Stocks And Money Information

Elliott Wave Theory interprets market actions in terms of recurrent price structures.  Basically, Market cycles are composed of two major types of Wave: Impulse Wave and Corrective Wave.  Therefore, we can count the wave on a long-term yearly market chart as well as short-term hourly market chart.  Based on the market pattern, we can identify ' where we are' in term of wave count.  Nevertheless, as the market pattern is relatively simplistic, there are several rules for valid counts:  Wave 2 should not break below the beginning of Wave 1; Wave 3 should not be the shortest wave among Wave 1, 3 and 5; Wave 4 should not overlap with Wave 1, except for wave 1, 5, a or c of a higher degree.  All we have to do is to identify which wave form is going to unfold in order to predict future market actions, however knowledge of market historical wave patterns and experiences in wave count are of paramount importance. 

The Elliott wave principle is a form of technical analysis that attempts to forecast trends in the financial markets and other collective activities.  It is named after Ralph Nelson Elliott (1871–1948), an accountant who developed the concept in the 1930s: he proposed that market prices unfold in specific patterns, which practitioners today call Elliott waves.  Elliott published his views of market behavior in the book The Wave Principle (1938), in a series of articles in Financial World magazine in 1939, and most fully in his final major work, Nature’s Laws – The Secret of the Universe (1946).  Critics argue the theory is pseudoscience, it is not provable and is at odds with the efficient market hypothesis. 

Elliott's model says that market prices alternate between five waves and three waves at all degrees of trend, as the illustration shows.  These swings create patterns, as evidenced in the price movements of a market at every degree of trend.  In a bear market the dominant trend is downward, so the pattern is reversed—five waves down and three up.  These wave characteristics assume a bull market in equities.  Elliott Wave analysts (or "Elliotticians") hold that it is not necessary to look at a price chart to judge where a market is in its wave pattern.  When the first wave of a new bull market begins, the fundamental news is almost universally negative. 

The characteristics apply in reverse in bear markets.  In wave A of a bear market, the fundamental news is usually still positive.  Most analysts see the drop as a correction in a still-active bull market.  As prices retest the prior low, bearish sentiment quickly builds, and "the crowd" haughtily reminds all that the bear market is still deeply ensconced.  Elliott's market model relies heavily on looking at price charts.  At the end of a major bull market, bears may very well be ridiculed (recall how forecasts for a top in the stock market during 2000 were received).  Elliott wave practitioners say that just as naturally-occurring fractals often expand and grow more complex over time, the model shows that collective human psychology develops in natural patterns, via buying and selling decisions reflected in market prices: "It's as though we are somehow programmed by mathematics.  Following Elliott's death in 1948, other market technicians and financial professionals continued to use the wave principle and provide forecasts to investors.