The value of EW goes far beyond trading. If you think that terrorism, or the buildup of violence which may eventually lead to world-wide conflicts, has little relation to the decline in the stock markets, think again. If you think, for example, that ethical problems of the Clinton presidency are not related to a high degree topping action in the markets, read Prechter (who, to my knowledge, makes hardly any mention of Clinton, but you’ll see what I mean).
I think that the main trading value of Elliott Wave knowledge is in being able to recognize a good pattern if it falls on top of you. If you have something that looks like a ‘five’ or a ‘three’, with an ending diagonal completing the pattern, go for it. If you see three waves, followed by a likely ‘4’, try to catch it - at least for a re-test of the ‘3’. If you see a nice ‘1’ or ‘A’, followed by an upswing and retracement too small to be a ‘c’ or ‘3’, it was probably a ‘1’ of ‘3’ or ‘C’. Get ready.
Need a good stop loss? What about using the top of ‘1’ as a line in the sand for a ‘4’ retracement? The Force (of odds) will be with you.
However… when it comes to theorizing about things like whether or not September market lows were the bottom of a ‘three’ or a ‘five’, or the ‘B’ down of an ‘ABC’, I would be careful. I see EW as a sentiment indicator, albeit an unusual one. It is an indicator of the subconscious sentiment. It may be very valuable, but like any indicator, it is not perfect. |
