Elliott Wave theory is a method of technical analysis that is used to predict the behavior of financial markets. It is based on the idea that market movements are not random, but instead follow a pattern of waves. The theory was developed by Ralph Elliott in the 1930s and is based on the observation that stock market prices often move in predictable patterns.
The basic idea behind Elliott Wave theory is that market movements can be divided into a series of waves, each with a distinct pattern and purpose. The theory identifies five different types of waves: impulse waves, which move the market in the direction of the trend; corrective waves, which move against the trend; diagonal waves, which are a combination of impulse and corrective waves; and complex waves, which are a combination of multiple waves.
Elliott Wave theory also includes a set of rules and guidelines for identifying and interpreting the waves. These include:
-Wave 2 can never retrace more than 100% of wave 1 -Wave 3 can never be the shortest of the three impulse waves. -Wave 4 can never enter the price territory of wave 1.
Fractals are a concept in mathematics that describe the self-similarity of a pattern at different scales. The concept was introduced by mathematician Benoit Mandelbrot in the 1970s, and it has since been applied in a wide range of fields, including finance and economics. In the context of finance, fractals can be used to identify patterns in market movements and to predict future price movements.
In Elliott wave theory, fractals are repeating patterns in the market that occur at all degree of trends, from subminuette to grand supercycle. This can be used in conjunction with the Elliott wave principle to make predictions about the future direction of the market.
Overall, Elliott Wave theory and fractals are both methods of technical analysis that can be used to predict the behavior of financial markets. They are based on the idea that market movements are not random, but instead follow predictable patterns, and they both provide a set of rules and guidelines for identifying and interpreting these patterns.