Q&A With Elliot Wave Expert, Robert Prechter

By Elliott Wave International

As the major stock markets turned down in late 2007 and then started to rally in March 2009, many people who believed in fundamental analysis have begun to question its validity.

Famed technical analyst and Elliott wave expert Robert Prechter has long called for the bear market we are now in the midst of. (He views the rally of 2009 to be a bear-market rally not the beginning of a new bull market.) But over the years, his methods of technical analysis have been criticized. Here are his most succinct arguments as to why wave analysis outdoes competing forms of analysis.

Learn the Wave Principle and Other Forms of Technical Analysis. Elliott Wave International has just released The Ultimate Technical Analysis Handbook. This FREE 50-page ebook is dedicated solely to teaching reformed fundamentals followers to incorporate technical analysis into their own investing decisions. Learn more and download your free copy here.

*****
Excerpted from Prechter’s Perspective, re-issued 2004

Question: Suppose everyone agreed, “The Wave Principle is not always right, but it really is the answer”?

Robert Prechter: Well, let me begin my answer with a quote from a national financial magazine dated October 1977. “Over the last few years, the Wave Principle has gathered too much of a following and, therefore, it has less value today. Almost invariably, you can write off a technique when it gets too much of a following.” How does this statement look in light of the decade that followed it? “Elliott” had one of its greatest successes. Like the Energizer Bunny, it keeps going and going. And I believe its next success will be its biggest ever. The Principle itself is undoubtedly on an upward spiral of acceptance: three steps forward and two steps back.

Now let’s suppose that a large number of educated people accepted the Wave Principle, which is not an impossible idea for, say, a thousand years from now. There would still be room for differences of opinion on the market and the future. And there are countless other factors. Even people who practice the craft don’t necessarily take action when they get a signal. Unconscious doubt and worry often foil people’s actions. Very few traders have the emotional strength to turn even good analysis into profits.

Q: The Wave Principle is intrinsically contrarian. Does it have some built-in defense against becoming the consensus?

RP: I think so. The Wave Principle is a description of natural human behavior. This is what human beings are; this is part of their nature — how they behave. In order for markets to continue to go through these stages, a part of human nature must be to believe that such theories of mass psychology are incapable of being true — that is, something not worth examining. They must be primed to accept bullish arguments at tops and bearish arguments at bottoms. That means they have to be ever open to bogus theories of market behavior. How else will they create the patterns that fear, greed and hope produce?

Q:  How big is the pool of analysts who rely on the Wave Principle?

RP: I think there are quite a few people who are proficient in applying Elliott to past and present markets, say, perhaps 1% of all technical analysts, which is a pretty good number of people, I suppose. A lot of those are my subscribers, and they learned it through studying the Theorist. However, as far as the number of people proficient at applying the Wave Principle for forecasting market turns, which is significantly more difficult than applying it in real time, I think there are very few.

Q: This has been the basis of some criticism. To quote one critic, “relying on arcane methods does have one advantage. Interpreting the linear squiggles is left in the hands of the major heir to Elliott’s work.” How do you respond to those who contend that the complexity of the theory is a cover that allows you to retain the Wave Principle as your personal theory?

RP: With regard to any supposed self-serving secrecy, not only did I co-author a book on how to apply the Wave Principle, as well as reprint Elliott’s writings against protest from practitioners, but also I continually go into great — some might say excruciating — detail in each issue of The Elliott Wave Theorist explaining exactly what I think the market has done and will do, and why I think it. If there is any market letter that has educated potential competitors, it is mine. The reason is that the study of markets is more important to me than exclusivity, secrecy or power.

Q: Another common approach critics take when they try to dismiss Elliott as bunk is to refer to you as a mystic or a numerologist.

RP: A mystic believe in things for which there is no evidence, only desire. I do not consider myself to be a mystic at all. My approach is objective. The empirical basis of Elliott’s discovery speaks to that fact. So do the results of the trading competition [Editor's note: Bob Prechter won the Trading Championship in options in 1984 with a stunning 444% gain. The next closest competitor showed an 84% gain.] Not once during any month since the independent rating services have been following market timers has a timer using a numerological approach such as “Gann” analysis ever placed in the top 10 rankings. Just as would be expected, such methods don’t work!

The true mystics are those who believe, for instance, that current economic performance is a basis upon which to predict stock market prices. There is no evidence for it. They just feel comfortable with the idea, so they espouse it.

Q: So you say that the challenge to validity is on the other side?

