Too often we do the opposite of what we intend. Maybe you meant to finish your holiday shopping early in December, but find yourself in a last-minute scramble to check items off your list. Or perhaps you've already signed up for a new gym membership in January -- but will you go?
Once you become an investor, psychological factors make it famously difficult to buy low and sell high. So how does one develop habits that help avoid painful trading mistakes?
Successful market timing depends upon learning the patterns of crowd behavior. Anticipate the crowd, and you can avoid becoming a part of it. The Wave Principle is not primarily a forecasting tool; it is a detailed description of how markets behave. The progression of mass emotions from pessimism to optimism and back again tends to follow a similar path each time around.
This excerpt from Robert Prechter's book, The Wave Principle of Human Social Behavior, begins to describe how Elliott Wave patterns reverse the traditional thinking process relating markets and events:
While knowledge of current events and extramarket conditions has almost no value in predicting the stock market, knowledge about the position of the market can help predict changes in outside conditions.
The Wave Principle provides a basis for speculating upon upcoming changes in market trends and therefore the events that result from the social psychology that the trend changes represent. This ability provides an opportunity to prepare for the coming character of events, and sometimes even actual events, before they are realized.
It is worth knowing, for instance, that banks were closed by government decree in 1933 shortly after the low of Supercycle wave (IV) and that most of the banks in the country closed in 1857 as well, at the end of Supercycle wave (II). It is unlikely, therefore, that with regard to bank health, the next bear market of Supercycle or larger degree will fail to produce similar results.
Most analysts work the other way around. For example, they wait until they have observed widespread bank failures and then declare their bearish meaning for the stock market, which is precisely the opposite of their true implication. With the Wave Principle, we have a tool that allows us to use the pattern of social mood objectively and properly rather than let it bend us to its design.
This year, learn more about how to use objective, independent wave analysis that will keep you ahead of the herd in 2012. The Paradigm Shift Collection -- our new three-book package -- explains how the Wave Principle and socionomics work, with countless concrete examples that will challenge your worldview.