Elliott Wave Theory, Fitz-Style

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Elliott Wave Theory, Last Updated Wednesday

02:53 AM
Fitz-Style $AAPL
by DAN $SVXY
I use EW (Elliot Wave) as a general backdrop of my

$SUNE
analysis. But I’m not a “true believer” who worships at
the House of Elliot, where Robert Prechter is the pope.
$CYBR
The problem is that this simple theory (which is really
quite elegant…but for different reasons than Fibonacci
sequence, curves in a sea shell, or the orbit of the $GOOGL
planets) has been parsed and re-parsed such that there
is “meaning” in every little move. $SPY
I’ve always had such a huge problem with that because it $BLUE
conflicts with my basic approach to chart analysis —
which is that there are typically big psychological $TWTR
underpinnings to the market, and that these
psychological forces can be ferretted out if you keep an $NVAX
eye on the big picture.
$IBB
Conversely, EW has a “classification” for every
move…and each move is subject to being reclassified $TLT
depending on the next move. I don’t know how you can $SPX
make money on that…but man, you sure sound smart if
you know the nomenclature. $NFLX
Fitzpatrick Version of Elliott Wave $TSO
I do subscribe to the basic premise that the market $COTY

moves in a series of 5 waves — for example, three
upward “thrusts”, connected by two corrective $AGNC
countermoves (pullbacks).
$NLY
Wave 1: initial uptrend
Wave 2: pullback from the uptrend (a “correction”) $AMBA
Wave 3: Resumption of the uptrend…and the longest
wave. $VLO
Wave 4: pullback from Wave 3…another “correction”.
Wave 5: Resumption of the uptrend. $ULTA
In the broadest sense, I believe that Wave 3 is typically $SAVE

the longest, most profitable move.
$ZBRA
I just have a different basis for explaining this series of
waves other than Fibonacci numbers, sea shells, or $CLDX
planetary alignment.
$SN
I believe that Wave 1 is often created by institutional
buying…value buying…those traders whose actions start $HALO
what turns out to be a major move.
Wave 2 is caused by these early investors having made

their initial buys, and being unwilling to buy more Products
because they are waiting for lower prices. So the buying
pressure wanes…the stock (or market) pulls back.
The Next
Step
Wave 3 is started when the value buyers come back,
Workshop
deeming the stock as being at the right price to buy $1195 (Member
more. Also (and importantly), the move is now starting to Price)
attract other buyers. The stock (or market) starts making
some news…more people are drawn to it, thereby 59 MINUTE
providing more demand that pushes the stock higher. As TRADER
it moves higher, momentum traders find the stock and $1297 (Member
push it even higher. This is the longest wave because Price)
the demand is being created by both institutions

Technical
(including momentum-based funds) as well as the retail
Analysis for
public. At some point, the momentum gives way to…. Non-Technicians.
(Part II of II)
Wave 4: the next pullback after a pretty nice uptrend. This $49 (Member Price)
would be due to an exhaustion of buying from
Technical
momentum traders as well as a general disinterest
Analysis for
among larger funds for buying at these levels (“Too
Non-Technicians
pricey…isn’t there somewhere else we can put our (Part I of II)
money and start another ‘Wave 1′?”) $49 (Member Price)
Wave 5 is started after this pullback has completed. Short Selling

3-DVD Set
Wave 5 is dominated by mostly smaller traders who are
and Workbook
trading on an established thesis. They are trading on
$521.25 (Member
yesterday’s ideas (and there is nothing wrong with that, Price)
my friends. The best ideas are those that work for quite a
while), and are applying them to today’s prices…even High Octane
though today’s prices are much higher than they were Options
2-DVD Set and
when the idea was first disseminated. At the same time,
Workbook
those large investors who bought back in Wave 1 are
$597.75 (Member
now selling into this buying. This is “distribution”! A Price)
Wave 5 is typically marked by higher volume than you
might expect to see during a consolidation or
continuation pattern. Why? Because there is a lot of
stock to sell! The first guys are getting out…and are
selling to those who are unknowingly late to the party.
That’s why a Wave 5 tends to be a bit flatter than Wave 3.
It’s under more selling pressure. As we know, the
smaller traders have–by definition–limited capital. So
they can only soak up so much supply before their bellies
are full. When they’ve exhausted all their buying capital,
the stock falls — the 5 Wave pattern is complete and the
stock starts searching for the bottom.
=======
That’s my market approach, and it is consistent with

Elliott Wave. But that’s pretty much where I end…and
where the Church of Elliott Wave begins. EW theorists
find meaning in every little wiggle within this basic 5 wave
pattern. There are sub-patterns…A, B, and C; 1, 2, and
3;…then there is a, b and c; and i, ii, iii, etc. Just so many
subclassifications that I find the entire exercise
confusing. Also, I just feel a bit silly squinting my eyes to
pick up every nuance in the moves because I’ve been
around long enough to know that there is indeed a
certain randomness to markets…and that randomness
cannot be explained (otherwise it wouldn’t be random).
By the way, can you see how my “Three Day Rule” fits into
this Elliott Wave theory?
Note: The Elliott Wave Theory is the single reason why I

haven’t finished up my CMT designation with the Market
Technicians Association (“MTA”). It’s a question on the
third and final exam. While it’s not a big question, and I
could probably pass just knowing what I know now (I’d
get a crappy score on that question, but I’m pretty solid on
the rest of the curriculum), just the mere fact that Elliott
Wave is part of the “official” curriculum leaves me flat, and
I always find something better to do with my time than to
dedicate it to taking this third exam. So I’ll either have to
write a research paper…or forget the whole thing. (I’m
leaning toward the latter).
–Dan
TUTORIALS
 AUGUST 24, 2008 12:00 AM
WHAT’S WORKING WHAT’S WORKING (AUGUST

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MY ACCOUNT HOME SUPPORT STOCK MARKET MENTOR OPTION MARKET MENTOR LOGOUT UPGRADE

Market Videos Articles Forum Education Stocks

Elliott Wave Theory, Last Updated Wednesday

I use EW (Elliot Wave) as a general backdrop of my

Fitzpatrick Version of Elliott Wave $TSO

I do subscribe to the basic premise that the market $COTY

In the broadest sense, I believe that Wave 3 is typically $SAVE

Wave 2 is caused by these early investors having made

the demand is being created by both institutions

Wave 5 is started after this pullback has completed. Short Selling

That’s my market approach, and it is consistent with

Note: The Elliott Wave Theory is the single reason why I

WHAT’S WORKING WHAT’S WORKING (AUGUST

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