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Elliot Wave theory is one of the oldest and widely followed theories regarding the stock market trend. It was developed by R N Elliot in late 1920s. The theory has its root in the traders’ mind – “the continuous bullish trend force tempt to sell the products they holding and the continuous bearing trend attract them to buy more insruments.”

According to Elliot Wave Theory, the stock market trends occurs in cycles which can be represented in waves. These upward and downward trends follow a peculiar wave pattern, which can be represented by a Fibonacci series (1, 3, 5, 8, 13, 21, 34……..). A cycle of trend includes 5 + 3 waves. The five waves are towards the main trend and 3 waves are the corrective waves.
There are different categories of waves according to the cycles. They are Grand Supercyle, Supercycle, cycle, primary cycle, intermediate cycle, minor cycle, minute cycle, minuette cycle and sub-minuette cycle, arranged as per size. For maximum profit traders can buy stocks in the beginning of an upward trend and can sell them at the end of the cycle. This theory of trading was predominant in 1970s, and are followed quite widely today.

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