How Fibonacci Ratios Govern the Stock Market

Scientists speculate that Elliott waves are the stock market's "critical structure"

In the 1930s, Ralph Nelson Elliott observed the Wave Principle in the stock market. Yet his work gained little notice from Wall Street.

In the decades that followed, a handful of analysts and forecasters kept Elliott's work from falling into obscurity.

But in recent decades, scientists re-discovered Elliott.

Consider this 1996 quotation from "Stock Market Crashes, Precursors and Replicas" in France's Journal of Physics:

We speculate that the 'Elliott waves' . . . could be a signature of an underlying critical structure of the stock market.

Robert Prechter put it this way:

Scientific discoveries have established that pattern formation is a fundamental characteristic of complex systems, which include financial markets. Some such systems undergo “punctuated growth,” [or] building fractally into similar patterns of increasing size. This is precisely the type of pattern identified in market movements by R.N. Elliott.

Nature is full of fractals.

Consider branching fractals such as blood vessels or trees: A small tree branch looks like an approximate replica of a big branch, and the big branch looks similar in form to the entire tree.

Now consider that most of nature's fractals are governed by the Fibonacci sequence. It begins with 0 and 1, and each subsequent number is the sum of the previous two: 0,1,1,2,3,5,8,13,21,34,55 and so on. The Fibonacci sequence also governs the number of waves that form in the movement of aggregate stock prices.

Take a look at this figure from the Wall Street classic book, Elliott Wave Principle:



The book notes:

The essential structure of the market generates the complete Fibonacci sequence. The simplest expression of a correction is a straight-line decline. The simplest expression of an impulse is a straight-line advance. A complete cycle is two lines. In the next degree of complexity, the corresponding numbers are 3, 5 and 8. This sequence can be taken to infinity.

Right now, the math of the market reveals a big clue about the trend of stocks.

NSE20 started the week above 2900 and at the rate of losses this week it likely to finish sub 2800 handle tomorrow. Closed at 2824 for the day - losing streaking continues at 11.36% in the red YTD.

The trading pit this week would feel like this.



https://www.youtube.com/watch?v=AFyeg6aANcc

That's it! The technic being used here is both short and long wave count... Obviously long complete wave count will land you on the bottom or peak..

Post 1 here was generated before this fact back in 2014.The forecast was clear that the index would go at least below 2500 level. By then the index was at 5400s.

Good analysis. I expect a move lower but not to the lows of 2576.

I remember cashing out at 120 and I wasnt even sure it was the right call.How things can change in 3 years

And (almost) 3 years later... here we are! Respect to @mmnadii

At the NSE today we are experiencing a deadlock between buyers and sellers so this looks like a good point to thrown in some trades.