A detailed description of Elliott Wave Theory is beyond the scope of this article, but suffice to say that Elliott Wave Theory is a form of predictive technical analysis which always perfectly explains the past and can give the practitioner great confidence in his predictions about imminent future price movements.
As I’ve seen it, for every bullish wave count that can be fit to present market action, there is an alternative bearish wave count, and this allows a either a bull or bear to fit his view of the world onto the market, again, with great confidence.  Therein lies the danger;  having great confidence might inspire an Elliott Waver to make big bets, because the wave count is clear and the market has a perfect order!  Without proper position sizing and exit strategies, an Elliott Wave practioner could go broke on just a few sour trades. (Remember though, that the same is true for all other traders.)

Wave counts are subjective, and thus are hard to model and backtest.  If I cannot code Elliott Wave Theory as a set of rules that can be tested, then I must reject it as a trading strategy.  Attempting to manually chart Elliott buy and sell signals over a trading vehicle’s price history and presuming that you would have placed all of those trades is the worst kind of curve fitting that I can think of.

  But there is hope.  Remember that research has shown that entry is the least important part of a trading system.  With proper risk controls, and provided that Elliott Wave entry signals are not *worse* than random, a wave counter can actually still turn a profit, and can safely go right on believing that the market has a perfect order which he can predict. (Opposite of random walk?)  Perception is reality, and profits have a funny way of convincing a trader that his ideas are correct…and losses only sometimes silence the fortune tellers.
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