Ralph N. Elliot formulated Elliot Wave analysis during the 1930s. While
Elliot was influenced by Dow Theory, his approach to the market focused not
on chart patterns, but rather on cycles or 'waves.' Elliot believed that
upward 'impulsive' market movements could be divided into individual
five-wave sequences. According to Elliot, smaller, corrective waves
followed a three-wave sequence. Furthermore, larger waves could be
sub-divided into smaller waves that duplicated the five- and three-wave
sequences. This is sometimes referred to as the 'fractal' nature of Elliot,
where waves of different magnitude share the same underlying structure.
Part of Elliot's theory grew from his belief that markets move according to
the Fibonacci number series. These numbers occur frequently in nature, for
example in a Nautilus shell or the center of a sunflower, and according to
Elliot, in the behavior of the financial markets as well.

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