Following the Life Cycle of a Price Move
Abook on broad trading tactics in technical analysis cannot go far without mentioning the contributions of founding father Charles Dow and how his ideas paved the way for the charting methods we use today. In this chapter, we will compare the contributions of Charles Dow and Ralph Elliott as they relate to the life cycle of a stock's price move over time.
Ralph Elliott's writings build upon the foundation established by Charles Dow in discussing how stocks move from accumulation to distribution over time in more specific motions that he labeled as waves instead of swings. This chapter illustrates how to identify a stock in an accumulation phase, follow it through the mark-up in its realization phase, and lock-in your profits as the stock enters its final stage of distribution just before a mark-down phase occurs.
From 1890 to 1900, Charles Dow published his writings on stock market phenomena that would later form the foundation for technical analysis. We have already addressed some of Dow's work in Chapter 1 when we discussed the Trend Continuity Principle. Dow also believed that trends, once established, were more likely to continue than to reverse. In fact, Charles Dow separated the notion of trend into three separate trends: primary, secondary (or intermediate), and minor. To modern day traders, we often assess the primary trend of a stock by studying its monthly chart and use the weekly chart to determine the secondary or ...