What is the Elliott Wave Principle?

What is the Elliott Wave Principle?

The Elliott Wave Principle is a detailed description of how to treat groups of people. It reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific and measurable patterns.

One of the easiest places to see the Elliott Wave Principle is at work in the financial markets, where changing investor psychology is recorded in the form of price movements. If you can identify repeating patterns in prices, and figure out where we are in these models is repeated today, one can predict where we go.

The Elliott Wave Principle is named for its discoverer, Ralph Nelson Elliott.

Elliott Wave Principle measures investor psychology, which is the real engine behind the stock markets. When people are optimistic about the future of a given problem, they offer a higher price.

Two observations will help you grasp this: First, for hundreds of years, investors have noticed that events outside the stock markets seem to have no consistent effect on their progress. The same news that today seems to drive the markets are more likely to drive down tomorrow. The only reasonable conclusion is that the markets simply do not react consistently to outside events. Secondly, when you learn historical charts, you see that the markets continue to evolve in waves.

Using the Elliott Wave Principle is an exercise in probability. One Elliottician is someone who is able to identify the market structure and anticipate the likely next step based on our position within these structures. With knowledge of the waves, you'll know what the markets are likely to do next and (sometimes most importantly) what not to do next. By using the Elliott wave principle, to identify the highest probably moving at least risk