Elliott wave principle
The Elliott wave principle, or Elliott wave theory, is a form of technical analysis that helps financial traders analyze market cycles and forecast market trends by identifying extremes in investor psychology and price levels, such as highs and lows, by looking for patterns in prices.
Elliott published his theory of market behavior in the book The Wave Principle in 1938, summarized it in a series of articles in Financial World magazine in 1939, and covered it most comprehensively in his final major work Nature's Laws: The Secret of the Universe in 1946.
Elliott stated that "because man is subject to rhythmical procedure, calculations having to do with his activities can be projected far into the future with a justification and certainty heretofore unattainable".
The Elliott wave principle explains that market movements form recurring patterns of five-wave and three-wave structures, which repeat across various timeframes and exhibit fractal-like behavior.
This should produce a sideways counter-trend correction in wave 4, covering a longer distance in horizontal units, and vice versa.
Finance professor Roy Batchelor and researcher Richard Ramyar, a former director of the United Kingdom Society of Technical Analysts and formerly Global Head of Research at Lipper and Thomson Reuters Wealth Management, studied whether Fibonacci ratios appear non-randomly in the stock market, as Elliott's model predicts.
The researchers said the "idea that prices retrace to a Fibonacci ratio or round fraction of the previous trend clearly lacks any scientific rationale".
[8] Following Elliott's death in 1948, other market technicians and financial professionals continued to use the wave principle and provide forecasts to investors.
[citation needed] Hamilton Bolton, founder of The Bank Credit Analyst, espoused wave analysis to a wide readership in the 1950s and 1960s in his annual market commentaries and forecasts.
Over the course of his lifetime Frost's contributions to the field were of great significance and today the Canadian Society of Technical Analysts awards the A. J.
[citation needed] Additional notable discoveries of new rules and new wave patterns were discovered after Ralph Nelson Elliott published his original work.
[citation needed] Robert Prechter found Elliott's work while employed as a market technician at Merrill Lynch in the 1970s.
Technical analyst David Aronson wrote:[14] The Elliott wave principle, as popularly practiced, is not a legitimate theory, but a story, and a compelling one that is eloquently told by Robert Prechter.
The account is especially persuasive because EWP has the seemingly remarkable ability to fit any segment of market history down to its most minute fluctuations.
I contend this is made possible by the method's loosely defined rules and the ability to postulate a large number of nested waves of varying magnitude.
Consequently, strict application of orthodox Elliott wave concepts to current day markets skews forecasting accuracy.
