Friday, July 14, 2006
2. You would achieve more, if you don't mind who gets the credit.
3. When everything else is lost, the future still remains.
4. Don't fight too much. Or the enemy would know your art of war.
5. The only job you start at the top is when you dig a grave.
6. If you don't stand for something, you'll fall for everything.
7. If you do little things well, you'll do big ones better.
8. Only thing that comes to you without effort is old age.
9. You won't get a second chance to make the first impression.
10. Only those who do nothing do not make mistakes.
11. Never take a problem to your boss unless you have a solution.
12. If you are not failing you're not taking enough risks.
13. Don't try to get rid of bad temper by losing it.
14. If at first you don't succeed, skydiving is not for you.
15. Those who don't make mistakes usually don't make anything
16. There are two kinds of failures. Those who think and never do, and those who do and never think.
17. Pick battles big enough to matter, small enough to win.
18. All progress has resulted from unpopular decisions.
19. Change your thoughts and you change your world.
20. Understanding proves intelligence, not the speed of the learning.
21. There are two kinds of fools in this world. Those who give advice and those who don't take it.
22. The best way to kill an idea is to take it to a meeting
23. Management is doing things right. Leadership is doing the right things.
24. Friendship founded on business is always better than business founded on friendship.
Sunday, July 09, 2006
Gold pays no interest. At least properties pay you rent. Therefore you should own properties…
Gold pays no interest. At least properties pay you rent. Therefore you should own properties…
That’s the conventional wisdom.
Yes the first two statements are true. But we need to be careful about drawing the conclusion that you should own rental properties. Now is one of those rare times in history where – even after collecting rent – holding real estate will cost you more than holding gold.
Let me explain…
Yes, gold pays no interest. It’s one of the many knocks against gold. But don’t forget, the cost of owning gold is darn near zero.
Meanwhile, Marc Faber gave an example of a typical home speculator in his newsletter last month, concluding that, right now: “a home buyer / speculator has a negative cash flow of more than 5%.”
The assumptions Faber used to come up with that negative five percent cash flow figure were conservative … For example, maintenance costs were assumed to be 1% of the value of the home (sounds low to me). And annual property taxes were assumed to be 1.1% (mine are nearly twice that).
If you can earn a rent yield of 8% or more of a home’s value, these numbers aren’t so bad. But you can’t get that kind of rent anymore…
Steve Leuthold, a legendary investment analyst, looked at rental yields over the last 45 years (as long as he has data). He found that rental yields are lower now than at any time in history – by a wide margin.
Steve puts the current level of rental yield (after expenses) as a percentage of the home price, at about 2.5%. That’s abysmal.
I’m not sure, but I think that figure does NOT include property taxes (which are about two percent where I live), or insurance (which eats up the rest of the yield). Also, importantly, that figure does NOT cover interest on a mortgage. Lastly, this figure does NOT take into account the high cost of buying and selling a house.
If Leuthold is right, and landlords are willing to accept rent (after maintenance costs) of just 2.5% of the value of a home, then most rental property owners are losing money… And lots of it, if they’ve got big mortgages on these properties.
So let’s go back to the question at the start… Which real asset would you rather own right now? You’ve got gold - which pays no interest, but has virtually no cost of ownership. Or you have real estate - which pays 2.5% interest (after home maintenance costs) but loses money when you add up the cost of ownership…
Everyone owns real estate. Nobody owns gold.
Sure, you can earn rent in real estate. But right now, according to some great analysts, all that rent and then some is eaten up, leaving you with a negative cash flow.
I prefer to own assets that nobody owns, like gold. And it’s more attractive than real estate, on a yield basis.
You sure don’t get that opportunity every day.
Note: You would have to do your own rental yield and your cost like insurance, repair, property tax etc to get your own figures.
Saturday, July 08, 2006
Corporate India is in trouble. More so in 2005-06 than it was in the previous four years. We at CERG Advisory have compiled data from a large and representative sample of 1,416 listed manufacturing companies. What the facts say ought to worry most CEOs.
From 2000-01 to 2004-05, net sales (sales minus excise duty) were growing at a rapid clip. Even in 2004-05, net sales had grown by 24 per cent over the previous year. Despite three consecutive years of extraordinarily robust GDP growth, this sales engine is showing signs of sputtering. Growth of net sales for manufacturing in 2005-06 was 18 per cent. No doubt, some sectors did better than others; but the average growth rate was definitely less than before.
More significant is that profit growth took a greater hit in 2005-06. Profits before depreciation, interest and taxes (PBDIT) grew by 23 per cent in 2004-05 over the preceding year.
In 2005-06, this growth rate had reduced to below 7 per cent. It was the same for profits after tax (PAT). After growing by 33.5 per cent in 2004-05, the PAT growth rate fell to 6.8 per cent in 2005-06.
Not surprisingly, manufacturing profit margins have dropped. Thankfully, the fall is not precipitous. The ratio of PBDIT to net sales has reduced from 18 per cent in 2004-05 to 16 per cent in 2005-06, and the PAT margin has dropped from 9 per cent to 8 per cent. Moreover, these margins still happen to be among the best in Asia. Even so, the fall does not augur well for the next couple of years. Let me explain why.
First, the average price of crude oil in 2006-07 and, probably, 2007-08 will be greater than what it was in 2005-06. A conservative estimate for 2006-07 is an average international price of $80-85 per barrel. That would be 23-30 per cent higher than the 2005-06 average. Thus, companies using diesel or furnace oil for meeting their energy needs will face higher costs than before. Many have opted to set up thermal, hydroelectric or cogeneration captive power plants. But most of these will get commissioned sometime in 2007-08. Till then, therefore, they will be hit by higher energy costs. Blame China.
Second, raw material and commodity prices will also remain hard for the next two to three years — copper, steel, aluminium, petrochemicals, polyethylene, PVC, caprolactum, soda ash, cement, minerals, you name it. Again, blame China.
Third, interest rates are definitely hardening — and this will probably happen at a faster pace than what we have seen in the last six months. I would be surprised if the benchmark rates for corporate lending do not rise by at least 1.5 percentage points in the course of the next three quarters of the year. Since every CFO worth his name has squeezed out the very last rupee worth of interest costs in the last four to five years, the only way this will go is northward. This will affect day-to-day operations as well as investment outlays that were structured on floating interest rates. Blame the US Federal Reserve and Reserve Bank of India's (RBI) fears of inflation.
Finally, barring perhaps a few odd industries, it will be increasingly difficult for the manufacturing sector to blithely pass on higher material and energy costs to consumers. Most of the Indian market has become far too competitive for that to happen.So, the next few years will be challenging for Indian manufacturing. Thankfully, this sector had faced even greater challenges during 1996-2000, and came out stronger than before. It can once again. But for our manufacturing CEOs, COOs and CFOs, it will be back to the basics, and not to the champagne soirées of Davos.
