Why I like Elliott Wave
Every ten years or so I pick up Elliot Wave Principle and give it a good study. I’ve just finished it for the third time. It finally sunk in this time that such a thing as an “alternative wave count” is a good thing. I actually added “Alternative Pattern” — to the list of trading reminders I keep next to me. I always thought it silly to think that price action is predetermined. In fact it was that same point on why I parted ways with the Gann crowd – though I will occasionally drop into their rooms to see what they’re up to. And there is no doubt W.D. Gann was on to something in dividing market movement into 1/8ths. And there are not many people as entertaining as my old friend T. Henning Murrey of Murrey Math either to have a beer and talk trading stories with. There is generally something to be learned from everybody, but in choosing a trading method you are choosing a mindset, and in that, one has to be careful.
But I still keep coming back to Elliott. The most important thing to know about Elliot Wave is that it is not a method. It won’t give you set-ups and signals or help you manage a trade – so it really is something you should learn last, not first if you want to see if you have the determination and can aquire the mind-set to become a trader. And it is very subjective, which is a good word to describe trading also. I also like that Elliot dovetails with text book technical analysis – Edwards and McGee and ole John Murphy — and especially Dow Theory – still my personal favorite. The one problem with the whole Elliott thing, which is similar to the problem with your average full blown Ganner with their astrological charts, is how the followers of these studies distort the original teachings in an effort to be unique compared to other Ellioticians. That’s probably subconscious on their part – these things usually are –but when they pull out these charts that look like the web of a manic spider with letters and numbers splattered all over them like so many dead bugs they lose me. I do a daily currency report and not a day goes by where I don’t see a 5 wave pattern popping out at me — see AUDUSD Daily Chart below — yet you’d never know that from trying to look at the charts of some of these hard core EW guys.
What I like about Elliott, and Prechter after him, is that both understood that it is analysis and they are analysts. They understood that the Wave Theory can be viewed as a market overview, or framework, but it is not a specific trading tactic. Prechter I suspect understands that while he will always be an Elliotician that to the traders who subscribe to his services it is just another tool in the belt. To paraphrase Paul Tudor Jones – himself a fan of Prechter’s work…I made half my fortune on technical analysis…and the other half on fundamentals…
Jay
Jnorris@brewerinvestmentgroup.com
Jay Norris is the author of Mastering the Currency Market, McGraw-Hill, 2009 and a Trading Instructor at Trading-U.com and a Senior Market Strategist with BrewerFX in Chicago. To see details of Trading-U’s available course work go to Trading Course To schedule a complimentary, interactive tutorial with Jay on determining market direction and hear more about “Live Market Exercise” go to One on One Tutorial
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Risks include the potential that changing political/economic conditions may substantially affect the price/liquidity of a currency. Investors may lose all or more than their original investments. Any charts shown here represent market conditions at a particular point in time. Such conditions may not be replicated in the future. Past performance is not indicative of future results.