I don’t doubt the validity of Elliot wave. It is one of the oldest forms of technical analysis out there. But I will start off saying that I do not believe it is useful for every chart on every time frame. This is going to be a long drawn out answer lol.



I think first we have to differentiate between the “buy side” and the “sell side” of the market. Since the dawn of time, there has always been two sides to this market that work independently of one another but reactionary to what the other side is doing. These are the two teams every player in the market is divided up onto. The dance between the balance and imbalance between these two sides is what get us the ebb and flow of progression of our capital markets.



The sell side is the driver of the market. This is the creation, promotion and selling of securities to the buy side. These players mainly consist of banks, advisory firms, private equity prop trading, market makers, and the major exchanges all work together to do basically one thing; Generate demand to facilitate the sale of equity in order to generate capital for the progression of businesses in a free market. 



The buy side is the fuel for the sell side. This is the demand. Consisting of every large institutional player like mutual funds, hedge funds, portfolio managers and asset management companies, commercial speculators, all the way down to us retail investors. (Retail investing does in fact make up a large chunk of the buy side). The basis for the psychology of speculation, fear & greed is mainly built by the buy-sides willingness to take on risk. Without the human psychology of speculation value & risk, the buy side just doesn’t exist. There would be no market for the banks to generate capital for corporations as no one is willing to take on the risk of speculating with equity.

The psychology of speculation through trade began well in the early 15-1600’s. Some of the first ones to study the markets discovered things that created the basis for cycle theory, like Samuel Benner in the 1800’s. These people were able to pick up on this idea that markets ebb and flow in cycles as the sell side is constantly trying to influence buy side demand, while outside global influences are also effecting the balances between the two.



Elliott wave is just another form of cycle analysis with a more in-depth way to analyze relationships between varying degrees in any given cycle. Its greatness comes from giving context to the psychology behind these wave relationships so that we can identify where we are in different cycles. In my opinion though, this context is based from a perspective of the BUY-SIDE of the market. It gives us context into the buy-side psychology that occurs a top or a bottom or a trend as Buy-side psychology is always a RESPONSE to sell side supply. It does not give us any insight into the business model behind the sell side of the market. Those tasked with the job of creating demand to sell supply. 



Back in the 1930's the access to information was scarce and the ability to look at things much smaller than a daily time frame was nearly impossible and extremely time consuming.
 But now a days we have access to information down to the millisecond and the herd mentality has become a need for instant gratification. For the modern day trader looking with a basic understanding of Elliott wave, knows that the theory is based on it being fractal in nature. With us having this access to such real time information causes this instant gratification need where we continually try to verify deeper and deeper into subwaves.

We have to realize the times we live in and that eventually we get to a point where we are on a time frame in which we are viewing price action of the sell side algorithmically. For instance if we are on a 15 second chart, the candles we are looking at, are so fast, that it is nearly impossible to pick up on the larger buy side psychological influences to gain contextual information to verify a count. This is certainly going to cause areas of analysis paralysis. But we have to ask ourselves, does having too much information negate the deep roots psychology causing the cycles between buy side and sell side, or do we just have too much information readily available that causes noise more easily to the average trader - and that in itself becomes frustrating?

My answer would be that, we have too much information available making it difficult to narrow down a count as our ability to juggle many working counts has increased tremendously as electronic trading progresses. We have to remember that this is a buy side problem and that information processing at incredible speeds is an advantage to the sell side - in fact they are the ones that developed electronic trading in the first place. The speed at which sell side can interact with the market gives them the house edge to always stay in control of the demand side. Remember that sell side supply is the sole driver of the market and the main cause to the effect buy side has on the market.

The business models in which the sell side operates has not changed in centuries. It is just amplified by the sheer speeds at which they can act because of electronic trading. There are millions of different algos running in the market at any given time now a days, both on the buy side and sell side. We have to remember that these algos were written by humans and also subsequently monitored by humans. There always comes a point when human interaction is needed to turn on / off or modify an algo. When it comes to algos and Elliott wave, those that say algos make Elliott wave null and void tend to forget one thing. Algos simply eliminate reactionary emotions from impulsive decision makers, but reactionary emotions are not the sole component of the psychology of speculation, fear, and greed.

Humans have to respond to what they see in the markets, therefore Algos do not eliminate the emotional responses that drive a human to turn off/on, or modify the parameters of a specific algo model, regardless if it is a sell side algo or buy side algo. So we have to then agree that even though there are algos driving the markets at its lowest levels, it can not possibly eliminate all of the components of human psychology behind either side of the market. Therefore they can not possibly eliminate the basis for the theory that elliott wave outlines.

