Criticism
The premise that markets unfold in recognizable patterns contradicts the efficient market hypothesis, which states that prices cannot be predicted from market data such as moving averages and volume. By this reasoning, if successful market forecasts were possible, investors would buy (or sell) when the method predicted a price increase (or decrease), to the point that prices would rise (or fall) immediately, thus destroying the profitability and predictive power of the method. In efficient markets, knowledge of the Elliott Wave Principle among traders would lead to the disappearance of the very patterns they tried to anticipate, rendering the method, and all forms of technical analysis, useless.
Benoit Mandelbrot has questioned whether Elliott waves can predict financial markets:
But Wave prediction is a very uncertain business. It is an art to which the subjective judgement of the chartists matters more than the objective, replicable verdict of the numbers. The record of this, as of most technical analysis, is at best mixed.Robert Prechter had previously stated that ideas in an article by Mandelbrot "originated with Ralph Nelson Elliott, who put them forth more comprehensively and more accurately with respect to real-world markets in his 1938 book The Wave Principle."
Critics also warn the wave principle is too vague to be useful, since it cannot consistently identify when a wave begins or ends, and that Elliott wave forecasts are prone to subjective revision. Some who advocate technical analysis of markets have questioned the value of Elliott wave analysis. Technical analyst David Aronson wrote:
The Elliott Wave Principle, as popularly practiced, is not a legitimate theory, but a story, and a compelling one that is eloquently told by Robert Prechter. The account is especially persuasive because EWP has the seemingly remarkable ability to fit any segment of market history down to its most minute fluctuations. I contend this is made possible by the method's loosely defined rules and the ability to postulate a large number of nested waves of varying magnitude. This gives the Elliott analyst the same freedom and flexibility that allowed pre-Copernican astronomers to explain all observed planet movements even though their underlying theory of an Earth-centered universe was wrong.Read more about this topic: Elliott Wave Principle
Famous quotes containing the word criticism:
“A tailor can adapt to any medium, be it poetry, be it criticism. As a poet, he can mend, and with the scissors of criticism he can divide.”
—Franz Grillparzer (1791–1872)
“In criticism I will be bold, and as sternly, absolutely just with friend and foe. From this purpose nothing shall turn me.”
—Edgar Allan Poe (1809–1845)
“I consider criticism merely a preliminary excitement, a statement of things a writer has to clear up in his own head sometime or other, probably antecedent to writing; of no value unless it come to fruit in the created work later.”
—Ezra Pound (1885–1972)