Elliot Wave Crash Course
http://www.elliott-wave-theory.com
Page 1
1. General
The Elliott Wave principle was discovered in the late 1920s by Ralph Nelson Elliott. He discovered that
stock markets do not behave in a chaotic manner, but that markets move in repetitive cycles, which reflect
the actions and emotions of humans caused by exterior influences or mass psychology. Elliott contended,
that the ebb and flow of mass psychology always revealed itself in the same repetitive patterns, which
subdivide in so called waves.
In part Elliott based his work on the Dow Theory, which also defines price movement in terms of waves,
but Elliott discovered the fractal nature of market action. Thus Elliott was able to analyse markets in
greater depth, identifying the specific characteristics of wave patterns and making detailed market
predictions based on the patterns he had identified.
Fractals are mathematical structures, which on an ever smaller scale infinitely repeat themselves. The
patterns that Elliott discovered are built in the same way. An impulsive wave, which goes with the main
trend, always shows five waves in its pattern. On a smaller scale, within each of the impulsive waves of
the before mentioned impulse, again five waves will be found. In this smaller pattern, the same pattern
repeats itself ad infinitum (these ever smaller patterns are labeled as different wave degrees in the Elliott
Wave Principle)
Only much later were fractals recognized by scientists. In the 1980s the scientist Mandelbrot proved the
existence of fractals in his book "the Fractal Geometry of Nature". He recognized the fractal structure in
numerous objects and life forms, a phenomena Elliott already understood in the 1930s.
In the 70s, the Wave Principle gained popularity through the work of Frost and Prechter. They published a
legendary book ( a must for every wave student) on the Elliott Wave (Elliott Wave Principle...key to stock
market profits, 1978), wherein they predicted, in the middle of the crisis of the