The classic Elliott Wave theory is dead — Long Live the Modified and Better Elliott Wave theory!
Part 1. Why the classic Elliott Wave theory is useless in trading
In 1930s Ralph Nelson Elliott made a great discovery that dramatically changed the way how traders and portfolio managers make investment decisions. After reviewing numerous self-made price charts of stocks and commodities he noticed several repeatable patterns drawn by price of assets. He noted that major rallies and declines of price for different assets did not happen in a straight line fashion. Every move up is followed by a pullback down. Every major lasting decline of price for tradeable assets like stocks or commodities was interrupted by a counter trend move in opposite direction.
Elliott noted that those price moves in the main direction of the trend and counter trend moves in opposite direction together combined a specific pattern (on the chart above). He decomposed that repeating pattern into several segments when price moved in one direction before a move in a countertrend direction (the red segments on the chart point down and follow blue segments that point up). He called those segments in price charts “waves”…
