Wednesday, April 1, 2009

Waves in Action

I'm watching the G20 protests, but there is little to say other than I expect this is only the beginning. If we are truly in a nice Suckers' Rally, then I would expect them to fizzle or at least not turn too violent. When the downtrend resumes, one might expect uglier outcomes.

And speaking of downturns, the following chart of the Case-Shiller Composite from Calculated Risk caught my eye today:

I know this is a chart of percentage changes, not of a discrete index, but that sure as heck looks like a five-wave pattern developing in the price change trend. Maybe it means we have a few more months of serious percentage declines and then the declines, while still there, stop gapping down by 20-30%, but during an A-B-C retracement dink and dunk along at single digit declines or occasional gains.

Or maybe I am seeing a Wave Pattern where there is none.

Food for thought. My trading history certainly doesn't qualify me to proclaim myself an expert in Wave Pattern recognition.

1 comment:

David said...

Sounds like you too have found that trading EW patterns you "see" can be a frustrating exercise (for example, I find that never once has an ending diagonal I discerned in process turned out to actually "be" an ending diagonal). A recent post on EWI's homepage spoke of "cognitive bias," which as you know is our greatest enemy when trying to use TA for trading.

The mistake we all make is in thinking that there's a "system," a Holy Grail that, if we can just discover it and implement it, the profits will just roll in.

Those attracted to EW tend to have highly analytical minds. Despite all evidence to the contrary, we still cling to the mechanistic aspects of analysis because there is no (or not yet any) way to quantify probabilities in this endeavor.

If anyone ever actually figures this out, I hope they share.