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By Vadim Pokhlebkin
Even the healthiest nuts among us often overlook a vital part of staying healthy: stress management. You can live at the gym, eat straight-from-the-farm produce, avoid sugar, salt, liquor, cigarettes and anything else that’s any fun, but if you don’t clear your head regularly, eventually it will catch up with you.
To wit, a study recently cited by our friends at The Daily Reckoning finds that “a 60-year-old rich smoker has less chance of dropping dead than a 60-year-old poor non-smoker.”
Ways to reduce stress are many. But since most of the thinking we do here at Elliott Wave International is non-conventional, here’s a non-conventional way of stress management for you to consider: fractals.
Fractals are objects that are similarly shaped at different scales. The world around us is full of these self-repeating geometric configurations. A classic example Robert Prechter gives in his Conquer the Crash is that of “the line that delineates a seacoast. When viewed from space, a seacoast has certain irregularity of contour. If we were to drop to ten miles above the earth, we would see only a portion of the seacoast, but the irregularity of contour of that portion would resemble that of the whole. From a hundred feet up in a balloon, the same thing would be true.”
Many other physical objects that scientists had always presumed chaotic – such as snowflakes, clouds and mountain ranges – also consist of self-repeating patterns, it turns out. And what's very interesting, a couple of years ago a University of Oregon physics professor proved that nature’s fractal patterns – like those found in trees or clouds – have a calming effect on humans.
Psychologists have always recommended gazing at trees if one wants to calm down. Well, now we know why: Trees are arguably nature’s most abundant fractally-patterned objects, and simply looking at them “can cut our stress levels up to 60%.” (Associated Press)
The professor’s experiments show that humans clearly prefer objects that contain fractal patterns to those that don’t. It’s possible that we find fractals satisfying because similar patterns may exist in our brains. After all, we already know there are fractal patterns within a human body – such as those found in the nervous system, in “our heart rhythm and eye movements,” and possibly in “our footsteps, or even in the way we sway about when we try to recover our balance.”
The presence of fractals may even be the reason why we like some works of art and dislike others. For example, Jackson Pollock’s seemingly random, paint-dripped canvases “actually contain sophisticated fractal patterns.”
As you may know, the Elliott Wave Principle teaches that movements of the financial markets are also fractal. If you study charts of any free, liquid market, you will see that each chart consists of multiple self-repeating patterns – from tiny moves that last only a few seconds to waves that span centuries. What’s more, the Wave Principle says that the number of fractal patterns in the markets is fixed: Thirteen, and they occur over and over.
Elliott wave patterns exist for a reason: They reflect investors' collective mood, or sentiment. It rises and falls rhythmically, and price charts reveal that rhythm because investors buy when they are hopeful and sell when they are afraid. In the stock market, social mood is the filter through which all judgments are made about sales, earnings, profits, management and prospects for the future. For example, when sentiment is positive, management changes represent "a fresh start" and thus a buying opportunity. When sentiment is negative, management changes "confirm that a company is in trouble" and "investors should abandon ship before things grow worse."
The limited number of self-repeating Elliott wave patterns – thirteen – is exactly what makes markets predictable. Once you know where you are within a pattern, you know which part comes next! Of course, there is enough variability in the patterns to ensure plenty of mistakes in judgment, but pattern analysis still gives traders a great advantage – and thus a calmer mind.