Some History and a Little More Detail

Elliot Wave Analysis was developed by Ralph Nelson Elliott* in the early 1930's, following what remains the most devastating market decline in U.S. history - the Crash of 1929.

An accountant by profession, Elliott had a successful career as financial consultant to numerous railroad companies, a booming sector when he began his professional life just before the turn of the 20th Century. Elliott had a passion for Latin America (his boyhood home in Texas exposed him to nearby Mexico and its culture) wrote and spoke Spanish fluently, and spent much of his professional life working for firms in Mexico, Central America and Cuba. He was considered an expert in business planning, and his services were in very high demand. Such was his reputation that Elliott caught the eye of the U.S. State Department, which sent him to Nicaragua as an economic consultant, where he helped reorganize the country's finances. It's said that one of his greatest talents in business was a shrewd eye for detail.

1929 was a terrible year for Elliott. Like many others, he suffered major losses in the market crash. To make matters worse, he had contracted a parasite during one of his trips to Latin America, infecting him with a life-threatening anemia. In 1930, he moved to California, where, to occupy his time as he recovered from his illness, he took to studying charts of the major market indices. Part of his motivation was a book on the market theory of Charles Dow (creator of the Dow Jones Industrial Average); the other part was an intense desire to understand the mechanics that led to the Crash of '29.

Training his meticulous eye on decades of market charts, he discovered a persistent and recurring pattern that operated between market tops and bottoms. He theorized that these patterns, which he called "waves," were a collective expression of investor sentiment, giving the market a distinct form and behavior. Through a use of measurements that he called "wave counting," an analyst could forecast market turns with a high degree of accuracy. After testing his theory over four years, Elliott organized his research into an essay that he titled "The Wave Principle," which was published in book form in 1935 with the assistance of Charles Collins, a respected newsletter publisher who helped popularize Elliott Wave analysis in its early years.

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