Out of all the forms of technical analysis, Elliot wave analysis is the least understood. Also its limitations sometimes go unnoticed. Before we start on the understanding of the concept following points must be noted and kept in mind

1. Elliot wave theory must not be taken as absolute

2. Labelling the chart with precise numbers and alphabets gives a solidity to the whole analysis which if not careful, can lead to denial when the markets take a different route than analysed.

3. Trying to analyse the waves in minute waves and marking each and every minuet wave can lead to a wrong direction as we tend to lose sight of the whole picture. (For reading one minuet count wrong, can lead to the whole wave count being wrong.)

4. Elliot wave count is known to be very subjective. It is at times like interpreting shadows on a wall for followers who have half knowledge or lack of experience. (A shadow appears as a different interpretation to different people)

5. Notwithstanding the comments above, it has been my experience that markets do follow the elliot wave theory in a generalised way at times and definitive at others and is definitely one of the biggest tools for success in the stock markets.

If you have a clear strategy for trading, specially momentum stocks, this can be the greatest tool.