Psychology and the Elliot wave theory
The Elliot wave theory was the work of an American Ralph Nelson Elliot in the late 30’s
Mr. Elliot was an accountant by profession. In 1930 he started a systematic deconstruction of all stock market data since last 70 years. He discovered that the markets not only followed set repetitive patterns but also these patterns synchronize with mathematical precision following what is known as Fibbonacci numbers.
Elliot came out with his first book on the wave theory ‘The wave theory’
Though the basic principals of the Elliot wave theory are very simple and easily understood, understanding and applying them practically has proved to be subjective. This fact has brought about different proponents of the theory.
Today the Elliot wave theory is used very extensively by many fund houses. Probably more following is among the hedge funds, which rely on long term predictions.
Basic Principal of Elliot wave theory
The basic principal of the Elliot wave is very simple. It proposes that all markets , which are marked by large number of participants, follow a herd mentality and go up in five waves and then correct downward in three waves. This is repeated again and again for eternity.
These waves are discussed in our free ebook.