What is Technical analysis – Predictive and Reactive method? Nifty example

The following article touches upon understanding 2 different methods of technical analysis – a Predictive way and Reactive method.

Nifty had a range bound movement which was enclosed within 6180 and 6220 forming an inside bar. We can see that over past 2 days movement has been sideways on Nifty and Sensex but Midcap and Smallcap sectors have managed to form strong positive candles during this period. The advance decline ratio also continued to be healthy and the overall breadth had been positive during this period.

Nifty 60 mins chart:

On daily as well as 60 mins chart, there is a clear higher high and higher low formation. A verybasic technical analysis concept suggests that as long as prices form higher highs and higher lows the trend is positive. Elliott wave is a predictive technique and the other is a reactive technique.

From trading perspective it is better to combine both at times. Using Elliott wave, we currently have 2 probable scenarios. One of these scenarios is shown in above charts and the other remains of a big triangle pattern breakout above …….. on Nifty. The short term trend remains positive even in the above shown wave counts but a breakout from triangle pattern will result into multi-year of Bull Trend. We are still considering both the scenarios as equally probable since prices are not moving up strongly as of now to be a clear impulsive structure nor there is any deterioration in the broader market. It is better to wait for more clues or break of important levels to get a clear confirmation about Elliott wave counts. But till that happens one can completely rely on reactive technique which suggests the trend remains positive as long as prices form higher highs and higher lows atleast on smaller degree charts and an upward sloping blue channel is intact.

In today’s morning Equity research report “The Financial Waves STU” we have not only mentioned about predictive and reactive techniques but also about the important 2 stage confirmation as per Neo wave – Advanced Elliott wave concepts and applied it on Nifty.

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