Ralph Nelson Elliott was a professional accountant who went to work trying to figure out the stock market back in his time (1920s-1930s). He reviewed approximately 75 years worth of market data that was available to him at the time. After all of that study, he came up with a theory that the market wasn’t nearly as chaotic as it appeared on the surface. He finally shared his thoughts on this when he was 66 years old.
He explained that the upward and downward trends in markets had to do with the underlying emotions of the traders operating in those markets. He proposed that those emotions often were influenced by factors that had nothing to do with the underlying value of the stocks that were being traded. He called the upward and downward movement of stocks “waves”, and he believed that if one could figure out what the trends were in those waves, they could trade them effectively and profit enormously.
What are Fractals in Elliot Wave Theory?
It is important to understand that fractals are a part of the Elliot Wave theory. This is because the Elliot Wave theory is so large that it is best broken into smaller parts that are all similar to the whole.
In other words, the macro waves are made up of smaller iterations of Elliot waves like below:
Breaking it down into easier-to-understand parts makes the Elliot Wave theory much more digestible to many people who might otherwise get lost in the finer details of this theory. Fortunately, it can be broken down like this, and there is room for people to better understand what they are getting with the Elliot Wave theory when they can view it in these smaller bite-sized portions.
Overall, people love the Elliot Wave theory because they love the idea that it is possible for them to make money on the market by predicting the tops and bottoms of the market. It takes time to study this theory and learn it completely, but it can prove quite effective for traders.