With all that being said, at times, it can feel overwhelming that we are constantly moving the needle with a count, but I would have to say that it is no different than any other form of TA. If we are using support and resistance lines - and price is approaching one of them, yet it fails to find support at it and falls right through, do we throw out the idea of support and resistance all together because of that? Or do we simply look at our next identified level to anticipate what the market might do if/when it gets there - essentially moving the needle? If prices are diverging from momentum and yet we do not get a reversal, do we throw out the idea that momentum divergences can be a warning sign of an impending trend change? No we simply continue to monitor it and move the needle until signs of confirmation appear. If we don’t see a reversal at a Demark 9 do we throw out all those ideas or move the needle and look for the next count of 13?


Elliott wave is exactly the same. We are creating a count that is verifiable up to the level of our skill just like any other form of TA. The only real difference is that Elliott wave provides rules and guidelines for when we have to move the needle. Its ability to provide context around cycle relationships through Fibonacci sequences allows us as buy side traders to have more accurate references to assess where we are currently at in any given cycle and mathematical reasoning for price levels to make reactionary decisions based off of. Elliott wave is there for a retail trader to find speed in assessing probabilistic scenarios so that they are based on interpretations hard rules and guidelines, helping to eliminate reactionary emotional decisions when speculating on most time frames. 

This is why I personally choose not to use Elliott wave theory for day trading the futures market on the intraminute charts. Its because I feel that I am really looking at the movements of sell side supply auctions at such a time frame. When I zoom out to the daily, we are more likely to the ebb and flow of buy side/ sell side which means we are more likely to see and pick up on the buy side psychology driving Elliott wave. This will help me make decisions on larger trends that I can use for a top down approach to day trading intraminute time frames.

I will say that it is very clearly evident that 5 wave and 3 wave structures exist on the lowest intraminute time frames and that it is possible to to see Elliott wave fibonacci relationships between such structures - but imo it is nearly impossible to find any sort of meaningful count based off of these relationships as it becomes hard to zoom out and maintain a larger count when the smallest time frames are occurring so fast.

In conclusion, this really just comes down to the traders time frame. Elliott wave is a great tool and when mastered can be one of the best edges to identify important reversals in the market, but given the modern times of electronic trading, there comes a point when we reach a time frame where we are less likely to identify the psychological drivers of Elliott wave because of the sheer amount of algorithmic trading done on the lowest time frames.

Just as any tool in your tool shed, its not only important on HOW to use it - but more importantly WHEN.

The way you feel about Elliott wave is the same with all TA, except you personally have spent the most time studying Elliott wave up to this point.

We have to remember that Technical analysis has one main problem - erroneous knowledge. As it is traditionally practiced, much of TA is a body of dogma and myth, founded on faith and anecdote. This is a consequence of informal and intuitive methods used by its practitioners to discover patterns with predictive power. This eventually leads to the development of quant traders who attempt to build systems designed to be objective and provide repeatable evidence through statistical analysis. 

TA although feels very objective, in its studies there are actually very subjective thoughts, interpretations, and feelings. This alone is enough to disqualify subjective TA, like elliott wave and other popular theories, as legitimate knowledge to those who do not spend enough time studying to formulate an experiential opinion.

This is why TA acts as a science, but in reality is an art form and more of a skill. To be a rocket scientist, you have to study the science of rockets. Quantifiable science through mathematics that becomes undeniable through the ability to repeat a test and have the exact same outcome - aka a science. TA fails to become a science in this area because there is no real way to quantify the psychological factors that drive much of the reasoning behind the theories repeatable probabilistic of price patterns.

But does that mean its not useful to study and cant be used to identify opportunities in a market to take advantage of imbalances? Absolutely not. That is why we continually study the professional traders out performing the market benchmarks consistently year after year, putting to rest the idea behind "efficient market hypothesis."

What an incredible answer. I think I may just have been frustrated with a few of the counts I have going that I felt were working perfectly, only to alter the count multiple times. Need to get used to adapting for sure. You long, detailed response tells me alot of things I didn't know. It also tells me I have alot more to learn. Thanks for the awesome response. I'm going to keep practicing on EW as it's produced some incredible results for me, I think I'm just a curious guy and felt stupid not to question something I've spent so much time on. A much need recalibration. Thanks Taco.