Testing the Elliot Wave Principle
Govinda Advani
Managing Partner, RCG | Entrepreneurship Through Acquisition, Business Transformation
The Elliot Wave Principle, developed by R. N. Elliott, proposed that prices of securities in very liquid markets tended to unfold in specific patterns or waves. I read a book about The Elliott Wave Principle, which explained the principle and a step-wise process of classifying these price movements. The book also provided an introduction to applying the wave principle to forecast stock price movements and talked about the fantastic results achieved by its author in his own portfolio.
So around 11 months ago, I decided to put it to the test using a straightforward experiment. My knowledge of the subject is limited at best, so I didn’t intend to prove/ disprove the principle, instead to check whether a novice, such as myself, could apply it.
I considered the top 100 securities by market capitalisation trading on the National Stock Exchange of India (NSE100) and the Australia Stock Exchange (S&P/ASX100). After a visual review with the help of a tool, I shortlisted a sample to 10 stocks (eight listed on NSE and two listed on ASX) that appeared to be commencing an up move.
I plotted a long duration chart of each selected security by hand, using different coloured pens to signify the wave types. Most importantly – I noted the 1-year price target of all ten stocks and decided to revisit the drawings at the end of a full calendar year.
I happened to find this sketchbook in my drawer today and couldn't resist checking the results of my experiment.
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The first security selected in this experiment was Havells India.
On 3 November 2020, Havells had achieved its target of Rs. 806.00. More interestingly, the price had continued to trend upwards and had traded as high as Rs. 1,232.90 on Friday, 6 August 2021, Up 88.55% in 11 months, as opposed to the NSE100 index that had returned ~ 41.30% in the same time frame.
Would you like to see the price performance of the remaining 9 stocks?
AI Evangelist | Accenture | DEM’22 IIM Udaipur | IIM Bangalore YLP 2019 | Multi-Industry Experience
3 年Yes, please share your valuable learning’s. Would motivate me further to do similar exercise in the near future . ??
Consulting at Accenture Strategy | IIM U MBA | PSPO
3 年Whoa! How cool. I've always been intrigued by stock markets and I definitely want to see the price performance of the remaining 9 stocks! ??
Would be interested in analyzing the performance the rest of the stocks on your list.