“There are basically three ways to do unusually well in the stock market:
1) Buy stocks that are cheap and sell them when they are reasonably priced: value investing.
2) Buy into companies that will grow and grow and grow, and stay along for the ride.
3) Discover a whole new investment area.
Terribly cheap stocks are usually under a cloud at the time, or perhaps overlooked. The market exaggerates bad news, so if the real prospects of a company decline by a quarter because of an adverse development, the price of the share may fall by half. Thus, in value investing the attractive stock is often the one that's smashed down by bad news. False bad news is best, but true bad news is fine. The same works in reverse for good news, whence my maxim, "Nothing exceeds like success”
The easy buy-sell rhythm to catch in playing the value game is the basic four-year stock market cycle-which, to be sure, often lasts more or less than four years. At the bottom almost everything is ridiculously cheap, and at the top almost everything is extravagantly overpriced. Thus, the great value investors studied in my previous book, The Money Masters, often have a four-year buy-sell cycle. (The top growth investors in that book often hold their outstanding stocks as long as they stay outstanding- sometimes for decades.) I did not know what to expect when I started in on this volume, but it turns out that for some of today's masters the cycle is much shorter: as little as a few months, or whatever time it takes for a purchase to attain a previously calculated price level. This is a hard discipline for an ordinary investor to follow, and in any event will probably run up trans action costs.
The growth investment techniques described in the earlier volume remain valid for the masters in this one, but some of the value investment techniques are different. In general, short-term investing is a sucker's game, enriching only the brokers; however, the greatest of today's value investors are able to carry it off.
Short Kwi was famous in his own right, famous as a hunter . . . it was his technique of hunting to be relentless in his pursuit; therefore, if he shot an animal [with a small, weakly poisoned Bushman arrow] and suspected others to be in the vicinity he would let the wounded animal run where it would while he hunted on and shot another, and another, and when all were as good as dead he would rest, then return to pick up the trail of the one that he felt would die the soonest. He almost never lost an animal, for his eyes were sharp and he could follow a cold trail over hard ground and even over stones; he could tell from fallen leaves whether the wind or passing feet had disarranged them.
A technique we find in this book is what might be called relentless pursuit: constantly scanning the herd for new stocks to pick off for limited moves, rather than as long-term commitments. Here, for example, are some contrasts between the traditional long-term investment style, as exemplified by Warren Buffett, Philip Fisher, T. Rowe Price or Ralph Wanger, and that of one of today's slalom artists, such as George Soros, Michael Steinhardt, Peter Lynch, or, sometimes, John Neff:
LONG- TERM INVESTOR
Stay with long-term trends
Catch changes early
Buy for the long term
Ride through minor setbacks
Sell on possible adverse developments
If the price becomes excessive, wait for the earnings to catch up
Sell if the stock gets ahead of itself
Give preference to existing holdings that you are familiar with
Put your eggs in one basket
Develop a congenial investment philosophy and stick to it
Have no prejudices
Know everything about a few big things
Know a lot about many things
Develop helpful rules and formulas
Understand each company intimately
Buy batches of companies that together represent a thesis
Know management intimately
Don’t worry much about management
Trust to the magic of quiet long-term compounding
Force the pace
Don’t worry too much about the exact price you pay or receive: over a five or ten-year holding period it should be unimportant.
Be very conscious of price in both buying and selling: multiplied by many transactions it is critical
In the relentless-pursuit technique, one tries to enter at a reversal point, setting a precise target for the later sale. This method can only be practiced successfully by authentic masters at the height of their powers, like Short Kwi. It also involves high turnover, meaning heavy transaction costs, unless the dealing side of the operation is conducted with great skill. So one should follow the further discipline of always buying on weakness and selling into strength. That requires either a price-sensitive broker or putting in carefully set limit orders.
George Plimpton, in one of his "professional amateur" experiments, played quarterback with a pro football team. He had a simple assignment: Snatch the ball from the center, then spin around and hand it off to the back sprinting across behind him. Over the years the team had so honed the rapidity and accuracy of its plays that Plimpton simply could not perform this move before the back had raced past beyond reach. In competition with first-class opponents, one must function at the limits of the possible. In investing, that is what Soros, Steinhardt, Lynch, and Neff are doing. The nonprofessional can scarcely aspire to that degree of skill, and supposing wrongly that he has it may be expensive.”
But 122,000 is still not all that weak, except in comparison with the ADP numbers. Next week we will see the inflation numbers, and I expect them to still be in the plus 2% range where the Fed feels uncomfortable. Let's quickly review why I think the Fed will raise rates again in August and maybe even after that.
First, there is that obscure item called the "sacrifice ratio." How much pain in terms of a slower economy and lower employment do we take today to make sure we do not have excessive inflation in the future? Higher inflation in the future will ultimately mean even higher rates and a possible deep recession, as the Fed would then have to tighten aggressively. It is a trade-off or sacrifice. There is a number which characterizes the risks and rewards, called the sacrifice ratio, and today and for the last few years it has been high, which is why the Fed has continued to raise rates.
This is illustrated by the following sentence from a speech made this last week to the British House of Commons by Fed vice-chairman Donald Kohn.
"I think we are very well aware in the Fed that there is some risk that we would tighten policy more than necessary and that it might induce weakness in the economy... [but] there is a greater risk from not tightening." (Source: The Gartman Letter)
The headline in the paper was "Kohn Aware of Risk of Tightening Policy Too Much," but the sentence above clearly illustrates that he is prepared to do so if they think inflation is a future issue.
Second, the Fed is moving to inflation targeting. It is so far silent about this topic, but you can read the tea leaves. Bush just appointed Dr. Fred Mishkin to a recently vacated Board of Governors position. Just another academic economist? Hardly.
Mishkin was the co-author of Bernanke's main economics textbook. One of the main points of the book was that central bank policy should be targeting inflation, with upper and lower bands of what the inflation number should be. (Also, I am pretty sure that there was a chapter in that text on the sacrifice ratio.)
So, Ben has a close friend who also believes in inflation targeting. There are a number of other new names on the board of late. Care to make a wager on how they feel about inflation targeting? If you read their speeches, you could certainly be forgiven if you come away with the impression that the recent rise in inflation is their #1 concern.
There is another appointment coming up for a recently vacated spot. Fed watchers should pay close attention to who Bush nominates, as it could mean a major sea change in the way the most powerful central bank in the world operates. This is more than a mere academic exercise of changing one group-think central banker with another. A Fed which openly announces inflation targets is a profoundly different Fed than the one which Greenspan chaired.
