The Elliott Wave Theory is a theory in technical analysis used to describe price movements in the financial market. The theory was created by Ralph Nelson Elliott, who observed that stock prices do not move in a straight line, but rather in waves. There are five main wave patterns that make up the Elliott Wave principle: motive waves, corrective waves, impulse waves, consolidation waves and ending diagonal formations.The Elliott Wave principle can be used to predict future price movements of a security or market. It is based on the idea that crowd psychology moves prices in identifiable patterns which can be predicted and traded off of. While there is no guarantee that the wave pattern will continue into the future, using the Elliott Wave principle as part of one's trading strategy can increase their chances of success.
