The Elliott Wave Theory

Elliott Wave Theory is a form of technical analysis used to identify patterns of behaviour within trading activity. The theory is centred around trader sentiment, and the belief that trader behaviour is predictable and recurring. Within the Elliott Wave Theory, market sentiment is identified by sets of impulse waves and corrective wave, each wave representing a particular moment in market psychology.

Elliott Wave Theory is fractal, this means that a set of wave patterns identified on a smaller time frame, will form a single wave on a larger time frame. Therefore, understanding the Elliott Wave sequence and how to read the waves, means that current market sentiment on a longer time frame can be traded.

Being able to count waves in practice is not as simple as it may sound. There are a set of defined rules that must be followed, but once mastered, can provide a valuable asset in a trader's armoury.