In the previous article, we established the basis to understand why Chainlink #LINK is on the threshold of a period of bullish growth, after having completed the accumulation phase according to the Wyckoff theory. Now, we will delve into a more detailed analysis supported by the Elliot Wave Theory, with the aim of projecting how far this cryptocurrency could go and how investors can capitalize on these movements to maximize their profits.
It is imperative to note that after the breakout of the resistance marked by the Bullish Rally (AR) of the initial accumulation phase, we have entered an acceleration phase. However, we cannot ignore the imminent pullback or Last Point of Support (LPS). This event is crucial, especially for those who have not yet entered the market, as it will provide an essential opportunity to position yourself strategically.
The key question is: how do we identify the level at which the correction that will lead us to the pullback will occur, and at what levels can we find them? To address this question, it is essential to understand that moving averages play a vital role. When a moving average sits above price, it acts as a dynamic resistance; In contrast, when it is below, it works as a dynamic support. In addition, the moving averages have another peculiarity and that is that they work like magnets attracting the price towards them. It is important to highlight that the averages of higher temporalities have greater relevance in this consideration. Taking this into account, let's look at the graph:
In the present scenario, we can see that the 20-period Exponential Moving Average (EMA20, shown in yellow) is close to the price of $9.12, while the 50-period Simple Moving Average (MA50, shown in black) is currently at $12.10. Considering the typical behavior of these moving averages, we anticipate that the price will converge with the MA50, at which time a correction will occur to the level of $10.28, where the break of the resistance marked by the "AR" was originally generated. Given the more agile nature of the EMA20, once the pullback occurs, it is plausible that it will move from $9.12 to $10.28. . It is at this point where an opportunity arises to open a long position, with the intention of taking advantage of the beginning of the bullish trend phase or the first Elliott wave, an aspect that we will address in detail in the next chapter.
It is important to note that although we understand the typical behavior of moving averages, the question may arise about the feasibility of opening a short position by converging with the MA50=$12.10 and setting the target at the support level. However, it is crucial to emphasize that, after the completion of the accumulation phase, trading against the trend is not recommended in any case.
Finally, it is essential to note that as we find ourselves between two large moving averages, we are likely to experience a period of sideways movement in the coming weeks, especially as the MA50 manages to settle below the price, thus generating the Golden Cross. In this context, more experienced investors can take advantage of the opportunity to trade within the possible range. However, to increase confidence in our position, we must consider the stop loss level, which we can determine using the Fibonacci tool. This approach provides an additional layer of risk management.
On this occasion, we have chosen to set the stop loss level at 0.23 of the Fibonacci retracement, located at $7, since it is below the beginning of the wick generated by the current candle. This level would not only act as a conventional stop loss, but also presents itself as a significant structural support point.
Importantly, the leverage level should not exceed 3X. We will address this in detail in the next chapter when we discuss the formation of Elliot waves and establish objectives for the position.
Note: This article provides an updated perspective and does not constitute financial advice. Always consult a financial professional before making investment decisions. Remember to subscribe. If the article has provided you with clarity and perspective, I invite you to consider a small tip as a gesture of appreciation.
