Elliott Wave Theory – The Myth and Reality

Elliot wave theory enjoys large popularity – being referred to as advanced technical analysis, by many brokers and web publishers. elliott wave theory

Elliot wave theory has a huge and focused following – shame the theory has no most basic of sound logic that can help you make money!

Let’s look at Elliott wave theory in more detail and then look at sensible market analysis.

The theory was given its name Rob Nelson Elliott, who deducted in his book “natures law” that the movements of financial markets could be predicted by watching, and identifying a repeated pattern of waves. 

Elliott’s Profound Observation

Elliott emerged to the stunning realization that every natural phenomena are cyclical – and this includes the finance market segments. This is true, but we know that anyways – we know that at some time inside our lives, we will feel rain when we opportunity outside, fit when exactly?

So, markets are cyclical – big-deal! What we want from a great investment theory, is the probability of the event – i. e. when is it most likely to happen.

Elliott say theory is an purposeful investment theory – but there isn’t any objectivity in it at all!

It’s all a very subjective interpretation of peaks and troughs, in different time body you like!

Does this sound a logical predictive theory to you personally?

The Theory

Based on rhythms seen in nature, the theory advises that the industry moves up in a series of five waves and down in a number of three surf.

The difference between Elliott wave principle and other cyclical theories would be that the theory suggests no absolute time requirements for a pattern to complete – well that’s a lot needed!

The subjectivity is so excellent in Elliott say, that like most concepts, everything is explainable in hindsight – but the difficulty is actually forecasting the future.

There are so many interpretations of the actual peaks and troughs in various time frames, that everyone will see them differently, this is hardly the base of a predictive theory.

Elliott wave theory says in order to predict the market – but gives no objective way of doing it in practice.

Who have uses Elliott Wave Theory?

1. Investors who want a fairly easy way to make money, and are captivated to the mysticism of such tools as the Fibonacci number sequence, to predict market retracements.

2. Investors who have confidence in the false assumption that you can predict market tendencies in advance – and want a fairly easy way to make money.

How Market segments Really Move

Market prices are a reflection of the following:

Supply and demand fundamentals + human being psychology = price action

This looks simple, but is in reality, complicated equation – which is impossible to predict in advance.

Trading markets via technical analysis is centered on placing the odds and likelihood in your favor, and no more than that. It is not necessarily a way of predicting the future.