And while we are on the topic of inflation, Bill King sent this very interesting note from HSBC's Stephen King & Janet Henry writing on global central-bank vexation over inflation. It succinctly states the problem that I have spent a great deal of time on this year:
"The definition of inflation is crucial. The Federal Reserve's preferred measure has understated inflationary pressures relative to the methodology utilised by the European Central Bank: perhaps the Fed should have been raising interest rates a bit more aggressively two years ago...
"As for measurement, we examine in some detail the different baskets of goods and services that appear in alternative measures of US inflation. Put simply, some baskets contain lots of apples whereas others seem to focus mostly on pears. We reach two broad conclusions. First, the Fed's preferred measure of inflation - the so-called personal consumers' expenditure deflator excluding food and energy - paints the most flattering picture of US inflation trends. Second, the best "early-warning" measure of US inflation is not even widely published: it's the Bureau of Labor Statistic's harmonized measure of US inflation, using the methodology familiar to those who monitor inflationary developments in Europe. This measure was rising rapidly through 2004 when both the CPI and the PCE deflator were barely twitching...
"Perhaps the world economy has an Austrian-style problem. Loose monetary policy in the early years of this decade may have kept the deflationary wolves at bay but, by encouraging excessive gains in asset prices, may have contributed to both excessive consumer leverage and too high a level of global demand.
"If asset prices, notably house prices, now have to fall, they will come down either in nominal terms or, via inflation, in real terms. Central banks determined to stamp on inflation will encourage bigger nominal asset price declines and, by doing so, will raise the risk that current inflationary fears will be replaced by deflationary dangers next year: in response, this year's monetary tightening should be followed by renewed rate cuts in 2007." www.hsbcnet.com/research
The different methodologies of calculating inflation in the US and Europe is a primary reason for Europe showing less GDP than the US over the past several years. The currency market was not fooled. Further, you can bet the Fed governors and economists are aware of these various methods which suggest inflation is a problem. It is just another reason why they sound as hawkish on inflation as they do.
Let me keep beating the same drum I have for the past year. Either the economy slows down, which is not good for the stock market, or the Fed is going to keep raising rates, which is not good for the stock market. Either way, we are going to get to buy back into this market at a much lower place than 11,000 on the Dow.
from: John Mauldin
The result? We are all like hapless ancients, trembling before the gods playing dice on Mount Olympus, knowing that we are powerless to affect the results that will so greatly affect our lives and destinies. As they might have said at Hedgestock:"Bummer!"
for more read... Hedge funds: Playing dice with the universe
Friday, July 07, 2006
The Wall Street Journal reported today (Thursday June 6th) that the rise in stock prices was due to weak economic data that indicated a slowdown in the (US) economy. The reasoning goes that a sufficient slowdown in the economy will cause the Federal Reserve to stop raising interest rates, and since higher interest rates are generally bad news for stocks, then a hiatus in rising interest rates should be good for stocks.!!
You don't have to be a genius to figure out that when the market hopes for bad economic news and interprets them as good news, something is wrong. Since when are falling retail sales good for stocks? Since when is reduced manufacturing activity good for stocks? Are stock traders so obsessed with the Fed's next move that they forget to look at what is really going on?
If the US economy is slowing down, as confirmed by tepid retail sales and slowing manufacturing activity, then it is merely a matter of time before corporate earnings come under pressure and stock prices start falling.
When the market becomes this shortsighted, you should know that we are in a dangerous environment. Anything can happen. What is more, many investors in the US seem oblivious to what is happening in Japan, and the consequences for worldwide economic activity and investment returns.
Japan has been a major source of international monetary liquidity since 2001 when it embarked on a (near) zero interest rate policy coupled with a managed exchange rate between the yen and the dollar. Essentially it meant that large institutions (read hedge funds) could borrow yen at almost zero interest and invest the borrowed money in Europe and the US. Even with low US interest rates there was still a lot of money to be made: if you can borrow yen at say 0.35% and invest the money in US bonds at say 3%, you make 2.65% a year. Now, if you have say $100 million in capital but you borrow $1 billion in yen and make 2.65% on that money, you actually make a 26.5% return on your capital. That's a lot of money, and it only requires a 3% yield on the bonds you buy. You can add another 10% return on capital for every 1% additional yield assuming you have 10:1 leverage.
The scheme works as long as Japanese interest rates remain low but, far more importantly, it only works as long as the yen does not appreciate against the dollar (or the euro if that's where you invested the borrowed funds). If the yen appreciates by more than the interest rate differential then a potential profit will quickly turn into a real loss, and with the amount of leverage typically employed by hedge funds it would not take a large increase in the yen exchange rate to wipe out a lot of capital.
Recall Greenspan's bond market enigma? Short-term interest rates were rising but medium and long-term rates were falling or, at best, staying flat. Obviously there was a lot of demand for medium and longer-term US bonds. Some of that demand came from the central banks of China and Japan who used US dollars they received in trade to buy US Treasuries in support of the dollar, and some of the demand came from international hedge funds, who were making good use of the yen-dollar carry trade as discussed above.
Japan started warning the world in early March that it had reached the end of its zero interest rate policy and current estimates are that the Bank of Japan could start raising rates as soon as next week or no later than August. This means an end to the yen carry trade, not just because profit margins will get squeezed, but more importantly because Japan will most likely allow the yen to start appreciating at the same time. The profit margins of the yen carry trade have actually never been better, since interest rates, especially in the US, have been rising while they remained low in Japan. It is therefore not a contraction of the nominal difference in interest rates that becomes the biggest risk for the carry trade, but the prospect of currency exchange losses if the yen appreciates.
The yen is already up 1.9% against the dollar since the beginning of the year, eroding a large part of the yen carry trade profit. It has also become quite volatile. From the first week of March, when Japan announced its intention to abandon the zero interest rate policy, to mid-May, the yen appreciated by more than 5% before correcting again. Hedge fund managers long on dollars and short on yen must have had more than one sleepless night during that time.
In addition to shutting down the yen carry trade, the Bank of Japan is also reducing the monetary base. Since January, Japan's monetary base has declined by almost 20% -- that is a massive decline and, as far as I know, unprecedented in history. There is no doubt that Japan is serious about curtailing the expansion of its money supply. The combination of less money supply and rising interest rates will put a serious dampener on yen liquidity and, by extension, international liquidity since Japan has been a major source of liquidity during the past five years.
Now let's go back to our own little corner. At the moment investors are rejoicing at the prospect of slower economic growth, perversely believing that it is good for the stock market. What they fail to realize is that over and above the structural problems in the US economy a contraction of international liquidity as the yen carry trade shuts down will exacerbate any weakness in any economy going forward.
