Technical analysis is a vast field having varieties of techniques and indicators.
Many people look at technical analysis as simply drawing trendlines or channels and just using a few patterns or indicators.
Elliott wave is advanced concept of technical analysis which provides holistic approach to the entire application and that encompasses basic patterns like Head & Shoulder, Triangles, Wedge, etc and also an indicator like RSI, ROC, MACD makes a lot more sense when looked along with price wave counts. For example: Wave 5 and wave 3 normally shows negative divergence meaning prices make new highs but indicators make lower highs. Basic technical analysis indicator suggest that the upside momentum is reducing but when we apply Elliott wave counts along with this indicator it also gives us the path prices will follow. By only applying indicator does not give us strong forecasting ability but combining with wave theory and Fibonacci ratios provides probable future path the stock or index should follow.
The below chart is of Nifty during 5 waves up move with classical negative divergence and Wedge pattern formation as on 31st January 2013:
Nifty daily chart: (data 31st Jan 2013)
After completion of 5 wave on upside prices correct in 3 waves structure. Also wave 5 and wave 3 above shows classical negative divergence i.e. prices made new highs but RSI made lower highs indicating upside momentum has been reducing.
The above example simply shows how Elliott wave and Fibonacci ratios can help to forecast future price direction which only using indicator, channels and other basic techniques might lack. At the same time basic techniques are also the core of Elliott wave principle and have to be used to derive high conviction trade setups.
Many might claim that identifying trades or looking at markets in hindsight is simple but forecasting the future is always challenging. But we have done that before at the top of January 2013 and again in January 2014. We do it every time majority of indicators and Elliott wave counts gets in sync and do not hesitate to forecast against the majority of crowd. You can see the article we published on 11th January 2013 - Nifty path ahead and an upcoming Tsunami! The above charts are not random but picked up from the actual research reports we publish on daily basis.
To know what is next from here and get the latest forecast on Indian equity markets along with stocks you can subscribe to “The Financial Waves short term update” and see where we think Nifty and majority of stocks are headed from here. Learn yourself on how to combine various basic techniques and advanced technical analysis – Elliott wave together.
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Ashish Kyal,CMT is conducting 2 days training workshop of Advanced Elliott wave in Mumbai on 1st and 2nd March 2014 at Hotel Grand Sarovar Premiere.
To get more details for the training visit http://wavesstrategy.com/index.php/free-articles/trading-lessonsa-education/743-training-on-neo-wave-advanced-elliott-wave.html
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