How I Trade Cryptos- Using Elliot Wave Theory

I have been posting my trading targets on Steemit lately. I wanted to create this post as a reference for my posts so readers can get a quick overview of my method of analysis. You can't learn it here, but at least you know a bit about my method.

I have over 16 years trading stocks, options, and futures and starting in 2012 I added cryptos to my arsenal. I work at a major electronics company as a product strategist, but trading adds any where from 15-30% to my income in a given month.

The best part of crypto trading versus the 'normal trading world' is the skew (risk to reward) without leverage or decay. I can only get this sort of skew with futures and options in the equity world. But options suffer time decay and futures require large capital requirements. With crytpos I can take a small trade that results in 100% (often using some leverage) in 24 hours. 30% returns in a day are frequent even without leverage. 5-10% trades in that timeframe are mundane and the stop losses are typically in that region as well.

A key success factor in trading anything is having a profit taking target and a stop. The stop is where you know you are wrong. All my posts, unless I forget haphazardly, include my invalidation point, or stop. If you don't have a stop preplanned on your trade, you will trade yourself to the poor house. I guarantee it. I have blown up a few accounts in past years not following it. It is now a must for me.

ELLIOT WAVE.

I was first introduced to Elliot Wave (EW) with Robert Prechters book. I read it through, but found it difficult to apply. I basically ignored it even though I could still see the basic structure in the market that Mr. Prechter outlines. So while I could see it, I couldn't apply it.

I won't belabor the basic rules of EW here except to emphasize the key principles: that impulsive or trending waves in ALL markets are 5 waves, with waves 2 and 4 corrective. Corrective waves are threes abc waves as they are called, but within that structure a and c can have 5 waves. Waves a and c are the 'impulses' within the corrections. Go to wikipedia's link below to see a quick visual Stare at a chart long enough and this will be quite clear. Further you'll note that this structure is fractal. For example, the wave 1 will have the same 5 wave subdivisions. All the way down to a 5min. chart if you wish to daytrade.

To read on it in overview, see wikipedia's entry: https://en.wikipedia.org/wiki/Elliott_wave_principle

Or, better, pickup Mr. Prechters' book.

Some years later I stumbled on Avi Gilburt's site Elliotwavetrader.net after noticing how timely his articles were, calling bottoms in the SP500 and producing targets. They often came to be with amazing accuracy. So, I started a trial membership. and learned his ways. He freely teaches. Yes this sounds like a commercial I know. Forgive me. You'll find Avi to be a highly successful trader (ex attorney) who has made his money and is interested in teaching...honestly.

The basic tenants of his method is a mathematical build on the EW theory. To oversimplify it, he figured out that the third wave of an EW structure often extends to 1.618 of wave 1, the fourth often .382 the length of 3, and the fifth often tops (or bottoms in a bear) at twice the length of wave 1 starting from wave 2. But these proportions must play out in logarithmic proportions. So, you must have a tool in your charts (ala Motivewave software) Or, you must calculate it. All targets I offer are made using a spreadsheet I run. For smaller ranges in equities I use the tools in Tradingview because small ranges have little different between arithmetic and log. Log is super key in cryptos since the ranges are huge percentile wise. There are may other sub rules required to make you successful. To learn this method in detail you may try a free trial on his site. It comes with no pressure at all.

At any rate, this method is how I develop my targets and stops. A stop is an invalidation point, where I know I am wrong. Again every trade must have a stop. My targets are generally the retrace targets where I expect support/resistance, or the extension targets for wave 3 and 5.

If any questions, let me know. I can't impart to you all the experience I have trading, nor my two year study of Elliot Wave Theory. But at least, I wanted you know a bit of the method behind my madness.