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Elliott Wave Theory

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Elliott Wave Theory was developed by Ralph Nelson Elliott in the nineteen twenties. Initially, Elliott Wave Theory was drawn from social science trends, such as mass psychology that was prevalent at that time. Like many other formulations, the purpose of the Elliott Wave Theory was to create an organizing principle that would explain and predict the otherwise chaotic movement of the stock market. Thus, according to the Elliott Wave Theory, the market fluctuated in a recurring pattern. Without designating categorical timing, the Elliott Wave Theory states that every market cycle is denoted by a number of five upward and three downward moving waves. Elliott Wave Theory can be expressed graphically by plotting stock price shifts on a five-to-three wave movement chart. Investors may find Elliott Wave Theory difficult to interpret with some arguing that the Elliott Wave Theory wave count is in the eye of the beholder.

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