). This and the shape of the wave indicated a Diagonal.
Wave 5 is always smallest within a Diagonal and the top was reached pretty quickly with another Ending Diagonal. A new high was posted after this but I think this was a Throw Over after the Contracting Triangle and BTC is now in a full correction.
There is a chance that only the 1st wave of the Primary Wave (5) has been completed and it goes up from here. However I think this is unlikely given (a) the diagonal line boundaries have been exited (b) wave 5s are smallest within a Diagonal.
Where to from now?
With the exception of the possibility that the 5th is not completed, I see four scenarios.
Good scenarios 1-3
-------------------------
The three good scenarios go through a corrective wave to then start a new 5 wave impulse up. They could all correct 100% down to 6k or lower, but the likelihood is a correction to between 0.382 and 0.618.
1 ) Completed a Leading Diagonal in the 1st wave of a new 5 wave impulse
The Fib would be from 11700 to 9300. A retrace of 0.382 - 0.618 would see the correction finished between 10,200 and 10,800.
2) Completed an Ending Diagonal of the 5 waves up from 6000
The Fib would be from 11700 to 6000. A retrace of 0.382 - 0.618 would see the correction finished between 8000 and 9500.
3) Completed an Ending Diagonal within the C wave of the X from wave 5
Going down for the Y leg. The Fib would be from 11749 to 6000. A retrace of 0.382 - 0.618 would see the correction finished between 8300 and 9600. Or if Y is the same length as W, down to 9200
4) Doomsday scenario
The impulse up from 6000 was just a corrective ABC on a change in trend, with a new 5 wave impulse down to now start. This could easily take the BTC well past the 6k low.
How will I trade this?
---------------------------------
I moved all my trading coins to BTC this afternoon to make it easier to manage any sudden movements. A couple of hours later I triggered a sell of my trading coins when the diagonal boundaries were broken.
I will now be looking for bounces around the key areas I have identified above. However, given the risk of the Doomsday scenario I am unlikely to fully buy back in until there is a break above 12k. I will also manage any trades with tight stops. The next step is to review historic support and resistance to identify likely areas of a reversal. I will update once I have these.
A diagonal has a few characteristics:
- Wave 1 longer than 3 which is longer than 5
- Wave 4 over laps 1
- Wedge like shape
A diagonal must either be a Leading Diagonal (Waves 1 or A) or an Ending Diagonal (Waves 5 or C). Following this principle, we have four likely wave counts unfolding, none of them look attractive in the short term. Before we look at that, let's review the price action in the triangle.
It started getting interesting at the top of Primary Wave (3) 11,529 with a smaller Ending Diagonal indicating the wave had completed.
The correction ended with a nice Contracting Triangle at Primary Wave (4) but also took the 4th wave within the region of the initial Primary Wave (1). This and the shape of the wave indicated a Diagonal.
Wave 5 is always smallest within a Diagonal and the top was reached pretty quickly with another Ending Diagonal. A new high was posted after this but I think this was a Throw Over after the Contracting Triangle and BTC is now in a full correction.
There is a chance that only the 1st wave of the Primary Wave (5) has been completed and it goes up from here. However I think this is unlikely given (a) the diagonal line boundaries have been exited (b) wave 5s are smallest within a Diagonal.
Where to from now?
With the exception of the possibility that the 5th is not completed, I see four scenarios.
Good scenarios 1-3
-------------------------
The three good scenarios go through a corrective wave to then start a new 5 wave impulse up. They could all correct 100% down to 6k or lower, but the likelihood is a correction to between 0.382 and 0.618.
1 ) Completed a Leading Diagonal in the 1st wave of a new 5 wave impulse
The Fib would be from 11700 to 9300. A retrace of 0.382 - 0.618 would see the correction finished between 10,200 and 10,800.
2) Completed an Ending Diagonal of the 5 waves up from 6000
The Fib would be from 11700 to 6000. A retrace of 0.382 - 0.618 would see the correction finished between 8000 and 9500.
3) Completed an Ending Diagonal within the C wave of the X from wave 5
Going down for the Y leg. The Fib would be from 11749 to 6000. A retrace of 0.382 - 0.618 would see the correction finished between 8300 and 9600. Or if Y is the same length as W, down to 9200
4) Doomsday scenario
The impulse up from 6000 was just a corrective ABC on a change in trend, with a new 5 wave impulse down to now start. This could easily take the BTC well past the 6k low.
How will I trade this?
---------------------------------
I moved all my trading coins to BTC this afternoon to make it easier to manage any sudden movements. A couple of hours later I triggered a sell of my trading coins when the diagonal boundaries were broken.
I will now be looking for bounces around the key areas I have identified above. However, given the risk of the Doomsday scenario I am unlikely to fully buy back in until there is a break above 12k. I will also manage any trades with tight stops. The next step is to review historic support and resistance to identify likely areas of a reversal. I will update once I have these.
Nota
Updates being posted here
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