Elliott Wave Theory

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DEFINITION of 'Elliott Wave Theory'

Theory 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.

BREAKING DOWN 'Elliott Wave Theory'

Based on rhythms found in nature, the theory suggests that the market moves up in a series of five waves and down in a series of three waves.

The key difference between the Elliott Wave Principle and other cyclical theories is that this theory suggests no absolute time requirements for a cycle to complete.

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