Ralph Nelson Elliot Biography
Elliot Wave Theory was created by Ralph Nelson Elliot as a way to characterize the movements of the stock market as a series of repetitive waves, or patterns, with specific characteristics, and promoted as a means of predicting future market movements. The Theory was later elaborated by followers to try to make it more suitable for trading. By recognizing part of the Elliot Wave in its early stages, one, supposedly, could forecast the market.
Ralph Nelson Elliot Biography Timeline
1871 – Born in Marysville, Kansas on July 28 to Franklin and Virginia Elliot. Shortly thereafter they moved to Fairbury, Illinois, which was about 100 miles southwest of Chicago.
1880 – Moved with his parents and older sister to San Antonio, Texas, where he learned to read and write Spanish fluently.
1891 – Went to Mexico to live, and to work on the railroads there. During the next 5 years, he worked as a lineman, train dispatcher, stenographer, telegraph operator, and station agent.
1896 – Started work as a railroad accountant in Mexico and Central America, which lasted about 25 years. During the latter part of his career, he was also an executive at several railroad companies located in Mexico, and Central and South America, and helped financially reorganize some of those companies according to new accounting principles that were developing at that time, including new systems of recordkeeping, the anticipation of future expenses, and allocating revenues more effectively. Most of these companies were owned by Americans who put Elliot in charge because of his fluency in Spanish and because he understood Latin American culture thoroughly.
1903 – Marries Mary Elizabeth Fitzpatrick (1869 – 1941).
1916 – Because of civil unrest in Mexico and the general resentment that Mexicans had for Americans, President Woodrow Wilson ordered Americans out of Mexico. Elliot and his wife moved to Los Angeles, California, where his parents and sister had been living since they left San Antonio.
1920 – Moved to New Jersey, then to New York City. Why is unknown, but his wife was born in New York, and she had a sister living nearby in New Jersey. While in New York, he applied his business skills to restaurants, cafeterias, and tea rooms. Tea rooms were rapidly proliferating during this time and were promoted as a business that could be started with little money.
1924 – In the summer, Elliot became an editor of the business magazine, Tea Room and Gift Shop, where he wrote columns, which answered readers' questions about the financial operations of tea rooms. One question that he answered, for instance, was why it was beneficial for a tea room to incorporate. In many of these columns, he was teaching his readers about the new developments of accounting — what was called scientific management then — and how they can be applied to increase profits, or to even be sure that they are making profits, since many business owners at this time used only cash accounting and did not consider future expenses. Mr. Elliot wrote that the 4 major causes of business failure are too much debt, insufficient capital, inexperience of the business owner, and inadequate records. He advised that if one wanted to start a business, they should choose a business that they could enjoy, but that they should first get a job in that business and do as many different jobs as possible to learn the business thoroughly, much as he did in learning accounting.
Two additional ideas that he relayed in the magazine and that would be incorporated in his writings about the stock market is that recordkeeping "provides a guide to future action" and that indecision is frequently worse than making a wrong decision.
He also commented that every new type of business tends to be overdone initially, and that businesses go through booms and busts, like the ebb and flow of a river. Later, Elliot will apply this wave analogy to the stock market.
On December 18, Elliot was appointed by the State Department to be the Chief Accountant for Nicaragua, which was still under the control of the United States Marines during the U.S. Intervention Era of Nicaragua that spanned 1909 – 1933. His duties were to reorganize the finances of Nicaragua.
Shortly afterward, Elliot became the general auditor of the International Railway of Central America in Guatemala City. In this time, he wrote 2 books, Tea Room and Cafeteria Management, published in 1926, and The Future of Latin America, which was an analysis of the economic and social situation in Latin America, and offered some proposals for improvement based on his experiences in Nicaragua. However, it was never published.
1926 – Elliot returned to New York City from Guatemala to promote his new book and to establish a restaurant management consulting business.
1927 – In January, Elliot moved back to Los Angeles to recover from an intestinal ailment, caused by Amoeba Histolytica, contracted while he was in Central America. He suffered from chronic fever, dysentery, and weight loss.
