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By Robert Prechter, Jr. | Excerpted from the April 1990 Elliott Wave Theorist and Pioneering Studies in Socionomics


This essay by Robert Prechter is adapted from a May 1986 speech to the Market Technician’s Association. It originally appeared as a Special Report in The Elliott Wave Theorist in April 1990 and was republished in:          

Prechter, Robert R. (2003). Pioneering Studies in Socionomics. Gainesville, Georgia: New Classics Library, pp. 269-277 (Note: The book is also available for purchase as part of a two-volume set.)

Prechter explains that the stock market and many natural forms, such as snowflakes or trees, reflect similar patterns and relationships: They are all fractals.

R.N. Elliott’s discovery of the Wave Principle fifty years ago was a major breakthrough in sociology. His observations reveal that social psychological dynamics create the same pattern of “waves” in aggregate stock price movement from the smallest to the largest degree of trend (see Figure 1). In fact, there is a new science, the science of fractals, indicating that much of nature is made up of the kind of patterns and relationships that Elliott recognized and described.

Figure 1

The modern pioneer in the concept is Benoit Mandelbrot, a former professor at Harvard, Yale and the Einstein College of Medicine, who wrote a book called The Fractal Geometry of Nature. It documents his discovery that many natural forms that scientists had assumed were disorderly are not. In looking at clouds, seacoasts and mountain ranges, for instance, the typical conclusion was that they were governed by no specific geometry. Mandelbrot said that that wasn’t true; they display a relational form that scientists hadn’t considered.

Here are some excerpts from a New York Times article of five months ago [December 1985] about Mandelbrot’s ideas on the way nature develops:

He has invented a new way of describing, calculating and thinking about shapes that are irregular and fragmented, jagged and broken up. A new geometry has emerged, and it turns out to be nature’s own…. The interesting feature of a lightning bolt’s path, for example, is not the straight line direction, but rather the distribution of its zigs and zags…. A new kind of symmetry has emerged, not of left to right or front to back, but of small scale patterns to patterns on larger and larger scales, the self similarity of a broccoli floret whose tiny bifurcations echo the branching of the stalk as a whole…. Oddly, the mathematical description of them seemed to apply just as well to very different problems, from fluctuating cotton prices since the 19th century to the rising and falling of the Nile River through two millenniums…. In unexpectedly orderly fashion, they have self similarity on different scales. …

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In the complete five-page essay, Prechter explains that the self-similarity in natural processes is apparent in stock market movements. Ultimately, man’s productive enterprise through history follows a grand fractal design that is typical of many other natural processes.

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