The Hindu Business Line : ‘Essence of Wave Principle will never change’

Chennai, May 4 Indian investors, in both equities and commodities, have been spending more and more time staring at charts in a bid to be one step ahead of the markets. Mr Jeffrey Kennedy, Senior Financial Analyst, with Elliott Wave International, the organisation presided over by the legendary Mr Bob Prechter, will be in India this week to conduct a workshop on trading with Elliott Wave, organised by CommodityIndia.com. He addressed some of the Business Line’s queries through e-mail.

Excerpts:

R N Elliott discovered the Elliott wave principle almost eighty years ago. How is it that his theory is just as popular today as it was in the beginning of the twentieth century?

The answer to this question is simple – it works. The wave patterns that Elliott documented in the mid-1930’s, which are based on crowd psychology, are the same wave patterns that market technicians observe today. And rightfully so, the behaviour of crowds, regardless if we’re speaking of the Tulip mania of the 17th century or the dotcom mania of the 1990s, trends and reverses in recognisable patterns as Elliott described.

Do you see the theory undergoing changes in the future to adapt to changing environment?

Yes and no. I believe the essence of the Wave Principle will never change, and that is market prices trend and reverse in recognisable patterns. I do believe though that advances will be made regarding, possibly, new wave patterns, and more importantly, in its application.

In many ways, technical analysis is still in its infancy, and I believe in the years to come our generation and the next generation of technical analysts will greatly enhance and add to the current body of knowledge.

Based on your experience, on which market is the Elliott Wave Theory most effective - the foreign exchange, commodity or equity market?

The Wave Principle is effective in any market where there are a large number of participants – and the larger the number, the better. To answer your question more directly, from least to most difficult, I would say equities, foreign exchange and then commodities. And the reason this is because each one of these markets has their own inherent differences. For example, rainfall or droughts have no impact on the price of Microsoft. Conversely, bushels of Corn don’t report to a board of directors.

What would you say to analysts/traders who find the myriad rules in the Elliott Wave Principle rather daunting?

Anything new is daunting. However, with practice and patience, anyone can become a skilled Elliottician.

Apart from Elliott Wave Analysis, do you also use other technical tools such as patterns, oscillators and so on. If yes, which ones do you use?

Yes, I use a number of the traditional indicators and studies such as RSI, MACD and Stochastics, but I rely most heavily on the indicators and studies I have created myself.

Is the wave principle currently being applied in other social economic processes apart from stocks and commodities?

Most certainly, I have heard of businesses interpreting charts of growth and sales with the Wave Principle and even individuals with respect to their own professional careers.

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