The Elliott Wave principle is based on the assumption that each market represents a phenomenon fuelled by economic flows, induced by psychological currents and governed by natural laws. If these were missing, it would not be possible to achieve any balance and the prices would lead to convulsive disorganised fluctuations. The market must be considered a phenomenon created and fed by men and therefore permeated by irrational attitudes that characterise people’s daily lives.
Since the movement of the market prices is the product of human activity and therefore subject to natural rules, it tends to express recurring sequences of bullish and bearish waves, which can be traced back to a general model.
Elliott Wave Theory relates these wave patterns to the mass psychology of investors. Their mood swings and confidence in the market create these price movement patterns, alternating between optimism and pessimism. The market does not record political, social and economic events, but rather human reactions to these events.