CHAPTER 1

Using the Elliott Wave Principle to Evaluate Mass Psychology

In this first chapter I will help you develop a better understanding of balance and proportion throughout market price data. As the discussion evolves we will be able to consider the sentiment of market participants and why the price movement defines patterns we will find to be repeatable reactions in any time frame. It is so important to understand how to read price data and to see the geometric relationships that occur within a chart, that it would be very helpful for you to read this chapter and then turn to your own computer screen to use the tools described here to work with your own charts. Taking time now to make your own observations and develop your eye with regards to proportion will make the study of the Elliott Wave Principle so much easier for you later.

Geometry is the heart and soul of harmonious relationships in solids and flat two-dimensional shapes. Simply stated, the individual elements often have proportional ratios that connect one unit to another.

The study of ratios can become extremely complex. As an example, music theory is a specialized field of mathematical ratios with specific divisor properties. But we do not need to get complex right out of the starting gate because the math can be hidden behind illustrations of simple shapes and lines. Eventually you will want to answer why specific proportional ratios are more important in markets than other ratios. But the added depth does not necessarily make you a better analyst of market action.