W. D. Gann lived from 1878 to 1955. During the latter half of his career, he devoted his time to writing about his extremely complex mathematical techniques and delivering seminars about their use. The seductive thing about these and other similarly complex techniques is that they offer the practitioner the illusion of being able to see into the future. This speaks to the essence of trading as opposed to investing. A trader looks for a repetitive patterns in behavior to start to occur and then takes a position in the market in harmony with the way the market is behaving at that time. It is not possible to have any hardand- fast idea of where the stock really will end up 10, 30, or 120 minutes from the point of taking a position. What you can do is hold positions for as long as market conditions support that position being held.

When you start to take action based on complex mathematical techniques, you are putting yourself in the hands of the person who devised the formula, and you lose control over what you are doing. You are merely acting out what is prescribed by the formula. Einstein said it best by stating that elegance is for tailors. The message being that just because some theory has some mathematical beauty, it is not necessarily correct. It is my philosophy that you cannot say that a stock will move a half dollar, a dollar, or more in any given direction at any given time. All you can do is take a position when the trend suggests that you will win and stay with that trend until your judgment tells you that the trend you bought into shows signs of weakening. Anyway, let's look at what Gann had to say.

As with most of the truly seductive schemes, there is a liberal spattering of truth and value in what Gann did. To portray him as a person without a grasp of the markets would be unfair and inaccurate. It must be said, however, that many people have suspected he made more money out of seminars and writing than actually trading his techniques. One of the key concepts that can be attributed to Gann comes from his belief in the significance of historic highs and lows. Gann correctly identified the market behavior that respects these figures as areas of future resistance and support and noted that should those levels be breached, their roles as support or resistance reverse. We have already discussed this idea in the analysis of trend. Once Gann gets away from the simpler concepts, however, the day trader has to say good-bye to him. Gann used sophisticated formulas to attempt to predict future levels of support and resistance, and he coupled that with placing fan lines on a chart, which predicted future trendlines. Although books that promote this technique can come up with examples of securities that follow Gann's predictions to the letter, I can come up with just as many that don't. In fact, I can come up with a study that shows certain stocks gained in value each day this week that I turned left rather than right at the bottom of my road on my way to get a bagel. That doesn't mean that next week the behavior will be the same. This is the crux of technical analysis.

So much for W. D. Gann. Now for Elliott wave analysis, probably the most complicated of all technical methods. Those who follow Elliott wave analysis tend to make very bold predictions. Based upon the principles Elliott set out at the end of the 1930s, Elliottitians, as they are known, use wave analysis to predict the point a market will reach.

As with many highly complex techniques, the Elliott wave theory has its roots in something that is simple and familiar to most people, the motion of the sea on the shore. Elliott was an accountant who contracted a serious illness in South America and underwent a protracted convalescence in a beach house. During this time, Elliott observed the crashing of the waves on the shore and noted how the waves increased in amplitude and then subsided. With lots of free time on his hands, Elliott started to look at the stock market and noticed that the prices there seemed to move in waves also.

From this realization, Elliott became a little overambitious and came to believe that his theory of wave motion guided not only stock prices but just about everything else that people do. Does he have a point? Are biorhythms, for example, a part of Elliott's master wave theory? I don't know and do not much care. The basic points of wave theory are reasonable, and they do actually relate to the way markets move. It's just when you start to use them to make far-off predictions that things come a little unstuck. Elliott wave analysis is all based around a count of highs and lows, and when an Elliottitian gets one of the grand predictions—which the theory constantly suggests—wrong, the defense is always that the analyst got the count wrong but the prediction was correct. In defense of Elliott, his analysis led him to predict the start of the long bull run that began after the crash of 1929. Many market gurus, it seems, get one major prediction right, then milk it for all it's worth.

Elliott's analysis led him to believe that markets and individual securities move in a five-leg formation up, followed by a three-leg formation down, which is illustrated in the below figure.