As mentioned in the previous lesson, the Elliott Wave Theory identifies trends within the markets, which mimic human psychology. Mass movements or mass swings in human psychology is reflected in repetitive fractal patterns within the charts. Those patterns and trends are called “waves”.
Wave 1 = breakout
Wave 2 = pullback
Wave 3 = largest wave
Wave 4 = another pullback
Wave 5 = last wave of trending market, then a correction
In this lesson, you’ll see what the 5 waves actually look like on the charts and learn about impulse waves (1,2,3,4,5 wave count) vs corrective waves (A, B, C waves). You can utilize this understanding to set appropriate targets.
Note - the Elliott Wave Theory only applies when the market is trending, and not moving sideways.