Source: Paul van Eeden
Thursday, July 06, 2006
Wednesday, July 05, 2006
The BOJ has "decided in principle" to raise the rate by a quarter point - the first hike in almost six years - at a two-day policy meeting that starts July 13, Kyodo News agency reported, citing unidentified sources.
The report came after banking and economy minister Kaoru Yosano said the economic, price and market conditions were beginning to fall into place to allow the bank to lift borrowing rates after keeping them at zero for five years.
"While (the conditions) haven't fallen into place yet, it's clear that they are falling into place," he told a regular press conference.
"Whether it is in July or August, the Bank of Japan will make its decision as an independent institution of the nation. I believe that it will make its decision responsibly and with discernment," he said.
Prime Minister Junichiro Koizumi also said the timing of a policy change was "something that the BOJ should decide, with a close eye" on price movements, suggesting he would respect the central bank's decision.
But Finance Minister Sadakazu Tanigaki urged the bank to hold off so as not to torpedo the economy's budding recovery.
"At this point, I believe it's necessary (for the Bank of Japan) to support the economy through its zero-rate policy, to ensure that the economy sustains growth and will not return to deflation," Tanigaki told a regular press conference Tuesday.
Top government spokesman Shinzo Abe echoed those concerns, saying he wanted the BOJ to keep rates at zero "for the time being."
Speculation that the BOJ will soon raise interest rates has been spurred by recent economic data.
The bank's closely-watched "tankan" survey showed that companies are more optimistic about the future, while price data has shown consistently rising prices after years of deflation - a state of downward spiraling prices.
The BOJ has kept its key interest rate, the overnight call rate, at practically zero for five years in an unprecedented effort to rekindle the country's flat-lined economy. It has said it will start raising that rate when prices show consistent increases.
But while the central bank is officially independent, political opinion often has had an influence on central bank policy.
A scandal over Bank of Japan Gov. Toshihiko Fukui's investment in a fund run by a manager arrested on suspicion of insider trading has also muddied the outlook, with some politicians calling for Fukui to resign. That has some analysts projecting that the central bank will hold off.
Tuesday, July 04, 2006
In a brilliant book “Revolutionary Wealth”, the authors, Alvin and Heidi Toffler, write about “obsoledge”. Schumpeter wrote about creative destruction of industries, but today’s economy is about the obsoledge of knowledge.
“Thinking matters. But many of the facts we think about are false. And much of what we believe is almost certainly stupid.
Despite the floods of data, information and knowledge crashing over us today, a greater and greater percentage of what we know is, in fact, less and less true. And this, as we'll see, would be the case even if we could believe the media, even if every advertiser were truthful, every lawyer honest, every politician sealed his lips, every adulterer confessed and every fast-talking telemarketer went straight.
If this is the case, how should individuals-or, for that matter, companies or countries-turn the deep fundamental of knowledge into wealth?
Some knowledge has always been needed to produce wealth. Hunter-gatherers had to know the migratory patterns of the animals they pursued. Peasants came to know a lot about soil. Normally, however, once learned the same knowledge remained useful generation after generation. Factory workers had to know how to operate their machines quickly and safely for as long as they had the job.
Today work-relevant knowledge changes so rapidly that more and more new knowledge has to be learned both on and off the job. Learning becomes a continuous-flow process. But we can't learn everything fast enough. And that helps explain why, if some of what we think is stupid, there's no need to be embarrassed. We are not alone in believing stupidities.
The reason is that every chunk of knowledge has a limited shelf life. At some point it becomes obsolete knowledge-what might more appropriately be called "obsoledge."
Does Plato's Republic or Aristotle's Poetics constitute "knowledge"? Or the ideas of Confucius or Kant? We can, of course, describe their ideas as wisdom. But the wisdom of these authors or philosophers was based on what they knew-their own knowledge base-and much of what they knew was, in fact, false.
Aristotle, whose views held sway across Europe for almost two thousand years, believed that eels were asexual and "originated in . . . the entrails of the earth." He also believed that the Indian Ocean was a landlocked sea-a geographical error that was still shared centuries later by Ptolemy and other European and Islamic scholars.
In the third century AD, Porphyry, the biographer of Pythagoras, assured his readers that if you took a part of a bean plant, put it into an earthenware pot, buried it for three months, then dug it up, you would surely find either the head of a child or female genitalia.
In the seventh century, Saint Isadore of Seville assured contemporaries that "bees are generated from decomposed veal." Half a millennium later no less a genius than Leonardo da Vinci declared that beavers knew their testicles were being used by humans for medicinal purposes. When trapped, he asserted, a beaver bites them off "and leaves them to its enemies."
When tomatoes, native to South America, first reached Europe in the sixteenth century, perfectly intelligent people knew that they were toxic to humans. It was two hundred years before Linnaeus declared otherwise. And as late as 1820 a particularly daring fellow attracted a large crowd when he risked eating two tomatoes to prove Linnaeus was right.
But obsoledge is not always amusing. As late as 1892 it was common knowledge-and scientifically accepted since the time of Galileo-that the planet Jupiter had four satellites. That knowledge became obsolete, however, on September 9 of that year, when astronomer E. E. Barnard of the Lick Observatory discovered a fifth moon. By 2003, astronomers had counted sixty.
Similarly, scientists for decades had assumed that there were only nine planets in our solar system. However, in 2005, a California Institute of Technology astronomer discovered an object he named Xena, which he and other scientists believe may be a tenth planet orbiting our sun.
Then there was London physiologist L. Erskine Hill, who reported in 1912 that experimental evidence showed that "purity of air is of no importance," How many more people around the world would have died of pollution related causes if, over the last few decades, we hadn't learned otherwise? And how many patients will die today because somewhere an otherwise intelligent doctor is relying on outdated "facts" learned years ago in medical school? How many companies will go belly-up because of a marketing strategy based on yesterday's fad? How many investments are doomed because of out-of-date financial data? And what about tomorrow's deaths or disasters just waiting to happen?
Look, for example, at the minutes of the September 2002 meeting of the Advisory Committee of CERN users. (CERN is the European Organization for Nuclear Research.) Tucked away among references to decisions about providing ashtrays "close to the outside doors of major buildings for smokers" and notification of "changes in mail delivery service" is the following item: ''The names of persons to be contacted in case of accident should be restored in the Human Resource database."
Why on earth, one might ask, should the list of persons to be contacted in case of a nuclear accident be missing? The answer: Because "for the majority of people the information became obsolete" and the administration "did not have the resources to ensure systematic updating." It took the chairman of the users' group to point out that "the potential human cost in case of a serious accident is immense, and a solution should be found."
What is clear is that wherever knowledge is stored, whether in digital databases or inside our brains, there is the equivalent of Aunt Emily's attic overstuffed with obsoledge-facts, ideas, theories, images and insights that have been outrun by change or replaced by later, presumably more accurate, truths. Obsoledge is a big part of the knowledge base of every person, business, institution and society.
