Riding The Wave: Making Elliott Wave Simple

The Elliott Wave

Introduction

The  Elliott  Wave  Principle  of  technical  analysis  has  gained  in  popularity  in  the  past  20  years.  Even though it was first proposed as a way in which to forecast market trends in the 1930s, its use among technical traders has increased in recent years as its principles become better known along  with  its  past  successes.  Until  recently,  most  of  wave  analysis  relied  on  the  skills  and  experience of Elliotticians. Every Elliottician has his own unique methods for spotting and counting  waves  and  as  a  result,  Elliotticians  don’t  always  agree  with  the  wave  count  of  one  another. Elliotticians describe wave counting as an art rather than a science. Given the labor intensive  nature  of  this  practice,  the  number  of  stocks  that  can  be  analyzed  is  small  and  the  number of missed opportunities is large.

Trading Central has developed a sophisticated yet easy to use Elliott Wave analysis solution that uses quantitative characteristics associated with the waves that appear in market data, to allow each wave to be uniquely identified. This solution scans through thousands of financial instruments across  the  world  every  day  to  identify  Elliott  Wave  events  from  the  price  data  of  respective  instruments. Researchers and investors can select a particular instrument for analysis, along with  other  technical  indicators,  oscillators  and  classic  patterns  to  get  a  complete  technical  perspective on the chosen instrument.

This  paper  discusses  the  various  challenges  faced  by  Elliotticians  and  investors  while  applying  the guidelines of Elliott Wave Theory and the solutions developed by Trading Central to address these challenges.

Elliott Wave Theory

Ralph Nelson Elliott discovered that stock prices trend and reverse in recognizable patterns and that these patterns are created by underlying crowd behavior based on the fear and enthusiasm of investors. 

ELLIOT 1

Elliott used the data from the Dow Jones Industrial Average to discover that the ever- changing path of stock market prices revealed a structural design that, in turn, reflected a basic harmony found in nature. From this discovery, he developed a rational system of stock price analysis.

He isolated thirteen patterns or “waves” of directional movement that recur in markets and are repetitive in nature, but are not necessarily repetitive in time or amplitude. He then described how these structures link together to form larger versions of the same patterns, how those in turn  are  the  building  blocks  for  patterns  of  the  next  larger  size,  and  so  on.  His  descriptions  constitute a set of empirically derived rules and guidelines for interpreting market movement...

 

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