1929 – Elliot began to suffer from pernicious anemia, probably brought on by his intestinal disease, causing anemia and chronic fatigue. He would continue to suffer considerably over the next 5 years, forcing him to abandon his consulting business.
At this time, Elliot's finances were dismal, because of the medical costs of his illness and his inability to work during the years of his illness, and he lost a significant amount of money in the stock market crash of 1929 - 1932. So he decided to start a new career.
It was during this time that he started to study the movement of stock prices that have occurred since about 1850, especially the Dow Jones Industrial Average and the Dow Jones Rail Index (which has since become the Dow Jones Transportation Average).
1932 – Elliot reads the book Dow Theory by Robert Rhea, then subscribes to his stock market letter, Dow Theory Comment (1932 - 1937).
1934 – Elliot believed that there were natural laws that governed everything, and so there were also laws that governed people and crowds, in particular, and, therefore, the stock market. He believed that crowds went through emotional cycles, from extreme pessimism to extreme optimism, and that the stock market reflected this crowd psychology. He also believed that smaller patterns composed the larger patterns and that the patterns were similar. By November, he had distilled his ideas into a set of principles, and started to relay them to Charles J. Collins of Investment Counsel, Inc., who published one of the market letters that Elliot had subscribed to during his later years in Central America. Collins wanted to see more telegrams of predictions to see if they were accurate, so Elliot continued sending them, expanding his ideas, one of which was the Five Wave Principle, and making more predictions. In one of these telegrams, sent on March 15, 1935, Elliot had successfully forecasted that the Dow Jones Industrials, with a target of 96, and the Rail averages were making their final bottom, ending a 13-month downtrend, and would rise thereafter. The market did rise substantially, which impressed Collins.
1935 – Collins suggested to Elliot to write market letters with his forecasts that Collins would distribute to a select group of friends. Collins also sent Elliot a book — On the Relation of Phyllotaxis to Mechanical Laws — which detailed the arrangement of leaves on the stems of plants, some of which corresponded to the Fibonacci sequence. This was probably Elliot's first introduction to the Fibonacci numbers.
1938 – Collins and Elliot collaborated on a book, The Wave Principle, which was published on August 31. The book was predicated on the main principle that "human activities indicates that practically all developments which result from our social-economic processes follow a law that causes them to repeat themselves in similar and constantly recurring serials of waves or impulses of definite number and pattern" and that "The stock market illustrates the wave impulse common to social-economic activity."
He moved back to Brooklyn, New York to focus on his new career, and on November 10, he started to publish a market letter with his analysis and forecasts of the stock market.
1939 – Elliot was commissioned to write 12 articles on the Wave Principle for Financial World magazine.
1940 – Since 1935, Collins had been sending Elliot books about the Fibonacci numbers and their observance in the natural world, and, at this time, Elliot had read a translation of Leonardo Fibonacci's original works as well as other books detailing the Fibonacci ratio (aka golden ratio) in the natural world. In an Educational Bulletin, entitled, How the Wave Principle Works, and its Correlation with Mathematical Laws, he expands the Wave Principle to collective human behavior.
1940 - 1944 – Motivated by his increased popularity with the financial community, he published a series of Interpretive Letters (1940 - 1945), refining his ideas, and also the Educational Bulletins (1940 - 1944), in which he discussed the technical aspects of the Wave Principle and expanded the theory to account for the collective human behavior. During the early 1940's, he incorporated the Fibonacci sequence and the Golden Ratio into his ideas.
1946 – Elliot published his last book on June 10, Nature's Law – The Secret of the Universe, based not only on his previous book, but also on the content in the Interpretive Letters and Educational Bulletins.
1948 – R. N. Elliot dies on January 15 from chronic myocarditis.
This timeline is based on the excellent A Biography of Ralph Nelson Elliot by Robert R. Prechter, Jr., which is part of the book, R. N. Elliot's Masterworks.