Elliot Wave: What is it?
Elliot Wave is a way of defining the market action in a five wave formation. 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. My realization of the Inherent arbitrariness of slope of line methods is precisely I've never been willing to spend five minutes even five minutes on Gann angles or the works by the proponents of his methodology.
There you have it.
Verdict: I wouldn't even look at it for an academic interest point. Never mind from a trading method. A complete waste of your time, money and effort.
Rating:
0/10
Mark Crisp The Stress Free Momentum Stock Trader http://www.stressfreetrading.com