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Elliott Wave Junk

Briefly stated, Elliott Wave is a technical indicator that purports to offer buy and sell signals. It appeals to the silly notion held by many investors that repeating wave patterns exist and counting them will make you money.

Elliott Wave systems and software make statements like:

  • You can have mathematical models generate objective and precise wave counts.
  • You can compare current markets with historical patterns to generate Elliott Wave counts.
  • You can receive price projections showing the most likely price range that a wave will reach.

The Claim: You count the waves. Then once you have the waves counted you will be able to pick when to buy and sell stocks and futures.

The Truth: Basing your trading off subjective patterns has proven time and time again useless. You can find a pattern in anything if you stare at it long enough. Also, projecting a price into the future is baloney.

The Source: The big Elliott Wave guru for many years was Robert R. Prechter, Jr.. We are sure Bob Prechter is a nice man, but Elliot Wave is just not a viable trading strategy.

Elliott Wave might hold some academic interest if this is what “bakes your potatoes”, but in terms of a trading approach — forget it.

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