Elliots wave theory is a method in the field of technical analysis that has been named after Ralph Nelson Elliot who developed this theory in the late 1930s.
Elliots wave theory assumes that stock prices, like everything else in nature, moves in well-defined waves.
The Elliot wave theory says that the share price moves in a predetermined pattern with a dominant trend in five waves (1-5) and a corrective trend in three waves (A-C) in all trends. The wave pattern that is included in Elliots wave theory is said to occur in all trends, long trends and short trends.
Waves are also identified based on the trend that they belong to and there is a total of 9 wave sizes, from large super cycle to part minute. Elliots wave theory is also said to be consistent with the Fibonacci series of numbers and the golden ratio. Elliots wave theory is used to predict the stock price trend based on predefined wave patterns and the Fibonacci number series.