By accelerating change, we also speed up the rate at which knowledge becomes obsoledge. Unless constantly and ruthlessly updated, experience on the job becomes less valuable. Databases are out of date by the time we finish building them. So, too, are books (including this one) by the time they are published. With every passing semi-second, the accuracy of our knowledge about our investments, our markets, our competition, our technology and our customers' needs diminishes. As a result, whether they are aware of it or not, companies, governments and individuals today base more of their daily decisions on obsoledge-on ideas and assumptions that have been falsified by change- than ever before.
Occasionally, of course, some antique bit of obsoledge comes back to life, as it were, and proves useful today because the context around it has changed and given it powerful new meaning. But more often the reverse is true.
Ironically, in advanced economies, companies brag about "knowledge management," "knowledge assets" and "intellectual property." Yet with all the numbers crunched by financial quants, economists, companies and governments, no one knows what obsoledge costs us in the form of degraded decision-making. What, one might ask, is the drag placed on individual investments, corporate profits, economic development, poverty-reduction programs and wealth creation in general?
Beneath all this, moreover, lies an even more important, hidden epistemological change. It affects not merely what we regard as knowledge but the tools we use to acquire it. Among these instruments of thought, few are remotely as important as analogy, in which we identify similarities in two or more phenomena and then draw conclusions from one to apply to the other.
Humans can barely think or talk without making analogies. The Irish golfer Padraig Harrington tells a sports reporter that "A U.S. Open is one that really tests your ability to hit. . . . you sort of want to be like a machine." Which takes us back to the followers of Newton who said the entire cosmos was "like" a machine.
Then there are all the people described as having "a mind like a computer," or who "sleep like a baby," or who are told to invest "like a pro" or think "like a genius." Implicit analogies are built into language itself. Thus we still rate cars in terms of their "horsepower"-a leftover from the day when they were seen as analogs of horse-drawn coaches and were known as "horseless carriages."
But the thought-tool we call analogy is growing harder to use. Analogies, always tricky, are growing trickier. For as the world changes, old similarities can turn into dissimilarities. Once-legitimate comparisons become strained. As parallels with the past break down, often unnoticed, conclusions based on them become misleading. And the faster the rate of change, the shorter the useful life span of analogies.
In this way, a change in one deep fundamental-time-affects a basic tool we use in the pursuit of another-knowledge.
In sum, then, as we've seen, even among experts on the knowledge economy, few have thought much about what might be called the law of obsoledge: As change accelerates, so does the speed at which still more obsoledge accumulates. All of us carry with us a far bigger burden of obsolete knowledge than our ancestors did in the slower-moving societies of yesterday.
And that is why so many of our most cherished ideas will set our descendants roaring with laughter.”
Monday, July 03, 2006
The following is a comprehensive list of the major Rules and Guidelines for the Elliott wave principle.
Elliott Rules must be obeyed in every detail for a pattern to qualify as an Elliott Pattern (or wave).
However, the Guidelines do not have to be obeyed.
The more Guidelines obeyed by an Elliott pattern, the higher its rating or probability of being correct.
An Impulse is a five Wave pattern labeled 1-2-3-4-5 moving in the direction of the larger trend. It is the most common Elliott Wave pattern.
- Wave 1 must be an Impulse or a Leading Diagonal.
- Wave 2 may be any corrective pattern except a Triangle.
- No part of Wave 2 can more than retrace Wave 1.
- Wave 2 must retrace Wave 1 by a minimum of 20%.
- The maximum time for Wave 2 is nine times Wave 1.
- Wave 3 must be an Impulse.
- Wave 3 must be longer than Wave 2 in gross distance by price.
- The gross price movement of Wave 2 must be greater than either Wave 2 of Wave 1 or Wave 4 of Wave 1. The gross price movement of Wave 2 must also be greater than either Wave 2 of Wave 3 or Wave 4 of Wave 3. Wave 2 must also be greater than 61.8% of the gross movement of each of the above 4 sub-Waves.
- Wave 3 and Wave 1 cannot both have 5th Wave failures. (A Failure is an impulsive Wave where Wave 5 is shorter than Wave 4 by price.)
- Wave 3 cannot be less than 1/3 of Wave 1 by price.
- Wave 3 cannot be more than 7 times Wave 1 by price.
- Although there is no minimum time constraint for Wave 3, its absolute maximum time limit is 7 times Wave 1.
- Wave 4 can be any corrective pattern.
- Waves 1, 2 and 4 cannot overlap except by 15% of Wave 2 with leveraged securities, and then only for a maximum of less than two days.
- The gross price movement of Wave 4 must be greater than either the gross movement of Wave 2 of 3 or Wave 4 of 3. The gross price movement of Wave 4 must also be greater than either the gross movement of Wave 2 of 5 or Wave 4 of 5. The gross movement by price of Wave 4 must also be greater than 61.8% of the gross movement of each of these four subwaves.
- The gross movement by price of Wave 4 must be greater than 1/3 of the gross movement of Wave 2 by both price and percentage movement.
- The gross movement by price for Wave 4 must be less than three times the gross movement of Wave 2 by both price and percentage movement.
- Wave 3 and Wave 4 cannot both be failures. (A Failure is an impulsive Wave where Wave 5 is shorter than Wave 4 by price.)
- Although Wave 4 has no minimum time constraint, the maximum time for Wave 4 is twice the time taken by Wave 3.
- Wave 5 must be an Impulse or an Ending Diagonal. However, if Wave 5 is longer than Wave 3 by price, then Wave 5 must be an Impulse.
- Wave 5 must move by price more than 70% of Wave 4. (This is not gross movement. Only consider the end points of both Waves.)
- Wave 3 must never be shorter than both Wave 1 and 5, by either price distance or percentage price movement.
- If Wave 5 is truncated, or contains an Impulse that is truncated, then neither Wave 3 nor Wave 4 can contain a subwave that is truncated. (A truncated pattern is where Wave 5 is shorter than Wave 4. This is also known as a failure.)
- The maximum movement of Wave 5 is six times Wave 3 in both price and time.
- Wave 5 has no minimum time constraint.
- Wave 1 can be a Leading Diagonal, but this is rare.
- Wave 2 is usually a Zigzag based pattern.
- Wave 2 usually takes a small amount of time compared to Wave 1. However, Wave 2 is usually takes more than 10% of the time taken by Wave 1.
- Wave 2 generally retraces more than 30% of Wave 1 including internal data points.
- Wave 2 will usually retraces less than 80% of Wave 1 .
- The most likely retracement for Wave 2 is 50% or 61.8% of Wave 1.
- The gross price movement of Wave 2 should be greater than the gross price movement of Waves 2 of 1, 4 of 1, 2 of 3 and 4 of 3.
