The Elliot Wave Principle explains about collective investor psychology or crowd psychology, moves between optimism and pessimism in natural sequences. These mood swings create patterns evidenced in the price movements of markets at every degree of trend or time scale. This concept is based on market psychology. Speaking more precisely, there is an assumption that the psychology of investors is the real engine that causes the price swings. The concept is based on one universal pattern, which you can find across many different timeframes. Within the pattern, we can distinguish two opposite forces, the impulsive sequence and corrective sequence. On the given picture, the impulsive sequence is marked in green, while the corrective sequence is marked in red. As you can see, the impulsive sequence consists of five different elements denoted by numbers These elements represent the swings of the price action, in Elliott Theory we call them waves. The impulsive sequence itself is a wave of a higher degree composed of five subwaves. The direction of the impulsive sequence sets the direction of the main trend on the market.
However, as you can see only three waves within the impulsive wave go according to the main trend, the other two go against it. After the impulsive sequence is over, a corrective sequence appears. Again the sequence itself is a wave that consists of other waves. In case of a corrective sequence there are usually three subwaves denoted by characters. Elliot waves are fractals, which means each wave can be further subdivided into smaller Elliott waves. Looking at the picture, the upper line represents the main Elliott pattern which as you can see can be transformed into the patterns with a higher number of elements. Such structure of a wave makes the whole concept to be applicable to any timeframe. That is why, it does not matter if you are short, middle or long-term trader, the theory is universal.