Jeff Greenblatt on Elliott Wave analysis – what it is, why it is useful for traders and how it should be used.

In recent years use of Elliott Wave analysis has become increasingly controversial. While it has a large number of supporters who wouldn’t think of changing to a different method, there are also a growing number of detractors who have become frustrated by its limits. Part of that frustration comes from the subjectivity of interpreting the waves, and part comes from a lack of understanding of the rules and guidelines for using the technique. This article aims to dispel the confusion and to remove some of the subjectivity from the method.

Ralph Nelson Elliott discovered that markets trend and correct in repeatable patterns, which he catalogued. The patterns are called ‘motive waves’ and ‘corrective waves’. These repeatable patterns make up the underlying structure of financial markets. What Elliott didn’t figure out was that his patterns are part of the larger science of quantum physics, where the only guarantee is change. It’s a well-known fact that we can have a wave pattern blow out, making it necessary to change the count. That is because the degree of the count is larger than anticipated. It’s also possible the Elliotticians’ best efforts fail because Elliott patterns are not set in stone – they extend, for reasons we don’t yet understand… read more (