This lesson is at the beginning of the course because it is incredibly important. It is a foundation that you need to progress on your journey of learning to analyze the market and also trade the market. This concept is quite literally the lynch pin to everything. The Wave Principle is expressed onto a chart in the form of waves of social mood. These waves of social mood have been found to be repetitive in nature, and as such, they have predictive value. These waves of social mood are contained within the market and the market does not change its course due to outside influences. While “the news” undoubtedly has an effect on the ups and downs of human behavior, it does not drive the market. When humans don’t understand something, it’s natural for their mind to attempt to explain the inexplicable. To understand our human nature better we need a general understanding of broad human psychological history. In early human kind, pagans had many gods to explain things they could not understand. Sun gods, wind gods, war gods, etc. As humanity evolved, science was able to explain most of these phenomenon and the species abandoned the many God theory. As a microcosm, the market still holds many of these same inexplicable characteristics. People blame “whales” and “manipulation” and try to find current events in the “news” to blame market behavior. But the keen observer will notice that a significant event, such as a new Covid variant sweeping the country does not always translate into a major market move. That’s because the news does not drive the market, the market moves in waves and is independent of what humanity can explain. Keep this in mind as you watch inexperienced and naive YouTubers and bloggers attempting to explain the market. I should also mention to pay attention to last sentence in this excerpt below. Market movement is independent of not only causal events, but also periodicity. It’s repetition of patterns bear no mind to prior movement. Each wave has an independent personality. Please review the video below learn about the concept in Robert Prechter’s own words.
Sometimes the market appears to reflect outside conditions and events, but at other times it is entirely detached from what most people assume are causal conditions. The reason is that the market has a law of its own. It is not propelled by the external causality to which one becomes accustomed in the everyday experiences of life. The path of prices is not a product of news. Nor is the market the cyclically rhythmic machine that some declare it to be. Its movement reflects a repetition of forms that is independent both of presumed causal events and of periodicity.
Robert Prechter and A.J. Frost: The Elliott Wave Principle – Key to Market Behavior
My perspective in this material is that of a technician and not a fundamentalist. Fundamentals fall in the same category as the news. Technical analysis is the study of the market with the underlying assumption that everything there is to know about the market or a stock is already reflected in the price. No matter what the fundamentals are, or how they are changing, it takes buying and selling to move asset prices and without that, no trade will return a profit. I am not the first market analyst to come up with this concept. Many other successful traders say the same thing as Mr. Prechter. Such as the excerpt below from Michael S. Jenkins. Mr. Jenkins is not an Elliottician by the way. He’s just another successful trader that has internalized the exact same concept.
Technical analysis tools are objective measures that tell us without emotional involvement
Michael S. Jenkins: Complete Stock Market and Trading Course
just what is to be expected. It has nothing to do with reading the newspaper or watching
TV, thinking that news will make our stock go up or down. Perhaps for one day it might,
but most of the time it’s just random noise. In the cycle business we say “the news breaks
with the cycle,” which means it is the cycle that causes the news and not the other way
around.
In order to truly internalize the concept of external causality, we need to force ourselves to flip our thinking. Jenkins said it, Prechter said it, and I’m saying it too. The news is a product of the market. The market is not a product of the news. The underlying forces of social mood is why you see the headlines. Humans naturally gravitate towards telling us what already happened. That’s what the news is, information in hindsight. It does not and cannot tell us what the future will hold. This will likely be the most difficult concept you will have to learn. Yes, practicing the Elliott Wave Theory is hard. If it were easy, then everyone would do it. Flushing your mind of your primal urge to need a reason why something happened, i.e. the cause and effect model, will be more difficult. It goes against how you are hard wired as a human being. But it is necessary. So if you are not ready to give up on your fundamentals or your primal need for a reason. You need not continue the course. You will not be successful if that is the case.
Show me the charts and I’ll tell you the news. Have an opinion of what the market will do but don’t decide what the market will do. Be happy with a percentage of the move.
A paraphrased quote by Bernard Baruch.