How Accurate is the Elliott Wave Theory in Forex


The history of Elliott Wave Theory is as long as the arguments about whether or not it works.

The technical analysts who do not use Elliott Wave consider it to be highly flawed and as accurate as determining how many branches an oak tree will have, by looking at a sunflower. But, the ones who use Elliott Wave point at the significant predictions it has made.

For example, Robert Prechter predicted the dot-com bubble with a high degree of accuracy. Granted, it was 5 years too early. However, it still speaks about the potential advantages of this theory. And they lie at the heart of what has made Elliott Wave so divisive and useful at the same time.

What 'bout them sentiments?

Ralph Nelson Elliott saw two things back when he created his theory in the 1930s. The first one is that markets are fractal by nature. It is an obvious thing that has been corroborated through time.

The second one is that market shifts resulted from a mass change on investor's psychology more than traditional market forces. Furthermore, he argued that news only affects the market when investors were willing to change, and these changes come in waves. Usually, according to Elliot Wave Theory, 5 impulsive waves will happen, followed by 3 corrective waves.

At first glance, this may sound like a bunch of lies and hearsay. But, data seems to show a different story. NASDAQ contributor, Avi Gilburt, partnered up with and reviewed how the website performed in recent memory. Here are the results.

● Correctly predicted peak gold in 2011, with a $6 error.

● Accurately determined a multi-year bull run by the dollar in the DXY between 2011-2017.

● Predicted the dip in the metals market in 2015

● Precisely determined that the S&P 500 will drop to the 1800 range in 2015

● Called the S&P bottoming out by November 4th, 2016

Using the last point as a reference frame, the SPX has been on a multi-year rally that ended on March 2018. The news of Trump winning did not affect the market because the market was already poised to make a run regardless of the outcome.

The verdict

Of course, these are only a handful of curated predictions made by Elliott Wave Theory. And detractors will argue, once again, that it does not prove the success of the theory. It only shows that everyone can get lucky every once in a while.

That is an inaccurate statement. When applied with Fibonacci Pinball Methodology, as well as other indicators, Elliot Wave Theory becomes a powerful way to determine the overall state of the economy.

So those doubting the value of Elliot Wave Theory, doubt no more. There is no more powerful and useful methodology than using this theory. Understanding market sentiment is not only crucial to fundamental traders, but it matters to technical traders as well. Having a pulse of the market will lead to better trades than waiting to catch the wave. It is why Elliott Wave Theory has been around for almost 100 years, and it will stay around for 100 more.