Elliott Wave Theory

Named after Ralph Elliott, who said that the stock market moves in predictable patterns that reflect the basic harmony of nature. The Elliott Wave Theory describes the stock market’s behavior as a series of waves up and another series of waves down to complete a market cycle. Those cycles are grouped into eight waves, with five of those following the main trend, and three being corrective trends. After the eight moves are made, the cycle is complete. Stock market behavior can be predicted by identifying those patterns, the Elliott Wave Theory says.

Elliot’s theory was described in 1938 when The Wave Principle was published. A 1978 book called the Elliott Wave Principle, written by Robert Prechter and A.J. Frost, is now considered the definitive text on the subject.