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

elliott wave neo wave nifty nifty 50 May 23, 2024

Neo wave is an Advanced Elliott wave method with a greater number of rules and newer patterns to increase the overall objectivity. Whereas Elliott wave which was originally discovered by R. N. Elliott in 1930s. His original work mentioned that stock market does not move randomly but in systematic fashion. 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.

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 was developed that has more than 15 different 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

  1. 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
  2. One of the directional waves should subdivide
  3. Corrective waves should consume more time than the preceding impulsive wave
  4. Touch point rule: Out of 6 points not more than 4 points should lie on the channel
  5. ….
  6. …. etc

The above shows only a few sets of rules for an impulse pattern as defined by Neo wave. I will be discussing all the rules more in detail in Sutra of Waves Online training happening on 1st-2nd June 2024.

We take a step ahead and combine this complex study of Neo wave to that of Time cycles. It is not always that both the studies will be in sync but when they are then if we combine it with time then the trade set up is of high accuracy which have the potential to give the best of the returns in shortest amount of time.

Below is the part of research which was shown on 17/05/2024

Nifty daily chart anticipated as on 17th May 2024In the previous session, Nifty formed a bullish candle and finally gave close above mid bands. There was sharp acceptance above mid bands in final hour and as soon as prices broke above 22330 sharp rally to 22430 was seen. Tone is now positive as we broke above 22330 now target on the higher end comes near 22520 level. As per wave perspective, wave a look to have completed on the downside and next leg is unfolding on the upside in form of wave b we can expect a move towards upper bands.

Yesterday was a weekly F&O expiry. As expected, volatility was extreme. At the start of the session, Nifty gave breakdown of the range on the downside and made low of 22054. However, from thereon sharp pullback on the upside was seen which helped to recover all the early losses and gave breakout of the range (22330) and made high of 22432.

In a nutshell, Nifty gave a close above mid band and now tone has changed to positive. A break above 22440 can lift the price higher towards 22520 followed by 22630. While on the downside 22050 is the nearest support.

Nifty daily chart happened chart as on 23rd May 2024The above chart clearly shows how understanding Neo wave pattern helped us to catch a total move of more than 300 points which we have been mentioning in our research report since past few sessions.

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