The Wave Principle

The Wave Principle, developed by Ralph Nelson Elliott, is a theory that markets move in predictable patterns called "waves." These waves reflect collective investor psychology, showing cycles of optimism and pessimism. Typically, markets move in five upward waves followed by three downward waves, forming a larger cycle. Recognizing these patterns helps traders anticipate future market movements. Essentially, the Wave Principle suggests that market behavior isn’t random but follows natural, recurring sequences driven by human emotions and actions. It’s used as a tool for technical analysis to better understand and predict market trends.