Some Ramblings on Elliott Wave (Part 1)

A couple years back, I listened to a trader talk about Elliott Wave analysis. I found the diatribe interesting enough to save as a potential blog idea.

“Once upon a time,” he began, “I was introduced to the Elliott Wave. I thought this could be the answer although neither my research nor money found anything reliable: only subjectivity.

The ‘Elliotticians’ suggest one might look at a stock and think ‘if it is going to pull back then it would probably drop to X and if it really dropped it would probably come down to Y and it if bounces back, then it would probably come up to Z. You look at a chart and you can sort of tell what looks reasonable. Those ranges tend to be close to Fibonacci retracements.

I really thought there might be something to this analysis. The Elliotticians are very convincing and they can, of course, pull up historical charts and show you exactly how this works. They just aren’t so great at predicting future moves [something common to a lot of technical analysis ‘gurus’]. A common term, when technical analysis errs, is ‘I was early.’ This means the stock went the other direction for a while. Eventually any prediction will come true, right? Almost any, at least.

What really got me interested was a guy from Down Under with an incredible track record. The evidence was astounding: almost too good to be true. It looked like a money-printing machine. It was really expensive, though. They wanted $10,000 just to access the software. It was quite tempting.

I decided to do a bit more research brought to you by Google! I found some dirty little secrets about the founder. First, he results were actually backtesting. Shockingly, he was right every time! It was uncanny. Second, a criminal penalty was assessed to this guy for being ‘disingenuous’ about the results. He is still out touting the magic of Elliott Waves in another country under a different company name. It’s the same basic stuff, though…”