Social Mood Conference  |  Socionomics Foundation

This essay by Robert Prechter first published in The Elliott Wave Theorist in June 1999. It was republished in the MTA Journal (Winter-Spring 2000), and was reprinted in Pioneering Studies in Socionomics in 2003 (the book is also available for purchase as part of a two-volume set).

Research in the fields of complexity theory, fractal geometry, biology and psychology has validated components of the Wave Principle, including its multifractal expression in both financial and natural growth systems. 

Prechter offers an overview of some of these discoveries.


 

Benoit Mandelbrot, an IBM researcher and former professor at Harvard, Yale and the Einstein College of Medicine, did pioneering work bringing to light the fact that fractals are everywhere in nature. The term “nature” in this context includes the activities of man, as Mandelbrot began by studying cotton prices and most recently presented a multifractal model of the stock market. This excerpt from a 1985 article in The New York Times summarizes his exposition on the subject of financial fractals:

Daily fluctuations are treated [by economists] one way, while the great changes that bring prosperity or depression are thought to belong to a different order of things. In each case, Mandelbrot said, my attitude is: Let’s see what’s different from the point of view of geometry. What comes out all seems to fall on a continuum; the mechanisms don’t seem to be different.

This is what R.N. Elliott said about the stock market sixty years ago. Some members of the scientific community have recently recognized the connection. Three physicists researched the stock market’s log-periodic structures and concluded that R.N. Elliott’s model of financial behavior fits their findings. In 1996, France’s Journal of Physics published the study, “Stock Market Crashes, Precursors and Replicas” by Didier Sornette and Anders Johansen, then of the Laboratoire de Physique de la Matiére Condensée at the University of Nice, France, and collaborator Jean-Philippe Bouchaud. The authors make this statement:

It is intriguing that the log-periodic structures documented here bear some similarity with the Elliott waves of technical analysis [citation Elliott Wave Principle, Frost & Prechter]. Technical analysis in finance can be broadly defined as the study of financial markets, mainly using graphs of stock prices as a function of time, in the goal of predicting future trends. A lot of effort has been developed in finance both by academic and trading institutions and more recently by physicists (using some of their statistical tools developed to deal with complex times series) to analyze past data to get information on the future. The Elliott wave technique is probably the most famous in this field. We speculate that the Elliott waves could be a signature of an underlying critical structure of the stock market.

Mandelbrot’s work supports this conclusion.

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In the complete eight-page article, Prechter describes the discovery of a fractal in nature, with self-similarity properties that distinguish it as intermediate between identical and indefinite.

This groundbreaking finding indicates that the same robust fractal governs both nature’s living processes and the activity of social man.

You can continue reading this complimentary article here >>

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