Elliot waves were formulated by Ralph Nelson Elliot in the 1920s. Elliot discovered that the stock market does not behave randomly at all, as first believed.
Instead Elliot waves were able to show that the stock market is specifically dependent on outside factors, such as the attitude of masses.
If the stock market is dependent on something, then it cannot be random. Elliot waves were also used to show that stock market form repetitive patterns that can be likened to waves, thus the name of the tool.
Predicting the market based on Elliot waves - Elliot waves are used to gauge the investors’ (that may be Forex investors or stock investors) psychology, providing clues to questions like how many people will be willing to invest with this type of economy?
What makes Elliot waves more complicated to interpret is that they show that the market does not react to outside factors in the same way every time.
Because the effects on the market move in waves, the reaction can be different the next time around.
With Elliot waves to mark the zigzagging reactions, however, investors can have a better picture of what will happen next.
Are Elliot waves accurate? Elliot waves can still be regarded as both accurate and inconsistent. The waves create the inconsistency.
However, Elliot waves are just probability tools. The results are in “most likely” or “less likely” and not an absolute guarantee.
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