CORRECTIVE WAVES

A set of stock price movements that occur against the main trend according to the Elliot Wave method of technical analysis. According to the Elliott Wave theory, stock price movements occur in predictable cycles. These movements are broken up into motive waves and corrective waves. Motive waves are stock price movements in the direction of the trend, and corrective waves are movements against the trend. Together, motive waves and corrective waves form certain patterns which are the basis of the Elliott Wave theory.

Elliott Wave theory was developed by Ralph Elliot, and introduced in his 1938 book, the Wave Principle. The theory was expanded by A.J Frost and Robert Prechter in the Elliott Wave Principle: The Key to Stock Market Profits. The theory is controversial, and is difficult to verify, due to the subjective aspects involved in its implementation. Also, as a technical analysis technique, the Elliot Wave theory runs against the efficient market hypothesis, a dominant theory in modern finance.