Elliot Wave Theory
By Bruce Mushial
There are many methods
of interpreting and purportedly predicting future market moves.
If youve been in the markets for very long youve
certainly heard of the granddaddy of them all and thats
the Elliot Wave Theory. Named for its developer Ralph N. Elliot
who lived in the first half of the 20th century. Elliot stated
in his own book Natures Law- The Secret of the Universe,
Practically
all developments which result from (human) socio-economic
processes follow a law that causes them to repeat themselves
in similar and constantly recurring serials (sic) of waves
or impulses of definite number and pattern.. Elliot
believed that stock market movements unfold in a series of
rhythmic patterns, which are based on a natural progression
of shifts in mass investor psychology.
Elliot believed there were various
types of wave patterns and labeled them. The two basic types
of waves were 1) impulse waves that move in the direction
of the main trend of the market and consisted of 5 smaller
waves; and 2) corrective waves that move counter to the markets
trend, and consisted of 3 smaller wave formations. By counting
and labeling the wave patterns, Elliot Wave followers should
in theory be able to determine the direction and scope of
future market trends. Wave counts can be deeply nested one
within another. Elliot Wave pundits can sometimes count the
waves differently and sometimes end up with different forecasts
despite using the same basic theory. You have to give credit
to some followers in that they fairly accurately predicted
the Dow being at 10,000 almost 10 years prior to it occurring,
and their prediction was made at a time when the Dow was only
at 1,000. Elliot Wave novices have an almost endless collection
of books and services to wade through to try to sharpen their
skills. One of the most popular books is: Elliot Wave Principal:
Key to Market Behavior by Robert R. Precter Jr. and A. J.
Frost. The book is in its 20th printing and ranked 15,222
by sales at Amazon.com out of the nearly 1 million books the
offer.
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