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Introduction to Elliott Wave Theory
Elliott Wave theory was developed by Ralph N. Elliott during the 1930's in an attempt to make some sense out of what seemed random and unpredictable market moves such as the Great Crash of 1929-1932.
Elliott noticed that moves in the direction of the main trend were subdvided into five legs or waves: 1-2-3-4-5 with 1, 3, and 5 being in the trend direction and 2 and 4 in the contra-trend direction. Also Elliott noted that waves 1,3, and 5 themselves tended to subdivide into 5 subwaves while 2 and 4 subdivided into 3 waves each.
Wave theory is based on the concept that human emotions (in trading and perhaps much else) are neither steady nor linear, but rather move in typical and repetitive "waves".
The the best among many books on Elliott Wave is "Mastering Elliott Wave" by Glenn Neely. It is not an easy book, but it is comprehensive, logical, and will get you started correctly. For Elliott's original papers I recommend "R.N.Elliott's Masterworks: The Definitive Collection" edited by Robert R. Prechter, Jr. An excellent source for these and many other investment books is Traders Press.
While there are many so-called Elliott Internet websites, few utilize the rigorous Neely approach. One which does is Nature's Time.
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