Elliott Wave Theory
Categories: Financial Theory, Accounting
It sounds like that thing you forgot to study for when you took your college physics final. But it actually has to do with technical analysis in finance.
Technical analysis seeks to define trends in stock performance. It takes all the the bouncing around in prices and turns that into a chart...basically a picture of what the stock has done lately. It then investigates this chart to define repeatable patterns and actionable rules.
The Elliott Wave Theory was proposed by an accountant named Ralph Nelson Elliott to explain market behavior. In a system he fine-tuned during the 1930s, Elliott argued that stock prices moved in waves due to the effects of the mass psychology of the individuals making up the market.
The premise of Elliott waves is relatively simple, but the application can get complex (you eventually start talking about fractals). Still, he continues to have adherents today, thanks in part to a popularization done by famed analyst Robert Prechter in the 1980s.