The Elliott wave
theory is the basis of a widely-used technical analysis
technique invented by R. N. Elliott in 1939
. It is based on the observation that markets exhibit well-defined wave patterns that can be used to predict market direction. The Elliott wave theory states that stock prices are governed by cycles which adhere to the Fibonacci series
According to the Elliott wave theory, markets move in a predetermined number of waves up and down. Specifically, markets move in five waves up and three waves down and price charts have a self-similar fractal geometry.