Hi, I'm starting to study Elliott's wave theory. What doesn't add up to me is that it seems impossible to know what kind of wave structure the price is in until everything's over. So, how are you supposed to operate on that information if it's all based on looking back?
You could ask yourself that same question with any other indicator or analysis. Everything is based on past data, few things in this life have really predictive value.
The logic behind Elliott's rules generates grammar so free that it cannot be analyzed directly. It only serves to explain what has already happened. You can always find a future combination of movements that invalidates the current count completely. Operating with Elliott waves is more a matter of measuring the potential benefit if your count is right against the risk if it turns out to be wrong... and also anticipate how it could be invalidated. And then managing the operation with that in mind. I suspect traders who dominate this have a risk-benefit ratio far above 1:1. No fear or greed. Math alone.
In my early years as a trader, I took a look at Elliott, but I never managed to understand him well enough to take advantage of him. Maybe I didn�t give him the necessary effort. Anyway, it�s just my humble opinion.
Elliott�s theory isn�t for anyone. If you�re looking for something with clear �buy here, sell there� signs, this system will frustrate you from minute one. It�s interpretive, ambiguous and depends a lot on the trader�s experience. If you�re not able to accept that the analysis can go to hell with the next market movement, better or try. But if you like to analyze structures, look for patterns in the middle of chaos and combine technical analysis with refined intuition, then you could get juice out of it. Yes, don�t expect certainties. Wait for probable scenarios. And learn how to invalidate them quickly. That�s the key to not getting caught in a count that�s no use anymore.
Many criticize Elliott�s waves because they don�t understand that they are not a crystal ball. It�s not about predicting precisely what the market will do, but about creating a framework on which to make more informed decisions. If you use it well, it can help you anticipate great movements. Now, if you use it as a unique and absolute tool, you�re screwed. You have to combine it with other tools and, above all, with risk management. What makes a Elliott trader profitable is not his ability to count waves, but his ability to accept quick errors and adjust his vision in real time.
The funniest thing about Elliott's theory is that you can have two experts looking at exactly the same graph and pulling out completely opposite counts. That already tells you enough about the reliability of this method. There's too much subjectivity. Now, if you manage to understand that subjectivity and take advantage of it as part of your overall analysis, then maybe it will help. But if you're waiting for the market to respect your count as if it were a mathematical rule, get ready to cry.
I started with Elliott's waves and I found it fascinating... until I saw my counting fall apart in real time. It's hopeless when you've been drawing waves for hours, projecting levels, and suddenly the market does something completely unexpected that forces you to throw everything into the trash. Eventually I understood that the key is not to hit the perfect count, but to set alternative scenarios and operate the one that is most likely according to context. But that requires a lot of experience and discipline. If you're not willing to err and move on, you better look for something else.
The problem with Elliott's waves is that many people sell them as if they were infallible. You see gurus with graphics full of numbers and letters, speaking in a tone of absolute wisdom, and then the market makes them ridiculous. That generates unrealistic expectations. If you want to get into this approach, come in knowing that you're going to miss quite a bit. The important thing is how you react when your count is invalidated. Good elliotttists are not the ones who always get right, but the ones who know how to adapt as the market changes pace.
Elliott doesn't work if you don't study it thoroughly. It's not worth watching four videos on YouTube and counting waves as if it were coloring numbers. It needs hours of backtesting, heavy readings and a very sharp analytical mindset. Otherwise, you're going to end up more confused than before. I took more than a year to start using it with some confidence. And yet, I have weeks in which all my counts are invalidated one after the other. Do I recommend it? Only if you're a technical analysis freak with steel nerves and zero magical expectations.
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