Zoran Gayer against Robert Prechter : on the origin of Waves in Stock Market

Discussion in 'Psychology' started by harrytrader, Jan 24, 2004.

  1. http://yelnick.typepad.com/yelnick/elliott_wave_theory/index.html

    Fibonacci Ratios and Market Makers
    Yelnick has been contemplating how fib ratos might develop in market indexes. Quick remarkable how often market movements shift at fibonacci ratios of each other. Prechter attibutes it to the fear & greed action of the limbic system in investors - since natural systems tend to show fib ratios in physical elements, he postulates it is also wired into behavior from the baser brain functions. It then gets realized in herd behavior. Zoran challenges this in the prior post, since small events or groups seem able to move markets ahead of the herd, and sometimes the herd is not able to turn the market.

    Prechter attempts to answer this by suggesting that the herding instinct may cause a few to react before the herd, but react to the same underlying forces which later sway the rest, or fail to sway the rest. Could this explain the fib ratios?

    Zoran Teaches
    Zoran Gayer is developing a modern version of Elliott wave theory, blending the orthodox Prechter view with the rival Neely view, and adding a better understand of chaos theory. He is attempting to solve the most bedeviling problem with ewaves, how to determine when a correction is ending. We have seen over the past year how Prechter's STU continually calls a premature end to this wave 2. For traders this is paramount, as placing positions at the end of a 2 to catch the 3 is where the money is made, at any fractal level of wave action. Here is part of Zoran's developing point of view:

    EWP on the S&P 500 index 21
    September 2003

    I have read comments that this market is " climbing a wall of worry ". This is taken as indicative that this up move is a new BULL move. However, this statement is a contradiction the fact. How can you have a market "climbing a wall of worry" with optimism at the highest level since 1987 peak? This is not a "wall of worry" but more in line with exuberance of major tops and bubble mania.

    The market comments are full of cliches that often are used out of context or times do not make any sense. Part of that is because our knowledge base has grown and that our view of the world has changed. Many of the market cliches we have inherited from the past and have been repeated so many times that they take form of market truths. Elliott formulated his concept over 50 years. Some things of Elliott's conceptualization may need revision. This not to detract from the man for his observational acumen was rare amongst men.

    Let us consider three of his basic structural tenets.

    Markets follow order

    This is a basic tenet of Elliott Wave Theory as expressed by Elliott himself. Quoting from the introduction in Nature's Law Elliott says, "No truth meets more general acceptance and that the universe is rule by law. Without law it is self-evident there would be chaos, and where chaos is nothing is" and "But the market has its law, just as it is true of other things throughout the universe. Where there is no law, there would be no centre about which prices could be the resolve and, therefore, no market."

    The statement is partly true and partly not. There is no question as Elliott puts it that there is law (or order). That there is law does not mean that the market always obeys the laws. Conceptually according to Elliott, the market is completely ordered and thus predictable. IT OBVIOUSLY IS NOT. It is much more correct to say,

    "Markets are self ordering mechanism that constantly adjusts to an uncertain world".

    The second statement in fact states markets are unpredictable. Thus, the concept markets are never the same, but they do rhyme is true. Modern research into the way natural systems behave is that small changes can produce vastly different results. In fact, though the rules are the same the outcomes can be vastly different. Substantially all natural systems move from chaos to order and back to chaos. The financial markets follow more the CHAOS THEORY than that they follow ELLIOTT'S COMPLETE ORDER CONCEPT. (There is a form of order in CHAOS/ FRACTUAL concepts, which seems contrarian to its name).

    Crowd behavior moves markets

    The crowds may move the markets but they are not the instigators of the trend they merely reactors to what has happened. The twelve men in the monthly meeting of the central bankers (FOMC) have more effect than rest of the crowd combined. History shows that individual men not crowds made the greatest changes. Most trends of human behavior grow from small beginnings. Crowds do very little than follow established trends.

    In fact, a common indicator is that the crowd gets it wrong thus giving rise contrarian indicators. At market tops, the crowd is BULLISH and at market bottoms, they are BEARISH. Those that sell the tops and buy the bottoms are the market movers. The crowd does not create the mood its mood is a reaction to the market conditions. Greenspan and the central bankers have created the BUBBLE TOP not the crowd; they simply reacted to the created circumstances. Government policy, destruction law, actions from a small group politicians that started the IRAQI war affected the market to a far greater extend than any crowd ever could. How Elliotticians can conclude that the crowd moves markets is rather perplexing for it is so obviously wrong. Short- term crowds obviously do not move markets as it was amply demonstrated on the 6 June reversal. I suspect something like Peretos law applies to the markets where 20% of the participants have 80% of the effect.

