The Stock Market and Predictive

Thursday, November 28, 2002
Posted in category Uncategorized

The Stock Market and Predictive Abilities: In the 1930s, Dr. Ralph Elliott developed his Elliott Wave Principle, based on observations he made of stock market prices (Dow Jones, I assume) over a period of years. Based on historical data from selected periods, Elliott observed the patterns of stock market prices with the conclusion that it fit (or he made it fit?) the same mathematical sequence and mathematical constants that are found in nature. Therefore, the stock market rises and falls in patterns which can then be can translated into “wave patterns” that move in a natural way.

Part of his theory is that stock market prices are a mass emotional reaction to events, not a cause of them, and that they follow patterns which repeat themselves in varying degrees which can be identified. This was expounded in the book Elliott Wave Principle: Key to Market Behavior by Frost & Prechter (which is still a good seller, I believe).

My guess is that this is a bit of crackpot methodolgy, or merely the over-stretching of results from simple historical analysis in order to prove the Elliot Wave Principle as having far greater predictive abilities than can be possible. However, in the course of determining market psychology, Elliot does sense the reality of praxeology, or human action in the course of economic decision making.

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