This article is from the Glossary of Technical Analysis Terms.
Elliott wave theory goes beyond traditional charting techniques by providing an overall view of market movement that helps explain why and where certain chart patterns develop. The three major aspects of wave analysis are pattern, time and ratio. The basic Elliott pattern consits of a 5 wave uptrend followed by a three wave correction. Each "leg" of a wave in turn consists of smaller waves. Elliott waves can be used to successfully define where the market currently is in relation to "the big picture" but is usually to unreliable for short term trading.