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. He proposed that market prices unfold in specific patterns, which practitioners the 5 wave book pdf call “Elliott waves”, or simply “waves”. Elliott published his theory of market behavior in the book The Wave Principle in 1938, summarized it in a series of articles in Financial World magazine in 1939, and covered it most comprehensively in his final major work, Nature’s Laws: The Secret of the Universe in 1946.
Elliott stated that “because man is subject to rhythmical procedure, calculations having to do with his activities can be projected far into the future with a justification and certainty heretofore unattainable. The empirical validity of the Elliott Wave Principle remains the subject of debate. Elliott’s essay, “The Basis of the Wave Principle,” October 1940. The Elliott Wave Principle posits that collective investor psychology, or crowd psychology, moves between optimism and pessimism in natural sequences.
These mood swings create patterns evidenced in the price movements of markets at every degree of trend or time scale. In Elliott’s model, market prices alternate between an impulsive, or motive phase, and a corrective phase on all time scales of trend, as the illustration shows.