We always tend to find patterns in charts and draw channel, trendlines, basic technical tools etc. But how to derive trade from it?
Advanced Elliott wave concepts of Neo wave suggests 2 stage confirmation in order to get higher probability conviction that the ongoing impulse or corrective wave is complete.
How to determine if 5 waves on upside is over and wave 5 is not extending?
- 2-4 trendline should be broken in faster time than wave 5 took to form
- Wave 5 should be retraced completely in faster time than it took to form
How to determine if a corrective wave is complete and next trend has started?
- 0 –b trendline should be broken faster than wave c took to form
- Wave c should be retraced completely in faster time than it took to form
If the next leg fails to follow this rule it virtually confirms that the next leg is simply wave x and another set of standard correction is developing.
However from trading perspective one has to maintain a balance between Risk reward and 2 stage confirmation. So this principle should be used with care but on the other hand it helps to reduce n number of scenarios and come out with a single scenario that has highest probability of success!
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