Beautiful Pictures

Beautiful Pictures: from the Gallery of Phinance, written by Robert Prechter, Jr., presents in charts and supporting text a study of price and time properties of fifth Elliott waves that simultaneously ended in 2000. The book includes 123 charts in 13 chapters and three appendices.

You may buy the book from the Elliott Wave International bookstore.

Review of Beautiful Pictures: from the Gallery of Phinance

Are the hour-to-hour, day-to-day, year-to-year and decade-to-decade fluctuations of stock market prices random or do they have quantifiable relationships? In Beautiful Pictures Robert Prechter uses sophisticated mathematics and elegant charting techniques to answer this question.

You can approach the book in two, but equally rewarding ways. You can carefully read the book cover to cover paying careful attention to Prechter's meticulous analysis of long-term stock market price patterns. Or, you can treat his work as a "coffee-table book" and casually view the charts for their esthetic value - look for the charts with the "blue ribbon" label. Either way will give you a rich appreciation of the fractal nature of repeating price patterns as the charts let you see the wave within a wave patterns for different time scales.

One of the primary strengths of the book is the comparison of different waves both visually and mathematically. Prechter often places two or three waves on a single chart so it easy to compare their patterns. A second strength is the clear explanation of Fibonacci mathematics that he uses to analyze the waves. The book answered many questions I had about the use and importance of Fibonacci sequences in the study of Elliott waves. Now I understand how and why Fibonacci math is used.

Because Fibonacci math is such an integral part of the book, be sure to read the Introduction for its discussion of Fibonacci numbers, the golden mean and golden section and phi. Also read the Notation and Nomenclature section to understand the labeling conventions used for Primary, Cycle and Supercycle waves and the significance of phi.

Prechter sets the primary theme of the book in the Chapter 1: Formal Self-Affinity Between Two Fifth-Wave Expressions of the Elliott Wave Fractal with, "Although the two waves are quantitatively different in terms both of duration (8.1 years and 25.1 years) and extent (596.5% gain vs. 1929.6% gain), their nuances of form - representing the progression of mass psychology - are strikingly similar." In other words the two waves (1921 -1929 and 1972 - 2000) are very similar in structure. In the parlance of fractals, the waves are called statistical self-similar or self-affine structures because on average their parts look the same at varying scales.

Postscript is a must read because it summarizes Prechter's findings. For me one of the key ideas discussed here is the concept of feedback. Prechter says, "It (the DJIA) not only reflects the pulse of investors, it affects the pulse of investors. Not only do our investment decisions force the Dow to go in a certain direction, but the direction of the Dow often causes us to make those very investment decisions." For example, markets advance in price because investors feel positive so they continue to buy. And as see prices continue to move higher, they become more positive and are willing to pay even higher prices. So higher prices beget higher prices - up to a point.

Beautiful Pictures is a Treasure

I think the charts in Beautiful Pictures are its best feature. Their clarity and precision make is easy to see the fractal nature of the long-term price patterns. And because Prechter painstakingly labels and explains each chart, you can understand the more complex charts as well as simple ones.

To purchase Beautiful Pictures and other Elliott Wave based books, please visit the Elliott Wave International bookstore.

For more information about Elliott waves and Fibonacci numbers read Elliott Wave Principle by A. J. Frost and Robert Prechter, Jr.

Also, be sure to view History's Hidden Engine, a free entertaining and informative video all about the Elliott Wave Principle and much more.

Brief Summary of Each Chapter

If you are interested in knowing more about the contents of the book, here is a brief description of each chapter and the appendices.

Chapter 1: Formal Self-Affinity Between Two Fifth-Wave Expressions of the Elliott Wave Fractal centers on the two Cycle-degree fifth waves for the Grand Supercycle that began around 1784.

Chapter 2: Quantitative Self-Affinity Among Three Fifth-Wave Expressions of the Elliott Wave Fractal compares Supercycle wave (V) from 1932 to 2000 to the 1921-1929 and 1974-2000 waves covered in the previous chapter.

Chapter 3: A Review of Pertinent Elliott Wave Measuring Guidelines summarizes the characteristic of an idealized Elliott wave with an emphasis on the fifth wave.

Chapter 4: Preliminary Considerations for Price and Time Analysis is the most difficult chapter for the "mathematically challenged" person but the illustrations helped me to understand the math.

Chapter 5: Price Relationships Within Supercycle Wave (V) analyzes in detail the Fibonacci relationships of the wave prices for the 1932 to 2000 Supercycle wave.

Chapter 6: Price Relationships Within Cycle Wave V examines the internal structure of wave V from 1974 to 2000.

In Chapter 7: Price Cross-Relationships Between Waves V and (V), Prechter compares Cycle wave V with Supercycle wave (V) and shows that the corresponding advancing waves multiples exhibit 3/8, 1/3 and 1/3 Fibonacci fractions.

Chapter 8: Time Relationships in the Supercycle show that the Supercycle (1932 - 2000) is divided into two Fibonacci parts.

Chapter 9: Time Relationships In Cycle Wave V shows that the three upsides of the Cycle wave V (1974-2000) exhibit alternate Fibonacci durations in years and days.

Chapter 10: Time Cross-Relationships Between Waves V and (V) includes eight elegant charts that show the Fibonacci relationship between the Supercycle wave (V) (1932-2000) and Cycle wave V (1974-2000).

Chapter 11: Elaboration on a Special Case: Wave Four and the Golden Section shows the identical division in time and nearly identical division in price of Cycle wave V and the Supercycle wave by wave four.

Chapter 12: Additional Observations looks at the Fibonacci relationships of various waves. I found the Fibonacci relationships for the Grand Supercycle (around 1784 to 2000) to be of particular interest.

In Chapter 13 Testing For Data Fitting Prechter concludes, ".. the Fibonacci relationships detailed in this book are not a matter of data mining but are the natural product of Elliott waves. In other words not all starting points for wave V produce Fibonacci relationships.

Finally, Appendices A and B examine wave V counting from 1982 and 1980. Appendix C compares multiples versus percentage gains as measures of advance.

Reviewed by Richard Howard.

Posted January 20, 2007.