Elliott Wave Theory
Understand the wave structure that drives market cycles. Learn to identify impulsive and corrective waves, apply Fibonacci relationships, and use wave analysis to anticipate price targets and turning points.
6 free comprehensive guides
What Is Elliott Wave Theory?
Elliott Wave Theory, developed by Ralph Nelson Elliott in the 1930s, proposes that financial markets move in repetitive wave patterns driven by collective investor psychology. Markets alternate between periods of optimism (impulsive waves) and pessimism (corrective waves), creating recognisable structures at every scale from 1-minute charts to multi-decade cycles.
The core principle is simple: trending markets move in five waves in the direction of the primary trend (labelled 1-2-3-4-5), followed by three corrective waves against it (labelled A-B-C). These patterns are fractal — each wave contains smaller waves of the same structure, and each wave is part of a larger wave. This self-similar nature means the same principles apply whether you are analysing a 5-minute chart or a monthly chart.
Elliott Wave analysis is not about predicting exact prices — it is about understanding where the market is within its larger cycle. If you can identify that a market is in wave 3 of a five-wave advance, you know the trend has strong momentum and that at least two more waves are likely to follow. This context shapes your strategy, position sizing, and expectations.
5 Impulse Waves
The trending phase: waves 1, 3, and 5 move with the trend; waves 2 and 4 are corrective pauses.
3 Corrective Waves
The counter-trend phase: waves A and C move against the prior trend; wave B is a partial recovery.
Fractal Structure
Each wave contains sub-waves of the same pattern, creating consistency across all timeframes.
Learning Path: Start with Impulsive Waves to understand the five-wave trend structure, then move to Corrective Waves. Once you grasp the basics, Fibonacci Relationships shows you how to measure targets and retracements. Wave Channels, Extensions, and Alternate Counts are intermediate-to-advanced topics.
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