#BANKNIFTY - Complete 5 - 3 Elliot Wave

What is Elliott Wave ?
Elliott Wave theory is one of the most acknowledged and widely used forms of technical analysis . RN Elliott developed the theory after analyzing nearly 75 years of stock data, and Robert Prechter later popularized it.

According to the Wave theory, the market trades in repetitive cycles, which Elliot primarily attributed to the emotions of investors (or the psychology of the masses at the time) as well as outside influences.

Why it is appealing?
The Elliot Wave theory proves that the upward and downward price swings caused by the collective psychology always reflect the same repetitive patterns.

Elliot observed that all financial markets move in a zigzag formation, which he termed Wave cycles. With this theory, Elliot was able to analyze markets in greater depth by identifying the specific characteristics of wave patterns and was able to make detailed market predictions based on these patterns.
This is what makes the Elliott Wave theory so appealing to traders as it provides them with a method to spot precise price points where the market is likely to reverse.

In simpler words, Elliott came up with a system that enables traders to catch tops and bottoms.

Basic Principals of the Theory
The Elliott Wave theory states that the market is fractal in nature i.e. it forms the same patterns that are observed on larger degree charts on smaller timeframe as well, and that it can be used to predict future price movement. The theory states that it does not depend on the timeframe one analyzes as a similar price pattern is observed across all time frames.

The theory claims that that market action among the participants produces wave patterns and trends, defined by Elliott as the physical sign of mass psychology.
The complete cycle of the Elliot Wave development consists of eight waves that make up two phases:

An impulse wave sub-divided into five waves and,
A corrective wave sub-divided into three waves

Price movement

According to the theory, price movement in the direction of the main trend is defined as the impulse or motive phase, which unfolds in five waves. Three of those waves (1, 3, and 5) move in the direction of the underlying trend, while the two intervening waves (2 and 4) act as counter-trends or minor retracements within the phase.

Wave 5’s up move is followed by a correction 3, which traders usually label as A, B, and C. The 5-3 wave pattern can be seen across all timeframes.

The corrective phase consists of two waves (A and C) that move in the opposite direction of the motive phase, and an intervening retracement wave (B) that moves in the same direction of the motive phase.

The 5-3 wave pattern establishes a complete Elliot wave cycle. The theory tends to get more complicated as more degrees of waves get added. The key to using the Elliot wave successfully lies in counting the waves correctly and identifying the wave in which the market is currently trading in.

Rules of Elliot Wave Theory

There are three main rules to the Elliot Wave theory that analysts must know. These rules apply only to the impulse phase

First rule: Wave 2 cannot retrace more than 100% of Wave 1 i.e Low of wave 2 must not touch or break wave 1's Low.
Second rule: Wave 3 cannot be the shortest among waves 1, 3, and 5
Third rule: Waves 1 and Wave 4 must not overlap i.e Wave 4's bottom must not break the high of wave 1.

There are numerous guidelines to this theory, but we will take a look at the most prominent ones. Unlike the three cardinal rules, these guidelines can be broken.
They are:
Guideline 1: When Wave 3 is the longest impulse wave, Wave 5 will approximately equal Wave 1 as shown in the figure above by highlighting about 8000pts.
Guideline 2: The forms for Wave 2 and Wave 4 will alternate. If Wave 2 is a sharp correction, then Wave 4 will be a flat correction . If Wave 2 is flat, then Wave 4 will be sharp .
Guideline 3: Sometimes, Wave 5 does not move beyond the end of Wave 3. This is known as truncation.
Guideline 4: After a 5-wave impulse advance, corrections (a-b-c) usually end in the area of prior Wave 4 low i.e may be near 30000
Guideline 5: Wave 3 tends to be very long, sharp , and extended.
Guideline 6: Waves 2 and 4 frequently bounce off Fibonacci retracement levels.


too good with simple crystal clear explanation. keep the pace!

One query, how one identifies the beginning of first wave?
+3 Reply
kiranrshinde satishmoogala

Thank you for the comment. Keep liking sharing and Supporting..

Frankly speaking i am not sure, but we can identify/ predict at the end of 2nd wave and keep a track on it.

If anyone of my followers or viewers know the above answer please do write in the commnet section so that many of us will know including me ...
Good explanation, if come across any pattern apart from BN please let us know we may need 2 or more examples before we back test overself
+1 Reply
kiranrshinde vishug1971

Ok .. i will try my best ... but not sure as my main focus is on BankNifty ... will try to search and let you know.
There was someone who commented on my post regarding bnk wave at different position, even he can help ... i think he is @natrajsinha9, he can too help, but havn't replied after that..
+1 Reply
kiranrshinde natrajsinha9

May be you are right as well, can you please share the wave that you think is correct ...
It would be a good learning for me as well and others ...
i need more people like you .. to share there inputs ...

Thank you for the comment...
kiranrshinde kiranrshinde

Can you please share/post the wave that you think is correct ...?
Even i want to learn if i am posting something wrong ...
Please Share BRO ...
natrajsinha9 kiranrshinde
@kiranrshinde, sorry for replying late..nothing fancy bro....
just redraw ur elliot waves by replacing b waves as 5th wave and extending that 5th waving till 38600..
this is my personal view...
+1 Reply
kiranrshinde natrajsinha9

Thank you for the reply...
Let us see how BnkNifty goes ..ahead
-1,3,5 & B are impulse waves & 2,4,A & C are coreection waves. Is this right?
+1 Reply
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