A lot has been made of the Elliot Wave principle and its application to
the stock market, particularly in light of the notariety of the theory's
devotees, like Robert Prechter, David Weis, and others.
I believe that a more fair assesment of the Elliot wave principle is
that it is a hypothesis that attempts to explain the behavior of the
larger forces in nature, ie. the growth pattern of biological organisms,
the behavior of celestial bodies, etc.
I think the great contribution made by Ralph Nelson Elliot (who, BTW,
was not the originator of the theory as I described it above, and, to
the best of my knowledge, did not claim credit for its discovery) was
that he identified mass human psychology and the behavior that resulted
therefrom as a force that was subject to the same hypothesis. Elliot
treated the behavior of the stock market as a reflection of this mass
For those who do not know about the Elliot wave principle, it states
that the mood of the masses shifts from one of relative optimism to
relative pessimism, and that these swings have a regularity that makes
them predictable. When people are relatively optimistic about the
future, they do many things, among them, purchasing stock. Conversely,
when they are pessimistic, they sell.
When you look outside the stock market itself, at social history, you
find that the Elliot wave hypothesis seems to have a great deal of
validity. What is less clear is how well it functions as a short-term
predictive tool, which is where I think many people misapply the idea.
I am not affiliated with any commercial service that promotes these
ideas, but if you are interested, I encourage you to read the works
(especially the special reports) of Robert Prechter and A.J. Frost, in
addition to R.N. Elliot. Mr. Prechter has republished a collection of
Elliot's papers in a book that should be in most major libraries.
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