Yesterday I was checking the Nifty 50 index charts in my favorite Elliott Wave program Advanced Get. The recent studies revealed there may be an ongoing Elliott Wave 4 retracement in the Nifty index. Let me examine whether the retracement is over? Is Nifty poised for another up move soon?
What Is Elliott Wave 4 Retracement?
The Elliott wave learners already know that the market always moves in a five wave pattern. It is one wave up and the second wave down. Then again the third wave up and the fourth wave down. Finally, there is a wave 5 up move that at least goes close to the wave 3 top or even surpasses it to make a final new high. So in case of an uptrend wave 4 is always a downward correction that gives a trader an opportunity to take part in the final up move by taking a long position when the wave 4 is ending.
The Nifty Technical Scenario
In the month of March in this year Nifty made a low at 9951.90 and since then it has shown consistent up move till 11760.20. The high has been recorded on the 28th of August 2018. Since then Nifty has shown a 5-wave correction on the downside till 11250.20. I have attached an hourly graph for the Nifty 50 index to explain how the wave 4 has typically unfolded in a 5 wave pattern. Check the image below to know more.
How To Identify The Elliott Wave 4 Retracement?
Now we can see that the Advanced Get chart suggests that the Nifty 50 has completed the wave 4 correction in the daily charts. The Elliot oscillator almost touching the zero line confirms that the wave 4 correction is almost over. The profit taking index or PTI is at a value of 58 which suggests that the chance of a new wave 5 up move is very high.
The Advanced Get charts also predict wave 5 levels. The projected wave 5 level is at 12325 and the second projected level is at 13045 marks. Whether Nifty will be able to touch those levels in the coming days is a matter of speculation. However, let us see some contrarian views.
Let us see the daily Fibonacci retracement chart of nifty 50 here we can see that the up move starting from 9951 marks till 10760 marks has not yet corrected to the 38.2 percent retracement zone. The 38.2 percent Fibonacci retracement zone comes close to the 11070 marks. So a rational view is that till the wave four corrections is not over. Nifty can correct up to 11070 before going up again.
What Should Be The Trading Strategy Now?
Currently nifty is making a lower high lower low pattern which suggests that the intermediate trend is down. What should be the trading strategy now? Shall we buy Nifty now? Today’s close price is 11377.80 as on 17th September 2018.
Trading strategy number 1 can be to wait till the Nifty break the lower high lower low pattern. To enter long only if a lower high gets broken, but sometimes this strategy can give you a late entry.
Trading strategy number 2 can be to enter long in a trendline break or so. In either of the strategies do not try to buy Nifty now rather wait for the above-mentioned strategies to confirm that the Elliott wave 4 retracement is coming to an end. I am not a big master of Elliott waves. Hence, I will love to have your comments about this wave 4 correction scenario.
Indrajit is a professional blogger and trading system developer. Amibroker expert, WordPress expert, SEO expert and stock market analyst.Trading since 2002, he has started the journey of StockManiacs.net on 2008. He follows Indian and world stock markets closely.