capt. jmj - Let me try to explain.
Everything that happens is driven by the herd mood. Bubbles, news, and the actions of the Fed do not take place in a vacuum separate from the herd mood which drives everything. A nuclear disaster or an asteroid hitting the earth have nothing to do with herd mood but practically everything else does.
EW is the system that tracks the changes in herd mood which are repeated over and over again in a systematic progression. There are other tools which rely on herd mood for their time proven dependability. Sentiment extremes reveal potential changes in the markets. When optimism peaks a top is reached for example. We know this by use of logic and experience.
The swings in herd mood are systematic and track able and this is proven by logic and experience.
Here is an example. The most difficult wave for me is a wave 4. A wave 4 can take about 11 different forms. Many times you have no idea what form it will take until the internal waves develop. The most common pattern for a wave 4 is a flat. However it may be an expanded or an irregular flat. It may be a combination of corrective patterns and can also drag on for up to twice as long as the previous wave 3. Why is a wave 4 difficult? It is because it follows a wave 3. The personality of a wave 3 is that it is dynamic, and travels further, faster, and more violently than any other wave. It is followed naturally by a wave 4 correction that demonstrates the reasonable consternation, debate, confusion, indecision etc that would naturally follow such a wave as wave 3.
It is all about emotion and the herd mood.
Bubbles, the Fed, the news are not causes, they are results. They are the result of herd mood. Therefore they are a tool. Just as patterns, sentiment indicators, support/resistance, moving averages are tools. But they all are tied ultimately to herd mood. After all, what causes an overbought and oversold condition?
I said the bursting of the financial bubble may be the catalyst to turn the market over. EW shows us very near a turn over. Sentiment indicators are at extreme optimism. They all are tied to the herd mood that repeats itself over and over again in the systematic fashion that EW tracks. It is very strong confirmation that we are very near a top.
The question then arises: could one only use EW to the exclusion of everything else. The answer is Yes, but why would anyone do it. EW would not be as effective because you would be denied the confirmation and clues to a correct count that current social action and TA provide.
You most certainly are not dumb. It is perhaps your background in mathematics that make thinking in terms of emotional causes difficult for you to understand. I do not understand your system at all and wonder how it could possibly work. Unless it is based on a mathematical probability that the odds favour such and such happening if such and such happens. There again, you are admitting that occurrences in the market are repeated over and over again.
EW addresses the question of why. It's answer: It is because the emotional swings of the herd are repeated over and over again in a systematic fashion and these swings are a cause not an effect.
