Technical Analysis: Elliot Wave Theory

Elliott Wave Theory is based on identifying extremes in investor behaviour and psychology. It is a broad area but in our discussion we look at the basic principle of a five-wave advance and a three-wave correction which is at the core of Elliott Wave Theory. We then outline the degrees of a trend, and the characteristics of each wave in a trend as postulated by Elliott. We conclude with a look at how the Fibonacci sequence is incorporated into Elliott Wave Theory.