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DETERMINISTIC SYSTEM Determinism - ability to forecast price activity into the future
Price Sensitivity - getting intimate with price action
Price Discipline - building belief & structure to the method used
THE ELLIOTT WAVE PRINCIPLE
Provides a framework for decision-making - Elliott Wave provides an orientation to view market activity – it tells you where you are within the bigger landscape, what direction you are travelling in and the various ways in arriving at your destination.
Assessing probability - Once understood, the varying but limited amount of probabilities for price action to unfold provides a concise approach to applying strategies, risk-reward assessment and contingencies.
Offers impartiality - the greatest threat to any trader is his unawareness of preconception – his building of a scenario that often contradicts reality – EW can help eliminate this.
Robust model - in tune with the rhythms of Nature, this methodology works no matter what market conditions prevail at any time.
R.N.Elliott
1934 - Elliott postulates there are natural laws that govern everything, from growth in natural organisms to people and crowd behaviour.
1935 - Charles J. Collins of Investment Counsel, Inc. introduces Elliott to the Fibonacci Summation Series giving him a book entitled “On the Relation of Phyllotaxis to Mechanical Laws” by Professor A.H.Church of Oxford.
1938 - Elliott publishes his book “The Wave Principle”
1946 - Refines his theories in his latest publication “Natures Law”.
1st chapter entitled “Rhythm in Nature” followed by “The Great Pyramid Gizeh”, “The Secret of the Universe”, “Human Activities”, “The Law of Motion” & “Pythagoras”.
“No truth meets more general acceptance than that the universe is ruled by law. Without law it is self-evident there would be chaos, and where chaos is, nothing is. Navigation, chemistry, aeronautics, architecture, radio transmission, surgery, music – the gamut, indeed of art and science – all work, in dealing with things animate and things inanimate, under law because nature herself works in this way. Since the very character of law is order, or constancy, it follows that all that happens will repeat and can be predicted if we know the law”– R.N.Elliott (1871-1948).
UNIVERSAL PRINCIPLES -
3
Vibration - creation is continually in motion.
Polarity - consists of positive and negative forces that emanate from a singular origin.
Compensation - Sir Isaac Newton’s third law of motion describes this phenomenon as “for every action, there is an equal and opposite reaction”.
NATURES LAW -
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Non-linearity - pattern and form appear to unfold in punctuations of alternating directional movement rather than developing in a constant, linear straight line.
Fractal - a term that describes patterns that are ‘self-similar’ on all scales of size. A fractal object looks the same when examined from far away or nearby.
Proportion - patterns evolve and measure to a harmonious set of mathematical ratio relationships.
Relativity - patterns are repetitive and intimately linked together through their relative relationships – also termed as interdependency.
Hierarchical - sets of patterns build into varying degrees of size which necessitates the categorising of each so that the relative proportionate relationships can be determined for ongoing development.
CHARACTERISTICS -
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Market prices trend and counter-trend in recognisable patterns The patterns are repetitive and unfold seamlessly forming interdependencyThere are different sizes of patterns that form a hierarchical systemProgress unfolds into a specific five-wave patterned structureRegress unfolds into a specific three-wave patterned structureWave 2 (of a five wave structure) never moves beyond the starting point of wave 1Wave 3 (of a five wave structure) is never the shortest waveWave 4 (of an expanding five wave structure) never enters the price territory of wave 1
PATTERNS -
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Impulse-expanding Impulse-diagonal/leading contracting/leading expanding Impulse-diagonal/ending contracting/ending expanding
Zig Zag-single Zig Zag-double Zig Zag-triple Flat-horizontal Flat-expanding Flat-running Triangle-contracting Triangle-ascending Triangle-descending Triangle-expanding
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©
ACTION -
REACTION WITHIN UPTREND
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Correlative Ratio Extension Ratio
ELLIOTT WAVE PRICE FORECASTS FOR 2010
Stock indices surge higher into January/February, but then completes counter-trend advance that began from the March ’09 lows. Begins sustainable decline lasting until Sep.-Oct. 2010.
40 & 24 month composite cycle depicts modest price decline during this period but identification of Elliott Wave double zig zag pattern during the last year increases probability of a double-dip to re-test ’09 lows.
US$ Dollar (index) is generally bottoming, but could sustain a slightly lower low than 7417 before turning higher for the next sustainable swing lasting 12-18 months.
Commodity prices have advanced into maximum upside objectives and are approaching levels that are likely to record the highest prices for the entire year of 2010 – sizeable declines ahead for base metals & oil.
“Every movement in the market is the result of a natural law and a ‘Cause’ which exists long before the ‘Effect’ takes place and can be determined years in advance. The future is but a repetition of the past…Everything
moves in cycles as a result of the natural law, of action and reaction. By a study of the past, I have discovered what cycles repeat in the future” – W.D.Gann
Gann’s Major Time Cycles:
84yrs
60yrs
50yrs
40-44yrs (half of 84)
30yrs (half of 60)
20yrs
10yr
5yr
1yr
Cycle work is derived from two original sources:W.D.GannE.R.Dewey, Founder of the Foundation for the Study of Cycles
Dewey’s Major Time Cycles:from: “Cycles - The Mysterious Forces
That Trigger Events:
17.75yrs
9.2yrs
3yrs, 5 months (40.68 mths)
2yrs (24 mths)Other Cycles:
36yrs (also 18yr)
8yrs
6.5yrs
S&P 500 | ‘Preferential’
Count #1
The ‘Deflationary’ Scenario
From ‘Wheels Within Wheels’
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by Dan. T. Ferrera, 2009 | http://www.sacredscience.com/ferrera/
Techsignal –
Foundation for the Study of Cycles
S&P 500 | ‘Alternate’
Count #2
The ‘Inflationary’ Scenario
XETRA DAX 30 | ‘Preferential’
Count #1
The ‘Deflationary’ Scenario
TRENDS FOR THE US$ DOLLAR
Correlative Relationships ~ S&P | US$ Dollar | Copper
Techsignal –
Foundation for the Study of Cycles
