What is difference between Elliott wave and Neo wave? Practical Application on Nifty charts

elliott wave fibonacci ichimoku cloud neo wave two stage confirmation Jan 18, 2024

What is difference between Elliott wave and Neo wave? Practical Application on Nifty charts

 Neo wave is an Advanced Elliott wave method with more number of rules and newer patterns to increase the overall objectivity.

Elliott wave was originally discovered by R. N. Elliott in 1930s. His original work mentioned that stock market does not move randomly but in systematic fashion that follows Fibonacci numbers and natural laws. This systematic movement in prices are in form of waves. Normally there are 5 steps forward and 3 steps backward resulting into a net progression which is valid for stock market as well. The concept cannot be just applied but one needs to understand the basic premise and certain rules to apply it objectively.

Any price movement as per basic Elliott wave is classified into Impulsive and Corrective. There are various patterns within these broader heads. Impulsive waves need to follow three basic rules:

  1. Wave 2 cannot retrace complete of wave 1
  2. Wave 3 cannot be the shortest of the directional waves 1, 3 and 5
  3. Wave 4 cannot enter into territory of wave 1

The above 3 basic rules if followed then the price movement under consideration can be classified as a normal Impulse wave.

However, when the market structure is complex there is possibility that the movement can be counted in many different ways. This can result into subjectivity and the entire purpose of wave theory can be lost. To overcome this limitation Neo wave has more rules to define a simple impulse pattern. Following are a few of them:

  1. Wave 2 cannot retrace more than 61.8% of wave 1
  2. Wave 3 cannot be the shortest of the directional waves 1,3 and 5
  3. Wave 4 cannot enter into territory of wave 2
  4. There has to be atleast one extended wave which is going to be 1.618% of non extended wave. If there is no extension then the pattern under consideration is corrective
  5. One of the directional waves should subdivide
  6. Corrective waves should consume more time than the preceding impulsive wave
  7. Touch point rule: Out of 6 points not more than 4 points should lie on the channel
  8. …etc

The above shows only a few set of rules for an impulse pattern as defined by Neo wave to all the rules more in detail attend Masters of Waves Online training happening on 20th – 21st January 2024

–   Diametric Pattern

–   Neutral Triangle

–   Extracting Triangle

These new patterns are equally important to understand because majority of the movement seen in the world equity markets are taking the forms of these patterns that were never covered in original work of R. N. Elliott.

Let us look at Nifty chart as per Neo wave Diametric pattern –

Nifty hourly chart: 

Above chart of Nifty shows Diametric pattern which got completed near the highs of our target 22118. Post that we have seen sharp decline on downside indicating that the opposite side move has started.

This is confirmed by using the technique of two stage confirmation. Break below the d-f trendline near 21650 provided the 1st stage of confirmation and this was followed by breach below the entire up move in form of wave g near 21440 levels.

By combining this two stage confirmation technique it is evident that the top is formed and we have entered into sell on rise instead of buy on dips. Also this is the biggest decline seen in the entire rise that further confirms that the top near 22118 is going to be protected for weeks ahead.

With this information provided by Neo wave one can trade exceptionally well using Options and accordingly form trading strategy.

Combine this with Fibonacci trading system to identify key reversal areas. We have been bullish on Nifty since the levels of 19200 and mentioned about targets of 22118 which worked precisely as per Neo wave

We turned bearish as soon as the level of 21650 was broken and now aiming for 21098 followed by 20924 levels on downside.

In a nutshell, Neo wave can be used to forecast the market right from short term 5 minutes to long term multibagger stock selection.

Sutra of Waves – 2 days to go for learning this science of trading using Elliott wave, Neo Wave, Ichimoku Cloud, two stage confirmation technique, Fibonacci trading system. Futures and Options trading can be done with high accuracy, good risk reward trade setup using these methods. Limited seats only. Fill the below form for more details: