Elliot Waves Theory as mathematical theory about identifiable models determining behavior of society or financial markets was offered by Ralph Nelson Elliot in 30-s of 20th century. Elliot distinguished eight models that are regularly repeated. At present, one can say that results of Elliot's observations for market are “fractal”, but this term came later from theory oh chaos, although Elliot defined that theory by describing components of wave theory and their interrelation.
The first book of Ralph Elliot “The Wave Principle” came off the press in 1938. Then in the beginning of 1939 Elliot write 12 articles by order of “Financial world” magazine and in 1946 year he united all his works in the final writings “Nature’s Law — The Secret of the Universe”, and this books becomes the best of his works.
The point of Elliot theory is that price range contains five waves that in turn are constituted by three momentum 1, 3 and 5 and two correction waves 2 and 4.
Momentum - 1, 3, 5, А and С
Correction waves - 2, 4 and В wave
According to Elliot, 5-wave model has three constant features:
Wave 2 never crosses start point of wave 1;
Wave 3 is never the shortest;
Wave 4 never enters price zone of wave 1;
Each momentum consists of five smaller waves, upon that, one of momentum 1, 3 or 5 can have an extension. The first wave can be wedge, the fifth one can be ending diagonal triangle that changes the concept of momentum.
Correction waves consist of three waves, upon that, there is a rotation in the second and fourth wave. If the second wave is a simple correction, then the fourth one will be complex and vice versa. Also rotation may take size of wave according to Fibonacci numbers. The hardest thing in wave theory is to identify the wave. The amount of momentum is equal to the number of wave markups.
Elliot revealed that mathematical basis for wave theory is Fibonacci numbers or “golden ratio”. Therefore, the number and length of tendency forming waves is equal to Fibo numbers.
Some adherents of Elliot theory like R. Balan and R. Prechter contributed a lot in identification of wave structure, which is reflected in their books.