I have read the Frost and Prechter book on Elliott Waves and have also visited elliottwave.com to learn as much as I can about it. It seems that many people swear by this system as means of forcasting markets. Reading the old version of the book and then the updated version online, I noticed that they added new terms and new wave sequences.
It seems to me that because of the complixity of their system one can easily use their immagination to apply the wave system to any graph. It also seems conveniant that irregular patturns can simply be explained by: zigzags, multiple strings of a b c's, elongations etc.
Can anyone tell me of their experience with Elliot Waves? Is it useful as far as short term technical trading? Am I the only one who thinks that there are too many rules and exceptions to make it an effective trading strategy?
Thanks
Brian,
I studied EWA some years ago both under Robert Miner and Robert Prechter and like many others I attempted to trade it, following the great gurus and their counts. Great gurus tend to have great egos and they tend to be overly dogmatic with their EW counts in the report services they provide. This can be extremely detramental to an inexperienced trader who is thinking along the lines that "experts" must know best what they are advocating and forecasting. On a general note, market forecasters are a pain in the ass for traders (and often for investors for that matter). I know traders who lost fortunes following Prechter and Miner with their bearish counts all the way from the 02 stock indices lows to the 06 highs. So let this be a word of warning to you !
Having said that I do not regret having spent a few years studying RN Elliott. I would say that these days EWA has a stigma attached to it because it has generally been so badly taught in respect to how we can use it in our trading. I know market educators who have EW in their blood but no longer mention the subject in their services. It has such a bad name thanks to gurus with over inflated egos and arrogance.
Having a good knowledge of pattern recognision can be immensely valuable in our trading arsenal. Just taking Elliott's simple ABC correction formation can provide wonderful set-ups in any timeframe. Being able to identify a 5 wave series can be valuable. Being able to understand some of the complexed correction formations can be helpfull. Pattern recognision including the use of symmetry and fibs can provide us with a map. A map is not a trading system. It is just a map. You can use market profile for a map but you need to develop your own trading system to trade it.
A serious study of EWA can be justified. What you must be careful about is simply following other trader's counts and opinions because often EWA is so subjective. If you are a lazy trader you will fall into this trap and I say this because probably around 70% of traders are lazy. They want a quick holy grail following someone else's system or opinion. Only hard work will eventually provide your own personal holy grail which is your "edge".
If ever a trader gives me an EW count and asks for an opinion my answer is "now give me 2 more alternate counts". Remember this because it could potentially save you enormous grief. When doing your EW analysis always look for 3 alternate counts. It doesn't matter how strongly you might favour your preferred read I can tell you that there are always at least 3 alternative reads on any market structure formation. If you base your trading system for entries, stops and trade management upon this precept you will always be ready to be wrong and you will know exactly at what point your count is invalidated and take action accordingly. This is the most valuable thing I can say to you and whilst it may seem obvious I know from long experience that it is something that traders take years to come to terms with.
To illustrate my point, take a look at the current EWI (Prechters service) reports on gold. You will see they are only showing one very bearish count for gold. I can spot 2 other counts of equal legitimacy, one of which would be very bullish. This is where EWA gets such a bad name for itself, yet it is not the fault of poor old RN Elliott who died as long ago as 1942. His work was excellent but since his demise the markets have changed and some of his disciples are arrogant service providers who often are also failed traders. They know the theory but cannot apply the disciplines to trade profitably. They like to make forecasts and charge good money for poor education.
Most of the well known EW gurus have modified and revised Elliott's original work. Lets face it, the markets do change and there would be little point in sticking rigidly with works that were completed 70 to 80 years ago. Just in the last 10 years markets have been subject to global government cooperation and manipulation. So is EW still the underlying structure of the market ? Does the market still reflect the sum total of all traders' opinion ? I think not !
You sound like you actually do think for yourself. My advice to you is to continue making a study of EWA but do not become paranoid with it. Use some of it as just one bullet in your clip. Use the simple ABC formations for providing you with entry set-ups. Be able to spot a 3 wave move and a 5 wave move on any timeframe from daily to 1 min. Understand how complexed corrections are merely a process of the market trying to find "balance". For the market, balance = value at which all traders agree. From balance, leads vertical breakout to inbalance in one direction or the other. From vertical extension leads balance again. This behaviour repeats endlessly on all timeframes. A Study of market profile will increase your understanding in this respect. Market profile provides another "map" which is volume and time based. The two maps can be integrated to great potential advantage but remember that they are only maps and not a trading system. You need both. You need your map and your entry/exit system.
Some traders just use fibs or gann or lagging indicators and any manner of different things in their arsenal. A thorough understanding of pattern recognision, symmetry, market profile (volume) and market internals like breadth and vix etc will stand you in very good stead. Then you will be able to develop your entry trigger and trade management systems based upon using sound maps which tell you what the market is actually saying.
I hope this gives you some food for thought.
David.