Elliott wave is all about recognizing the patterns. The first level of pattern segregation is to understand whether the rise is impulsive or corrective. An impulse pattern should consists of 5 sub-waves with waves 1,3, and 5 traveling in direction of the bigger trend and waves 2 and 4 correcting the prior impulse trend. Also as per basic Elliott wave following are the three rules that should be followed:
1. Wave 2 cannot retrace complete of wave 1
2. Wave 4 cannot enter into territory of wave 1
3. Wave 3 cannot be the shortest among the impulsive waves 1,3,5
When all of the above basic rules are followed then the pattern qualifies for an impulse pattern as per basic Elliott wave. Using Advanced Elliott wave – Neo wave a valid impulse pattern has to follow more than 15 rules. For now let us focus only on the basic rules and see if Nifty has been showing impulsive or corrective rise:
Nifty 60 mins chart:
The above chart of Nifty shows the rise from the lows of 6825 which is channelized. Now try to identify the pattern!
The rise does not have 5 waves following even the basic rules of Elliott wave forget about applying the advanced concept of Neo wave for pattern identification.
So the pattern is corrective. Now we have to identify whether it is a Zigzag, Flat, Triangle or Complex correction. Looking at the number of subdivisions and overlapping structure there is high probability that the complex correction is under formation. The next step will be to label the complex structure with internal counts. Always remember that pattern takes precedence over internal wave counts.
Now when you understand the pattern can you systematically label the internal counts which will in turn help in taking trading decision?
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