What You Need to Know
Stock market movements that seemed random to most analysts revealed a hidden order to Ralph Nelson Elliott. In the 1930s, during the depths of the Great Depression, the professional accountant set out the basis of one of technical analysis’s most controversial ideas—the idea that market prices move in predictable, repeating waves driven by investor psychology.
Elliott’s breakthrough came from observing that financial markets follow patterns that repeat themselves on multiple scales, much like patterns found in nature. These recurring structures, which would later be called fractals, offered a new way to understand and potentially forecast market movements.
The theory suggests that market trends move in a series of five waves in…
