SOL could crash all the way back to $59!
After a strong rally and reaching its peak on December 25, 2023, Sol has seemingly been in a correction since then, i.e.0.382 Fibonacci level, following the Elliott Wave Zigzag pattern. Figure 1 for illustration.
Elliot Wave ZigZag theory
According to Elliott Wave theory, after the main impulse wave (IM) consisting of 5 sub-waves numbered 1,2,3,4 and5, there would be a corrective wave consisting of 3 sub-waves A,B and C.
However, in practice, the correction wave may have 5 sub-waves (A,B,C,D and E), and they can be classified as WXY or even WXYXZ. The WXY or WXYXZ patterns may involve double or triple Zigzag waves, where X, Y, Z are sub-waves following the Zigzag pattern and connected by an X wave in the opposite direction of the main wave.
Currently, based on the chart I’ve drawn (Figure 1), ABC could be the sub-waves of wave W. Analyzing Zigzag waves is challenging, as it’s only confirmed after the completion of all sub-waves, be it ZZ, double ZZ, or even triple ZZ.
Although, when trying to identify a bottom for optimal entry, it becomes more complex. For now, if we focus on determining the downward trend without pinpointing the exact wave count, trading options becomes a simpler choice.
Back to SOL price correction
Firstly, it’s likely that Sol will continue to decline to form another Zigzag wave.
Secondly, in conjunction with Fibonacci retracement, SOL could retrace to the 0.5 Fib level, (~$72), even the next level, 0.618 (~$59) is also a possibility.
Separately, looking at the 4H window chart, SOL has been repeatedly testing the EMA200. If this level is breached, the 1D window chart could revisit the EMA200, which is coincidentally the 0.618 Fib retracement level.
The benefit of Zigzag patterns is that the time between waves is relatively consistent. Therefore, if it follows a double Zigzag, the correction may last approximately 1.5–2 months before Sol reverses its course and starts its upward trend.
Our best course of actions: Options is superior to Futures in this environment
In a down trend, buying Put Options is all what we should be doing!
Looking at this chart (Figure 2), I squared in red one particular Put option expiring on 26 Jan 2024 with a price range of $85-$70. This is the ATM (at-the-money) Put Options. Refer to the last column MWR, this column indicates the maximum profit potential and for this Put, it is 7.4x! This means that if Sol drops to $70, your profit will be (7.4–1) or 640%.
“For example, if I invest $20 in these options, and Sol drops to $70 before the expiration date on January 26, my profit will be $20 x 7.4 — $20 = $128”
The beauty of Buying Options is that there will be no unlimited loss hence no auto-liquidation at all. Our initial investment will be the maximum loss that could happen.
Why we don’t use Futures in this environment
A drop from $94 to $70 is approximately 25%. If you were to achieve the same profit of 7.4x with futures, you would need to use leverage of 30 times (=740%/25%).
The strength of futures is the flexibility to wait for the price to reach the profit-taking point as long as your account doesn’t get liquidated. However, the downside risk is substantial; a 3.3% increase in Sol’s price could wipe out your account. With price fluctuations of 3%, a few 15% Candlestick could be enough, and in the event of a market kill switch, it could happen within a minute.
Therefore, if you are willing to invest a small amount, around $10-$20, to trade and earn extra income, choosing options over futures is advisable. As long as you have a keen sense of market volatility, you can make additional profits without the risk of being liquidated as in futures trading.
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Disclaimer: The opinions expressed here are personal viewpoints intended for informational purposes only. We do not assume responsibility for any financial losses incurred in cryptocurrency trading. It is imperative to conduct thorough research and seek advice from financial experts before making any investment decisions.
Credit: Crypto Sage
