Waves 1, 3, and 5 move in the direction of the primary trend, while Waves 2 and 4 are minor "breathers."
Applying Elliott Wave Theory profitably is not about predicting the future with 100% certainty; it is about recognizing high-probability patterns in human psychology. By sticking to the three cardinal rules, utilizing Fibonacci extensions, and focusing on the explosive Wave 3, you can transform a complex theory into a consistent trading edge.
Before attempting to apply the theory profitably, one must strip away the mysticism and understand the core psychology driving the waves. Developed by Ralph Nelson Elliott in the 1930s, the theory posits that crowd psychology—specifically the collective optimism and pessimism of investors—moves in predictable, repetitive patterns.
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(Waves 1, 3, and 5). It is usually the longest and most powerful.