What is Elliott Wave Theory?
Elliott Wave Theory is a technical analysis framework that describes price movement as a fractal pattern of five impulse waves followed by three corrective waves (a 5-3 pattern). It was developed by Ralph Nelson Elliott in the 1930s and is used to forecast market direction.
Full Explanation
Elliott Wave Theory holds that market price action is not random — it unfolds in repeating, recognizable patterns driven by collective investor psychology. The core unit is a 5-wave impulse in the trend direction (labeled 1-2-3-4-5) followed by a 3-wave correction against the trend (labeled A-B-C). The same structure repeats at every timeframe (the principle is fractal), so a Wave 3 on the weekly chart contains five smaller waves on the daily, which contain five smaller waves on the 60-minute, and so on. Elliott combined these structural rules with Fibonacci ratios — Wave 2 typically retraces 61.8% of Wave 1, Wave 3 typically extends 1.618× Wave 1. The wave principle is used today by analysts at major banks, hedge funds, and independent firms to map market structure and project price targets.
- → Elliott Wave Theory Guide — the 5-3 pattern, rules, Fibonacci, wave degrees
- → How to Count Elliott Waves — 6-step process used on 108 instruments
- → Elliott Wave Fibonacci Guide — the 7 core ratios and how they're applied
- → Rules and Guidelines — the 3 absolute rules + 7 guidelines
RELATED QUESTIONS
Weekly wave counts on 108 US instruments
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