Elliott wave theory

The Elliott wave theory is a method of analysing charts devised in the 1940s by an American accountant called Ralph N Elliott. According to Elliott, stock market movements conform to specific patterns, consisting of a series of waves reflecting the fact that people tend to think and behave in a herd-like way.

People’s response to price changes isn’t reasoned or random, but is determined by “shared mood trends”. A complete Elliot wave consists of eight waves in all, five on the upswing (three up, two down) and three on the downswing (two down, one up). Every wave consists of a number of smaller Waves conforming to the same pattern, so it’s possible to discern Elliott waves in price movements during time periods ranging from a single hour to an entire century.

• See John C Burford’s spread betting video tutorial: An introduction to Elliott wave theory.