Elliott Wave In The 21st Century

By Matt Blackman with Mike Green
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There is a standard joke shared by technical analysts that if you were to put twelve Elliott Wave practitioners in a room, they would fail to reach an agreement on wave count and the direction in which a stock is headed. There is no doubt that the Elliott Wave theory has posed some interpretive challenges, but is such skepticism fair?

Robert Prechter, the undisputed leading expert of Elliott Wave, has made some excellent forecasts using the theory, particularly in the '70s and '80s - he forecasted the horrific crash of 1987. But Prechter's record at the end of the twentieth century has not been stellar. In fact, his book "At The Crest Of The Tidal Wave" (1995), which publicly called for the end of the great bull market in 1995, was nearly five years and many Dow points premature; he was advising clients to exit the market even though the ascent was nowhere near its end.

If even the leading Elliott Wave expert finds Elliott Wave theory and its application so challenging, what hope is there for the rest of us? The high degree of subjectivity involved in using the theory is one reason why it can be so problematic and why it is rare to find agreement among practitioners. This leads to uncertainty, which in trading or investing leads to inaction. This may explain why so many traders opt to trade without Elliott Wave or give up in frustration after using it for a while. But is such an attitude akin to throwing the baby out with the bath water?

In this feature, we hunt down and use Elliott Wave-based programs and products that greatly streamline the process of taking the theory and applying it to trade. Think of these as applications that help bring Elliott Wave into the twenty-first century.

Our goal is to familiarize readers with the new millennium version of Elliott Wave theory. For those who may have rejected the theory out of frustration, this tutorial will demonstrate how new developments in technology have transformed this application, which was developed more than sixty years ago.

First, let's take a look at the history of Prechter's application of Elliott Wave and how it demonstrates both the successes and challenges of the theory.

Elliott Wave: Challenges Faced By An Expert