- If the gross movement of Wave 2 is between 33% and 40.3% retracement of Wave 1, it is most likely complete.
- If the gross movement of Wave 2 has retraced to end of previous Wave 4 of 1, then it is most likely complete.
- It is unlikely that Wave 3 will be shorter than Wave 1 by price.
- The most likely price range for Wave 3 is between 1.5 and 3.5 times the price range of Wave 1.
- Most likely range in time for Wave 3 is between 1 and 4 times the time taken by Wave 1.
- Wave 4 is rarely a Zigzag based correction.
- It is common for both Waves 4 & 2 to have approximately the same price movement.
- Wave 4 will most often retrace more than 20% of Wave 3, including internal points.
- Wave 4 will very often retrace about 38.2% of Wave 3.
- Wave 4 does not often retrace Wave 3 by more than 50%.
- Wave 4 will often retrace into the price territory of previous Wave 4 of Wave 1.
- Wave 4 will most often retrace to the end of the previous Wave 4 of one lesser degree.
- Waves 2 & 4 usually alternate between Zigzag and Flat. The other alternation is between a Triangle and a Flat.
- Leveraged markets may at times overlap by up to 15% of Wave 2 by price.
- The gross price movement of Wave 4 should be greater than the gross price movement of Waves 2 of 3, 4 of 3, 2 of 5 and 4 of 5.
- Expect the time taken by Wave 4 to be between 100% - 270% of the time taken by Wave 2.
- Wave 5 will usually move beyond the end of Wave 3.
- When Wave 5 is extended (more than 161.8% longer than both Waves 1 and 3) a point within Wave 4 will often divide the entire Impulse Wave by 1.618.
- If Wave 5 is extended (more than 161.8% longer than both Waves 1 and 3), it is common for its price length to be about 161.8% of the gross price length between the beginning of Wave 1 to end of Wave 3.
- It is unusual for Wave 5 to travel a greater price or time percentage than Wave 3 traveled in its entirety.
- The most likely price targets for Wave 5 are: 61.8% of Wave 1, 100% of Wave 1, 161.8% of Wave 1, 161.8% of the length from the beginning of Wave 1 to end of Wave 3.
- If Wave 3 is about equal to 161.8% of Wave 1 by price, the most likely time for Wave 5 is about equal to the time taken by Wave 1.
- One of the Impulse Waves (Waves 1, 3 or 5) generally extends (at least 162% times the next longest Impulse Wave).
- The most likely Wave to extend is the 3rd Wave of an Impulse. However, in leveraged funds when the Impulse is rising and the degree is Primary or above, the most likely Wave to extend is Wave 5.
- A non-extended 5th Wave of less than Primary degree usually has a lower peak volume than a third Wave. However, when the 5th Wave extends (less than Primary degree), Wave 5 has usually shows more volume.
- Wave 5, when complete, usually has a lesser slope than Wave 3. However, in leveraged securities when the Impulse is rising and the degree is Primary or above, this is not usually the case.
- Wave 5 is usually less than 4 times length of Wave 3 by time.
A ZigZag is a three wave structure labeled A-B-C, generally moving counter to the larger trend. It is the most common three wave Elliott pattern. Zigzags are corrective in nature.
- Wave A must be an Impulse or a Leading Diagonal.
- Wave B can only be a corrective pattern.
- Wave B must be shorter than Wave A by price. All internal points are considered.
- Wave B must be at least 20% of A by price.
- Although there is no minimum time constraint for Wave B, it must not exceed 10 times the time taken by Wave A.
- Wave C must be an Impulse or an Ending Diagonal.
- If Wave A is a Leading Diagonal, then Wave C must not be an Ending Diagonal.
- Wave C must be longer than 90% of Wave B by price.
- Wave C must be less than 5 times Wave B by price.
- It is not allowable to have both Wave 5 of A a failure (Wave 5 is shorter then Wave 4) and Wave 5 of C a failure.
- Wave C must be no more than 10 times either Wave A or B in price or time.
- It is unusual for a Wave within Wave A to have a greater gross price movement than Wave A.
- Wave B should end nowhere near beginning of Wave A
- Wave B should retrace at least 30% of Wave A.
- Wave B is most likely to retrace Wave A by about 38.2%.
- Wave B is next most likely to retrace Wave A by about 50%.
- Wave B is next most likely to retrace Wave A by about 61.8%.
- The largest Wave in B is usually less than the gross price movement of Wave A.
- The time taken by Wave B is usually between 61.8% and 161.8% of the time taken by Wave A.
- Wave C is most likely to have a similar price length to Wave A.
- The next most likely price lengths for Wave C are 61.8% and 161% of Wave A
- The next most likely price length for Wave C is 61.8% of Wave A beyond the end of Wave A.
- If Wave C is much longer than 161.8% of A, then the pattern is more probably the beginning of an Impulse than a Zigzag.
- If Wave C is complete, and has a greater slope than Wave A, expect the Zigzag to extend to an Impulse.
- Although Wave C should always be greater in price to Wave B, in rare cases Wave C can be up to 10% shorter than Wave B.
- The largest Wave within C by price is usually less than the gross price movement of Wave A.
- The time taken by Wave C is usually between 61.8% of Wave A and 161.8% of the shortest Wave of A and B.
- Wave A can be any corrective pattern except a Triangle.
- Wave B can be any corrective pattern except a Triangle.
- Wave B must retrace more than 70% of Wave A.
- Wave B is less than twice the price movement of Wave A, including internal points of Wave B.
- Although there is no minimum time constraint for Wave B, it must be less than 10 times Wave A.
- Wave C must be an Impulse or Ending Diagonal.
- Wave C must share some common price territory with Wave A.
- Wave C must be less than twice the longest of Waves A and B, including internal points of Wave C.
- Wave C must be less the three times the price distance of Wave A.
- Disallow back to back failures.
- Wave C must be no more than 10 times either Waves A or B in price and time.
- There is no minimum time constrains for Wave A.
- Wave A is usually a Zigzag family pattern.
- Wave A is rarely an Expanding Triangle.
- The largest Wave within Wave A is usually less than Wave A by price.
- Wave B is usually a Zigzag family pattern.
- Wave B is rarely a Flat.
- Wave B is usually greater than 95% of Wave A by price.
- Wave B is usually less than 140% of Wave A by price.
- The largest Wave within B is usually less than Wave A by price.
- The time taken by Wave B is generally between 61.8% and 161.8% of Wave A.
- Wave C is rarely an Ending Diagonal.
- Wave C is often about the same length as both Wave A and B.
- Wave C often ends at point which is a percent of Wave A beyond end of Wave A equal to the same percentage away from the start of Wave A.
