Ralph Nelson Elliott, a pioneer of technical analysis, left us an enduring philosophy known as 'Wave Theory,' which is based on a simple principle: the market does not move randomly, but follows a repeating pattern that can be anticipated.
🔹 Basic principles:
1. The market moves in waves: there is a permanent pattern that repeats, not random chaos.
2. Every wave follows a mathematical system: waves grow and shrink consistently related to Fibonacci ratios.
3. Nature and the market follow the same laws: just as nature has laws, so does the market.
4. The main pattern is 5 upward waves + 3 downward waves: this forms a complete cycle.
5. The market reflects collective emotion: fear and greed recur in investors' behavior.
6. Every wave contains smaller waves: the market is like a living organism, with intricate details within each movement.
7. Corrective trends are more complex: they are harder to read because they do not move in a straight line.
8. Every phase paves the way for the next: there is no movement without significance for what is to come.
9. Waves are not just numbers: they are expressions of human decisions and emotions.
10. Wave analysis is a psychological and technical tool: it helps you understand the market mentally and emotionally.
11. There is no coincidence in the market: every movement has a clear reason.
12. Rhythm is the key to the market: those who know the tune know when to move.
✅ Conclusion:
Your understanding of waves is your understanding of the market's mind. Learning to read these waves gives you a deeper and more accurate insight into price trends, helping you make more conscious and professional decisions.