Problems with Elliot Wave Theory

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Please note that this is just my opinion but I've found Elliot Wave absolutely phenomenal at predicting market movements once they've already happened, although you normally have to wait a a few years so they can redraw the lines properly... When I was doing work experience in London I heard about a client who went bankrupt following Elliot Wave when the market turned in 2009. Lost the whole of his account racking up short selling costs!

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[ryhanchoudhury]

You probably haven't ever spent more than 2 hours of your time actually studying elliot wave theory and applying it. Elliot wave has also been adapted to today's markets as it no longer contains as many impulsive motive 5 wave moves as it used to and we tend to trend more in 3 wave corrective moves which can be labelled wxy but this needs to be studied. I am consistently profitable trading elliot wave theory combined with fibonacci levels. It is the best system I've come across and will lead to consistent profits.

[ashrafadel]

12 yrs later I come across this video and until today EWT is still called vodo! I'm grateful to that. It has to remain unpopular to stay effective. Sincere advice to the presenter and audience, study EWT very well before saying a single statement about it. Consistent profitable practitioner here. Thanks to all fellow practitioners for taking the top comments throughout the years.

[gnolihz]

Most traders fail to understand how to use elliot wave practically and they keep saying elliot wave doesnt work. That's why 95 % traders lose money. Because they're too lazy to learn

[vascobroma]

There's several problems with the argument in this video.

1. It is a misrepresentation to say that EWT claims to be able to predict "all human activity." That is not what Elliott or Prechter have argued. The claim is that all human behavior *in the aggregate* has a mechanistic element to it, and EWT is one of the best ways of modeling this. That's not the same thing. The point is that when it comes to the *masses* and decisions involving some form of speculation about the future, those decisions are inevitably shaped by an unwitting herding mentality, which is, by nature, non-rational (note: not IRrational, but non-rational). This naturally yields an element of predictability to such decisions.

2. This is not an argument unique to Elliott and Prechter. It is a widely recognized perspective in behavioral psychology. The only thing that EWT actually adds is the claim that this herding mentality produces recognizable patterns (it stands to reason that it would), and that EWT has identified those patterns.

3. It is suggested several times that EWT makes a "grandiose" claim. What exactly is grandiose? The claim that EWT has identified consistently recognizable patterns, or the claim that humans in the aggregate behave in a way that would produce such patterns? The former is demonstrable. The latter is a commonly held view in behavioral psychology. So to write either off as "grandiose" is either intellectually dishonest or a betrayal of ignorance. The burden is on the critic to prove his claim.

4. This gentleman isn't arguing against EWT specifically. He is arguing against technical analysis in general. If that is not his intention, he might want to step back and re-analyze the consistency of his approach. The accusation that EWT makes "grandiose" claims can be extended to virtually any method of technical analysis, because what he's actually criticizing are the presuppositions held in common among those various methods, not the idea that EWT has identified manifested patterns. The idea that there is a collective human mind - that humans in the aggregate herd unconsciously, resulting in a sort of organic machinery in the production of mass decisions - is at the heart of virtually all technical analysis. Why do you think support and resistance zones "work"? Why does Fibonacci "work"? Why do Gann fans "work"? If you completely jettison the idea of that organic machinery and unconscious herding, not only will you find yourself at odds with behavioral psychology, but you'll have undermined any consistent basis for doing any kind of technical analysis at all.

5. Piggybacking on the above, the argument that EWT makes "grandiose" claims is likewise an argument against the use of Fibonacci retracements and extensions. That's really all EWT is, after all - the structuring of Fib measurements into consistent patterns and cycles. To argue against the usefulness of Fibonacci in trading would just be absurd. And yet the *reason* why Fib measurements work is the same *reason* why EWT works.

6. Around 2:00 in the video it is argued that EWT "suffers from a certain amount of 'recalculation'." This illustrates a misunderstanding of how EWT is applied in practice. First of all, experienced Ellioticians track multiple valid counts, not just one. There is always more than one valid possible count. And this is a strength of EWT, by the way, not a weakness. By tracking various counts, you can more reliably weigh the odds of a bullish or bearish prediction. If you've got 5 counts you're tracking and 4 of them argue for short-term bullish momentum, regardless of further outlook, that's a good sign you should be bullish. Alternatively, if you see 4 possible counts and 2 are bullish and 2 are bearish, you know to be very cautious about taking any trades. The problem that some practitioners of Elliott Wave have, especially newbies, is that they want to focus on one particular count, when what they've identified is likely not the only valid way of counting things. That is not how EWT is meant to be used. So it's not about "recalculation." It's about identifying different possibilities and ruling them out one by one as price action develops.

And secondly, this gentleman uses a bad example to try to make his point. You're never going to buy at the bottom of a 3-wave move, if you know what you're doing. That's just gambling. You're at least going to wait for a bounce off a higher low from that point. Given how many different correction patterns there are, that's the only sensible move, *even if* there was only one valid count. That's especially true in the wave 4 position as in this video's example, since triangles can form there, increasing the possibility that buying too soon could get you stuck in a sideways market.