- Wave C usually retraces a minimum of 100% of Wave B.
- Wave C normally reaches to the end of Wave A
- Wave C is not often more than 140% of the longer of Wave A or B.
- If Wave C is longer than Wave B, then Wave C is often about 61.8% of A beyond end of A.
- If Wave C is longer than Wave B, then Wave C is often about 161.8% of Wave A from end of Wave B by price.
- The time taken by Wave C is generally between 61.8% of Wave 1 to 161.8% of the shortest of Waves A and B.
LD = Leading Diagonal, ED = Ending Diagonal
A Diagonal is a common 5 Wave Impulsive pattern labeled 1-2-3-4-5 that moves with the larger trend. Diagonals move within two channel lines drawn from Waves 1 to 3, and from Waves 2 to 4. A Diagonal must be contracting. There exist two types of Diagonals; Leading and Ending. They have a different internal structure and are seen in different positions within the larger degree pattern. Ending Diagonals are much more common than Leading Diagonals.
- Wave 1 of a LD must be an Impulse or a LD.
- Wave 1 of an ED must be a Zigzag family pattern.
- Wave 2 may be any corrective pattern except a Triangle.
- Wave 2 must be less than Wave 1 by price.
- Wave 3 of a LD must be an Impulse.
- Wave 3 of an ED must be a Zigzag family pattern.
- Wave 3 must be greater than Wave 2 by price.
- Wave 4 may be any corrective pattern.
- Waves 2 and 4 must either overlap or be within 10% of length Wave 3 of doing so. All internal data points are considered.
- The time taken by Wave 4 must be between 10% and 10 times the time taken by Wave 2.
- Wave 5 of an ED must be a Zigzag family pattern.
- Wave 5 of a LD must be an Impulse or ED.
- If Wave 1 is a LD then Wave 5 cannot be an ED.
- Wave 3 must not be shorter than both Waves 1 and 5.
- Wave 5 must be at least 80% of Wave 4 by price.
- Wave 5 is never the longest when compared with Wave 1 and Wave 3.
- Wave 5 is always less than Wave 3 by price.
- The intersection of the channel lines must be beyond the end of the pattern.
- Diagonals must move within the two channel lines or be within 10% of gross movement.
- Channel lines must converge, slope in the same direction and neither be horizontal.
- The maximum number of pattern lengths into the future that the channel lines intersect is 4.
- The minimum time for Wave 5 is 10% of Wave 4. The maximum time for Wave 5 is 5 times Wave 3.
- Wave 1 of a LD is usually an Impulse, but in rare cases may be a LD.
- Wave 2 is usually ZigZag family pattern.
- Generally Wave 2 is greater than 35% of Wave 1's gross price movement.
- Wave 4 is commonly a Zigzag.
- It is rare that at least either Waves 2 or 4 of an ED is not a Zigzag family pattern.
- Generally Wave 4 is greater than 35% of Wave 3's gross price movement.
- The end points of Waves 1 and 4 generally overlap.
- Expect the time taken by Wave 4 to be between 20% and 5 times Wave 2.
- Wave 5 is usually greater than Wave 4 by price.
- It is typical for Wave 5 of a LD to end before reaching the channel line.
- It is typical for Wave 5 of an ED to exceed the channel line.
CT = Contracting Triangle, ET = Expanding Triangle
A Triangle is a common 5 Wave pattern labeled A-B-C-D-E that moves counter-trend and is corrective in nature. Triangles move within two channel lines drawn from Waves A to C, and from Waves B to D. A Triangle is either Contracting or Expanding depending on whether the channel lines are converging or expanding. Expanding Triangles are rare.
- Wave A of a CT is always either a Zigzag based pattern or a Flat. Wave A of an ET can only be a Zigzag based pattern.
- Within Wave A of a CT, Wave B must be less than 105% of Wave A's price length. The same rule applies for Waves C and D of the CT.
- Wave B must be a Zigzag based pattern.
- Wave C of a CT can be any corrective pattern except a Triangle. Wave C of an ET must be a Zigzag based pattern.
- Wave B of a CT must retrace Wave A by 50%.
- For a CT, Wave C must be less than Wave B by price and Wave C must be greater than or equal to 50% of Wave B by price.
- For an ET, Wave B must be less than Wave C by price and Wave B must be greater or equal to 50% of Wave C by price.
- Wave D of a CT can be any corrective pattern except a Triangle. Wave D of an ET must be a Zigzag based pattern.
- Wave B, C and D must not move more than 10% beyond the A-C & B-D channel lines (based on the length of Wave C).
- In an ET, Wave C must be less than Wave D by price and Wave C must be more than 50% of Wave D by price.
- In an ET, Wave A must move within the A-C channel or pass through it by no more than 10% of the length of Wave B by price.
- In an CT, Wave D must be less than Wave C by price and Wave D must be greater than or equal to 50% of Wave C by price.
- The intersection of the channel lines must occur beyond the end of a CT, and before the beginning of an ET.
- The channel lines must either converge or diverge. They cannot be parallel.
- Wave D of a CT must not end such that when retraced 25% by E, E will not reach the price territory of A.
- Only one channel line in a CT may be horizontal. Neither channel line of an ET can be horizontal.
- The maximum time for Wave D is 4 times Wave C.
- Wave E of a CT can either be a CT or a Zigzag family pattern. For an ET, Wave E must be a Zigzag based pattern.
- In an ET, Wave E must be greater than Wave D by price and Wave D must be greater or equal to 50% of Wave E by price.
- In an ET, either Wave A or B will be the shortest Wave in the pattern.
- In a CT, Wave E will be less than Wave D by price and Wave E will be greater than or equal to 25% of Wave D by price.
- In a CT, either Wave A or B will be the longest Wave in the pattern.
- In a CT, the maximum time for Wave E is 4 times Wave C.
- Wave E must end in the price territory of A.
- Wave E must not pass through the B-D line, or if it does, by no more than 10% of the length of Wave D.
- The maximum number of pattern lengths into the future that the channel lines intersect is 6.
- Wave A is usually a zigzag family pattern.
- Wave B is usually a zigzag family pattern.
- Wave C is often a zigzag family pattern.
- Wave C usually takes more time than any other Wave in the pattern.
- Wave D is usually a zigzag family pattern.
- Waves B, C and D rarely move outside the B-D line.
- Waves A, B, C and E rarely move outside the A-C line.
- Wave E is usually a zigzag family pattern or the same type of Triangle as the larger pattern.
- Usually at least two Waves travelling in the same direction will relate by about 61.8%.
- It is common for two or more adjacent Waves will be related by 61.8%.
- In a CT, Wave E normally retraces Wave D by about 70%.
