Wave counts for the Nifty.

Nirav had sent a chart for the Nifty which shows his preferred wave count.
[edited: the chart removed, comments abridged to make this easier to understand]

His up waves start from the July lows made at 3915 approx.
His comments are given below:

As shown in the chart the 3rd wave target can be as follows;
There are many possibilities which are as follows;
If 3rd wave is 100% of 1st wave i.e. 100% of 813 = 813. There for target will be 4353+813=5166.
Now, if we take 1st possibly of above mentioned. Then if we consider 4th wave is 38.2% of 1st wave i.e. 310. Then its target will be 5166-310=4856.
And after this 5th wave targets can be as follows;
If 5th wave is 61.8% of 1st wave i.e. 61.8% of 813=502. There for target will be 4856+502=5358.
If it is 100% then target will be 4856+813=5669. And so on….

Nirav wrote in an email to me:

“I regularly follows your blog and getting benefit of it.

I have tried to forecast Nifty with Elliott Wave Theory. This may or may not be possible wave. I am sending you this forecasted sheet with this mail. Kindly find the attached file and please go through it. And please let me know whether it is correct or not? ”

My Notes:

I am responding to him on the blog since I felt that the issues will be of interest to many readers.

Nirav has started his wave counts from the low made at 3915 in July. This is sensible since the more recent price movements are likely to give better forecasting results. Something that happened in July 09 is likely to be more relevant in Sept 09 as compared to a price event that took place, say, one year earlier.

Once the start of the wave counts is accepted, then the counts themselves become easy to identify, and, these have been properly selected in his chart.

Now comes the difficult part: How do you trade this?

The minimum target for the 3rd wave is 5166 while the Nifty is currently at 4965 approx.

Do you assume that you are in an ongoing wave 3 UP? If so, what is your stop?

My answer is: Yes, assume that this wave 3 is continuing. The point at which this assumption will be proved wrong is 4700 when the Nifty moves below the wave 1 high. Such wide stops are relevant to position tarders, but swing traders must identify other stops.

The big trade will come when the Nifty corrects to wave 4. Then, we can assume that another wave 5 move may come which should be a fairly large move.

Readers may like to share their ideas on how to trade this wave count, if you broadly agree with it.