Here is a simple explanation for everyone. What is Wave Theory? The American securities investment master Ralph Nelson Elliott (hereinafter referred to as Elliott) discovered during his long-term investment process, using the Dow Jones Industrial Average as the research object, that the constantly changing market trends seem chaotic but actually have certain regularities.
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Based on this discovery, Elliott proposed a feasible market rule and applied this rule to trading in derivatives such as futures, stocks, and foreign exchange. He pointed out: "Certain specific wave patterns often recur in the derivatives market, but the time, interval, and amplitude of their occurrence may not necessarily be reproducible, meaning that the market is not a 100% copy." He also emphasized that the principle of these wave patterns has the value of predicting future market trends, which is the well-known Wave Theory. There is a saying in the trading circle: "Dow Theory tells investors that market trends are like the waves of the ocean, while Wave Theory tells investors how to surf on the ocean."
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Wave Theory is a theory for conducting technical analysis, and it is also applicable in the cryptocurrency market. After years of validation by countless domestic and foreign investors, Wave Theory has become one of the most classic practical trading theories for stocks and futures. Elliott believed that the market trends in the derivatives market have certain regularities; they are more or less repeating a certain market pattern, with each uptrend and downtrend cycle consisting of 3 upward waves and 2 corrective waves, or 3 downward waves and 2 corrective waves. The premise of this theory is: when prices are moving with the main trend, they generally form 3 waves of upward movement, and during a pullback, they generally adjust through two waves of downward movement. How should this statement be understood? To put it simply, if the price is rising with the trend, there will generally be 3 waves of upward movement, and after the 3 waves of upward movement, there will generally be two waves of downward movement.