Understanding the Neo Wave patterns allows users to make sense of available data. It does not rely on the regular bar chart. Instead, it uses wave charts to depict market movements.
Read on and learn more about Neo Wave trading. We’ll also discuss Neo Wave vs Elliott wave, so you can decide which is more appropriate for your needs.
What is Neo Wave Theory?
Neo Wave is a theory from Glenn Neely, a financial analyst, and author. It analyzes waves, aiming to minimize subjectivity and contradictions present in the Elliott theory. We’ll discuss the latter in the last section of this post.
It presents a newer approach to wave analysis. The theory can do a better job of predicting price movements, making it a reliable wave indicator. It has three major aspects:
- Self-defining price times and limits
More so, the three elements have a reactionary or back-casting aspect. Meaning it should not take too much or too little time. In the same way, the Neo Wave pattern must not be too simple or too complex.
Neo Wave Indicators
The best way to understand the Neo Wave indicator is to analyze how the chart looks. It entails the need to evaluate the patterns. More importantly, you must know the Neo Wave rules, including the following:
- Wave 2 must not retrace 68.1% above Wave 1
- Waves 1, 3, and 5 are directional waves, and Wave 3 cannot be the shortest among the three
- Wave 4 must not enter the Wave 1 territory
These rules are included in our Elliott Wave Indicator that concentrates on measuring Wave 4 performance and then setting up the 5th wave trade. Learn More HERE
Another thing to note about the Neo Wave indicator is that it has a 9-legged formation. Of all the wave formations, only Neo Wave considers price, time, and complexity in each leg or wave. They will be similar in almost every wave.
Neo Wave Trading Strategies
Using the Neo Wave theory for trading can be overwhelming, especially if you’re a beginner. You must be aware of the rules, so you’ll know if the patterns can qualify as a Neo Wave.
Among others, timing is one of the most important considerations. You must look at the duration of the pattern times before identifying whether the pattern is complete. If it isn’t done, you should not use it as the basis for your trading decision.
One of the fundamental beliefs of Neo wave is that a pattern that ceases too quickly or takes a lot of time is incomplete. Hence, you cannot consider it a full pattern.
Differences Between Neo Wave and Elliott Wave
Many beginners often confuse Neo Wave and Elliott wave. While there’s a close relationship between the two, note that they have varying assumptions.
Elliott Wave was named after Ralph Nelson Elliott. It measures the behavior of a group of people. When applied in the financial market, it reflects how changes in the psychology of investors affect price movements. The theory also believes that investors are acting repetitively.
One of the most common characteristics of the Elliott Wave is its subjectivity. Hence, it’s prone to bias, also making it less accurate.
In contrast, the Neo Wave is a more advanced version of the Elliott Wave. It’s more objective, scientific, and logical than the latter. The application of the Neo wave rules makes it less anticipatory.
Neo Wave has at least 15 rules for defining a specific pattern. Therefore, it can give a more accurate picture of the market. No wonder many professional traders prefer to use it over Neo Wave.
So, to sum up, the Neo wave is an expansion of the Elliott Wave. It aims to give the latter scientific backing to make it more objective and useful.