Monday, January 5, 2015

Jigsaw Puzzles, Wave Analysis, and Face Recognition

Elliot Wave Theory is a method of stock market analysis originally attributed to a man named R.N. Elliot who developed it in the 1930s, but modern "Wave Analysis" may take many forms, and can be defined simply as the process of looking for repeating patterns that develop in markets, the common attributes of those re-occuring patterns, and the relationships between adjacent or other related patterns within markets, with the intent to predict the future development of patterning.

The pattern types {and subtypes} known to R.N. Elliot were as follows 
Impulse Patterns, {1st,3rd,5th wave extended}
Ending Diagnol Triangles aka Terminal Impulses {1st,3rd,5th wave extended}
Flats, {C=0.382 to 1.382 A, Irregular, Running}
Zigzags, {C=0.382 to 2.618 A (elongated) }
Contracting Triangles, {Horizontal, Irregular, "Reverse Alternation", Running}
Expanding Triangles {Horizontal, Irregular, Running}

Modern wave-analysis MINIMUM adds one additional pattern type:

H&S (Head and shoulders patterns) {Horizontal, Irregular, Running}

The problem all practitioners of wave-analysis face is as follows:

Given the vast number of pattern types, it becomes virtually impossible in real market conditions to reliably distinguish one pattern type from another and actually therefore predict a market's development.

It almost certainly is impossible to predict the future of markets reliably at all times, or even to know what pattern type is unfolding at all times.  During the early stages of a pattern's development, it is impossible to know what pattern is building, because not much of the pattern can be seen. It would be like determining the image of a jigsaw puzzle with only a couple of pieces.

The jigsaw metaphor for wave-theory:

In a jigsaw puzzle, the puzzle can only be solved (and the whole image understood) by virtue of the relationship between pieces. However, it should be clear from the jigsaw metaphor that even with a overall understanding the jigsaw image is a picture of a lady's face, without the specific piece in place showing her eyes, it would be impossible to know what color the lady's eyes are, even if you could know their rough position and size indirectly.

This is EXACTLY the case in wave-theory. A wave pattern with pieces missing is exactly like a jigsaw puzzle with pieces missing. You may know approximately how much room is left in a pattern, but you may not know what pieces will go there, and cannot know it until that portion of the pattern is mostly developed.

Oddly enough, with a jigsaw puzzle, just as in wave-theory, you may or may not be able to even know the size (or time) of the entire image (or pattern), until a large amount of the pattern is in place.

Is there any solution? (What makes a clear picture of a lady's face?)

A picture of a lady's face is very complicated. It involves eyes, a nose, a mouth, ears, hair, possibly makeup, etc. In addition, recognizing a real lady's face (as opposed to a cartoon face or incorrectly constructed face with improperly placed puzzle pieces) must consider the RELATIONSHIPS between the nose, mouth, ears, hair, forehead, chin, makeup placement, hat, etc. These relationships occur in 2 dimensions on the jigsaw puzzle, but realistically may even involve analysis 3rd dimension since the image may be presented from an angle,

Additionally, each element within the image has INTERNAL relationships, such as the eyes containing an iris, pupil, eyelids, eyelashes, etc. The nose contains two nostrils, proper structure.. etc etc.

This is exactly the case in wave theory. The only way that a LEGITIMATE wave pattern may be recognized is based on correct analysis of the relationships between its subpatterns and their position within the pattern itself.

Categories of Relationships in Wave Analysis:
Modern wave analysis sets itself apart from Elliot-Wave-Theory by including at least five types of relations between related patterns and subpatterns.

1. Basic structure rules (3rd wave not smallest in impulse, etc.)
2. Price and power relations
3. Time relationships
4. Post-pattern behavioral requirements (thrusts after triangles etc, success vs failure and its implications, etc)
5. Support and Resistance / Retracement rules

Without proper analysis of these complex relationships, you cannot distinguish a legitimate pattern from an illegitimately constructed one, just as you could not make out a correctly structured face from one that was incorrectly composited from puzzle pieces.

Solving the puzzle / Simultaneous Occurrence:

Proper wave analysis is a solution to a complex puzzle. The puzzles are extremely challenging. There are many incorrect solutions which may appear correct to the untrained eye, or are missing some dimension of correctness. The correct solution (best count) requires not only basic structure rules to be adhered to (i.e., the face has only 1 nose), but for all the relationships to exist simultaneously, at many different degrees of scale. For a proper face to form, all the parts of a face must be in their proper place and relate properly .

Making matters worse, as previously discussed, most of the time, the puzzle is unsolvable due to too many puzzle pieces that have not been released yet by the market. It is only when you near the end of a pattern that it becomes even possible to solve.

-The Aspiring Hobo