Wave 4 Tips - Market Analysis on Apr 9th, 2019

Let's talk about 4th waves. Many of our swing charts are in the 4's and 5's. By that I mean they are seeing the fourth subwaves of the third wave, or the fourth wave off the December lows. Fourth waves are the hardest to trade. They tend to be the most choppy, having a more 'open menu' of patterns that can make up a fourth. Mainly, triangles cannot be found as all of wave 2 but they can be all of a fourth. Further, Wave 4's tend to be more complex and stretch in time more than wave 2's. So, where are some tricks:

1) Holding a wave 4 is a critical moment in the development of an impulse. If it doesn't hold support, that is the first sign you either have a three wave top, or are forming a diagonal. This also means taking some profit at the top of a third before the 4th is given a chance to fail is smart. Note the way I draw support boxes: the top is the ideal hold. The bottom should not be pierced except for moment. Often BTC doesn't even touch the box, but many cryptos go deep into it.

2) Never outright short a wave 4 unless it is giant, like in the BTC 4th that began in late December 2017 from $19K. You might put a short hedge, as in keep net delta long, but don't outright go net delta short.

3) Watch the action in a fourth for choppiness. This is good. If you start seeing strong moves down, you might have just witnessed a B wave top, though the A of a fourth can often be strong. But again, support is what matters more than pattern or stength. But chop is still a good sign the wave 4 will hold. 

4) Once you can perceive that it is a choppy corrective wave, plan a scale in plan. Form your largest position near the stop, just as would a wave 2. Do it slowly. 

5) Sometimes you might find some opportunity to take profit within a fourth wave, if particularly choppy. note you can make 2-3 trips into the support zone depending on how complex and deep the wave 4 goes. So, if you are on your toes you might take some off as price 'comes up for air' then goes back down. But this is for very brave, skilled traders. Most will just want to size up into support and get ready for the fifth. 

Ryan Wilday hosts the Cryptocurrency Trading service on ElliottWaveTrader.net.