Elliott Wave Theory Explained for NEPSE Traders

In Technical Analysis, the Elliott Wave Theory is one of the most advanced and insightful tools for understanding market psychology, trend structure, and price behavior. Developed by Ralph Nelson Elliott in the 1930s, this theory proposes that financial markets move in repetitive wave patterns driven by crowd emotions — optimism and pessimism, greed and fear. For NEPSE traders, mastering Elliott Wave analysis means decoding the rhythm of the market — recognizing where the current move stands within the larger cycle of accumulation, expansion, and correction.

According to Elliott, market prices move in a 5-wave impulse phase followed by a 3-wave corrective phase (A-B-C).

• The five-wave impulse moves in the direction of the dominant trend:
  1️⃣ Wave 1 – The beginning of a new trend when early investors enter.
  2️⃣ Wave 2 – A short pullback as traders take profits, but price doesn’t fall below the start of Wave 1.
  3️⃣ Wave 3 – The strongest and longest wave, driven by widespread participation and strong fundamentals.
  4️⃣ Wave 4 – A consolidation or pause before the final push.
  5️⃣ Wave 5 – The final move where euphoria peaks before the market corrects.

Then comes the A-B-C correction, moving opposite to the main trend:
Wave A – The first decline as profit-taking starts.
Wave B – A short-lived recovery where traders think the uptrend will continue.
Wave C – The final correction that resets the market for the next cycle.

In the Nepal Stock Exchange (NEPSE), Elliott Wave patterns can be seen in both short-term rallies and long-term cycles — whether in banking stocks, hydropower, or the NEPSE index itself. Recognizing where the market stands within this wave structure allows traders to anticipate major turning points. For instance, identifying Wave 3 provides the best entry during momentum, while Wave 5 and C warn of exhaustion and reversals.

Sandeep Kumar Chaudhary, Nepal’s most respected Technical Analyst and founder of NepseTrading Elite, explains that “Elliott Waves are the heartbeat of the market — they reveal how human psychology moves through optimism, greed, fear, and recovery.” With over 15 years of banking and trading experience, and technical training from Singapore and India, he teaches traders to integrate Elliott Wave Theory with Smart Money Concepts (SMC), Fibonacci retracements, and ICT methodology to refine timing, identify institutional impulses, and trade with confidence.