The Elliott Wave Principle: A Useful Stock and Forex Trading Tool

It was during the decade of the 1930s, that a corporate accountant by the name of Ralph Nelson Elliott, diligently analyzed price fluctuations in the financial markets. What he found was what amounted to a solid indication of certain patterns within the markets, repeating themselves. This discovery allowed Elliott to make very accurate stock market forecasts, by simply taking what appeared to be random and unrelated, and tracing out a recognizable pattern from it. Ralph Nelson Elliott came up with a simple name for his amazing discovery, calling it The Elliott Wave Principle.The implications of what he discovered were huge, as it identified not only patterns in the markets, but also served as the common link, driving trends in various human affairs, ranging from politics to popular culture.

It is hard to believe that the Wave Principle eventually fell into near obscurity, until in 1976, when Robert Prechter, Jr., president of Elliott Wave International, resurrected it. One day while in the New York Library, he discovered Ralph Nelson Elliott’s complete body of work, and went on to publish it with A.J. Frost in 1978. The book was appropriately titled Elliott Wave Principle, received phenomenal reviews, and went on to become a Wall Street bestseller. In the 1980s, knowledge of the Wave Principal grew dramatically, largely because Prechter and Frost’s forecast, called for a roaring bull market, followed by a bear market during that decade.

When one looks closely at any system, or progression found in nature, it’s structured complexity becomes apparent. The structural patterns of nature build upon themselves creating similar patterns of structure, at progressively larger sizes, or on a progressively larger scale. These patterns can be seen in physiology, as well as geography, botany, and literally in all aspects of nature. That which human beings create, such as roads and buildings, are also subject to structured progression, based on a standard blueprint. It is actually no surprise that the same type of patterns occur in market prices. Market prices are part of a natural system, and Elliott wave patterns as seen in market charts, grow through time. The forms of these patterns take shape according to periodic interruptions to that growth.

Elliott wave analysis begins by identifying wave patterns in market prices, which at their core are simple. There are two distinct types of wave patterns, which are impulse waves, and corrective waves. There are five sub-waves which make up an impulse wave. These five sub-waves move in the same direction as the trend of the next larger sized sub-wave, resulting in the Impulse wave. Impulse waves have a powerful impact on the market. What follows an impulse wave, is a corrective wave, which is composed of three sub-waves. The corrective wave moves against the trend of the next larger sized wave, and completes a partial retracement, which is a correction of the achieved progress of a preceding impulse wave. Thus an Elliott wave basically consists of eight waves and two phases. Learn more over at:

Ralph Nelson Elliott’s purpose in using the Elliott Wave Principle, was to describe how the market actually behaves, and he most certainly accomplished his goal. There are of course specific variations on the underlying theme, and Elliott also made clear that each pattern in the Elliot Wave Principle has definite requirements and tendencies. Proper wave identification results from numerous rules and guidelines. If one intends to make use of R.N. Elliott’s wave principal, a thorough knowledge of the details involved is necessary.