Our word of the day is “Elliott Wave Theory” “The Wave Principle” was developed by

Ralph Nelson Elliott’s, it is a discovery that social, or crowd, behavior trends and

reverses in recognizable patterns. Using stock market data for the Dow Jones Industrial Average

as his main research tool, Elliott discovered that the ever-changing path of stock market

prices reveals a structural design that in turn reflects a basic harmony found in nature.

From this discovery, he developed a rational system of market analysis.

Elliott Wave Principle measures investor psychology, which is the real engine behind the stock

markets. When people are optimistic about the future of a given issue, they bid the

price up. Elliott isolated thirteen “waves,” or

patterns of directional movement, that recur in markets and are repetitive in form, but

are not necessarily repetitive in time or amplitude. He named, defined and illustrated

the patterns. He then described how these structures link together to form larger versions

of the same patterns, how those in turn are the building blocks for patterns of the next

larger size, and so on. His descriptions constitute a set of empirically derived rules and guidelines

for interpreting market action.