What amazes you the most, a theory that most of your financial analysis and number crunching can be explained by a simple wave or the simple proof that it actually works?
An investor’s indecision is a market’s downfall. And to predict such ebbs and falls is what trade analysts aim to do. Elliot’s Neo Wave theory is a financial analytical tool that many in the market to use to forecast crowd’s investing behavior.
Concisely put, Elliot’s wave pattern consists a five crest and troughs of a “Motive wave,” three (waves: 1, 3, 5) of which follow the impulse in the crowd behavior while Two more waves (Waves: 2, 4) follow a corrective or regressive pattern.
The 2nd wave cannot retrace more than 100% of 1st wave nor can wave four be of the same domain as wave 1; rather it must be a part of somewhat progressing or higher wave.
Wave 3 should not be less priced than wave 1 and 5.
This forms the basis of 5-3 wave pattern that is simplistic in nature and which subsumes the market major and minor trends.
Often, wave predictions can grow more complex, sometimes with even 55 waves, but the pattern essentially remains the same.
Is it dynamic statistics or application in physics? Probably it’s a hybrid of both. But a revolutionizing thought nevertheless.It’s based on upon the idea that universal crowd behavior follows a definite pattern with a determined ebb and flow.
What’s more fascinating since the publication in 1930’s the theory finds its relevance even today, in the era of unprecedented.Sure, the theory had its own share of critics; it still continues to be a part of intense discussions on Market analytics.
Benefits of using Elliot’s Wave Analysis:
Its high modern-day relevance also stems seemingly absolute co-relation with another
Statistic tool that is used to predict certain trends, the Fibonacci’s sequence. Both the sequences go hand in hand, although Elliot’s wave explains in simplistic rise and fall.
Although pretty subjective in nature, The Elliot wave analysis can foresee the crescendos and crashes of the stock markets orchestrated by seemingly unpredictable crowd behavior.
This was proved by Robert Pretcher, an eminent “Elliotian” as he predicted the 1982 Dow market trends, and continues to foresee many trends.
A working model of Elliot’s wave theory can promise great results in forecasting disruptive market behaviors. Almost a must have for an analyst.
Turning to current day’s trend, while Mr. Elliot might have been deprived of the enormous benefit of present-day computers, his wave theory does enjoy its share. It also has a host of software programs that can enable you to harness the riding wave of Elliot’s. Elliot wave theory may not definitely predict all the on goings of the market, however, as it is rather subjective and depends on the analyst himself. And most beginners shy away from it, perplexed by its complexity and greater probability of failure. However, we cannot discard its validity just because of its complex. Right basics and a good eye for the market and Elliot wave magic can help with predicting.
Profit comes with its own imposter, Risk. Any economic activity cannot be bereft of it. So is the prediction based on Elliot’s wave? However, the gain of getting right might just pay off.
One can easily follow Robert Pretcher’s analysis of the Elliot Wave theory for further depth. But remember not to fall into a tussle for the expertise in it; also one needn’t be an expert to use Elliot wave analysis to his benefit. One infact needs a right program and basic knowledge to start applying the analysis.
Moreover, to trace to golden steps of success, robust risk management and realistic sight on profit loss ratio are definitely the keys.