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This analysis showed up on another mailing list a month or two ago. I
thought it was interesting and saved it. I am not sure about Elliot Wave
myself. Fibonacci retracements and expansions seem to work, but, I have
doubts about wave counts. That may be because they don't work or because I
am inept.
Again, I found this analysis interesting. It follows without attribution or
permission. (Don't write anything in an E-mail you wouldn't want your
mother to see is the lesson here):
Those of you who are beginning or contemplating studying EW you my find my
experience helpful.
I worked as an analyst using primarily EW for seven years. My job roughly
ten hours a day was to study EW and apply the counts to various markets.
During this period I would claim that I developed an above average to
excellent ability to apply an EW count and alternates to a market within the
rules laid out in Prechter's book.
In my opinion while these counts did sometimes produce Nostradomus-like
market 'calls', they were not useful in making trading decisions. They were
closer to a neat magic trick than a trading tool. The major problem I have
with EW is who said the original premise is valid in the first place. Mr.
Elliott made some grandiose claims and offered up an interesting theory that
makes some sense under the heading of mass behavior. This theory can not be
tested due to its subjectivity. I must choose between time frames, close
only or bar charts, continuous, Gann, or individual charts. If I am using a
bar chart, I must decide what makes a wave. Due to this subjectivity, there
is no way to test Elliott's original premise that the markets move in five
and three wave patterns. Nor is there any way to test if the patterns of
the market must fit into the 13 (I think) different possible patterns laid
out. So, basically, we have a gentleman making a claim that can not be
verified or refuted.
Certainly, some moves have ended on five waves, but they have to end on
something. And a move of more than one wave must end in an odd number by
definition. A five wave move with and extension can be five, nine,
thirteen, seventeen etc. waves. Every other odd number. Therefore, half
the moves must end in a five wave pattern. Even if EW is not valid, I am
going to be 'correct' with my five wave count 50% of the time. The method
allows moves to end on three waves with its irregulars or by the larger
pattern being A-B-C. Therefore, I can end on three or five with and
extension in any of the waves of either. That covers all the bases.
Undoubtedly, there are those who have claimed to have made money trading the
EW. I would contend that while they made money (if indeed they did), they
may not know WHY they made money. EW may only generate random entry
signals, but they may use strong exit strategies and sound money management.
By using strong exit techniques and good money management, one can take a
random entry and make handsome profits. Even if they use EW to make their
exit decisions, it is not necessarily the EW count that makes those
strategies strong. Each part of the method needs to be tested
independently, to show its effect. EW can not be tested in any way.
Therefore, we can not know if it is or is not valid.
(A good example of someone who makes a ton of money, but does not know why
is a hypothetical profitable floor trader. Let's say he makes $2 million a
year using method X. Wow, method X must be great. But the floor trader
trades 2000 contracts per day 200 days per year. He also has the floor
advantage of buying at the bid and selling at the offer. The spread is 1
tic each tic is worth $20, so he makes $10 per contract vs. the value which
is between the bid and the asked. $10*2000*200=$4,000,000. So, his edge
over the market is not in method X; it is in the b/a spread.)
Its is my opinion that a beginner should look elsewhere for a trading
method. If they are completely intent on trying EW, I would suggest that
they find a mentor who has used EW to successfully make profits in the
market not to write a book, although those are not necessarily mutually
exclusive. Furthermore, I would take a hard look at the mentor's profits to
see if they are being generated by something other than the EW counts.
A note of caution. EW does allow one to make some remarkable market
predictions whether these occur randomly or not. The method contends that
it has figured out the secrets not only of the markets but of existence.
These predictions give one a feeling of omniscience and a surge of power;
therefore, this method of trading is appealing to those with a narcissistic
personality style. This personality style is marked by extremely grandiose
statements, which Mr. Elliott certainly made about his 'discovery'. Mr
Prechter has exhibited traits of this personality style as well. The narc.
style puts a lot of its self-worth on the idea of being 'right' and may not
take opposing views or questions very well. This style is generally not
conducive to long-term (>10 years) successful trading. If you decide to try
to study under someone, do not believe the hype.
SB
>From: LPetersen1 <lpetersen1@xxxxxxxx>
>Reply-To: metastock@xxxxxxxxxxxxx
>To: metastock@xxxxxxxxxxxxx
>Subject: Re: Book on Elliot Wave Theorty
>Date: Fri, 02 Mar 2001 11:30:08 -0800
>
>Stavros
>Check your local library for Elliott Wave Principle, Frost and
>Prechter.('78-98)
>LAP
>
>
>
>Stavros Hadjichristofi wrote:
>
> > I am interested in buying a bood on Elliot wave theory? I would
>appreciate if you
> > let me know of any good book about Elliot.
> >
> > Thank you
> >
> > Stavros
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