Chapter 19: Cycles (Technical Analysis of the Financial Markets by Kirkpatrick and Dahlquist)
Amplitude is a measure of the “strength” of the cycle. In markets, amplitude can change and lie dormant for a while. Amplitude is related to volatility which we know also fluctuates over time. It is the distance from the horizontal axis to the extreme peak or trough.
Phase determines how far from the y-axis the particular cycle begins. It thus determines the offset between two cycles of different phases.
In an uptrend, upward trends are long and corrections are short.
Chapter 20: Elliott Wave Theory, Fibonacci and Gann
Fun Trivia Of The Day: Do you know that Ralph Nelson Elliott (the one who devised The Elliott Wave Theory) started his stock market analysis upon age 63 years old? He was a railroad accountant and reorganizer in Central America. He was born in 1871, started markets 1930 and died 1948. Despite having very little time left spent in the markets due to his advancing age, he was very well known and his work was popularized by Robert Prechter and A.J. Frost- The Major Works of R.N. Elliott (1980) for his groundbreaking theories. (Lesson – Never too late to start, never too young to start 🙂
Waves 1, 3, 5 – larger waves
Waves 2, 4 – corrective waves (broken in three subwaves – A,B &C)
A, C – downward price movement
Wave B – upward price movement
The Golden Ratio- Fibonacci (1.618)
1.) Plato considered the golden ratio to be “the most binding of all mathematical relations, and considered it the key to the physics of the cosmos.” – Frost and Prechter, 2000
2.) German born , seventeenth century mathematician, astronomer, and astrologer, Johannes Kepler likened the golden ratio to a fine jewel and claimed that it described all creation. The reason for this adoration appears in innumerable natural phenomena. For example, consider a spiral that has its arc length to its diameter at a ratio of 1.618; this spiral occurs in nature in comet tails, galaxy spirals, spider webs, pine cones, snail shells, ocean waves, and even the human finger when curled. It is universal. It is a growth pattern in nature, and Elliott hypothesized that it occurred in the stock markets.
There’s a tendency , and is not a dependable target that corrective waves tend to correct approximately 61.8% or its inverse (100-61.8% or 38.2%)