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

Hardcover

ISBN 10: 0470828706 ISBN 13: 9780470828700

Publisher: Wiley, 2011

Through hours of research and usage Ian Copsey has unearthed a fundamental error in the structural development of price behavior as defined by the Elliott Wave Principle. From his early findings that trending waves ended prematurely and the vagueness of the wave relationships he began to realize that trending waves do not develop in the manner which R.N. Elliott described in his findings.

In Harmonic Elliott Wave he reveals the methodology, the common ratios that link different parts of the wave structure and provides a wealth of practical examples to explain his findings. Through this methodology he shows how waves develop and dispels the misconceptions that have been common practice by Elliotticians over the years. He supports his methods by consistently ensuring that waves are related by common ratios to help the reader apply the techniques with greater understanding and accuracy.

Q&A with Ian Copsey, Author of Harmonic Elliot Wave

Author Ian Copsey

Why have you made these changes to R.N. Elliott's impulsive wave structure?
It became very clear to me several years ago that the impulsive structure Elliott outlined, together with the commonly quoted ratios for forecasting wave endings just didn’t work. I look at professional Elliotticians and amateurs alike and the number of different wave counts for one price chart is astounding. However, they are always retrospective and I haven't really found anyone consistently forecasting accurate stalling areas for each wave.

What are the changes you have made?
Very simply R.N. Elliott considered that impulsive waves are constructed of 5 waves, and on frequent occasions “extend” which means the waves seem to develop in the same “size” as others in the same wave degree. Furthermore, if you look at Elliott's structure each directional wave is made up of 5 waves. The Harmonic structure also displays this same characteristic. However, where Elliott calls these Waves (1), 1 etc I label them Wave (a) and Wave (c) which are both 5-wave moves. However, by observing which waves were related and ignored the structure it was clear that the relationships, are between the 3-wave structures. If you really think of it, the changes really reflect the Dow Theory so it's not an amazing change. One major difference is that in the Harmonic structure impulsive are constant. There are no such things as extended waves or failed fifths which, in my opinion are merely repercussions of the incorrect structure.

How can you be sure that the changes you have made are correct?
Very easily actually! They have enabled me to increase my accuracy by a huge margin, on many occasions to the very point.

What is it that generates the accuracy?
The requirement that wave ratios are present and targets are confirmed across all wave degrees. Without the use of ratios there is clearly no way to forecast wave completions. I think it's important to understand here that Elliott developed his theory in the 1920s. At that time he obviously had to calculate all wave relationships long hand. I had the luxury of a spreadsheet which vastly reduces the time to check relationships and enables a more thorough analysis.

What other benefits are there from the Harmonic wave structure?
Apart from consistency, the requirement for consistent wave relationships at each stage of development reduces the subjectivity of Elliott Wave. It also puts a halt to the common wave labeling without any real understanding of whether waves are related. Analysts and traders simply use key highs and lows to decide where they place wave labels. It just doesn’t work that way. In traditional Elliott Wave almost no attention is made to how deep a correction can be, or what are the common projections. The Harmonic structure has a wonderful consistency and most of the time can identify alternation between Wave (ii) and Wave (iv).

How do other Elliotticians react?
There are two common reactions. The first, and most prevalent, is extreme interest because the Elliottician has found the same frustration as I. The other reaction is complete denial.

Do you get everything right then?
No, it's not the Holy Grail. However, it does give me a much stronger understanding of when I'm right and when I’m wrong, often the precise point at which I'm wrong. While subjectivity is reduced by requiring matching targets across the wave degrees there are always ambiguities and difficulties in identifying some waves in whippy markets.

From the Author:

Look around the Elliott Wave forums and observe the discussions. Much of it will be discussing economic data and what's happening elsewhere that may affect the market they are trading. The general story about putting 5 Elliotticians in a room and when they come out they have 20 alternative wave counts is rather understated. These forums generate a plethora of wave counts, traders scrambling to find the best fit - often for their fundamental bias - but always in retrospect. Wave ratios? No, hardly ever mentioned and never worked correctly...
 
Yes, I used to be like that, dedicated to the Elliott Wave Principle but fumbling around trying to work out what is happening, scratching my head when commonly used ratios just break down. Others used to appreciate my efforts but I was never satisfied as Elliott Wave never achieved what was promised.
 
So I took the back door route. I ignored the wave structure and tried to work out where there were related waves. It was a labor of love, sometimes frustrating, sometimes generating remarkable results. The finally it all dawned.
 
The market's use of Fibonacci ratios was incorrect. The impulsive wave structure Elliott proposed was clearly wrong. By introducing an element of the Dow Theory and identifying the manner in which Fibonacci and harmonic ratios worked within the wave structure the results became astonishing at times. Even now I can sit back in wonder at how these structure repeat and with such accuracy.
 
Is it the Holy Grail? No of course not. Nothing ever can be as it will be self defeating. I get things wrong but the difference I find is that most of the time I know *where* the structure breaks down. If you read the forums that is something very few, if any, have any concept of... It provides more confidence in your analysis. Often you can spot how the structure doesn't develop as it should for the wave that is anticipated. The Harmonic Wave structure talks to you and warns when something isn't quite right.
 
In this book I try to convey these techniques, explain the manner in which price develops. I have dedicated a large chapter to providing practical guidelines when faced with ambiguous situations, how to spot something going wrong and the common issues faced.
 
It will require dedication and focus but for those that make the effort I feel Harmonic Elliott Wave will generate an awfully big benefit in your analysis/trading.
 
Good luck
Ian Copsey

From the Back Cover:

Ian Copsey is one of the most accomplished Elliott Wave practitioners. While respecting the "brilliant findings" of R.N. Elliott, Copsey explains in rich detail how a few changes to the original impulsive wave structure have allowed him to achieve more consistently accurate analysis. Some traditionalists may find his work provocative but Elliotticians of all hues will benefit from his insightful observations.

Alex Douglas
General Manager
IBFX Australia
A few years ago, Ian Copsey had something of an epiphany. He became aware of anomalies in the work of the celebrated financial markets technical analyst, R.N. Elliott. Elliott's Wave Principle proposed that financial markets proceed in a pattern of impulsive and corrective waves. Copsey's computer based research led him to believe that the structure of the waves developed differently than Elliott's works. Based on that research, Copsey proposed strong guidelines for strategies to apply the new "harmonic" wave structures to financial markets. After successfully testing his theory, Ian Copsey has presented, in Harmonic Elliott Wave, a robust argument for his innovative treatment of wave principles.

Larry Lovrenicic
Executive Director at First Pacific Securities
Vice President of the Australian Professional Technical Analysts
In the late 1930's, Ralph Nelson Elliott published his market observations called The Wave Principle. Many forecasters have applied this powerful methodology with success, until they got the wave count wrong. Now, three quarters of a century later, the techniques of trying to fit a wave count is less of a challenge with Ian Copsey's Harmonic Elliott Wave. Ian's 20 years of market observations, aided by computer power, has come out with an objective way of determining wave relationships. All these lead to a more accurate forecast.

Paul Leo
Author
The Ultimate Trading Software