Elliott Wave Theory

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Definition: Elliott Wave Theory

What is the dictionary definition of Elliott Wave Theory?

Dictionary Definition

The Elliot Wave Theory is named after Ralph Nelson Elliott, who concluded that the movement of the stock market could be predicted by observing and identifying a repetitive pattern of waves.

Full Definition of Elliott Wave Theory

Elliott Wave Theory was developed by Ralph Nelson Elliott in the nineteen twenties. Initially, Elliott Wave Theory was drawn from social science trends, such as mass psychology that was prevalent at that time. Like many other formulations, the purpose of the Elliott Wave Theory was to create an organizing principle that would explain and predict the otherwise chaotic movement of the stock market. Thus, according to the Elliott Wave Theory, the market fluctuated in a recurring pattern. Without designating categorical timing, the Elliott Wave Theory states that every market cycle is denoted by a number of five upward and three downward-moving waves. Elliott Wave Theory can be expressed graphically by plotting stock price shifts on a five-to-three wave movement chart. Investors may find Elliott Wave Theory difficult to interpret with some arguing that the Elliott Wave Theory wave count is in the eye of the beholder.


The Elliott Wave Theory postulates that crowd psychology moves between optimism and pessimism in predictable cycles. These mood swings create patterns in the price movements of markets at every degree of trend or time scale.

Elliott Wave Theory is among the methods included on the exam that analysts must pass to earn the Chartered Market Technician (CMT) designation, the professional accreditation developed by the Market Technicians Association (MTA).

Robert Prechter is the most famous practitioner of Elliott Wave Theory to date. His prominence as a forecaster during the bull market of the 1980s brought significant exposure to Elliott’s work.

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Definition Sources

Definitions for Elliott Wave Theory are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 22nd March, 2020 | 1 Views.