When it comes to making smarter decisions about the future, learning from our mistakes is a very important factor, and Elliott Wave Theory is a very clear example of how it is possible to put this into practice.

When it comes to making smarter decisions about the future, learning from our mistakes is a very important factor, and Elliott Wave Theory is a very clear example of how it is possible to put this into practice. According to the theory it is possible to view stock charts for virtually any time period in the past and be able to identify familiar patterns.

Not only are these patterns recognizable and recurring, but they can also be used to help forecast the future. Clearly if there was an area in which forecasting the future would be a clear benefit, it would be in the arena of financial trading. As impossible as it may seem, it is very often quite possible to identify these price patterns using Elliott Wave Theory, regardless of your experience in stock trading, or indeed any form of financial trading.

One of the first questions you might well ask is why patterns would ever be predictable. After all, stock values rise and fall all the time in what seems like an entirely random process. There seems to be no pattern in any trading chart. Yet this isn’t quite true, and there is a good reason for this.

Stock values don’t rise and fall by themselves. It isn’t random chance which causes the value of any commodity to rise or fall. Whilst very occasionally natural disasters and other unpredictable events may cause significant movement on the trading floor, for the vast majority of the time the one factor above all else which influences the relative values of stocks, shares and commodities is a very human one.

It is people who make decisions, who have hunches, who get cold feet or who see a possible advantage. It is human gut instinct, experience and psychology which influences stock market values, and it is this fact which underpins the Elliott Wave Theory.

It is human psychology which means that after a sustained period of growth there is doubt about the continuation of this growth, concerns over an imminent decline, and it is this which inevitably causes the decline. But after a short period of decline people’s confidence in the stock market begins to increase again, and so does the value of the stock market. This is generally a period of very sustained growth, although inevitably people will begin to worry, and there will be a decrease in value again, before a final period of growth.

Elliott Wave Theory is founded upon this five wave pattern, and surprisingly it can be applied to almost every stock chart of any market, and for virtually any time period. By learning the wave patterns and understanding more about Elliott’s theory it is possible for an investor to have a clear edge, because by seeing the way prices have previously performed, it is possible to have a clearer view of how they are likely to perform in the future.

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Kenny G Mann is the author of this article on Elliott Wave Principle. Find more information, about Elliott Wave here

Author: K.G. Mann

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