The Elliott Wave Principle is a form of Technical Analysis which transpired from the analysis of Market Cycles. Ralph Nelson Elliott published the underlying social principles of his theory in 1938 and has helped traders analyse financial market cycles by identifying extremes in investor psychology and the highs and lows of price action.

Elliott was born in Marysville, Kansas and his fascination for numeracy eventually took him into the accounting field where he worked primarily in executive positions for railroad companies in Central America and Mexico.

At age 58 Elliott unfortunately contracted a debilitating intestinal illness which cut short his work in Central America and forced him into early retirement. Unsure of his future he started to study the American stock market and began a dedicated and systematic study of the past seventy-five years of stock market data. Such was his dedication that he even analysed index charts ranging from yearly all the way down to 30 minute charts.

Elliott was inspired by the Dow Theory and had observed that the movement of the stock market could be predicted by identifying repetitive cycles and patterns. Part based on the Dow Theory which also observed that price moves in terms of waves, Elliott discovered that markets move in Fractals. This further discovery enabled him to analyse the markets in greater depth and identify specific characteristics of wave patterns and make detailed predictions based on observed market patterns.

His belief was that investor psychology moves between pessimism and optimism in natural sequences and that these natural rhythms create patterns which can be readily identified. His work helped him create the Elliott Wave Principle and is used by many traders worldwide.

In Elliott's model, market prices alternate between impulsive and corrective phases on all time scales of trend. In simple terms his theory discovered that in times of trend, one can expect a five wave pattern and any corrections against the trend were in waves of three. He therefore surmised:

"Market Impulse moves are always subdivided into a set of 5 lower degree waves and alternate along with Corrective Waves. Therefore he determined that waves 1, 3 and 5 are Impulse waves with waves 2 and 4 being corrective."

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