1. Elliott Wave: Introduction
  2. Elliott Wave: Challenges Faced By An Expert
  3. Elliott Wave: The Best Of The Theory
  4. Elliott Wave: Shifting Into Trading Gear
  5. Elliott Wave: Solving The Probability Problem
  6. Elliott Wave: Conclusion


By Matt Blackman with Mike Green
Contact Matt

Here are some principles about Elliott Wave we discovered in this tutorial:

  • The Elliott Wave theory requires a high degree of subjectivity, which is one reason why using the theory can be so problematic - finding agreement among Elliott Wave practitioners can be rare.
  • The most basic tenet of Elliott Wave theory is that market movements are based on crowd behavior, which can be predicted. Traders, however, may often discern a market move only after it has occurred.
  • Robert Prechter, leading expert of Elliott Wave, has made some accurate forecasts using the theory, particularly in the '70s and '80s. Specifically, he forecasted the crash of 1987. But Prechter's record at the end of the twentieth century has not been so perfect: his book "At The Crest Of The Tidal Wave" (1995), calling for the end of the great bull market in 1995, was nearly five years and many Dow points premature.
  • Trading with Elliott Wave means applying a principle that is true for all trading in general: expectations must be realistic, and money management is key to profitability over the long-term; that is, losses must be kept small and profits must be allowed to accumulate.
  • One way to use Elliott Theory is to find specific parts of the theory and transform them into a workable trading system in which risk can be carefully controlled.
  • Approaching Elliott Wave may also mean putting less emphasis on the correct wave count, and more attention on determining the count that has the least penalty for being wrong. A trader can still be profitable if he or she determines the primary direction of the trend, properly differentiates between the primary and corrective waves, and uses tight stops and realistic profit targets.
  • Computer power has helped take the subjectivity out of the Elliott Wave theory. Intense statistical analysis of wave reliability has proven mathematically that the theory developed more than seventy years ago by R.N. Elliott is based on sound principles of market behavior.
  • Computer programs such as the Refined Elliott Trader, which is based on the premise that a pattern is reliable if it is confirmed in the same time period (that is, one day) over multiple date ranges - may have solved some problems associated with using Elliott Wave in trading. Using the computer program, however, still demands a thorough understanding of Elliott Wave patterns.

Related Articles
  1. Trading

    Elliott Wave In The 21st Century

    Discover new developments that help you apply this difficult theory to trading and how computer power can help reduce the guess-work.
  2. Trading

    Harness Elliot Wave principles To Tap Market Trends

    We can apply three easily understood Elliott Wave principles to a popular breakout strategy and watch how they improve market timing and profit production.
  3. Trading

    Using Elliott Wave To Trade Forex Markets

    Learn how to set up a trading plan using this method, to profit as a forex trader.
  4. Investing

    Biggest Worry for Paul Singer's Elliott Management? Inflation

    In spite of the plague of low returns, investor skepticism, and other issues pressing the hedge fund industry, Elliott execs worry most about inflation.
  5. Trading

    Trading Wave "C" In Stocks

    Stock corrections typically unfold in three major waves: A, B and C. It is highly likely B, is underway, and any slide in prices over the coming weeks is likely to trigger wave C in many stocks.
  6. Investing

    Activist Investor Discloses Big Stake in LifeLock

    Elliott Associates, an entity under the wing of big hedge fund Elliott Management, has revealed it is now a major shareholder in identity protection specialist LifeLock (NYSE: LOCK). In a regulatory ...
Frequently Asked Questions
  1. What is the difference between yield and return?

    While both terms are often used to describe the performance of an investment, yield and return are not one and the same ...
  2. What are the Differences Among a Real Estate Agent, a broker and a Realtor?

    Learn how agents, realtors, and brokers are often considered the same, but in reality, these real estate positions have different ...
  3. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ...
  4. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ...
Trading Center