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The Elliott Wave Theory defined In the late 1930's, RN Elliott, an accountant by trade, was convalescing after a long illness, and made a startling discovery. While analyzing the price activity of the stock market, he noticed a discernable pattern repeating itself over time. While in a bull market, the price patterns seem to unfold in a series of five movements: three rising movements, separated by two declining movements. Specifically a 1-2-3-4-5 structure. Also, within each of the rising patterns, i.e. 1, 3 and 5, a similar but smaller, five wave pattern would also unfold. And this would continue, as he reviewed smaller and smaller timeframes. Kind of like the box, within the box, within the box, etc. During bear markets, however, the price patterns seem to unfold in a series of three movements: two declining movements, separated by one rising. Specifically an a-b-c structure. And again, within each of the declining patterns, i.e. a and c, a similar but smaller three wave pattern would unfold. Thus a full cycle of a bull market followed by a bear market, would unfold in a 1-2-3-4-5-a-b-c, in the broadest terms. In modern day terms, these price movements or waves, are known as fractals: repetitive patterns of larger and lesser degree.
 After his discovery, Elliott surmized that mass investor psychology was the driving force behind each bull and bear market. The price patterns he was observing, were a natural growth and decay harmonic found in nature. And they were reflecting this mass psychology as it ebbs and flows during both bull and bear markets. He then began to apply Fibonacci's number sequence, which is a direct natural harmonic of nature to his findings. After some undetermined amount of time, he completed his study of the market and termed his findings: The Wave Theory.
Over the years, the Wave Theory disappeared into obscurity, as it was passed from one adherent to another. The chain of events, as I recall, is that Elliott presented it to Charles J. Collins, who presented it to Hamilton Bolton, who passed it on to AJ Frost, who was contacted by R Prechter. It was through, a book written by Frost and Prechter, that I became aware of the theory, which is now known as the Elliott Wave Theory. It is without a doubt, the greatest technical tool ever discovered for monitoring the markets. And, for allowing one the opportunity to anticipate the future trend of the market, based upon its current position within the overall wave structure.
After a great deal of popularity in the 1980's, when Frost and Prechter brought EWT to the public's attention, with some amazingly accurate stock market forecasts. The Theory has been met with some ridicule over the years, as many consider it far too subjective to be reliable. The waves are perfectly observed after they occur. Yet in real time, however, the tenets provided by RN Elliott remain open to individual interpretation. Therein resides the reason for the subjectivity. The key phase here being; "the tenets provided by RN Elliott". As presented, everyone would agree, that it is an incomplete theory. In science, if the results of an experiement can not be duplicated time and time again, it is indeed only a theory. But the Wave Theory does not end there.
In the early 1980's, after a relentless analysis of 100 years of stock market data: the entire history of the US market. I discovered many of the missing tenets, and in fact, created a few of my own. As a result, in the first true test of these new found tenets. I forecasted the Crash of 1987, in a Barrons article, published four months before the event, (see OEW tutoring for the article). As I watched the stock market crash, that monday in October 1987. The Elliott Wave Theory was transformed before my very eyes, into a Principle. A principle I now term Objective Elliott Wave (OEW).
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