Ian Copsey - Harmonic Elliott Wave: The Case for Modification of R. N. Elliotts Impulsive Wave Structure

Contents

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Introduction

It has been 20 years since I began to learn and apply the Elliott Wave Principle to the markets. I bought two books on the topic, read them thoroughly, and thought I could begin to predict price movements more effectively. Of course, as anyone will tell you, it's not as simple as that.

I studiously attempted to apply the principle to daily forex movements, but finding no success I gave it up... several times. What drove me forward was that of all analysts, it was those who utilized this principle that produced the most accurate forecasts. Other analysts simply had no clue, and this prompted me to continue the quest to conquer the challenge.

It took me a full 18 months before I felt that I had mastered the technique to an extent where I could generally provide more accuracy to my forecasts, but I was not yet at the stage where there was a high level of consistency. This led me to believe that it was a technique that demanded a great deal of dedication and practical experience to achieve success. Strangely enough, even then others still seemed to appreciate my attempts.

Around 16 years ago, I left trading to join the second largest real-time data vendor, Dow Jones Telerate, to provide specialist analytical support for their clients. I began to hold seminars for traders in Tokyo, which of course included Elliott Wave. It was a marvelous experience that deepened my knowledge of technical analysis in general, but it also took me away from the front line of having to analyze and forecast every day.

It wasn't until around 2004 that I returned to full-time analysis, writing a daily report which has now developed into The Daily Forecaster , subscribers coming from retail traders, corporate treasurers handling forex exposures, bank traders, and hedge funds. Being independent, the need for accuracy was pressing. Subscribers paid up their bucks and wanted profits. The days of having the backing of a large bank's name, a good salary, and less risk had passed.

Utilizing R. N. Elliott's wave structure, I became aware that things were not quite right. The same anomalies in the wave structure repeated themselves over and over again. The normal Fibonacci projections that are widely quoted didn't work all that often. Impulsive waves all too often stalled early and missed out a wave. So I began to adapt the way in which impulsive wave structures develop and to research the common ratios in projections. After a few months, it was clear that my adaptations produced far more accurate results in both the projection ratios and the manner in which impulsive wave structures develop.

It was at this point that the number of subscribers who kindly wrote to compliment the accuracy of both my forecasts and the daily support and resistance rose considerably. Another quite common comment was how other market analysts seemed to have no idea of what will happen next. As one subscriber wrote:

I am also extremely happy that I stuck with you. At the time, you twisted my rubber arm to continue with the original subscription I had been suffering from a string of advisors, many of whom were well-intentioned but could not unfortunately, for me, chew gum and walk straight at the same timeI mean from an analysis point of view. It was a bit like dining al fresco in the middle of a hurricane...

By no means am I perfect and I still have varying degrees of success in forecasting, but the consistency is higher with my approach, and one factor I have noted is that the derivatives of both Fibonacci and harmonic ratios I employ do often provide powerful reversal signals if my forecasts prove incorrect. The mere fact that support and resistance levels are more accurate provides more focused points in price action that identify both trade entry and stop loss/reversal levels that can assist in reducing the size of losses and thus provide more effective maintenance of capital.

In writing this book to describe my findings I do not wish to imply that R. N. Elliott failed. In my opinion he was brilliant to make such observations in the first place. I do not for one moment believe I could have identified and quantified the Wave Principle if I had no prior foundation on which to work. The ability for me to identify this different structure of impulsive waves could really only have been managed with the benefit of modern calculators and charting software. With a few touches of the keyboard I am able to generate a full range of retracement levels and projections in my spreadsheet. While Elliott did have access to hourly charts, his ability to scrutinize wave relationships was limited due to the fact that he would have had to calculate a range of ratios long hand. Spreadsheets allow these to be available almost instantaneously. All that is needed is to tap in a few highs and lows. Therefore I prefer to label my findings as a modification only. R. N. Elliott's work still remains a remarkable feat of observation and diligence.

Having mentioned to other market professionals that I feel Elliott's structure is incorrect I have encountered a significant degree of resistance. It's like I have touched a raw nerve, almost challenging a religious dogma! Therefore, in suggesting this reappraisal of the impulsive wave structure I realize that I need to offer suitable substantiated evidence to support my claim, and this I do through the use of wave relationships. The key to this evidence comes from the fact that the Fibonacci or harmonic ratios must be present not only within each wave but also within the entire fractal sequence of waves, so that the waves of lower degrees must generate projection targets that fit harmoniously into the larger degrees. Each in turn contributes to the next larger degree.