Elliott Wave Theory Basics

Elliott Wave theory proposes that market prices move in repeating structures made up of five waves in the direction of the larger trend, followed by three corrective waves against it.

The five-wave impulse sequence (labeled 1 through 5) alternates between advancing and pulling-back segments, while the following three-wave correction (labeled A, B, C) moves against the prior trend before the next impulse begins.

• Impulse waves: Waves 1, 3, and 5 move in the trend's direction, with wave 3 often viewed as the longest and strongest.
• Corrective waves: Waves 2 and 4 pull back within the trend, and the A-B-C sequence corrects the completed five-wave move.
• Fractal nature: Each wave can itself be broken down into smaller wave sequences of the same pattern, across multiple timeframes.