Jun 10
A Unique Way to Use the RSI in Crypto Trading | And More in This Weeks Crypto Update.
- This Rare Zig-Zag Pattern Explains When Solana Sell-off Will End
- ChainLink Follows a 10 Week High-to-High Cycle
- A Unique Way to Use the RSI in Crypto Trading
This Rare Zig-Zag Pattern Explains When Solana Sell-off Will End
Based on the Elliott Wave analysis, Solana’s (SOL) sell-off is unfolding as a massive Zig-zag pattern. The cryptocurrency is showing an incomplete bearish sequence in the cycle from November 2021 all-time high, which calls for more downside.
Solana Zig-Zag Pattern
The Zig-Zag pattern is made of 3 big waves that can be subdivided into a 5–3–5 inner wave structure. The current view suggests that the decline from the November 2021 peak to the January 2022 low is unfolding as a 5 wave impulsive structure, labeled wave A.
The pullback in wave B unfolded as a regular flat, which has a three-wave structure that ended with the April 2022 high. Down from the peak of wave B, the current wave C is in progress, which is running an incomplete 5 wave sequence.
Short-term, wave 3 is in progress, and once this ends, we can see a rally in wave 4 and another push lower to complete the five-wave sequence of bigger wave C.
Wave C and subsequently the entire sell-off from November 2021 peak can end anywhere between $32 and $10, which is the 0.618 and 0.786 Fibonacci extension levels of wave A measured against the peak of wave B.
Zig-Zag Pattern Explained
The Zig-Zag pattern is one of the three basic Elliott Wave patterns, alongside impulse and flat. It fits best in the A-B-C corrective wave structure. The pattern can be either a three-wave impulse or a three-wave corrective structure. In both cases, the pattern is made of 3 big waves, and the three waves can be subdivided into a 5–3–5 inner wave structure.
Solana’s price history
Solana (SOL) is one of the most promising blockchains for the deployment of decentralized finance (DeFi) solutions.
The cryptocurrency started with a series of new highs from March 2021 and made a new all-time high of $258 on November 2021. Then, the cryptocurrency started a massive sell-off that looks like a Zig-Zag structure.
Looking forward
The cryptocurrency is trading at $27.24 at the time of writing, and our short-term view is bearish. We are expecting a new low in the last leg of the five-wave sequence of the current wave 3.
Once wave 3 ends, we can see a corrective rally in wave 4, which is likely to end near the $32 resistance area. Down from there, wave 5 can end the entire sell-off from the November 2021 peak.
ChainLink Follows a 10 Week High-to-High Cycle
ChainLink (LINK) is on track to post its second consecutive weekly gain, but the rally is entering a time window where we can expect a top to be formed. ChainLink seems to follow a 10-week high-to-high cycle; at least, that’s what the cryptocurrency has been doing since mid-2021.
LINK 10 Week Cycle
The cyclical nature of the financial markets makes it possible to anticipate when the next peak or bottom is most likely to happen. However, we must understand that cycles are never exact, but they give a rough estimate of the seasonal tendencies of an asset.
In this regard, LINK’s 10-week high-to-high cycle is, in reality, a 9 -11 week range.
Counting from September 2021 peak, 9 weeks have passed until the next peak was established in November 2021. The next LINK peak developed 9 weeks from the previous peak. And the last peak developed in March 2022 after 11 weeks.
Counting from the March 2022 peak, we have entered the 10th week, so we’re just around that time window when we can expect a top to form. Usually, in bear markets, according to the Dow Theory, rallies can last anywhere from 3 weeks and up to 3 months.
So, next week can be the third week of gains and the 11th week counting from the previous peak.
Technical Levels
From a technical perspective, we’re still trading below the $10 considerable psychological number, but we’re bouncing off a $7.2 multi-year support level. The stochastic crossover signal could mark the top, which was the case with the previous peaks.
A Unique Way to Use the RSI in Crypto Trading
The Relative Strength Index (RSI) is not just a popular momentum oscillator, but it’s also a very versatile indicator. Once you understand the power of the RSI indicator and how to use it correctly, you will know when it’s the best time to enter and exit a trade.
RSI Trendline Setup
There are many different ways to use the RSI oscillator, but a unique way to use it in cryptocurrency trading is the RSI trendline setup. This method implies using trendlines on the oscillator itself instead of the price.
The RSI trendline strategy will help you find leading signals.
How to Draw RSI Trendlines
RSI trendlines are drawn by connecting at least two peaks or valleys on the oscillator itself. An RSI trendline is drawn in an uptrend by connecting higher swing lows on the oscillator itself. Conversely, in a downtrend, an RSI trendline is drawn by connecting lower swing highs.
A trading opportunity is presented when the RSI trendline is broken. When the RSI changes direction, that’s a leading signal that has the potential to result in a significant move in the crypto price.
RSI Trendline examples
Here is an example of an RSI trendline break in the Bitcoin/USDT market.
An RSI trendline break is a strong leading indicator. If you are trading a cryptocurrency in the direction of the trend, you can use the RSI trendline break as a trigger to exit your trade. Conversely, if you are trading against the trend, the RSI trendline break could be a good trigger to enter a trade.
In the example above, the RSI trendline break was a good indication that the prevailing downtrend was ending and that a new uptrend was underway.
The RSI trendline break also gives us an idea of where to place the initial stop-loss. The stop-loss should be placed on the other side of the RSI trendline, so that if the RSI trendline is broken in the opposite direction, you know your trade was wrong and you can exit the trade.
Bottom Line: The RSI trendline method is used to gauge when the prevailing trend has ended, and a new trend is underway.
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