One way of technical analysis is the Elliott wave that attempts to forecast trends in price movement. Elliott Wave Theory was developed by Ralph Nelson Elliott in the late 1920s. He discovered that the stock markets traded in repetitive cycles. Elliott discovered that these market cycles resulted from people's psychology. He found that the upward and downward always showed up in the same repetitive patterns, Volkswagen squareback which is called "waves".
Elliott made detailed stock market predictions based on the wave patterns. An impulsive wave, which goes with the main trend, there are five waves in its pattern. On a smaller scale, within each of the impulsive waves, there are also five waves.
When a price went up, it is usually followed by correction or corrective wave. The Elliott Wave Theory says that five waves move in the direction of the main trend will be followed by three corrective waves (a 5-3 move). This 5-3 move then becomes two subdivisions of the next higher 5-3 wave. So one complete Elliott wave consists of eight waves of two phases: five-wave impulse phase, and the three-wave corrective phase.
The impulsive Wave have five wave: 1, 2, 3, 4, and 5. Wave 2 and 4 are small corrective wave in the increasing trend. In the corrective wave, there are three wave: wave A, B, and C. Wave B is the small technical rebound in the decreasing trend.
A trader seeing the Elliott Wave can ride the Wave 3 and 5 and entered a long trade. He can also enter a short trade during at Wave A and Wave C.
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