RP: You’re darn right, it is. I am no longer at the point where I feel that I have to justify the objectivity of the Wave Principle. I think the results have done that. Technical analysis is entirely rational and has proved itself. If someone goes back and looks at the record of Elliott wave writers over the decades, he will find a track record of forecasting success that is well beyond a random result of chance. If you can do that, the ball is in the other guy’s court. It’s up to him to show that this is luck or something. What’s more, the only challenge to a theory is a better theory, and I haven’t seen a contender yet.

Q: You don’t feel that you have been effectively challenged by any fundamental approaches?

RP: I think there’s a place for fundamental analysis of individual companies, but I am firmly convinced that you can make a very rational argument showing that fundamental analysis applied to overall market timing is like reading the entrails of goats. In fact, I presented such a critique in The Wave Principle of Human Social Behavior. If you think my ideas as presented here are controversial, just read Chapter 19 of that book.

Learn the Wave Principle and Other Forms of Technical Analysis. Elliott Wave International has just released The Ultimate Technical Analysis Handbook. This FREE 50-page ebook is dedicated solely to teaching reformed fundamentals followers to incorporate technical analysis into their own investing decisions. Learn more and download your free copy here.

---

Robert Prechter, Chartered Market Technician, is the world’s foremost expert on and proponent of the deflationary scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

Find The Right Forex Trading Course for You

Finding a top rated forex trading course is wise when you decide to get involved in currency trading. You’ll want to start making money as soon as possible but because forex trading is risky, it’s important to know what you’re doing or you could easily be losing money instead.

Forex trading involves being able to predict which way currency prices will go. There are many factors to take into account. On top of that, it is vital to open and close your trades at the right moment to get maximum profit from any price change. If you try to figure everything out for yourself it will take a long time. It’s smart to find a forex trading course that you like and not try an rebuild the wheel.

The course you choose needs to cover all of the basics so you will be well prepared when you begin trading. Here are five important points that you will need to understand. Make sure that your course covers all of these before you sign up.

1. Principles of currency trading

Any good currency trading course will explain the basic principles of the forex market including leverage and margins, pips, spread and other costs, and what to look for in a broker.

2. Technical analysis

Technical analysis includes interpreting charts and indicators to identify trends, swings, breakouts and other factors that could be signals for you to open or close a trade. Different systems rely on different indicators. In the beginning, you only need to master the indicators for your own chosen system. Trying to cover them all could be confusing. Later, you might want to refer to other indicators to tweak your system for better profitability, so it’s good if you have access to a course that you can dip into again further down the line.

3. Fundamental analysis

Fundamental analysis relates to the economic news, announcements and other events which affect currency prices. In the end, it is each country’s economic performance which causes the value of its currency to change. You do not necessarily need to be able to predict these events. In fact many traders stay out of the market completely around the time of a forex news announcement. But it is important to understand how the process works and keep an eye on the alerts for anything that might affect your trading.

4. Risk management

Risk management concentrates on minimizing your losses through the use of stops, and protecting your funds by limiting the position size. In general your risk on any one trade should never be more than 5% and many traders work on 2%, 1% or even less. Broadly speaking you should expect to reduce the risk for larger fund sizes, simply because it will be more important to protect a fund of several million dollars than one of only a few hundred dollars. But you are pretty sure to crash and burn if you exceed 5% so make that your limit. You may feel like taking a chance for quicker growth on a small fund but wiping out your funds is not a good way to go!

5. Mindset

We put this last because it is usually the last thing that beginning traders want to hear about, but it is possibly the most important of all. In the end, if you do not master the mindset of a successful trader you will not be able to profit from the forex market.

You must develop a cool headed approach and work on your discipline so that you can follow a trading system without letting fear, excitement or other emotions get in your way. You also need to understand how to handle losses on the psychological level. Risk management techniques can help but if you let your emotions get the better of you, it is easy to fall into a pattern that will guarantee more losses. A good forex trading course will include teaching and exercises to help you master the art of self discipline and keep your emotions off the trading floor.

Learn Currency Trading – Overview

Is it possible to learn currency trading the easy way or must you struggle? Currency exchange trading does not have to be complicated. Of course there are many different systems and methods, but you only need one that works in order to make money.

If you have ever exchanged money for a vacation or business trip to another country, you will know that the exchange rates of two currencies are constantly fluctuating. You will get a certain rate for the money you change before you leave, and then when you return a few weeks later you will probably find you get a slightly different rate for any leftover foreign notes that you change back into your own currency.

