Elliott Wave Theory

Wave counting needs a long, clean price history to count against. Many NEPSE shares do not have one: thin trading leaves gaps, and circuit limits truncate the swings a count depends on. The theory below is presented in full; how much of it survives contact with this market is the question the lesson ends on.

R. N. Elliott proposed in 1938 that markets move in a repeating structure driven by crowd psychology: a five-wave impulse with the trend, then a three-wave correction, at every timescale.

• Wave 1 — the first move, widely disbelieved.
• Wave 2 — a sharp pullback; many conclude the rally failed.
• Wave 3 — usually longest and strongest; the trend becomes obvious.
• Wave 4 — shallower, messier consolidation.
• Wave 5 — the final push, often on weaker breadth than wave 3.
• A, B, C — the three-wave correction that follows.

The three rules that constrain a count

1. 1Wave 2 never retraces more than all of wave 1.
2. 2Wave 3 is never the shortest of 1, 3 and 5.
3. 3Wave 4 does not overlap wave 1's price territory.