Elliottwave International Robert Prechter November 04, 2009 CNBC Bear Market Call Interview
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The Wave Principle is a detailed description of how groups of people behave. It reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific and measurable patterns. One of the easiest places to see this phenomenon at work is in the financial markets, where changing investor psychology is recorded in the form of price movements. If you can identify repeating patterns in prices, and figure out where in those repeating patterns we are today, then you can predict where we are going in the future. The
Elliott Wave Principle is named for its discoverer, Ralph Nelson Elliott. Mr. Elliott completed the bulk of his work on the Principle in the 1930s and 1940s.
• What does the Elliott Wave Principle Measure?
Elliott wave analysis
measures investor psychology, which is the real engine behind markets. When people are optimistic about the future of a given issue, they bid the price up. Two observations will help you grasp this: First, for hundreds of years, investors have noticed that events external to the market seem to have no consistent effect on the market's progress. The same news that today seems to drive the market up is just as likely to drive it down tomorrow. The only reasonable conclusion is that the markets simply do not react consistently to outside events. Second, when you study historical charts, you see that the markets continuously unfold in waves.
• How will the Elliott Wave Principle
help me invest?
Using Elliott waves is an
exercise in probability. An Elliottician is someone who is able to identify the market structure and anticipate the most likely next move based on our position within the structure. By knowing the wave patterns, you'll know what the market is likely to do next and (sometimes most importantly) what it will not do next. By using the Wave Principle, you can be sure of the highest probable moves with the least risk.
• What does a Elliott Wave look like?
In markets, progress ultimately takes the form of
five waves of a specific structure. Waves (1), (3) and (5) actually affect the directional movement. Waves (2) and (4) are countertrend interruptions. The two interruptions are apparently a requisite for overall directional movement to occur.
The stock market is always somewhere in the basic
five-wave pattern at the largest degree of trend. Because the five-wave pattern is the overriding form of market progress, all other patterns are subsumed by it.
• What time frames does the Elliott Wave
Principle work for?
The Wave Principle may be applied in all time frames.
Waves come in degrees, the smaller being the building blocks for the larger. Waves link together to form larger versions of themselves, and they also link together to form the same patterns at the next larger size, and so on. The figure above shows how waves may be subdivided to establish different degrees of trend.
Some of the largest wave patterns span hundreds of years, while some of the smallest span a few hours. Therefore, the Elliott Wave Principle is useful for
forecasting market movements in all time frames.
• How can I apply the Elliott Wave Principle?
The practical goal of any
analytical method is to identify market lows suitable for buying (or covering shorts), and market highs suitable for selling (or selling short). The Elliott Wave Principle is especially well suited to these functions. Nevertheless, the Wave Principle does not provide certainty about any one market outcome; rather, it provides an objective means of assessing the relative probabilities of possible future paths for the market.
• How can Elliott Wave International help me?
Elliott Wave International (EWI) is one of the world's largest providers of
market research and technical analysis. Our staff of full-time analysts provides global market analysis via electronic on-line services to institutional investors 24 hours a day. EWI also provides educational services that include periodic conferences, intensive workshops, video tapes, special reports and books. EWI offers coverage for U.S., international, and futures markets for almost every time frame. Our publications are packed with labeled charts and expert analysis. We are also dedicated to educating people about the Wave Principle. Our educational products are wonderful tools that will help you learn Elliott Wave Theory and apply it in your investments.
• Which subscription is right for me?
We have newsletters for U.S. markets, global markets and futures markets. Each service is designed to advise investors of the current wave patterns to maximize opportunity and minimize risk. The
newsletters give clear charts with expert analysis on each market. Click here to find out which product is right for you.
• What if I need to learn more before I subscribe?
If you are not ready to subscribe but still want to learn more about the Wave Principle and EWI, join Club EWI for FREE.
Club EWI is the world's largest Elliott wave community. Membership privileges include access to original Elliott wave analysis and articles; including
market forecasts and discussion of socionomic theory. Our Club EWI Enews bulletin will alert you when we post new articles, analysis, or special offers. Again, Club EWI is FREE and you may opt-out whenever you wish. Click here to join. Our educational products are also wonderful tools for learning Elliott wave theory. We've listed some great products for Elliott beginners below.
• What to Expect from Elliott Wave Market Forecasting
We won't say we've been right the whole way - no
market timing method can be 100% accurate all the time. But now that the greatest stock market decline since 1929 has begun, we feel comfortable demonstrating how Elliott wave analysis has allowed our subscribers to time this decline with startling accuracy. What next? You don't need a professional staff of market timers to tell you that we now stand at a very critical moment in the history of the stock market. You do, however, need a professional staff of market timers to know where the markets are headed next, how to protect your investments from dangerous sectors - and where your big opportunities lie. Luckily, you can get this level of market-timing from a staff of analysts that the Timer Digest placed in their "Top 5" timers for 2002 and for less than $2 a day. More details on the right.
• Putting Elliott Wave to Work in the Markets
For many investors who are new to the Wave Principle, successfully applying wave analysis to real-world market situations can sometimes prove difficult. So what better way to learn how to reap the most from its practical applications, than a conversation with the man who wrote the book on it,
Robert Prechter. Here's an excerpt from one of his most popular titles, Prechter's Perspective, that provides an in-depth commentary on this subject.
Financial Markets Risk Warning
Trading the financial markets such as the stock market,
stock options, commodities, futures, and forex foreign
exchange on margin, carries a high level of risk,
and may not be suitable for all investors speculators
and traders. Before deciding to trade any financial
market, investors should carefully consider their
degree of knowledge, monetary goals objectives, trading
plan preparations, money mananagement, position sizing,
and risk tolerance. The possibility exists that investors
could sustain a loss of some or all of their deposited
funds, and therefore investors should not speculate
with capital that they cannot afford to lose. Investors
should be aware of all the risks associated with financial
market trading, especially leveraged margin trading,
and seek advice from an independent financial advisor
if they have any doubts. Past returns are not indicative
of future results. For more information contact the NFA - National Futures Association
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