The Elliott wave principle is a form of technical analysis that attempts to forecast trends in the financial markets and other collective activities.He proposed that market prices unfold in specific patterns, which practitioners today call Elliott waves.

According to the Elliott Wave Theory, stock prices tend to move in a predetermined number of waves consistent with the Fibonacci series. The interpretation of the Elliott Wave Theory is as follows:

• Every action is followed by a reaction.
• There are five waves in the direction of the main trend followed by three corrective waves (a "5-3" move).
• A 5-3 move completes a cycle.
• This 5-3 move then becomes two subdivisions of the next higher 5-3 wave.
• The underlying 5-3 pattern remains constant, though the time span of each may vary.

The most difficult part of Elliott Wave analysis is correctly labeling and counting the waves. A correct count can lead the analyst to amazing accuracy in forecasting the market. An incorrect count will, of course, have the opposite result. Wave counting is quite subjective and will usually result in as many forecasts as there are Elliott Wave forecasters.