Definition
Elliott Wave
Elliott Wave theory holds that markets move in repeating cycles of five impulse waves followed by three corrective waves.
Developed by Ralph Elliott, the theory says trends unfold in a five-wave impulse pattern in the direction of the larger trend, followed by a three-wave (A-B-C) correction against it. These patterns are fractal, repeating across timeframes, and wave relationships often align with Fibonacci ratios.
Indian technical analysts apply Elliott Wave to Nifty, Bank Nifty, and stocks to map the bigger picture and project targets, usually combined with Fibonacci retracements and extensions. It is powerful but subjective — wave counts can be interpreted differently — so it works best alongside more objective tools.
Related terms
- Fibonacci RetracementFibonacci retracement marks potential support and resistance levels at key ratios of a prior price move.
- DivergenceDivergence occurs when price and an indicator like RSI or MACD move in opposite directions, warning of a possible reversal.
- Dow TheoryDow Theory is the foundational framework of technical analysis, describing how markets trend through primary, secondary, and minor moves.
- TrendlineA trendline is a straight line connecting a series of highs or lows to visualise the direction and slope of a trend.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.