Basics of Elliott Waves By Nifty Magician

Basics of Elliott Waves By: Nifty Magician

• . Markets are efficient but 90% driven by emotions and these emotions are reflected by the Law called "Elliott waves"named after Ralph. N. Elliott who discovered it The error is not due to Elliott's wave principle but to our misuse of it. • Markets are technically strongest after a sharp decline and technically at their weakest after sharp up move and EW suggests to sell into the strength and buy into the weakness quite contrary to the crowd behaviour.

• a mere corrective wave, possibly time to buy in with both hands. • prices are rising in the fifth wave and you sell the market when there is euphoria all around

The Elliot theory: • Market moves in waves, each of which is interrelated to one another in time and price. A movement in a particular direction can be represented by "5" distinct waves of which three in the direction(called impulse wave-1, 3, 5) and two against the direction(called Corrective wave-2, 4).

• At the reversal point, the first wave is formed with a swift retracement of the last fall • Never miss the "Third wave entry"-one of the most rewarding phase

• The 5 wave patterns are impulsive waves that cause the market to trend. • The 3 wave patterns are corrective, and can be thought of as the market taking a breath so it can continue the trend. EW believes that these patterns are caused by group psychology and the interplay of fear and greed.

An impulsive wave always subdivides into five waves (1 -2 -3 -4 -5). • Wave 1 usually subdivides into an impulse or seldom into a leading diagonal • Wave 2 subidivides into a zigzag, flat or combination and sometimes single wave down wards. • Wave- Wave 2 never moves beyond the start of wave 1 (Rule-1). trading point of views we can take 80% as stoploss. • Wave 3 always moves beyond the end of wave 1 and is never the shortest (Rule-2). mostly if extnsion seen in 3 rd wave in stocks and 5 th extended in commodity. • Wave 5 subidivides into an impulse or an ending diagonal • Wave 4 subidivides into a zigzag, flat, triangle or combination, but some times time correction can aslo be there means price stable and not down with time travelled is equal to 2 nd wave. • Wave 4 never moves into the territory of wave 1 (Rule-3).

Additional rules • Wave 1, 3 or 5 is usually extended, while wave 1 is the least commonly extended wave • If wave 3 is extended, it’s common for sub wave 3 of 3 to extend as well (the same applies for wave 1 and 5). • Subwave 3 of 3 almost always has the steepest slope within the parent impulse • Wave 5 often ends when hitting a line drawn from the end of wave 1 or 3 that is parallel to a line drawn between the ends of waves 2 and 4. • Wave 5 normally ends beyond the end of wave 3, if not it’s called a truncation • If wave 2 was a sharp correction, wave 4 will almost always be a sideways correction and vice versa (Alternation. • Normally A=C and 1=5 is basic

• If wave 2 was a sharp correction, wave 4 will almost always be a sideways correction and vice versa (Alternation) • - Wave 2 is usually a zigzag or zigzag combination. • • - Wave 4 is ususally a flat, triangle or combination thereof Wave 4 usually ends within the price territory of the fourth wave of wave 3. - Wave 4 usually breaks the trendline. -4 th wave can be traded on bothside. -one thing must be clear in mind that the basic impulsive wave is going up and 4 th is corrective means halt in upmove and not the down move is on, so basic aim of ew trader is to use the 4 th wave to re-enter in longs for the 5 th wave. the entry can be made with the help on oversold indicators like rsi, macd and stoch. The 3 rd always big and sharp inpulse so maany longs liquidated for profit booking as a wave and many shorts trapped in third wave so covering can lead to up move as b wave. Both fear and greed the basic two factors are always high in 4 th wave.

Type of Wave • Impulse Trend : 1 -2 -3 -4 -5 • Counter Trend : a b c

Rule No 1 : Wave 2 will never retrace more than 100% of wave one.

Where to place stoploss : • Once long posoiton is initiated, a protective stop can be placed one tick below the origin of wave (1). • If wave two retraces more than 100% of wave one, the move can no longer be labeled wave two

Rule No 2 : Wave 4 never end in price territory of wave 1

Where to place stoploss : • The protective stop should go one tick below the extreme of wave (1). • • Something is wrong with the wave count if what you have labeled as wave four heads into the price territory of wave one.

Rule No 3 : Wave three will never be there shortest impulse wave of 1, 3, 5.

Where to place stoploss : • • • When this happens, you can consider a short position with a procective stop one tick above the point where wave (5) becomes longer then wave (3) If you have labeled price action correctly, wave 5 will not surpass wave 3 length, When wave 3 is already shorter than wave 1, it cannot also be shorter than wave 5. so if wave 5 does cover more distance in terms of price than wave 3 : Breaking Elliott’s Third cardinal rule – then it’s time to rethink your wave count

Thank and All d best Niftymagician. COM By: NIFTY MAGICIAN