What is the Elliot Wave Principle?

Filed in archive Information on August 25, 2010

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The Elliott Wave Principle, discovered by accountant Ralph Nelson Elliott, describes investment behavior based on mass psychology. Investors use it to study repetitive patterns of price movements in order to forecast market trends. In a nutshell, the principal says that mass optimism causes bids to go up.

In his book, Nature's Laws - The Secret of the Universe (1946) Elliott writes:

because man is subject to rhythmical procedure, calculations having to do with his activities can be projected far into the future with a justification and certainty heretofore unattainable.

Robert Prechter exposed Elliot's work when working as market technician at Merrill Lynch in the 1980s. His successful predictions, based on what is known as wave analysis, gave credence to Elliot's theory.

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