Monday, November 16, 2009

Elliott and Me

I first starting learning and trying to apply Elliott wave theory back in 1966. I became quite expert in its application and often discussed it in my forecasting letter, The Cyclic Forecast, back in 1977-83.

But while I think Elliott is a beautiful theory, and often can give insight into the market's position in longer time frames, I think it is a distraction for short term traders. Here is the problem. To be successful as a trader you have to tune in to the market's message about the current supply-demand balance. By this I mean that you have to be able to use the market's action to judge whether longer time frame traders have above-normal long positions (trend up) or below-normal long positions (trend down).

How is this information conveyed? By the progression of trading ranges and by the direction of unusually long, uncorrected moves in prices. Everything else is simply an attempt to interpret the market's message in artificial ways. I think most computerized technical indicators are among these "artificial ways". Elliott wave theory is also in this category as are cycle theories, astrology, etc.

The problem with using Elliott, technical indicators, etc. is that they at best distract you from the market's supply-demand message, and at worst deceive you about this message.

There were very successful traders before computers, before Elliott, before almost all currently popular approaches were invented. Ask yourself this. On what did these traders base their market insights?

So I say look for what has stood the test of time, for methods that don't obscure the market's action with a lot of complicated formulas and rules. This is what you need to know and apply in order to interpret the messages markets are sending you.


Wags94596 said...

Carl - I couldn't have said it any better msyelf! AGREED 100%

Tigger22 said...

Carl, well said. I think there seems to be a bubble in Elliot wave theorists these days.

Joe said...

It has been a long time since you touched on George Lindsay's methods applied to current market. I would appreciate if you could share your thoughts on GL's three peaks theory applied to markets on IT and LT.

Thanks for the good work you do.

jeff said...


Thanks for the Elliott feedback. I think what is important for folks to understand is what is one's time horizon. If it's very short like yours, perhaps Elliott Wave theory is not best suited. If the normal investor is looking for intermediate term trends, I think Elliott Wave theory is a wonderful applicable that everyone should have in their trading arsenal.

That being said, I don't have an hourly trading approach, but nonetheness, appreciate your basic elementary 60 and 30 minute channel charts for daily trading practices.

BigBoys said...

Anybody who has an answer to my question please response. Where and how could we measure and interpret the current supply-demand balance?

Wags94596 said...

Supply-demand balance of what?
Please be specific.

Kishore said...

Carl, your message is explained extremely well and your methods work beautifully in a trending market, as the market goes through a progression of ranges.

But the big problem is the fear of a trend reversal. I guess we could just rely on our stops for getting caught against a change of trend.

Meanwhile, we can sit back, relax and enjoy the trend.

If I may ask you a personal question, why is that you are only buying breakouts and not the dips and why do you not hold your long positions for a complete playout of the trend?

BigBoys said...

Carl said "To be successful as a trader you have to tune in to the market's message about the current supply-demand balance" I was wondering where and how could we measure and interpret the current supply-demand balance?

janet said...

Excellent analysis....reminds me of the adage "keep it simple stupid"...thanks Carl

Market Karma said...

BB, try point and figure charts to help decipher supply-demand. MK