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Figure 4-16 is an imaginary rendition of a
reasonably ideal Elliott wave, complete with parallel trend channel.
It has been created as an example of how ratios are often present
throughout the market. In it, the following eight relationships hold:
[2] = .618 x [1];
[4] = .382 x [3];
[5] = 1.618 x [1];
[5] = .618 x [0] ®
[3];
[2] = .618 x [4];
in [2], (a) = (b) = (c);
in [4], (a) = (c);
in [4], (b) = .236 x (a)
Figure 4-16
If a complete method of ratio analysis
could be successfully resolved into basic tenets, forecasting with the
Elliott Wave Principle would become more scientific. It will always
remain an exercise of probability, however, not certainty. Nature's
laws governing life and growth, though immutable, nevertheless allow
for an immense diversity of specific outcome, and the market is no
exception. All that can be said about ratio analysis at this point is
that comparing the price lengths of waves frequently confirms, often
with pinpoint accuracy, the applicability to the stock market of the
ratios found in the Fibonacci sequence. It was awe-inspiring, but no
surprise to us, for instance, that the advance from December 1974 to
July 1975 traced just over 61.8%
of the preceding 1973-74 bear slide, or that the 1976-78 market
decline traced exactly 61.8% of the preceding rise from December 1974
to September 1976. Despite the continual evidence of the importance of
the .618 ratio, however, our basic reliance must be on form,
with ratio analysis as backup or guideline to what we see in the
patterns of movement. Bolton's counsel with respect to ratio analysis
was, "Keep it simple." Research may still achieve further
progress, as ratio analysis is still in its infancy. We are hopeful
that those who labor with the problem of ratio analysis will add
worthwhile material to the Elliott approach.
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