    Simplest market move

    According to Elliott, the simplest market movement is five moves up and three moves up repeating in perpetuity. The direction is in the 5-wave thrust. It is a result from a LONG TERM to SHORT TERM approach. Ilya Prigogine suggested that all natural systems would move from one plateau to the next. The moves between the plateaus is fast and is directional - the order component. The plateau component is non-directional, thus CHAOTIC. To Ilya Prigogine natural systems rotate between order and chaos.

    Each PLATAEU or NON- DIRECTIONAL movement resolves itself in a point, which Prigogine called a BIFURCATION . Thus, the simplest move in a natural system is from one BIFURCATION to the next making up the FRACTAL of chaos. Small changes at the BIFURCATION can cause an explosive move upwards or downwards and often this point is a fine balance. Because each bifurcation is a balance, the outcomes are unpredictable, for it can tip easily either way.

    This is the very reason why Elliott is obvious after the event and nearly all Elliotticians get it wrong before the event .

    One has only to read the newsletters of some Elliotticians to see that they have difficulties in accessing outcomes but then so has everyone else. Thus, long-term moves are made of many small term moves. This is opposite to Elliott and rather obvious. It also states that predicting the markets is a much more complex affair for at each bifurcation the market can head either of two ways. That does not mean that Elliott analysis is pointless. Since we know markets are SELF ORDER SEEKING mechanisms, it just means that we have to be flexible in our approach in reacting correctly to each BIFURCATIONS OUTCOMES. We also know from study of chaos that the same patterns appear in multiple timer frames. Thus by combining a multiple time frames in the analysis often, we can see the likely outcomes of BIFURCATIONS of a lesser degree. Each BIFURCATION will supply a possible trade in that fast move of order seeking attributes. THIS ALSO SUGGESTS THAT ELLIOTT ANALYSIS CANNOT BE DONE EFFECTIVELY WITHOUT USING MULTIPLE TIME FRAMES.
  2. nkhoi

    nkhoi Moderator

    Harry, what is your favorite search engine?:D
  3. The limbic stuff misses the mark (too generalm first off).


    Penfield, limbic, 1920's

    MacLean, triune, ,40'-50's

    Kandell, receptors. See his Nobel Prize

    candace Pert, storage at receptor levels, 1973 (opiate receptors)

    Use that to get into details on:



    neural metabolism

    The peptide receptors either provide access or block it.

    ET is riddled with people who have destroyed themselves whereby strong emotional experiences (Say "losing out loud ten times) prevent them from learning anything new much less remembering what that learning meant and was. Their receptor systems are almost without exception permanently blocked by repeated prior failure.

    The limbic refs don't even begin to focus on why, in particiular, trading and its "herd" of actors comprise the largest single group, the losers. The herd behaves, based upon beliefs that are messed up badly and permenantly. Since the herd is so large, naturally it shows up at mathematical values that strongly relate tonatural behavior and in particular the "herd" behavior.

    The challenge in trading is to attain a neural metabolism that supports and allows for biochemical change at all those points where experience has "welded" chemical crap into the receptor transmission system. This emotional memory system, unless cleared, prevents anyone form emerging from their funk caused by repeated failure.

    Make a list of ET people and see what I mean. They are totally trapped at this point.
  4. LMAO ...
  5. The secret is not in the search engine, the secret is in the way I search and store information :D i.e. I use exploratory or random search: often I search something and I find something else which is very interesting but I don't need it at the time considered so I just store the reference so that I can remember when I need it later (when I remember it because I have so many links and archive in collection my memory must filter some :) ).

  6. I made the suggestion to get you off the track your buddies are on.
  7. I think harry has met his match.
  8. Common sense no ?

  9. From Nassim Taleb

    "I left Wall Street for the first time in 1991. I was obsessed with price formation. I couldn't understand from the screen how prices were determined. It took me six months to be able to read prices in the pit. Locals basically read information from the order flow and squeezed the weak party. <font color=red>There's always a pack of five or six dominating locals who abruptly change the prices</font>, who bid a lot higher than the previous offer and have the guts to do it, <font color=red>and the rest of them follow</font>. "

  10. manz66


    That is the way I trade.:p

    I do not know, why people try or need to predict using elliott wave and other same type stuffs? Only, you have to do is to react with the change of price action. That is trading, rest are hoping, praying, wishful thinking and investing.

    Another thing is you should be aware of where support and resistance is, but do not react until the price start moving again.
    #10     Jan 26, 2004