How to trade using Elliott Waves

This post seeks to illustrate how to trade using Elliott Waves. My goal is not to give you a comprehensive answer to this question, but to show you how to deal with a move that is happening.

The Indian markets have been moving nicely higher in recent weeks, and I am getting mildly bullish. One of the stocks that has rallied sharply is ICICI Bank. So we will use that to illustrate here.

There are three charts presented. The first two charts of ICICI Bank suggest that we have finished a five wave move, and therefore a correction back to the prior fourth wave level (or a 50% pull back) is possible. The third chart offers a more positive view of the market and says hey, maybe we have just finished an extended third. Take a look.

So what is the best strategy now? Once we correct the 5 wave move off the Dec 2011 low, we should get a very fast rally. In order to capture that, we need to be positioned long at suitable levels. INitial supports lie at 844, but a 50% correction from current top comes at 768, which is almost 10% lower. Can we afford such a big downswing? Suppose we buy at 845 and look to add at 770, will that be a better idea? What should we do if it just keeps going down and the Nifty collapses? Can we afford to hold on to this investment? Where should we get out? These are questions that only you can answer as it depends on your investment horizon and risk appetite. You should also be aware that ICICI BAnk will announce its Q3 2012 earnings on 31 Jan 2012 (tomorrow) at 9.30!


  • RamV

    Thanks for the post. BTW, this the same dilemma in NIFTY and BANKNIFTY charts too…

    IMHO, This issue we will face often at the right most part of the chart… It could be ABC wave or 1-2-3-4-5 wave. We have to wait and see for it to unfold…

    In this case, I believe it is 1-2-3-4-5. If I am correct, then we completed extended wave 3. So, the wave 4 is likely to end at 23.6% of 0-3 Wave amplitude. This will be ~ at 835.

    So, my plan is have a stop loss at 830. If, I am correct, then S/L wouldn’t get hit and I can continue with my long. If I am wrong, I will get stopped out. Good for me 🙂 and I will wait on sidelines for the wave pattern to emerge.


  • manu

    sir, very confusing..
    is extended 3rd finished ?
    then 4th on or it looks a triangle?


  • pushyamitra tiwari

    whats your view on sterlite industries .
    metal sector

  • Roshan

    Just brought the book on the basis of the reviews on Amazon. The book is good and it really simplifies the Elliott wave theory.

  • S.Billa

    In this example as time moves, the wave3 may turn into extended Wave3 or may finish the cycle wave4 and wave5. My confusion is, how many bars(days) need to count in wave cycle if I’m trading bi-weekly or monthly timeframe, What are the min or max daily bars need to count in wave cycles monthly trades? Can you share your inputs please?

    • Hello Billa, Thank you for your comments. I wonder if you have read my book, because this is all covered there. You cannot be sure where an extension will end. And certainly you cannot count the bars to determine where any wave will finsih. You can anticipate a wave reaching a certain level, and then decide what to do at that point, depending on the speed with which it reached there, and what are the internal waves of the move.

  • manu

    thnx sir..

    in present case ..hw will we determine its a correctiv or a new bull market?
    if i take count from march 2009 frm nifty looks correctiv
    if i take count from jan looks correctv

    and if i take from sep 2003 it looks new bull market

    • Manu, if you keep going back in time you and see a bigger and bigger degree, you are apt to get confused. In my book I have explained that you should start your count from a nearby significant low in order to keep your perspective right. If you are a trader, then that is all you need.

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