Who developed Elliott Wave Theory and when? Classic Theory vs Modern Theory how difference?

 

Developer of Elliott Wave Theory

Elliott Wave Theory was developed by Ralph Nelson Elliott in the 1930s. Elliott, an accountant by profession, observed that stock markets did not move randomly but followed predictable patterns, which he called "waves."



Classic Theory vs. Modern Theory

Classic Elliott Wave Theory

- Foundation:

  - Developed by Ralph Nelson Elliott, the original theory is based on the observation that markets move in repetitive cycles of five waves in the direction of the main trend (impulse waves) and three waves in the corrective phase.
 

- Impulse Waves:

  - Consist of five waves (1, 2, 3, 4, 5). Waves 1, 3, and 5 move in the direction of the primary trend, while waves 2 and 4 are corrections against this trend.
 

- Corrective Waves:

  - Consist of three waves (A, B, C) that move against the primary trend.
 

- Wave Degrees:

  - Elliott identified nine degrees of waves, from the smallest "subminuette" to the largest "grand supercycle."
 

- Rules:

  - Wave 2 never retraces more than 100% of Wave 1.
  - Wave 3 cannot be the shortest wave and is often the longest.
  - Wave 4 does not overlap Wave 1 in price territory.
 

- Fibonacci Relationships:

  - Fibonacci ratios are used to predict the length of waves.

 

Modern Elliott Wave Theory

- Advancements:

  - Modern interpretations and enhancements of Elliott Wave Theory have emerged, incorporating more sophisticated tools and technology.
 

- Additional Patterns:

  - Modern theorists have introduced more complex patterns, such as leading and ending diagonals, and various forms of corrective waves (zigzags, flats, triangles, and combinations).
 

- Software and Tools:

  - Modern traders use advanced software and algorithms to identify and validate wave patterns, making the process more efficient and precise.
 

- Integration with Other Analysis:

  - Elliott Wave Theory is often combined with other forms of technical analysis, such as moving averages, oscillators, and volume analysis, to enhance its predictive power.
 

- Elliott Wave Principles in Modern Markets:

  - Recognition that modern financial markets, including forex and cryptocurrencies, exhibit different behaviors and patterns, prompting some adaptations in wave analysis.

 

Differences Between Classic and Modern Theories

1. Complexity and Patterns:

- Classic Theory: - Focuses on basic five-wave impulse patterns and three-wave corrective patterns.
- Modern Theory: - Incorporates additional complex patterns and sub-variations, such as double and triple threes, expanding flats, and various types of triangles.
 

2. Technological Integration:

- Classic Theory: - Relies on manual charting and observation.
- Modern Theory: - Uses sophisticated charting software and algorithms to automate the identification of wave patterns and to backtest historical data.

 

 3. Market Adaptation:

- Classic Theory: - Developed primarily with the stock market in mind.
- Modern Theory: - Applied across various financial markets, including forex, commodities, and cryptocurrencies, recognizing their unique characteristics and behaviors.

 

4. Analytical Tools:

- Classic Theory: - Primarily uses wave counts and Fibonacci retracement levels.
- Modern Theory: - Integrates additional technical indicators and methods, such as sentiment analysis, volume analysis, and market internals.

 

Conclusion

Ralph Nelson Elliott developed the foundational Elliott Wave Theory in the 1930s, focusing on the predictable patterns in market movements. The modern interpretation of Elliott Wave Theory has evolved to include more complex patterns, advanced technology, and integration with other analytical tools, making it a more comprehensive and adaptable approach for contemporary traders and analysts.

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