ELLIOTT s WAVE
| Collection | International Encyclopedia of Systems and Cybernetics |
|---|---|
| Year | 2004 |
| Vol. (num.) | 2(1) |
| ID | ◀ 1053 ▶ |
| Object type | Discipline oriented, General information, Methodology or model |
A pattern in the evolution of stocks prices first described by Ralph ELLIOTT, a californian accountant (after being ruined by the Wall Street crash of 1929)
Elliott discovered the existence of more or less regular patterns in the alternance of ups and downs of stock markets in general, and in most stocks in particular
While specific movements are individually random they seem to compose in time a kind of statistical or possibly chaotic determinism . Elliott discovery was based onlong term graphics of stock quotations. It derived into a so-called “technical analysis of stock trends” through the study of certain characteristic patterns, which are supposed to have some forecasting usefulness.
This “chartist” method is widely described (with graphics) by J. CASTI (1990). It is completely at variance to the common financial and economic studies of stocks, which are totally ignored.
In fact, the chartists graphics seem to reflect the psychological aspects of stock trading (the famous “Bulls” and “Bears”). They present some interesting characteristics:
- The graphicated curves show sudden trend ruptures (in the style of R. THOM's “catastrophes ”)
- While all graphics are appearently highly irregular, it seems that short-term trends are imbricated in medium and long term trends. Possibly even these longer trends are somehow constructed in a cumulative way through the shorter movements.
- This last feature seems to indicate that these curves are fractals, or at least imperfect ones
- The self-similarity at different time-spans could be interpreted in terms of WEIERSTRASS renormalization group transformation
The Elliott wave could also be somehow related to the KONDRATIEFF cycle , and even with SCHUMPETER's “creative destruction ” model
Untill now, the whole subject remains ill understood and also under-researched. There is surely more in it than the generally recognized random walk model.