How Investors Use Elliott Wave Theory To Learn From The Past

Becoming smarter by learning from the mistakes we make is all part of making better choices in the future, and one way for how this can be achieved in a useful way is through Elliott Wave Theory. This is a system which shows us that it is achievable to study stock charts and find clear patterns in prices from practically any period of time in the past.

These price patterns are extremely useful because their consistency and recurring nature means that they can be used to help investors predict future price movements. If there is one arena in which predicting the future could give a clear advantage, it is obviously going be in the stock market and financial trading. As strange as it may seem it really is possible to identify these patterns using the 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.

Investment decisions are made by people, who have hunches, who get cold feet or who see a possible edge. It is human gut instinct, experience and psychology which impacts upon stock market prices, 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 a possible decline in prices, and it is this worry which inevitably causes the decline. But after a short period of decline investors confidence in the stock market starts to rise again, and so does the value of the stock market. This is usually a period of substantial gains, although inevitably investors will begin to worry again after a time, and there will be another period of consolidation, before a final period of growth.

Fundamental to Elliott Wave Theory is this pattern of five waves, and surprisingly it can be applied to virtually every technical analysis chart, and for almost any time scale. By learning and understanding more about Elliott's theory it is possible to possess a clear advantage when investing, because by observing the way prices have moved previously, it is then possible to have a better recognition of how they are likely to move in the future.


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