Question: What's the difference between Elliott wave analysis and other methods of technical analysis of the financial markets?
Answer: While most other methods are only good at identifying the direction of the current trend -- which is nothing to sneeze at! -- Elliott wave analysis ALSO helps you determine where that trend may end, when a tradable turning point could arrive, what the critical support and resistance levels are, and at what point will prices confirm or negate the analyst's forecast, i.e. letting him/her know whether she's on the right track or whether it's time to reevaluate.
In a lot of ways, it's like Bumper Bowling: those alleys with the retractable guard rails that pop up and prevent the ball from going into the gutter, all the while pushing it down the lane towards the pins.
At the most basic level, there are thirteen recognizable Elliott wave patterns. Eleven are corrective; they go against or resist the dominant trend and therefore develop in choppy, complex manners. The remaining two are motive waves: Five-wave structures that move with the dominant trend and powerfully impel the market forward (up OR down).
The most common motive wave is called an Impulse; they adhere to the following THREE hard and strict rules: Wave 4 does not end in the price territory of wave 1; wave 2 never retraces more than 100% of wave 1; and wave 3 is never the shortest among the three 1, 3, and 5.
Now that we have the basics down, let's see how EWI's chief commodity analyst Jeffrey Kennedy used the Elliott wave "guard rails" to strike a long-term opportunity in Cotton. Printed below is the price chart of cotton that Jeffrey presented in the May 2010 Monthly Futures Junctures.
As you can see, Jeffrey anticipated a third-wave decline (a motive wave) to take prices significantly lower, followed by the resumption of a rally in wave (4).
Now, flash ahead to the next chart. This close-up of cotton comes from Jeffrey Kennedy's July 28, 2010, Daily Futures Junctures.
The original path that Jeffrey outlined in the May 2010 MFJ -- for a hard slide followed by a fourth-wave advance -- has unfolded in due order. And, in the July 28 DFJ, Jeffrey presents several updated snapshots of cotton, along with in-depth commentary and live video analysis that show you where this market could be in the days and weeks ahead.