Lesson 1

What is Elliott Wave Theory?

Elliott Wave Theory is a form of technical analysis that identifies patterns in the movement of financial markets. It was developed by Ralph Nelson Elliott in the 1930s, and is based on the idea that prices move in waves of five waves in the direction of the trend, followed by three waves against the trend.

Elliott Wave Theory is based on the following principles:

• Market prices move in waves: Elliott believed that prices move in a series of waves, with each wave having a specific structure and function.
• Waves are fractal: Elliott believed that waves are fractal, meaning that they are self-similar at different scales. This means that the same wave patterns can be seen in both short-term and long-term price movements.
• Investor sentiment drives market movements: Elliott believed that investor sentiment is the primary driver of market movements. He identified different types of waves that correspond to different stages of investor sentiment.

Elliott Wave Theory can be used to identify trends, reversals, and corrective patterns in the market. It can also be used to forecast future price movements. However, it is important to note that Elliott Wave Theory is not a perfect science, and it is important to use it in conjunction with other forms of technical analysis and risk management strategies.

Here is a simplified overview of the Elliott Wave patterns: (IMAGE ATTACHED)

• Impulse waves: Impulse waves are five-wave moves in the direction of the trend. They are labeled 1, 2, 3, 4, and 5.
• Corrective waves: Corrective waves are three-wave moves against the trend. They are labeled A, B, and C.

Elliott Wave Theory can be used to identify trends, reversals, and corrective patterns in the market. 

For example, if you see five waves up followed by three waves down, you can identify this as a complete Elliott Wave cycle. This would suggest that the trend is likely to continue in the direction of the impulse waves.