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?
“The Financial Waves
short term update” research report is published on daily basis that shows
detailed Elliott wave structure
applied along with other technical tools and advanced concepts on Nifty, Bank Nifty, stocks. For
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