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# Elliott Wave Theory The Elliott Wave Theory is a popular method used in stock technical analysis to predict future price movements in financial markets. It is based on the idea that financial markets operate in repetitive cycles and patterns, driven by investor psychology. According to the Elliott Wave Theory, price movements in financial markets can be divided into a series of waves. These waves alternate between upward and downward movements, forming a pattern that can be used to make predictions about future price trends. The basic principles of the Elliott Wave Theory are as follows: 1. **Impulse Waves:** An impulse wave consists of five smaller waves moving in the direction of the overall trend. These five waves are labeled as 1, 2, 3, 4, and 5. Waves 1, 3, and 5 are upward waves, while waves 2 and 4 are corrective waves that move against the trend. 2. **Corrective Waves:** Corrective waves move against the direction of the overall trend and are labeled as A, B, and C. Wave A is a downward movement, wave B is an upward correction, and wave C is a downward movement again. 3. **Elliott Wave Patterns:** The Elliott Wave Theory identifies several patterns that can help in predicting future price movements. These patterns include impulse waves, diagonal triangles (rising or falling wedges), zigzag patterns, and more.
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