What Is the Elliot Wave Theory?

In this video, you will learn about Elliot wave theory, which was named after Ralph Elliot. In his days, elliot turned his attention to the stock market behavior and developed his theorem in later stages of life. He was an accountant by profession, retired at the age of 58 after catching a virus from a trip to South America. This is one of the oldest trading strategies first published in 1938 as a book under the name “The Wave Principle“. Until that time, the general concept was that the market behaved in a chaotic manner and there were not many trading strategies if any existed. Mr. Elliot analyzed around 70 years worth of stock price data in his lifetime. He pointed out that the market was driven by human psychology, including emotions, fear and greed. But it did not behave in a chaotic manner. Instead, the data showed that the market moved inter relatively. Elliot developed and based his theory on crowd psychology. It can be tedious to remain in the same mental state or mood, except those who have a pathological disorder of course. He came to a conclusion that group psychology switches back and forth from optimism to pessimism, to optimism at various levels.

He applied this theory into the financial market, which strongly suggested that during strong uptrends or market optimism, there are intervals when the market mood changes. At this point, the market participants sell the financial instruments that they have acquired and invest them back at a cheaper price, when the mood reverses again to optimistic. The opposite situation applies to a strong downtrend.

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