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FIBONACCI AND THE ELLIOTT WAVE PRINCIPLE

Ralph Nelson Elliott (1871–1948) began his career as an engineer, not a professional market analyst. Having recovered from a serious illness in the 1930s, he turned his interest to the analysis of stock prices, focusing on the Dow Jones index.

After a number of remarkably successful forecasts, in 1930 Elliott published a series of major articles in Financial World magazine. In these articles he first contended that the Dow Jones index moves in rhythms. Elliott's market theory was based on the fact that every phenomenon on earth moves in the same patterns as the tides: Low tide follows high tide, reaction follows action. Time does not affect this scheme because the structure of the market remains constant.

This section briefly reviews and analyzes Elliott's concept. This is important, because it explains the fundamentals that were used to analyze the Fibonacci extensions and corrections. Attention will focus on the main sectors of Elliott's work, which has long-lasting value. Even those who do not agree with some of Elliott's findings must admire him for his ideas. It must have been difficult to create new concepts for market analysis without the technical support available today.

The Elliott Wave Principle

Elliott based his discoveries on nature's law. He noted, “This law behind the market can only be discovered when the market is viewed in its proper light and then is analyzed from this approach. Simply put, the stock market is a creation ...