Elliott Waves, named after Ralph Nelson Elliott, are a technical analysis tool used in the world of cryptocurrencies and financial markets. This theory is based on the idea that market price movements follow a predictable pattern of five waves in the direction of the trend (referred to as “impulse waves”) followed by three corrective waves.

Elliott Waves is deeply connected to market psychology. The five impulse waves represent the optimism and enthusiasm of traders, while the three corrective waves reflect doubt and profit-taking.

Impulse waves are denoted as 1, 2, 3, 4, and 5, while corrective waves are labelled A, B, and C. Traders use these labels to identify trends and potential reversal points.

Elliott Wave theory often incorporates Fibonacci ratios to pinpoint potential price levels where waves may terminate or reverse. These ratios are believed to be significant in financial markets.

Elliott Waves can become quite complex, with various sub-waves and rules governing their formation. Traders often spend time studying and practising to master this tool.

Traders use Elliott Waves to anticipate market trends, identify potential reversal points, and make trading decisions. It’s important to note that while Elliott Waves can provide valuable insights, they are not foolproof and should be used in conjunction with other analysis methods.