Apart from these patterns Elliott also based his market forecasts on Fibonacci numbers. Everything he knew has been published in several books, which laid the foundation for people like Bolton, Frost, Prechter and the professional traders who designed this Elliott Wave software, to make profitable forecasts, not only for stock markets, but for all financial markets. Next let s first examine the patterns Elliott identified. The same goes for the financial markets. Price movements can be divided into trends on the one hand and corrections or sideways movements on the other hand.
Trends show the main direction of prices, while corrections move against the trend.
In Elliott terminology these are called Impulsive waves and Corrective waves. Obviously the three waves in the direction of the trend are impulses and therefore these waves also have five waves. The waves against the trend are corrections and are composed of three waves. Wave 2 and 4 in the above picture are corrections. A and C go in the direction of the shorter term trend, and therefore are impulsive and composed of five waves, which is shown in the picture above.