Elliott Wave
Definition
A technical analysis theory that markets move in predictable 5-wave impulse patterns and 3-wave corrections.
Detailed Explanation
Elliott Wave Theory, developed by Ralph Nelson Elliott in the 1930s, proposes that market prices unfold in specific patterns reflecting investor psychology. The basic structure is a 5-wave impulse in the trend direction (waves 1-2-3-4-5) followed by a 3-wave correction (A-B-C). These patterns are fractal - they appear on all timeframes. Three rules govern the theory: Wave 2 can't retrace 100% of Wave 1, Wave 3 is never shortest, and Wave 4 can't overlap Wave 1.
Example
Bitcoin rises in 5 waves from $30K to $70K, then corrects in 3 waves (A-B-C) to $50K, before potentially starting a new 5-wave advance.