Friday, February 21, 2014

Why Elliott wave should be combined with other technical analysis methods?

The below research is by Waves Strategy Advisors. For research subscription on daily basis visit
Elliott wave classifies the movement of market either as impulsive or corrective. 
Impulsive moves are simple 5 wave structure with 3 basic rules to be followed whereas corrective waves have many varieties. Trading Indian equity market has been a challenge due to the fact that most of the time prices are either moving in sideways action or forming complex corrective structure. A Gap down opening of 60 points yesterday and then again a Gap up opening today clearly indicates a complex formation is underway. During such times it is imperative to keep exposure less and in direction of minor trend which seems to be up as of now.
The below chart is picked up from “The Financial Waves short term update” a daily research report that covers Nifty and 3 different stocks which assists in trading from short term perspective.
Bottom Line: Yesterday’s bar further confirms that Nifty up move is corrective in nature.
Nifty 60 mins chart:
Wave Analysis:In previous update we mentioned that “In short, it will be important to see if Nifty can manage to cross above yesterday’s high near 6160 for positivity to continue today else range bound movement can be expected. Any Gap down opening if not filled during the day will be cautious sign. Fresh longs should be avoided given the fact that prices have already formed 4 consecutive blue bars as of yesterday.”
Nifty continued to maintain its status quo of not forming more than 4 to 5 blue bars. This simply shows that there are certain patterns and structure we have to observe on charts which market follows time and again. Nifty had a Gap down opening of nearly 25 points and prices managed to sustain the Gap throughout the day. Interestingly, in the entire up move from 5930 to current levels we have not observed a single Gap up opening which is sustained. Such movements are signs of corrective structure rather than impulsive.
As shown on daily chart, since September 2013 onwards prices are moving within the range of 5900 to 6350. Even this time prices made a low near 5930 and reversed back upside for a probable move towards 6200 levels. Trading within a range bound market can be challenging as each of the legs are corrective and not impulsive. Corrective patterns can be complex and tricky to identify beforehand. So it is important to combine wave theory along with other techniques likeCycles, RSI, Bar technique, Moving average crossovers.
From medium term perspective, ………… if prices can move above ……. to resume the uptrend or breaks below ………. for minor negative confirmation.
In short, ……………
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