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Tuesday, January 8, 2013

Discrepancies with Dow theory that lead me to try out some inconsistencies in this theory # 2.

Continuing with our Discrepancies with Dow theory, we will proceed to analyze a second axiom, always based on the Elliott theory and our own observations and studies. Here we analyze the following axiom:

"Everything is discounted by the price Averages.Since the Averages reflect all information, experience, knowledge, opinions, and activities of all stock market investors, everything that could possibly affect the demand for or supply of stocks is discounted by the Averages."


We understand that one of the pillars of technical analysis is the study of price and this is commonly called the "King Price" and, we, also, understand that our position can and will generate technical analysts discomfort but that is what this forum is for, so participants can  generate discussions and our approach may be valid or not and in any case, I will have to prove my statements.


We must begin by describing the term fractal (wikipedia), which is the basis of Elliott theory:

fractal is a mathematical set that has a fractal dimension that usually exceeds its topological dimension and may fall between the integers. Fractals are typically self-similar patterns, where self-similar means they are "the same from near as from far". Fractals may be exactly the same at every scale, or, they may be nearly the same at different scales. The definition of fractal goes beyond self-similarity per se to exclude trivial self-similarity and include the idea of a detailed pattern repeating itself.Wikipedia.



Fractals example.

In the previous blog we disagree with the axiom that there is a "smart money" and "dumb money" on markets and now, basically with the same arguments, we are obliged to disagree with the idea that "Everything is discounted by the price Averages.Since the Averages reflect all information, experience, knowledge, opinions, and activities of all stock market investors, everything that could possibly affect the demand for or supply of stocks is discounted by the Averages.". If this is right, it means that if the price discount it all and secondly, according to fractal theory applied to Elliott waves, the same rules are true for any degree wave, we will need "information, experience, knowledge, opinions, and activities of all stock market investors, everything that could possibly affect the demand for or supply of stocks" each second, minute, hour, day, week,etc, so that the movement of these waves, which are governed by rules and respect the Fibonacci sequence will be identical in each wave of any degree. We have discrepancies with this Dow theory axiom.

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