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Revision as of 20:22, 26 August 2006 editAlextangent (talk | contribs)262 edits →See also: dead cat bounce← Previous edit Revision as of 20:18, 30 August 2006 edit undoRgfolsom (talk | contribs)929 edits Removed and/or rewrote extraneous or mistaken phrases. Also brought the article closer to a NPOV, and toward clearer descriptions of the wave principle. Added a useful link.Next edit →
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The '''Elliott wave theory''' is the basis of a ] technique for predicting the behavior and ] in the stock market, invented by ] in ]. It is based on the belief that markets exhibit well-defined wave patterns that can be used to predict market direction: specifically that stock prices are governed by cycles which adhere to the ] 0, 1, 1, 2, 3, 5, 8, 13, 21, etc. The '''Elliott wave principle (wave principle)''' is a form of ] that some investors use to forecast trends in the financial markets and other collective human activities. ] published his "Wave Principle" monograph in 1938, which presented his observations of well-defined "waves" or patterns in the ]. In later works Elliott published evidence that these patterns reflect the ]: 0, 1, 1, 2, 3, 5, 8, 13, 21, etc.


The wave principle describes how financial markets behave. This description begins with the premise that collective investor psychology (or ]) moves from optimism to pessimism and back again; these swings create patterns, as evidenced in the price movements of a given market.
It claims that the stock market, acting as a meter for ] or ], displays many of the same geometric features as other organic structures. Proponents of the Elliott wave theory claim that the pattern is exhibited repeatedly in past market price patterns, and that the fractal nature of such patterns creates a repetition of them on varying levels of order and magnitude.

⚫ ==Specifics of the theory==
⚫ According to the wave principle, markets move in five waves up and three waves down. As these waves develop, the larger price patterns unfold in a self-similar fractal geometry. Within the dominant trend, waves 1, 3, and 5 are called "impulse" waves, and each impulse wave itself subdivides in five waves. Waves 2 and 4 are "corrective" waves, and subdivide in three waves. In a bear market the dominant trend is downward, so the pattern is reversed -- five waves down and three up.
==Criticism== ==Criticism==
The theory is far from universally accepted. Critics deride it as being too vague to be useful, since there is not always a clear definition of when a wave starts or ends, and prone to subjective revision. Some critics have gone so far as to call it a borderline fraud, useful only for selling information to naive investors. The wave principle has its critics. They claim it is too vague to be useful since it cannot always identify when a wave begins or ends, and that Elliott wave forecasts are prone to subjective revision. Skeptics also say that if the theory is true, widespread knowledge of it among investors would lead to distortions of the very patterns they were trying to anticipate, rendering the method useless. This same argument can be (and is) made against other predictive methods that are based on public, market-wide data.

One major complaint is that if the theory is true, widespread knowledge of its patterns would lead so many investors to "bet" with it that the patterns would be altered, rendering it useless. This is a criticism that can be, and is, levelled against any predictive method based on public, market-wide data. The ] states that no such method can yield positive average profits.

⚫ == Specifics of the theory ==
⚫ According to the Elliott wave theory, markets move in a predetermined number of waves up and down. Specifically, markets move in five waves up and three waves down and price charts have a self-similar fractal geometry. This is true for bull markets. Waves 1, 3, and 5 are called impulse waves, and subdivide 1, 2, 3, 4, 5. Waves 2 and 4 are corrective waves, and subdivide a, b, c. In a bear market, the pattern is reversed, five waves down and three up.


==References== ==References==
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Revision as of 20:18, 30 August 2006

The Elliott wave principle (wave principle) is a form of technical analysis that some investors use to forecast trends in the financial markets and other collective human activities. Ralph Nelson Elliott published his "Wave Principle" monograph in 1938, which presented his observations of well-defined "waves" or patterns in the Dow Jones Industrial Average. In later works Elliott published evidence that these patterns reflect the Fibonacci sequence: 0, 1, 1, 2, 3, 5, 8, 13, 21, etc.

The wave principle describes how financial markets behave. This description begins with the premise that collective investor psychology (or crowd psychology) moves from optimism to pessimism and back again; these swings create patterns, as evidenced in the price movements of a given market.

Specifics of the theory

According to the wave principle, markets move in five waves up and three waves down. As these waves develop, the larger price patterns unfold in a self-similar fractal geometry. Within the dominant trend, waves 1, 3, and 5 are called "impulse" waves, and each impulse wave itself subdivides in five waves. Waves 2 and 4 are "corrective" waves, and subdivide in three waves. In a bear market the dominant trend is downward, so the pattern is reversed -- five waves down and three up.

Criticism

The wave principle has its critics. They claim it is too vague to be useful since it cannot always identify when a wave begins or ends, and that Elliott wave forecasts are prone to subjective revision. Skeptics also say that if the theory is true, widespread knowledge of it among investors would lead to distortions of the very patterns they were trying to anticipate, rendering the method useless. This same argument can be (and is) made against other predictive methods that are based on public, market-wide data.

References

"The Elliott Wave Principle" by Frost & Prechter. Published by New Classics Library P.O. Box 1618 Gainsville Georgia 30503.

See also

External links

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