Elliott Wave Principle

By: Bret Freak
The chances are, you have probably heard of the Elliott Wave Principle, however without spending some time to carefully study this market timing technique, it can be a difficult principle to understand and apply. The Elliott Wave concept is a very interesting method of identifying cycles in the financial markets. Keeping in mind that it is not yet fully understood exactly why it works, this hasn’t stopped traders around the world from applying and profiting from this unique principle.

The Elliott wave principle or wave principle as some refer to it is a form of market timing that traders and investors use to forecast possible trends in the financial markets. Ralph Nelson Elliott developed a financial market model which he called The Wave Principle. Ralph published his views and ideas of how the market behaved in his book titled: The Wave Principle (1938). Elliott suggested that market movements unfold in specific patterns which he called waves. Today practitioners and traders refer to this principle as the Elliott Wave.

The best place to learn about the Elliott wave principle absolutely *FREE* is the Elliott Wave International website. I also suggest you get the Elliott Wave Principle book by Frost and Prechter, it only costs $29.00 USD plus shipping if you get it from Elliott Wave International, which is a small investment compared to what the Elliott Wave Principle is capable of achieving when used correctly.

To give you an idea as to what to expect from the book, here are some quotes from the Elliott Wave Principle Key to Market Behavior by A.J. Frost and Robert R. Jr. Prechter

“In this book, we have tried to produce a work that gives a complete treatment of the subject in a manner which we hope will succeed in introducing both experienced analysts and interested laymen to the fascinating field of Elliott. We trust our readers will be encouraged to do their own research by keeping a chart of hourly fluctuations of the Dow until they can say with enthusiasm, “I see it!” Once you grasp the Wave Principle, you will have at your command a new and fascinating approach to market analysis, and even beyond that, a mathematical philosophy that can be applied in other spheres of life. It will not be the answer to all your problems, but it will give you perspective and at the same time enable you to appreciate the strange psychology of human behavior, especially market behavior. Elliott’s concepts reflect a principle you can readily prove to yourself and evermore see the stock market in a new light.”

“In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. The patterns he discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated five such patterns, or “waves,” that recur in market price data. He named, defined and illustrated these patterns and their variations. He then described how they link together to form larger versions of themselves how they in turn link to form the same patterns of the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle.”

And further on down the page it goes on to say:

“The primary value of the Wave Principle is that it provides a context for market analysis.”

And:

“At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable.”

(Quotes taken from the Elliott Wave Principle Key to Market Behavior by A.J. Frost and Robert R. Jr. Prechter)

Conclusion

The Elliott Wave Principle is definitely a viable method of market timing. However as stated in the Elliott Wave Principle book, it should be used “In context” with your other technical tools. So consider the added accuracy and profitability that can be added to your own trading system with the help of the Elliott Wave Principle.