Everything to Know About Neo-Wave Theory

In this article, we will discuss

What Is the Neo-Wave Theory?

In the early 1930s, R.N. Elliot came up with the Elliott Wave that highlighted how the stock market never moves in a random way. As per his discovery, the stock market always moves systematically following the Fibonacci numbers and other natural laws. However, later Glenn Neely discovered the Neo Wave Theory, which is a one-step upgrade of the Elliot wave.

If you are a seasoned trader or a novice, analysing the stock market trend and wave is important. Hence in this article, we will discuss all the aspects related to Neo Wave Theory to give you a clear understanding of the concept.

History of Neo-Wave Theory

To understand what the Neo Wave Theory is, you need to have a detailed understanding of how it was formed and the aspects related to the same. But first, you need to know about Elliott Wave Theory.

So, Ralph Nelson Elliot in his wave theory explained how simply one can measure the behaviour of groups of people. The best place to observe this behaviour is in the financial markets, where investor psychology and price movements are closely associated. 

By studying price movements, one can observe certain up and down patterns (waves) that reflect changing sentiments. The theory identified two distinct types of waves: 

  • Corrective 
  • Impulsive

The patterns are subjective and often a part of larger patterns that form over some time. While understanding the impulsive wave, an individual needs to follow three distinct rules, which are:

  • Wave 2 must never retract completely from Wave 1.
  • Wave 2 cannot ever be shorter than directional Waves 1, 3 and 5.
  • Wave 4 must never enter the territory of Wave 1.

You must note that these principles are followed as per the price movement and can be considered normal impulse waves.

However, this comes with limitations. Since the structure of the stock market is highly complex, there is always a possibility of the movement being counted in different ways. In various scenarios, it might result in subjective observations and also the overall purpose of wave theory cannot be applied. To overcome such limitations, the Neo Wave Theory was created. 

Understanding the Neo Wave Pattern

The Neo Wave Theory is an extension of the Elliott Wave Theory aimed at correcting the contradictions created by the latter theory. It comprises different rules defining simple impulse patterns of the stock market waves. Some key rules are as follows: 

  • Wave 2 can never retrace more than 61.8% of Wave 1.
  • Wave 4 must never enter the territory of Wave 2.
  • One of the directional waves must always subdivide.
  • Wave 3 can never be the shortest of directional Waves 1,3 and 5.
  • There must always be one extended wave that will be 1.618% of the non-extended wave. In case there is no extension in certain scenarios, the pattern will be considered corrective.
  • Out of all 6 points, more than 4 points must never lie on the channel.
  • Corrective waves always need to consume more time than any of the preceding impulsive waves.

Moreover, some major newly developed patterns under the Noe Wave Theory are:

  • Neutral Triangle
  • 3rd Extended Terminal with 5th Failure
  • Diametric Pattern
  • Extracting Triangle

Difference Between Neo Wave Theory and Elliott Wave

Both Neo Wave Theory and Elliott Wave Theory are technical analysis methodologies used in financial markets, namely in projecting price movements of assets such as stocks, currencies, and commodities. Even if both theories are similar, there is a clear difference between the two that you must be aware of. 

Neo Wave vs Elliott Wave is explained in detail below.

  • The intricacy of wave formations is one noticeable distinction. Elliott Wave Theory simplifies market movements into simple five-wave patterns, but Neo Wave incorporates more subtle sub-wave structures within each wave, resulting in a more extensive and nuanced analysis.
  • Another point for Elliott Wave vs Neo Wave is the adaptability of wave interpretation. Neo Wave allows for more subjective analysis, allowing traders to adjust the wave count based on market conditions. Elliott Wave Theory, on the other hand, sticks more tightly to preset criteria, which may result in less adaptive analysis.

While both theories seek to identify market trends and reversals, the implementation of the Neo Wave pattern necessitates more in-depth comprehension, making it more difficult for beginners. Elliott Wave Theory, with its simpler methodology, may be more approachable to people new to technical analysis.


As a trader, you must always have a clear idea of the stock market trading waves as explained simply and in detail under Neo Wave Theory. Moreover, if you are a new investor, we suggest you use the "New Gen Samco app" to easily track the stock market wave to make informed decisions regarding investments.

Frequently Asked Questions

  • What are the core elements of Neo Wave Theory?

The core elements of Neo Wave theory are as follows- self-defining price or time limits, logic and self-confirmation

  • What are the core elements of the Elliott Wave?

The core elements required to identify an Elliott Wave are as follows: pattern recognition, Fibonacci number series and the Golden Ratio (0.618).

  • Is Neo Wave Theory a better forecasting system?

As the Neo Wave pattern is a step-by-step application process, it has helped in revolutionising Elliott Wave significantly. Hence Neo Wave Theory has now become an accurate and comprehensive market analysing system along with becoming a better forecasting system.

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