A technical analysis methodology based on Elliott Wave Theory that identifies recurring wave patterns in price movements driven by collective investor psychology. The basic structure consists of a five-wave impulse pattern in the direction of the main trend followed by a three-wave corrective pattern against it. Wave analysts use these patterns along with Fibonacci ratios to forecast potential price targets, reversal zones, and the overall stage of a market cycle.
Example
“The wave analysis suggested the index was completing wave 3 of a five-wave advance, with wave 4 likely to pull back to the 38.2% Fibonacci retracement before the final push higher.”