EWATSS® Elliott Wave Analysis and Trade Selection Trading System
Visit us at MarketMastersIndia.com
1. As per Elliott Wave Theory, crowd psychology and not news or events, is the primary driver of price movements; and the crowd psychology creates identifiable patterns deciphered by Elliott Wave Theory. Crowd psychology does not change (because humans do not change the way they think at mass level) and always repeats itself again and again, thereby again and again creating identifiable patterns deciphered by Elliott Wave Theory.
2. All popular commentaries are simply rationalizations of non-rational herding crowd impulses.
3. These patterns reflect the unfolding mass psychological dynamics, which ultimately creates events and therefore the news.
4. Markets have risen on worst news of war and terror and have also fallen on even best of news.
5. More than the news or events per se, it is trading crowd’s interpretation of the news or event that is of primary importance for price movements, and it is expected that such trading crowd’s interpretation has always been and shall always be as per the patterns pre-identified (or combination of such patterns) by Elliott Wave Theory.
6. Hence from a trading perspective, patterns on price charts are more important than news or events per se happening in the world.
Kindly read the following extract from Elliott Wave Principle - Key to Market Behaviour by A.J.Frost and Robert Prechter:-NewsWhile most financial news writers explain market action by current events, there is seldom any worthwhile connection. Most days contain a plethora of both good and bad news, which is usually selectively scrutinized to come up with a plausible explanation for the movement of the market. In Nature's Law, Elliott commented on the value of news as follows:At best, news is the tardy recognition of forces that have already been at work for some time and is startling only to those unaware of the trend. The futility in relying on anyone's ability to interpret the value of any single news item in terms of the stock market has long been recognized by experienced and successful investors. No single news item or series of developments can be regarded as the underlying cause of any sustained trend. In fact, over a long period of time the same events have had widely different effects because trend conditions were dissimilar. This statement can be verified by casual study of the 45 year record of the Dow Jones Industrial Average.During that period, kings have been assassinated, there have been wars, rumors of wars, booms, panics, bankruptcies, New Era, New Deal, "trust busting," and all sorts of historic and emotional developments. Yet all bull markets acted in the same way, and likewise all bear markets evinced similar characteristics that controlled and measured the response of the market to any type of news as well as the extent and proportions of the component segments of the trend as a whole. These characteristics can be appraised and used to forecast future action of the market, regardless of news.There are times when something totally unexpected happens, such as earthquakes. Nevertheless, regardless of the degree of surprise, it seems safe to conclude that any such development is discounted very quickly and without reversing the indicated trend under way before the event. Those who regard news as the cause of market trends would probably have better luck gambling at race tracks than in relying on their ability to guess correctly the significance of outstanding news items.Therefore the only way to "see the forest clearly" is to take a position above the surrounding trees.Elliott recognized that not news, but something else forms the patterns evident in the market.Generally speaking, the important analytical question is not the news per se, but the importance the market places or appears to place on the news. In periods of increasing optimism, the market's apparent reaction to an item of news is often different from what it would have been if the market were in a downtrend. It is easy to label the progression of Elliott waves on a historical price chart, but it is impossible to pick out, say, the occurrences of war, the most dramatic of human activities, on the basis of recorded stock market action. The psychology of the market in relation to the news, then, is sometimes useful, especially when the market acts contrary to what one would "normally" expect.Experience suggests that the news tends to lag the market, yet follows exactly the same progression.During waves 1 and 2 of a bull market, the front page of the newspaper reports news that engenders fear and gloom. The fundamental situation generally seems the worst as wave 2 of the market's new advance bottoms out. Favorable fundamentals return in wave 3 and peak temporarily in the early part of wave 4. They return partway through wave 5, and like the technical aspects of wave 5, are less impressive than those present during wave 3. At the market's peak, the fundamental background remains rosy, or even improves, yet the market turns down, despite it. Negative fundamentals then begin to wax again after the correction is well under way.The news, or "fundamentals," then, are offset from the market temporally by a wave or two. This parallel progression of events is a sign of unity in human affairs and tends to confirm the Wave Principle as an integral part of the human experience.Technicians argue, in an understandable attempt to account for the time lag, that the market "discounts the future," i.e., actually guesses correctly in advance changes in the social condition. This theory is initially enticing because in preceding social and political events, the market appears to sense changes before they occur. However, the idea that investors are clairvoyant is somewhat fanciful. It is almost certain that in fact people's emotional states and trends, as reflected by market prices, cause them to behave in ways that ultimately affect economic statistics and politics, i.e., produce "news." To sum up our view, then, the market, for our purposes, is the news.
Best wishes.
No comments:
Post a Comment