Glossary Term

Elliott Wave

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Elliott Wave is a school of technical analysis developed by Ralph Nelson Elliott in the first half of the 20th century. Elliott identified that the cyclical nature of markets is largely driven by investor sentiment fluctuating between optimism and pessimism. He postulated that these swings appear as patterns in price action that are essentially fractal in nature. In other words that the patterns created by swings in investor sentiment can be identified regardless of the timeframe that the asset in question is being viewed at. Traders who use Elliott Wave theory look for ‘waves’ in price action and make their trading decisions based on which point in the broader cycle the current price action finds itself. Simply put, Elliott’s system defines all market moves as comprising 5 waves up (two of which are moves down) and 3 waves down (one of which is a move up). It doesn’t matter at which resolution you view the chart, those same waves are present at all time frames as each individual wave is itself is composed of smaller Elliott Waves.

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