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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.

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



We have always been interested in analyzing some of the main ideas of the Dow Theory which then have become axioms. Our interest stems from one of the basic ideas behind this theory such as proposing that there is a “smart money” and a “dumb money” or, the money of anyone who is not Smart , namely the general public. This single idea has intrigued me because it goes against one of the foundations of the Elliott waves theory ,which is that there are different degrees waves and the structures Elliott described also meet the common definition of a fractal (self-similar patterns appearing at every degree of trend) so, the 3 Elliott rules and his waves definition, both impulsive and corrective, to be applied in any degree, according to their fractal characteristic. If we accept the idea that there is a “smart money” buying the public, without they realize that there is this secretive process, prior to a rally or “smart money” selling to the public or   distributing quietly, before a downfall of Price, means that “smart money” has to be alert to any wave degree acumulation or distribution stage, say of a primary wave as well as a micro wave, because each wave degree has to respect the same rules as soon as has to respect its fractal definition.

Another major discrepancie of the above Dow theory axiom,  with the Elliott theory is that the Fibonacci Summation Series is the basis of The Wave Principle. Numbers from the Fibonacci sequence surface repeatedly in Elliott wave structures, including motive waves (1, 3, 5), a single full cycle (8 waves), and the completed motive (89 waves) and corrective (55 waves) patterns so The Dow theory “Smart money” has to continually tending to fulfill this mathematical sequence.
These profound discrepancies between the Dow and Elliott theories generated in me the need to devote myself to study in depth the Elliott theory , of whom I am her follower and admirer.
As we have announced in this blog, as well as in other important forums, we have proved the existence of 4 new rules. The first of which was filed as "accuracy".
The intention of this post is to go documenting and proposing for discussion, some basis of my studies and observations I have tested and will allow me to support the existence of my new 4 rules, to be used in the count of Elliott waves.