A very simple explanation. It basically says mass psychology
is predictable in a liquid market by a five wave cycle. An accumulation wave. A
correction. A much bigger wave. A correction again. Then the final
"speculative" wave. Where the public jumps in. This is the final wave
and the the next correction is not correction as such but the end of the market
cycle.
A picture is worth a thousand words. See the chart of the
NASDAQ during the great "bear" of 2001 to 2003
So, looking at the above chart Elliot Wave does seem to hold
some credibility. It's is clear the great market crash of 2001 to 2003 did move
in an almost perfectly formed five wave cycle. Three waves down. Leg three
being the biggest and leg five being the final one. All seems well.
This is what I want to say about Elliot Wave. In a
"nutshell" it does seem to have some substance. Look at some monthly
bar charts of a liquid market (where there is massive public participation) and
you will be able to see some great five wave formations. Great. That's about
all the interest I have in Elliot Wave. There is absolutely nothing you can
trade off. It's not quantifiable. Sometimes you will see Elliot Wave
formations, most of the time you will not. And then it gets worse.
Ask twenty Elliot Wave enthusiasts what they see in the same
chart and I'll guarantee you will get twenty different answers. How can you
trade of something so subjective? Why should a market move up in three waves?
where's the common sense about this method? I do not see it.
And when an E.W. formation goes wrong do they say "oh
sorry I am wrong. cut your losses and get out"? No. They they bring in
extra rules about a correction wave within the formation and pile more and more
B*S already onto a sea of B*S and non-sense.
I used to subscribe to an E.W newsletter. It was really
interesting to listen to. this market was in this wave and would go here..
blah,blah,blah.... I didn't make any money from their recommendations. Lost a
lot.
Verdict:
Something that might hold some academic interest if this is
what "bakes your potatoes" but beyond the definition about liquid
markets moving in five waves... I wouldn't delve any deeper into this. I
honestly do not believe you can trade from this "theory"
Rating
2 / 10
W.D Gann: What is it?
This isn't a what but a who. WD Gann was a famous trader who
made millions, billions way back at the turn of the century by predicting
future stock market trends by using the superb Gann Angle System. Just think
for a few hundred dollars many vendors are willing to let you find the
"Gann Secrets" and help you make millions in the stock market. Drop
everything.. we have found the Holy Grail of stock trading.
Back to reality. Gann ..... do your-self a favor and do not
even waste your time in this area. For one it is a method that tries to
"predict" the future. ANY method that does this, in my eyes, should
not even be considered. But here are some shocking facts about the so called
brillaint WD Gann and his amazing method.
The Gann method is about measuring slope of trends to
predict reversals in those trends. It's fancy. It can look great on
"cherry picked" past charts. But predict the future.... it can not
do!
You must read William Gallacher's book: "Winner Takes
All", It is some time since I read it and do not have a copy here right
now but I always remember the section on the Gann Method. His son was
interviewed for a position at a bank and the conversation of his father (the
Great W.D. Gann) came up. It went something like this:
Interviewer: So what happened to all those millions your
father made in the stock market?"
Son of Gann: "He never left us millions. He left us
$50,000 ( do not quote me on this.. it was a low figure). My father was a
failure trading the stock market. Although he did o.k. selling his trading
materials."
There was a bit more to it than that but read the book for
your-self and have a laugh at all those so called "Gann" experts
selling trading methods based on a method whose originator never made any money
from.
Here is another fact about Gann... I read in the Market
Wizards II book the Interview with William Eckhardt (p.110 / p.111) , and
believe me if the top, professional traders talk about Gann trading methods in
this way, you do not want to be wasting your time on it.
Eckhardt: "If you wanted your computer system to be
cognizant of slope, you would have to program this feature into it. At that
point, it would become abundantly clear that the slope value depends directly
on the choice of units and scales for the time and price axes"
My comment: Basically he is saying in non mathematical
language.. Gann angles for trading are too subjective.
Jack Schwager: I have always been amazed by how many people
are oblivious to the time scale-dependent nature of chart angles or unconcerned
about its ramifications.
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