Saturday, April 25, 2009

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Elliot wave theory on Bombay Stock Exchange

Yes, like everyone else i am also bitten by the elliotwave theory bug... so i decided to put it to test. Since many bloggers / columnist commentators have sucked curiosity juice from dow jones's comparison to elliotwave i am going to compare it to international stock exchange my pic India's Bombay Stock Exchange's Sensitive Index (SENSEX).

Elliot wave theory works on basis of fibonacci number sequence. where wave 1,3,5 are upward going waves while 2 and 4 are correctional waves. This theory was put in practice by Proff Prechter who was a Trading Analyst who set a 440% return record on options account in 1989 trading match .... ok enough of his background, although this is mathematically related theory pertaining to fibonacci sequence and its golden ratio of 1.6343 Precther and co. beleives that this number occurs in non-randomly fashion in today's stock market. Well tough to beleive that..... but if you implement a mass socio-economic tag or mass psychology tag then suddenly the theory becomes a hot property.

The theory is taught in many financial institutions as non-technical mass psychology theory so that traders can keep them selves ahead of the market....
lets put this theory to test I have taken a 5 year period of BSE : sensex and compared it witht he elliotwave thoery, okay to be precise i am comparing a "cycle"


The classification of a wave at any particular degree can vary, though practitioners generally agree on the standard order of degrees (approximate durations given):

* Grand supercycle: multi-century

* Supercycle: multi-decade (about 40-70 years)

* Cycle: one year to several years (or even several decades under an Elliott Extension)

* Primary: a few months to a couple of years

* Intermediate: weeks to months

* Minor: weeks

* Minute: days

* Minuette: hours

* Subminuette: minutes



Halleluajh !!!  wooow this thinge fits like a glove !!!!! in the five year spread...  this means that we are giong to see one more drop  Or below is the end of wave... although i must admit that i have chosen random interval of the uptick and down tick wave .... its like i am biasing the data to fit the model .... but over all first impression not bad... but i wont stop the autopsy .... too vage

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