Monday, February 13, 2012

Applied Elliott wave theory - Tatasteel

Tatasteel Daily chart:
Applied Elliott wave theory - Tatasteel

The above chart of Tatasteel shows Applied Elliott wave theory at its best. 5 waves move up was a rare event in 2011 since the entire Indian market was moving in a complex correction. Beginning of 2012 got us with impulsive up moves in few stocks. Tatasteel is one of those stocks and it exhibits what an ideal impulse wave should look like. Not only this stock has followed the 3 important rules but also most of the guidelines as well.

Rules of Elliott wave:

a. Wave 2 cannot retrace complete of wave 1

b. Wave 3 cannot be the shortest of waves 1 and 5

c. Wave 4 cannot enter into territory of wave 1

All of these rules have been followed.

Guidelines of Elliott wave:

a. Wave 3 is usually the longest and can be 1.618 / 2.618 times of wave 1 or larger if extended

b. Wave 4 will usually form a triangle

c. Wave 3 if extended, wave 1 and wave 5 will trend towards equality

d. Wave 5 and wave 3 will usually show negative divergence which indicates loss of momentum and break of 2-4 trendline will confirm impulse 5 waves up is over and 3 waves downside correction has started.

Each of the above rules and guidelines is well observed in 60 minutes chart of Tatasteel. This is the power of Wave theory where one can predict the future action and what path prices will follow.

We have been predicting this movement as and when it was developing. This is indeed a thrilling experience.

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