Neo wave is nothing but Elliott wave but with more number of rules and newer patterns to increase the overall objectivity.

Orthodox 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 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
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. …
9. …etc

The above shows only a few set of rules for an impulse pattern as defined by Neo wave. There are newly developed patterns as well which were never a part of original Elliott wave. To name a few are:

–   Diametric Pattern

–   Neutral Triangle

–   Extracting Triangle

–   3rd Extended Terminal with 5th Failure

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

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 indeed suggesting the same outcome that is the time that the trade setup is of very high accuracy and it just leaves only one probable outcome. These are the times when one can go all in with prudent risk and money management strategies which have the potential to give the best of the returns in shortest amount of time.

Below part of research was shown on 5^th July 2017 monthly report just after Nifty made a low near 9450 levels….

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

You can see in the above charts how we have combined Neo wave together with Time cycles in order to have ideal trade setup and ride the trend right post completion of wave x.

Also note the internal counts most of which shows 7 legged Diametric pattern. It is therefore very important to understand these new patterns defined as per Neo wave in order to stay in the right direction of the markets.

References are taken from “The Financial Waves short term update” daily research report which covers Nifty, Bank Nifty and stocks on rotational basis and “The Financial Waves Monthly update” that shows medium to long term perspective on Nifty, INR Pairs, Global Markets, Gold, other commodities. For subscription options visit Pricing Page

Attend the most Advanced Technical analysis training on Application of Neo wave and Time cycles with practical charts for portfolio creation, stock selection and trade setups. This training will focus on the above methods along with lot of other studies which can be combined together to produce very high conviction trade setups. Register NOW – For more details Contact US or write to us at [email protected] or call us at +91 22 28831358 / +91 9920422202