Elliott Wave

Definition ∞ Elliott Wave is a technical analysis theory used to predict market movements by identifying recurring fractal wave patterns in asset prices. This methodology posits that collective investor psychology causes market prices to move in predictable, repetitive cycles, characterized by five waves in the direction of the main trend and three corrective waves against it. It helps traders identify potential turning points and future price trajectories by recognizing these specific wave structures within market data. The theory suggests that these patterns repeat across different timeframes.
Context ∞ The application of Elliott Wave theory in volatile cryptocurrency markets is a subject of ongoing debate, with proponents citing its predictive power and critics highlighting its subjective interpretation. A key discussion involves the challenge of accurately counting and labeling wave structures in real-time, especially amid rapid price swings. Future developments may involve artificial intelligence and advanced pattern recognition algorithms to automate and refine the identification of Elliott Wave formations, reducing human bias. This tool offers a structural framework for understanding market psychology.