In the last couple of articles we have looked at price confirmation tools. This week, we are going to look at some of the more alternative concepts in technical analysis. There are some very strange and bizarre concepts out there - some that defy logic and are hard to digest. If they work for the user though, who am I to argue against them?!
To call the concepts that I am going to look at in this week article 'alternative' is a little unfair. I only class them as alternative, as they aren't in my everyday world of technical analysis and trading. However, for some, these concepts are the life and soul of their trading and they would consider them to be 'mainstream'. These alternative concepts can become a lifetime's study. I would say, though, that they are more suitable for advanced or experienced users of technical analysis. A thorough understanding of technical analysis generally, will enable you to more easily understand these alternative concepts and deploy them in your analysis and trading.
The Development of Alternative Concepts
Technical analysis has evolved beyond comprehension in the last ten years and this is mostly due to the increased availability of sophisticated charting and IT software. This has allowed analysts to create their own alternative concepts and applications away from the mainstream technical analysis syllabus. Most of this 'new' stuff is a derivative of the old, but there are some fresh, new exciting concepts starting to show through.
There are literally thousands of ideas I could have taken a look at, but here, we are going to look at just a few of the most well documented, alternative concepts that are readily available:
- Elliott Wave Theory
- Gann
- Market Profile
Elliott Wave Theory
This theory is the most 'mainstream' of the three we are going to take a look at. Devised by Ralph Elliott, Elliott Wave Theory (EWT) is a methodology used to measure cycles and forecast trends. Its premise is that the market behaves in an irregular cyclic fashion. Around this idea and through technical analysis, measurement techniques have been developed to help quantify it (in a very loose mathematical way). EWT can be used in conjunction with Fibonacci and often is.
The basics of the theory build out around the concept of the 'wave'. EWT says the market is a series of waves of various length and…
