While Elliott wave analysis is relatively objective with specific rules and
guidelines, pattern analysis does require the thought, knowledge and judgment
of the trader. Much more so than time and price analysis. Any
analyst who has studied wave patterns on charts for a length of time
knows that it ain’t over till it’s over. I don’t care how ideal the pattern
looks. Wave five can extend just when you thought it was all over. That
ideal ABC correction can all of a sudden go haywire and twist and turn for
days, weeks, even months.
When we begin to expect a market to continually unfold in an ideal
Elliott wave pattern is when we have lost track of the practical value of
Elliott wave analysis. The purpose of Elliott wave analysis is not to
identify and label every twist and turn in any particular market, all of the
time.
Elliott Wave Analysis Objective:
The objective of Elliott wave analysis for traders and investors
is to identify specific set-ups based on pattern that have a high
probability outcome and a specific market activity that will
invalidate the anticipated outcome!
If you demand more of Elliott wave analysis than this, take out your
checkbook and keep it out. You will have a very costly experience!
This chapter has described the patterns found in markets that are the
most consistently reliable in identifying the market position and the most
probable outcome from the current position. I have also described what are
the most consistently reliable price relations between the various waves
that allow us to project the price zones with the greatest probability of
support and resistance and pattern termination.
How often will we be able to place the position of the market within
the context of Elliott wave patterns as has been described here? About
50% of the time!
The major failure of analysts who primarily rely on Elliott wave to
make trading recommendations or forecasts is their attempt to put all
market activity, in all markets, all of the time within the context of
Elliott’s wave patterns. When this is attempted, the wave counts frequently
become an outrageous exercise in hallucinogenic imagination with X
waves all over the place, waves related to each other that are no way in
any symmetrical relationship within the pattern and, generally, forced
wave counts that don’t relate to the concepts of Elliott’s Wave Principle
by any stretch of the imagination. Successful traders are rarely guilty of
these imaginary, forced counts, as they do not lead to profitable trading
decisions. They only feed the ego of the analyst. Traders and investors
must deal with the reality of market activity, not dreams and illusions.
The trader who wishes to incorporate Elliott wave pattern analysis into
his or her trading plan must recognize and admit to him or herself when
the market pattern does not fit into one of the relatively simple impulse or
corrective patterns. When this is the case and the time and price analysis
does not provide sufficient information to make a trading decision, that
market must be ignored as a tradable market until the position does
become clear!
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