So if you think about this for a moment it is easy to see that there is a potential for making money here. Say your own currency is the US dollar and you change 300 USD into Canadian dollars. Instead of taking a trip to Canada and spending your Canadian, you just keep the money because you think that the Canadian dollar will increase in value. Sure enough it does, so you change back and at the new rate you end up with more US dollars, say 310 USD. You just made a $10 profit from currency exchange.

Foreign exchange or forex traders are doing something similar to this all of the time, but instead of going to the bank and drawing out actual foreign currency in cash, they simply place orders in the currency market. Like stock traders, they do not expect their orders necessarily to ever be filled, but they can profit on the fluctuations or changes in the exchange rate that happen in the time between their opening order and their closing order.

The closing order is an exchange in the other direction that cancels out the first order and leaves nothing but profit, assuming that the fluctuation in the exchange rate went the right way for them. Of course if it went the wrong way, they would lose money on the transaction, and that is why forex trading is a risky business!

This is how foreign exchange trading works, in very simple terms. As you get further into it you will find out a lot more, and sometimes you will see terms and explanations that it is hard to get your head around until you have practical experience. At that point come back and revisit this article to remind yourself of the simple exchange process that is the foundation of forex trading. This will help you to learn currency trading without getting lost in the complexities of the forex world!

Strange Forex Secret (private training video)

If you’re still losing money trading Forex, then you need to see this brand new, complimentary training video fresh from the recording studio of one of the most respected Forex trainers around.

In it, he reveals the REAL REASON most traders just like you keep on losing… and then shows you, step-by-step, how you can FIX any trading method you’re currently using.

Once you see what it is, you might think it’s a little “strange”, but after I saw it I was surprised more struggling Forex traders haven’t been told about this.

Here’s a hint:

* It’s all about how to “–A– -I–”.

Once you figure it out, you’ll be surprised you ever traded without this technique.

Go here for your “invite only” access to a brand new, private training site where you can see this video:

Strange Forex Secret Private Training Video

Make sure you watch it today. This is definitely one of those time-sensitive videos that I don’t expect to stay
online forever.

Good Trading,
Drew

Forex Trading Hours: When are the Best Times to Trade?

Forex is a 24 hour market as you probably know, and forex trading hours are pretty much constant from Monday morning (Sunday evening in many time zones) through Friday afternoon. But if you are trading regularly, you need to know a little more than this.

What times exactly does the market open at the beginning of the week and close for the weekend? And what are the times of the different sessions in the major financial centers of the world? In this article we will explain exactly how this works.

The first thing to understand is that there is a date line running down the Pacific Ocean between Australia/Japan on one side and the Americas on the other.

Generally the time is earlier in the west than the east, but if you cross the date line you change to the next day. So when it is 5 pm Sunday in New York it is 2 pm in California and 8 am in Sydney, Australia – but because of the date line it is Monday morning in Sydney, not Sunday.

So the business week begins in Australasia. The financial centers open up for business in Australia and New Zealand at 8 am on Monday morning their time, although it is still Sunday afternoon or evening in America and Europe.

To be precise, when trading begins in Sydney (the first major market to open) it is 5 pm Sunday in New York and 10 pm Sunday in London. There can be some variations because of different daylight saving times around the world – but that’s the basic opening time of the forex market at the beginning of the week.

Then it stays open 24 hours a day because the business hours in the different time zones cover the full 24 hours. The last major market to close is New York, finishing at 4 pm EST on Friday. That’s 9 pm Friday in London and 7 am Saturday in Sydney.

So you can trade 24 hours a day during the business week. However, if you are involved in forex scalping or day trading which rely on high liquidity and a very fast moving market, you will probably want to be online at the busiest time of day.

The top forex trading time each day is the overlap in the business hours of the two busiest trading floors, i.e. London and New York. These two markets are open at the same time for three hours per day, which is the morning in New York (8 am to 11 am) and the afternoon in London (1 pm to 4 pm). That is when you
would want to be online for forex day trading.

If you are trading on longer term trends then the timing is not quite so important and you can check the markets at times that fit around your other activities. Of course if you have a forex robot trading for you on autopilot, your robot can be online through all of the forex trading hours and cover all 24 hours a day for you.

~~~

When you know WHEN and WHERE the best times and places are to place your forex trades, there’s no need to waste your day (and your life) fumbling around with chart after chart.

Next Page »