Ralph Nelson Elliott left us a great legacy in his monograph ‘The Wave Principle’ (1938) and it has most undoubtedly stood the test of time in its robustness as a tool for price-prediction, especially during the last decade when many other methodologies have collapsed. It has its detractors though, and despite being a strong advocate and practitioner of the Elliott Wave principle (EWP) myself, am sympathetic of their dismissive remarks. Why is that? Simply put, some big calls or forecasts have not unfolded in the way we might have expected or hoped – certainly, I have experienced failures too. Some have worked quite well, but then degraded over time making them redundant sometime later. The EWP is so dynamic in its predictive qualities that there is a ‘human’ temptation to make bold statements at key intervals – but in the heat of the moment, obvious clues get missed. There is one element to the EWP however that is the key in resolving this issue – and that is combining Elliott’s original concept of Pattern Repetition with his less known studies of Ratio & Proportion.
Elliott’s Introduction to the Fibonacci Series
Soon after publishing The Wave Principle, Elliott was sent several books, recommendations and various articles related to Natural Laws of science & metaphysics by Charles J. Collins, director of Investment Council Inc. These included works from Professor Arthur Henry Church entitled ‘On The relation of Phyllotaxis to Mechanical Laws’ and Sir James Hopwood Jeans’ ‘The Mysterious Universe’. This also led to Elliott’s investigation of the Fibonacci sequence that he referred to in his ‘Educational Bulletin’ dated October 1, 1940 in which he stated “The Basis of the Wave Principle is veryold…Pythagoras in the sixth century B.C.,Fibonacci in the thirteenth century and many other scientists, including Leonardo da Vinciand Marconi, have all shown that they were aware to some extent of this phenomenon… Fibonacci was an Italian mathematician…His Summation Series of Dynamic Symmetry agrees in every respect with the rhythmiccount of the Wave Principle…”.
What Elliott read and learnt in the years that followed his receiving those books from Collins ignited his fascination and shaped his theories of the Wave Principle around the concept of the Fibonacci Summation Series and its inherent relationship to ‘Ratio & Proportion’.
applying these to both time and price activity. The common reference used was the ‘golden ratio’, 61.8% or its reciprocal 161.8%. There are scant references of its use but in another of his educational bulletins dated August 11, 1941, Elliott described a decennial triangle unfolding in the Dow Jones Industrial Averages that began from the (orthodox) peak in 1928. The triangle appears as the same structure that we know today, consisting of five priceswings unfolding into a sideways trading range enclosed by two narrowing boundary lines that form towards an apex. In this article, he lists the successive waves unfolding to ratios of 0.618%, the origin of this formula that we use today
C.J. Collins published a supplement to the Bank Credit Analyst (Bolton, Tremblay & Co.) in 1957 that forecast “…Primary V could be quite sensational, taking the DJIA to 1000 or more [in the early 1960’s] in a wave of great speculation”. This proved uncannily correct even though it took until 1966 to be fulfilled – despite this, it is not obvious how Collins measured the advance that turns out to be the top for cycle wave 3 as quoted in Frost’s & Prechter’s book although we do know that three years later, Bolton used the fib. 161.8% (correlative) ratio of the 1949-56 advance to the subsequent low on 1957 to determine the high to 999 – but these men were in correspondence together after Elliott’s death in January 1948.