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Mix-Ansicht- Elliott Wave Theory - aus einem Handbuch fĂĽr Fondsmanager - SportiSteffen, 14.05.2001, 17:38
Elliott Wave Theory - aus einem Handbuch fĂĽr Fondsmanager
ELLIOTT WAVE THEORY
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Elliott Wave Theory
An empirically derived, entirely technical, list of rules and guidelines developed by Ralph Nelson Elliott to interpret, qualify, and project activity in the stock market averages. His theory, defining a complete bull and bear cycle as five waves up and three waves down, was later theorized to by highly indicative of mass psychology and human progression.
TERMINOLOGY
IMPULSE WAVE- A wave unfolding in the direction of the larger trend. A five-wave sequence.
CORRECTIVE WAVE- A wave unfolding against the direction of the larger trend. A three-wave sequence.
SIMPLE CORRECTION- A corrective wave sequence that unfolds into a three-wave pattern only.
COMPLEX CORRECTION- As an alternative to the Simple Correction, a corrective wave sequence that combines and/or distorts Simple-type corrections.
CHANNELING- Confining market moves to a pair of parallel lines.
FIBONACCI- A 13th century mathematician. known for his number sequence that progresses at a 61.8% rate.
DEGREE- The scale required to identify a particular wave structure and relate it to other wave patterns.
EXTENSION- An elongated impulse wave that can be visually sub-divided into five waves on the same scale as other normal impulse waves.
PSYCHOLOGY OF IMPULSE WAVES
Wave 1
Wave 2
Wave 3
Wave 4
Wave 5
IMPULSE WAVES: Waves unfolding in the direction of the larger trend. A five-wave sequence.
PSYCHOLOGY OF IMPULSE WAVE STRUCTURE
WAVE-1: Market- Displays technical strength, or weakness in the downtrend’s ability to sustain lower prices and generally begins forming a base.
Public- Views uptick as a bear market rally and another
opportunity to set shorts.
WAVE-2: Market- Usually corrects most of Wave-1 due to continued base-building and the public’s selling pressure, but bottoms at a higher level than where Wave-1 started.
Public- Bears have had another chance to short the market and are very comfortable because of the apparent resumption of the downtrend and the extreme bearish sentiment that usually accompanies major bottoms.
WAVE-3: Market- Extremely strong and broad advance as most bears are stopped out and the market begins. to trend well to the upside. Fundamentals improve during this stage and aid the advance.
Public- Advance accelerates as public is convinced that the bear is over which causes a surge from being short, to flat, to actively long.
WAVE-4: Market- Technical correction to the strong Wave-3 as the best part of the overall move is complete. Wave-4 sets the base for the fifth and final wave.
Public- Comes as a surprising disappointment to the ex-bears who finally assume a long position.
WAVE-5: Market- Technically less dynamic in length than popularly believed with weaknesses indicated by the market’s inability to sustain the new highs.
Public- Emotional, euphoric, and speculative rally with media hyped optimism that makes it difficult to be anything but long.
PSYCHOLOGY OF CORRECTIVE WAVES
A-WAVE
B - WAVE
C-WAVE
CORRECTIVE WAVES: Waves unfolding against the direction of the larger trend. A three-wave sequence.
PSYCHOLOGY OF CORRECTIVE WAVE STRUCTURE
Corrections never unfold in five waves, whether simple or complex, as they are fighting the trend which consists of a five wave advance. Corrections only have the strength to unfold in a three-wave affair.
A-WAVE: Market- Displays technical weakness by its inability to sustain new highs and generally begins creating a top.
Public- Views down-tick as a dip in the overall up-trend and another opportunity to buy; understandable during extremely bullish sentiment *
B-WAVE: Market- Weak test of the highs resulting from late bulls entering market, but is technically unsupported and peaks at a lower level than the start of the A-Wave.
Public- Bulls have had another opportunity to buy the market and are comfortable because of the apparent resumption of the trend and the extreme bullish sentiment that accompanies all tops.
NOTE: B-Waves of larger degree will tend to show an increase in volume relative to the preceeding bull market while those of smaller degree show a decrease in volume.
C-WAVE: Market- Technically devastating with characteristics similar to third wave rallies. Fundamentals deteriorate sharply and cause bulls to stop out of their longs.
Public- Fundamental reasons for longs during the B-Wave rally are nullified along with the mass perception that the uptrend is resuming. Destruc-tion is prevalent and the market frenzied, as traders are lost as to direction.
The characteristics of all the waves in the complete eight-wave cycle are relatively applicable to every degree (i.e. monthly, weekly, daily, hourly, and tick charts). Smaller degree wave counts are used to confirm proper wave counts of larger degree.
Two MAJOR ADVANTAGES OF THE ELLIOTT WAVE THEORY
The Elliott Wave Theory is the only technical tool available that allows for involvement in a market AT AN EXTREME in prices. This eliminates having to wait for confirmation, which usually comes at less favorable price levels and a poorer risk/reward ratio.
By definition, an OBJECTIVE STOP-LOSS order can be placed one tick beyond the extreme price which will only be executed if the wave count is incorrect. This constantly offers the trader excellent risk/reward opportunities.
SUMMARY
The Elliott Wave Principle kept as the relatively simple theory it is, is a marvelous tool that encompasses and defines many aspects of human progression. Particularly in the stock market, where the mass psychology of the world is so manifested, the five-wave up, three-wave down pattern can be utilized as a remarkable short and long term forecasting instrument.
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