How to Shrink Market “Maybes” Down to a Minimum
A prominent Elliott wave expert explains
by Bob Stokes
Updated: January 28, 2020
No analytical method can offer 100% clarity about the market's future.
Yet critics of technical analysis, particularly Elliott waves, say that popular technical methods fail if they don't do just that. Of course, that's unreasonable. Perhaps you've noticed that the critics don't hold other analytical methods -- not least of all fundamental analysis -- to such an impossible standard.
However, as the Wall Street classic Elliott Wave Principle explains, Elliott wave analysis does offer what other market assessment methods do not:
What the Wave Principle provides is a means of first limiting the possibilities and then ordering the relative probabilities of possible future market paths. Elliott's highly specific rules reduce the number of valid alternatives to a minimum.
Do you know of another analytical approach that does this? Elliott Wave International's analysts don't.
Even so, the Elliott wave method of analyzing and forecasting financial markets has its critics. Some of them erroneously assert that two or more wave interpretations of the market's price pattern can be equally valid.
Yet, Robert Prechter's book, Prechter's Perspective, refutes this claim:
One shouldn't confuse the fact that the practical application of the Wave Principle is an exercise in ranking probabilities with the idea that different opinions are equally valid. Two possible paths for the market are almost never equally likely. So, two opinions are almost never equally valid.... Occasionally, the less probable scenario works out, of course; that is what the word "probable" means. [emphasis added]
Determining the probabilities of a market's direction often requires patience. And it's during these times that critical voices are often loudest. But, as most experienced traders will tell you, patience has its rewards. Let's return to the book Elliott Wave Principle:
There are often times when, despite a rigorous analysis, there is no clearly preferred interpretation. At such times, you must wait until the count resolves itself. When after a while the apparent jumble gels into a clear picture, the probability that a turning point is at hand can suddenly and excitingly rise to nearly 100%.
Elliott wave practitioners know their discipline requires work. Yet that work can yield timely opportunities.
The basic Elliott wave pattern is fives waves in the direction of the main trend followed by three corrective waves, as shown by this diagram:
When initial eight-wave cycles such as the ones above end, similar cycles ensue, which are followed by other five-wave movements.
Do realize that there are a number of specific variations on the basic design of five-and-three.
You can learn all about them with free access to the digital version of the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior by Frost & Prechter.
Get started by following the link below.
Elliott Wave Principle
Elliott Wave Principle is one of the most popular market analysis books ever published. Amazon reviewers say, "Still the Classic and Essential Text for Elliott Wave Trading" and "This is the bible of the theory."
Q: What makes a good forecast even better? A: When it applies to five individual stocks instead of just one. See how this worked with our November cannabis stocks forecast.
Scotland's independence is again a hot topic in Britain, with many observers saying that a break-up of the union would be bad for the country's financial markets. For a different look at causality -- i.e., chicken vs. the egg -- watch our Head of Global Strategy show you the current Elliott wave setup in EURGBP and FTSE.
In a word, yes. A couple of decades ago, Robert Prechter plotted the number of annual births on a stock market chart and noticed a remarkable correlation. Except, it's not for the reasons you may think... Watch the Socionomics Institute's Director Matt Lampert and EWI's Robert Folsom dive into details.