The Elliott Wave Theory was developed by Ralph Nelson Elliott to predict price movements by observing and identifying repetitive wave patterns.
The Elliott wave principle is a form of technical analysis that finance traders use to analyze financial market cycles and forecast market trends by identifying extremes in investor psychology, highs and lows in prices, and other collective factors.
The Elliott Wave Theory consists of impulse and corrective waves at its core:
* Impulse Waves – Impulse waves consist of five sub-waves moving in the same direction as the trend of the next largest size.
* Corrective Waves – Corrective waves consist of three sub-waves moving in the opposite direction as the trend of the next largest size.
These impulse and corrective waves are nested to create larger patterns. For example, a one-year chart may be in the midst of a corrective wave, but a 30-minute chart may show an impulse wave. A trader might interpret this as a long-term bearish outlook with a short-term bullish outlook.
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