Double (DZ) and Triple (TZ) Zigzags are similar to Zigzags, and are typically two or three Zigzag patterns strung together with a joining Wave called an x Wave, and are corrective in nature. Doubles are not common, and Triples are rare. Zigzags, Double Zigzags and Triple Zigzags are also known as Zigzag family patterns, or 'Sharp' patterns. Double Zigzags are labeled w-x-y, while Triple Zigzags are labeled w-x-y-xx-z. Both these patterns are included in the list of rules and guidelines below. Only a Double Zigzag is illustrated below.
- Wave W must be a Zigzag.
- Wave C of W cannot be a failure.
- Wave X can be any corrective pattern except an ET.
- Wave X must be smaller than Wave W by price.
- Wave X must retrace at least 20% of W by price.
- The gross price movement of Wave X must be less then 3 times the price movement of Wave W.
- Wave X must be no more than 5 times Wave W by time.
- Wave Y must be a Zigzag
- Wave Y must be greater than or equal to Wave X by price.
- Back to back and double failures are not allowed.
- Wave Y must be greater than 90% of Wave W by price, and Wave Y must be less than 5 times Wave W by price.
- Wave Y must be no more than a factor of 5 times either Wave X or W in price or time.
- Wave C of Y cannot be a failure.
- Wave XX can be any corrective pattern except an ET.
- Wave XX must be smaller than Wave Y by price.
- Wave XX must retrace at least 20% of Y.
- The gross price movement of Wave XX must be less than 3 times the gross movement of Wave W.
- Wave Z must be a Zigzag
- Wave Z must be greater than or equal to Wave XX by price.
- Wave Z must be less than 5 times Wave Y by price, and must also be less than 5 times Wave W by price.
- Wave Z must be no more than a 5 times either Waves XX, Y, X or W in both price and time.
- The largest Wave in Wave W is usually less than Wave W by price.
- Wave X is usually a Zigzag family pattern.
- Wave X is usually less than 70% of Wave W by price.
- Wave X will usually retrace at least 30% of Wave W.
- Wave X is most likely to be a 38.2% retracement of Wave W.
- Wave X is next most likely to be a 50% retracement of Wave W.
- Wave X is next most likely to be a 61.8% retracement of Wave W.
- The largest Wave in Wave X is usually less than 140% of Wave W by price.
- The time taken by Wave X is usually between 61.8% and 161.8% of Wave 1.
- Wave Y is next most likely to be equal to 61.8% or 161.8% of W by price.
- Expect the time taken by Wave Y to be between 61.8% of Wave W and 161.8% of shortest of Wave W and X.
- Wave XX is usually a Zigzag family pattern.
- Wave XX is usually less than 70% of Wave Y by price.
- Wave XX will usually retrace at least 30% of Wave Y.
- Wave XX is most likely to be a 38.2% retracement of Wave Y.
- Wave XX is next most likely to be a 50% retracement of Wave Y.
- Wave XX is next most likely to be a 61.8% retracement of Wave Y.
- The largest Wave within Wave XX is usually less than 140% of Wave Y by price.
- Wave Z is most likely to be about equal to Wave Y by price.
- Wave Z is next most likely to be about equal to 61.8% or 161.8% of Wave Y.
- The largest Wave in Wave Z is usually less than Wave Y by price.
Double (D3) and Triple (T3) Sideways patterns are similar to Flats, and are typically two or three corrective patterns strung together with a joining Wave, called an x Wave, and are all corrective in nature. Doubles are not common, and Triples are rare. Doubles are labeled w-x-y, while Triples are labeled w-x-y-xx-z. Both these patterns are included in the list of rules and guidelines below. Only a Double 3 is illustrated below.
- Wave W may be any corrective pattern except a Triangle, double or triple.
- Wave C of W cannot be a failure.
- Wave X may be any corrective pattern except a Triangle, double or triple.
- The minimum X Wave retracement is 70% of Wave W.
- The maximum price distance of Wave X is 150% of both the previous Wave and ensuing Wave. All internal data points are considered.
- Although there is no minimum time for Wave X, the maximum time is 10 times the time taken by Wave W.
- Wave Y may be any corrective pattern except double, triple or a Triangle in a Triple Zigzag. However, Wave Y cannot be a Zigzag if Wave W is a Zigzag.
- Wave Y must be greater than or equal to Wave X by price, except if Wave Y is a Triangle.
- Wave C of Y cannot be a failure.
- Wave Y must be no more than 5 times either Wave X or W in price and time.
- Wave Y has no minimum time constraint.
- Wave XX may be any corrective pattern except a Triangle, double or triple.
- The minimum Wave XX retracement is 70% of Wave Y.
- The maximum Wave XX retracement is 150% of previous Wave and ensuing Wave. All internal data points are considered.
- Wave Z may be any corrective pattern except double or triple. However Wave Z cannot be a Zigzag if Y is a Zigzag.
- Wave Z is greater than or equal to XX by price.
- Wave Z must be no more than 5 times either Waves XX, Y, X or W in price and time.
- Back to back and double failures are not allowed.
- If Wave Y is greater than Wave W by price, then the maximum Wave Z price movement is twice the price movement of Wave W.
- The largest Wave in Wave W is usually less than 140% of Wave W by price.
- Wave X is usually a Zigzag family pattern.
- The largest Wave in Wave X is usually less than Wave W by price.
- Wave X is usually less than 140% of W by price.
- Wave X is usually greater than 95% of Wave W by price.
- The most likely retracement for Wave X is 110% of Wave W.
- Time for X is generally between 62% of W1 and 1.618 of the time of W1.
- If Wave Y is a Triangle, the most likely length of Wave Y is about 61.8% of Wave W. If Wave Y is not a Triangle, the most likely lengths for Wave Y are 100% of Wave W, 161.8% of Wave W and 10% of the length of Wave W beyond the end of Wave W.
- The largest Wave in Wave Y is usually less than 140% of Wave W by price.
- Wave Y is usually less than twice the longest of Wave W and Wave X in price.
- Wave Y is generally between 61.8% of Wave W and 161.8% of Wave W in time.
- Wave XX is usually a Zigzag family pattern.
- The largest Wave in Wave XX is usually less than Wave Y in price.
- Wave XX is usually less than 140% of Wave Y by price.
- Wave XX is usually greater than 95% of Y by price.
- The most likely retracement for Wave XX is 110% of Wave Y.
- If Wave Y is a Triangle, most likely length by price is 61.8% of Wave W. If Wave Y is not a Triangle, then the most likely lengths are 100% of Wave W, 161.8% of Wave W and 10% of length of Wave W beyond the end of Wave W, all by price.
- The largest wave in Wave Z is usually less than 140% of Wave Y by price.
- Wave Z is usually less than twice the longest of Wave Y and Wave XX.
Also see>>> Trading The Elliott Waves