Back in the 1930’s a gent by the name of Ralph Nelson Eliott developed a theory to technically analyze the market called the Elliott Wave Principle. If you’ve never been exposed to the idea, it’s pretty interesting and can (if you believe it) be applied to any market any where. In fact, people apply it to other economic and cultural trends as well. Womens’ hemlines. Economic production. Almost anything can be looked at from the Wave Principle perspective.
According to Eliott, it all begins and ends with waves. In fancy terms, they say the market is an iterated, hierarchical fractal, which means there is a wave structure that appears at all degrees of a trend. Doesn’t matter whether you look at a daily, weekly, monthly, or yearly chart. The patterns will look the same. Smaller patterns add together to create larger patterns with the same basic shape.
Why does the market react in waves?
The theory says that fractals are evident in nature and reflect themselves in human emotional states also. When humans interact they share emotional states. This is called social mood. We fluctuate through stages of extreme pessimism to optimism and back again. The prevailing social mood then shows up in places like the New York Stock Exchange as buying and selling.
Is Elliott Wave Theory legit? Many people have sworn by the concepts for many years. If you want to learn more, there is plenty of information freely available on the internet. Never hurts to learn something new, right?
