Editing Elliott wave principle (section)

==Foundation==
The Elliott wave principle posits that collective trader psychology, a form of [[crowd psychology]], moves between optimism and pessimism in repeating sequences of intensity and duration. These mood swings create patterns in the price movements of markets at every degree of [[Market trend|trend]] or time scale.

[[File:Elliott wave.svg|thumb|Elliot wave degrees exhibiting self-similarity (from R.&nbsp;H.&nbsp;Elliot)<ref>R. N. Elliott, "The Basis of the Wave Principle", October 1940.</ref>]]
According to Elliott's theory, markets move through two phases: a motive (''impulsive'') phase, where prices move in the direction of the main trend, and a corrective phase, where prices move against the trend, as the illustration shows. Impulses are always subdivided into a set of five lower-degree waves, alternating again between motive and corrective character, so that waves ''1'', ''3'', and ''5'' are impulses, and waves ''2'' and ''4'' are smaller retraces of waves ''1'' and ''3'' respectively. Corrective waves subdivide into three smaller-degree waves starting with a five-wave counter-trend impulse, a retrace, and another impulse. In a [[bear market]] the dominant trend is downward, and the pattern is reversed—five waves down and three up. Motive waves always move with the trend, while corrective waves move against it.