Elliot Wave Principle: Heart of Trading

Success in stock market measured in terms of money earned, is firmly grounded in the science of analysis. People try to predict the market on the basis of news, intuition and emotions. Intelligent skilled analysts use various tools of technical analysis like trend following system (Moving Average cross over), Pattern analysis on different charts, Momentum indicators (RSI,ROC,STOCHASTICS) to  analyze the stock market.

No system is absolute in stock market

One can never predict on basis of news as market always discounts the news once it is out. The technical tools, in some phase of market provides huge return but are not consistent and may fail in other phase of market. This failure leads a skilled person frustrated and baffled. They start doubting their skills and curse their fortune. New technical system and methods appears and disappears. Technical gurus rise like comets and burn themselves out like meteorites. With arrival of every new guru and method, investors in large number will accept the latest fad as a touchstone for ultimate wealth, only to find bitter disappointment. So each method and each guru is discarded and new ones are sought but results are always the same.

Market- Most dynamic affair

Markets are efficient but 90% are driven by emotions. Every market movement represents sum total of individual emotional instability of players. Some knowledge of how mind works certainly helps one to understand the rhythm of share price behavior. This psychology is very well studied by R N Elliot and gave us the gift of wave principle theory. It is a tool with high probability of success which helps us to listen what stock market is saying by it. It is the only tool capable of coping up with changes ahead in the market and works in every phase of market consistently. Investors have been taught to believe that future repeats static, traditional repetitive past parameters that have been established will continue to offer guidelines. This is the logic of static force. Wave principles have no place for such irrelevant logic because according to it markets are dynamic affair and never static.

Wave Principle Theory has all the solutions

Wave principle is appealing to those who know that stock market offers no absolute. It will do what it wants and when it wants. What one need to succeed is guidelines to define probabilities and knowledge to weigh them, followed by confidence to act on judgment and not thrown off balance by the arrival of improbable!
According to Elliot Wave Theory “wild senseless and apparently uncontrollable changes in share price from year to year, month to month, day to day and hour to hour link themselves into a law abiding rhythmic pattern of wave. Sequence repeated itself from hourly movement to massive market movement over decades. So by establishing exact position of current market movement within major cyclical force, one can determine degree of maturity of market within any particular trend and so with courage can plan their investment accordingly.

How Elliot Theory works?

According to Elliot, price trends takes place in basic 5 wave rhythm with 3 waves in direction of primary trend and 2 corrective waves against primary trend. This 5 wave rule applies to both bull and bear market. As Elliot cycle unfolds we find series of impulse wave which eventually rises excessively due to speculation. Corrective wave then occurs so excess will be eliminated and cycle continues.

How Elliot Wave Works

Minuettescycle forms the minor cycle which in turn forms the intermediate cycle. The building continues upward through intermediate cycle, primary cycle and so on up to grand super cycle which span many decades. So at any point of time there is existence of many cycles and that influence the price movement. Interlinkage of this cycle and combining them with Fibonacci relationship can be used to estimate the future price. These waves are created due to human psychology and they are most consistent in their form, patterns and relationship with each other.

Traders and investors’ major failure is due to non acceptance of wave formation and the ignorance of wave personality and guideline they offer. Impact of news, strength of pattern analysis, trend following techniques etc works positively only if their presence are on a particular wave (1,3,5). News can affect the time cycle but cannot alter the cycle.
Never believe that “head and shoulder” top means market will always go down or rounding saucer points the end of bear market.

Head and Shoulder pattern: Gives bearish indication, but if it is found on the 4th wave it will be a failure and price will not go down as expected.

Rounded Saucer formation- Gives bullish indication but if it is found on completion of 1st,3rd or 5th wave then it will turn out be bearish drastically.

Elliot wave theory completely supercedes most form of pattern categorization of share price movement. Elliot principles give investors the ability to project movement forward in time within precise parameters of probability. It helps to reduce the risk of our trades if we can recognize the wave number.
For example First minor wave of first intermediate wave of corresponding primary trend is always safe. Waves are fibonaccically related to each other. So using wave principle, one can precisely calculate the future price movement and anticipate the trend with degree of clarity even for long term which is well beyond the reach of any other analytical system.

Elliot Wave Chart

Exemplary Warren Buffet started investing from 1950 and became a billionaire on paper in 1990.

Elliot Wave, when Warren Buffett became a billionaire

Warren Buffet selected 1st wave of a cycle for investment. If this was not the wave selected for investment, his long term investment also would not have offered any return.

Thus Elliot Wave Theory is one of the most important developments in the field of Technical analysis. It is the means of enhancing investment performance. Using Elliot wave theory, traders’ acquire power to anticipate trend in a manner far beyond the reaches of those who are not acquainted with wave principle. When this is mastered luck will play only minor role in prospective investment performance.

Elliot wave principle is truly the heart of trading and investing.
Trade Smartly!

 

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Why New York is the Financial Capital of the World!

Every person who is interested in the stock markets should visit New York at least once in his or her lifetime, which is widely considered to be the financial capital of the world. Here is our take on the largest city of the United States.

We all know a little about New York, don’t we?

New York is one of the most prominent Global Finance centre of the world and houses two of the largest exchanges, namely; NYSE and NASDAQ, and the New York Mercantile Exchange- the largest global Commodity futures exchange. The first thing that one notices after arriving in New York City is the hustle on the streets as most residents prefer walking or cycling over any other mode of transport. Unlike the Indian railways, you will not find overcrowded trains or the mad rush to grab the first empty seat in the trains. There exists a separate culture which every person needs to follow while commuting through the city. Things such as keeping your pace with the crowd, keeping to the right while climbing the stairs must be kept in mind etc. or else one must be ready to face the wrath of the local residents.

Why is it the Financial Capital of the World?

NYSE

The NYSE is the closest thing to being a personification of the Stock Markets which a person can come across. The grandeur of the building as well as the trading floor is most alluring. However the sight is a stark contrast to the people who work in it throughout the day and most of the night. Just by standing outside the NYSE one realizes the value of every single moment as each and every person out there does not even waste a second on a non-productive activity. Every person has a strict agenda and they adhere to it. However,people are generally dressed to perfection, guys in Armani blazers and girls in dresses, high heels and Gucci bags.The feeling of seeing the BULL poised gloriously outside the building is unmatched. Generally there is line to click a photograph with the powerful mascot representing the markets.The NYSE lives up to its hype and refuels ambitions of youngsters to work there at least once in their life.

New York Charging Bull

NASDAQ

NASDAQ (which stands for National Association of Securities Dealers Automated Quotations) is too a must visit for a person touring New York. The history of this stock exchange is probably only matched by the NYSE. It was the first stock exchange to form a intercontinental linkage of stock markets by coordinating with the London Stock exchange and is the second largest stock exchange in the world.

Both the Dow Jones as well as the NASDAQ are the most widely tracked stock markets as they represent the largest economy in the world. They have since Year 2000 generated an average return of 5% and 4.5% respectively. These two bourses are the largest stock exchanges in the world by market capitalization.

Melting Pot?

New York has lavish penthouses atop almost every building. Most of these are generally owned by the “bulls” governing the markets. New York considering its large number of immigrant population is aptly called the ‘Melting Pot’ by many. In our opinion every person working in the finance industry or aiming to be a part of it must visit New York at least once in his lifetime as the city gives immense inspiration to these young souls to make it big in the financial markets.

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