The Elliot Wave Theory And Ralph Elliot's Theory Of Market Behavior

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The Elliot Wave theory is used to how a stock will behave in future by correlating crowd psychology with the stock price trends. In theory uses the swing in crowd psychology from pessimism to optimism is used as a basis for identifying patterns in the charts of the stock prices. THE DISCOVERY The theory was discovered by Ralph Nelson Elliot (1871-1948), a professional accountant in the 1930s. Elliott published his theory of market behavior in the book The Wave Principle in 1938. THE THEORY In Elliott 's model, market prices alternate between two phases - impulsive or motive and corrective phase. Impulses are always divided into a set of 5 lower-degree waves. There alternate again between motive and corrective character, so that if waves 1, 3, and 5 are impulse waves 2 and 4 are smaller retraces of waves 1 and 3. Corrective waves subdivided into 3 smaller-degree waves starting with a five-wave counter-trend impulse, a retrace, and other impulse. In a bear market the downward is dominant, so the pattern is a reversed-five wave down and three up. Motive waves move with the trend, whereas corrective waves move the trend. RELATIONSHIP WITH PSYCOLOGY The Wave 1 is the first wave of a new bull market when there is still believed the bear market is not over. The fundamental news is still bad and the analyst communities are pessimistic about the atmosphere. The economy still continues to look weak and the conviction is there that the bear market is dominant. The Wave 2 is a

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