In all honesty, I have yet to find a criticism of Elliott Wave Theory that demonstrates an accurate and experienced understanding of what it is and how it is put into practice. I think that is telling. If people are losing money in their application of EWT, is it because of a flaw with EWT or is it because of a misunderstanding and misapplication? We see consistently that the critics haven't given it a fair shake. And I have seen some who practice EWT focus on only one count, not several (Prechter himself is guilty of this; his books are great, his predictive service is not). EWT works. It works very well if you understand and use it properly. But I have yet to find a critic who understands what that means, and that actually serves as an additional argument FOR the theory. If those who disagree with you can only argue by misrepresenting your ideas, well, that probably means there isn't actually a good argument...

I use EWT for predicting multi-day trend directions and Gann fans and Fibonacci for fine-tuning price targets and reversal points. The combination of the three yields me just over an 80% win rate when trading on hourly candles. That's almost unheard of. Don't knock what you don't understand.

[emmanuel]

Newbies stay away from this video, it will take away from you, the only thing that's works in financial markets.

[caiara]

1. Before the criticism you should learn/ backtest and show your result That would have been more helpful. Insted it seems that you read the book one time or someone told you roughly how they work.
2. Basic rule wave 2 never retrace 100% of wave 1.
3. Never enter at the end of any correction without a confirmation a change of market structure that will confirm the count.
4. Elliotwave are an edge not a prophecy, if you add confluence to it as market structure, candlestick analysis, psychological levels, fibonacci retrecment and expansion one will have a better chance to succeed but the market is a game of probability and you can always lose not strategy will win 100% of the time but at least Elliottwaves provides good win rate and extremely good R:R

[lqgguvz]

Well i fking bet this guy doesnt read the book( eilliot wave theory book). There are monowavr ploywave multiplewave( which is wave within wave within wave) and all kinds of forms of waves. Also u don't necessarily need to recount wave everytime because u suppose to predict where the wave would go and if it fails to do so thats when u repredict. Also there is a think called "x" wave which can be mono/poly/multiple wave which contains no pattern and connect 2 types of waves together.... I clicked the vid with an opened mind and expected too much from this vid, but i can tell from watching the vid that u dont know shit.

[povoaa]

It doesn't tell you what is going to happen in the future. Instead lets you know where you are at the present time, which leads to better future decisions

[babouras]

While the problem you are pointing out is in fact a challenge for EW practioners, the way you are illustrating it is rather dismissing. Even in your example you have the waves wrong lol

[iProPipe]

Literally every trading guru on YouTube. Criticize and “debunk” one theory, then when you have the viewers questioning it plug your own course, system, chat room , etc as a more solid system.

[ianmugodo]

If it makes money...it's a good system...there's no holy grail...and if you're looking for one...trading probably isn't for you...every system requires traders to think on their feet when their initial thoughts are incorrect. you shouldn't spend your trading career looking for systems...you should spend it mastering the ins and outs of one system

[menachemtodros]

A Waves are more often three waves and much less commonly a five wave impulse. Therefore a skilled Elliotician is unlikely to confuse Wave 1 with a Wave A. Furthermore Fibtime can be applied to see how long ?Wave 2/Wave B takes. Wave 2 is very unlikely to take up more time to form than Wave 1, whereas Wave B is much more often i >1, 0 the time length of Wave A, The point of my narrative is to illustrate how you have not studied EWT to any depth and to show how you fail to understand the basic principles of the theory,

[lqgguvz]

We only trade when the pattern confirm the amount of future retracement which can be wrong but nothing is totally predictable in the first place.

[TheBaddWarrior]

im sorry sir, i have to disagree with u..it has been 14 yrs of trading life..no snr..no ob/os..no double top..shooting star or hammer...its simple as 12345 ABC..and 14 yrs of good live with it.

[Debjit]

First learn to draw a simple Elliot wave, then try to criticize .This man at 1:21 draws the basic structure of Elliot wave and that's even wrong .Rule "wave 4 can never enter the area of wave 1" .

[jorgecanessa]

It seems I have come across this video 11 years late...

I have no idea what your agenda is in regards to discounting or putting "problems" with Elliot Wave Theory out there, but I will say this:

While your video is short and I assume a lot has been left unsaid on your end, you have to know that me and many other people I personally know have found Elliot Wave Theory to be a consistent, profitable strategy to make money in the markets. That is, any market of your choosing as you very well claimed. That is because it works in all markets, when properly used of course; as any other strategy or system.

Furthermore, what you are claiming is completely false and inaccurate, because that is not the way you analyze and use Elliot wave theory. While you, as an Elliot Wave trader, are continually reevaluating, reassessing and reshaping your Elliot Wave Count; you do not trade every single wave count that you "make" or encounter and that is the whole point of my message.

There is a distinctive and fine line between being an Elliot Wave Analyst and an Elliot Wave Trader. Both can see and spot the correct wave counts, but only one of them can know when the perfect timing to execute a trade has arrived. Only one of them can make real money.

I do not believe it is smart or appropriate for the investment community to make these short, incomplete and absurd videos. If you wanna believe that and make the video for yourself that is fine, but don't throw lies at the world.

[SalemGTV]

nothing is guaranteed in the markets :)

[Kamilapinski]

Even if you don't know how to count waves the fact that there often is a divergence between wave 3 and 5 at the end of the move or that the 3rd is often the longest should be helpful in trading.

[jccgold]

There are so many guys here saying they are profitable with Elliot Waves Theory, can you show me one Youtube guy predicting anything correctly with EWT before anything happens?