Revision as of 20:18, 30 August 2006 editRgfolsom (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.← Previous edit | Revision as of 21:58, 30 August 2006 edit undoDavidWBrooks (talk | contribs)Administrators41,021 edits NPOV doesn't have to be quite so rah-rah - this is a theory, in the economic (not scientific) senseNext edit → | ||
Line 1: | Line 1: | ||
The '''Elliott wave |
The '''Elliott wave theory''' or wave principle is a technique that some investors say can forecast trends in the financial markets and other collective activities. It grew out of work by ], who published his "Wave Principle" monograph in 1938, presenting his observations of "waves" or patterns in the ]. In later works, Elliott published evidence that claimed to show how these patterns reflect the ]: 0, 1, 1, 2, 3, 5, 8, 13, 21, etc. | ||
The wave principle |
The wave principle 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 market. | ||
==Specifics of the theory== | ==Specifics of the theory== | ||
Line 7: | Line 7: | ||
==Criticism== | ==Criticism== | ||
Critics 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 is made against other predictive methods that are based on public, market-wide data. | |||
==References== | ==References== |
Revision as of 21:58, 30 August 2006
The Elliott wave theory or wave principle is a technique that some investors say can forecast trends in the financial markets and other collective activities. It grew out of work by Ralph Nelson Elliott, who published his "Wave Principle" monograph in 1938, presenting his observations of "waves" or patterns in the Dow Jones Industrial Average. In later works, Elliott published evidence that claimed to show how these patterns reflect the Fibonacci sequence: 0, 1, 1, 2, 3, 5, 8, 13, 21, etc.
The wave principle 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 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
Critics 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 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
- Elliott Wave Theory - ChartSchool - StockCharts.com
- CyclePro Elliott Wave Rules and Guidelines - Updated 11/1/98
- Elliott Wave International - What Is the Wave Principle?