What Is Elliott Wave Theory?
Elliott Wave Theory proposes that market prices move in recurring fractal patterns driven by investor psychology. The theory identifies two types of waves: impulse waves (5 waves in the direction of the trend) and corrective waves (3 waves against the trend). These patterns occur at every timeframe, from minute charts to multi-decade cycles.
How Elliott Wave Theory Works
The 5-wave impulse structure consists of: Wave 1 (initial advance), Wave 2 (correction, doesn't retrace below Wave 1 start), Wave 3 (strongest and longest wave, often extending 1.618x Wave 1), Wave 4 (correction, doesn't enter Wave 1 territory), and Wave 5 (final push, often on declining momentum). Waves 2 and 4 alternate between sharp and sideways corrections.
Why It Matters for Traders
Elliott Wave is controversial in crypto because the 24/7, highly leveraged nature of the market creates patterns that don't always conform cleanly to the rules. However, traders who combine wave counting with Fibonacci extensions and retracements find that key levels (0.618, 1.618, 2.618) align surprisingly well with wave targets. Use Elliott Wave as a framework for expectations rather than precise predictions.
