The Elliott Wave Theory is a technical analysis approach to financial market forecasting that was developed by Ralph Nelson Elliott in the 1930s. The theory suggests that financial markets, including stock markets and other trading instruments, move in a repetitive pattern of up and down price swings, creating waves. These waves are believed to be influenced by investor psychology and sentiment.

The basic principles of the Elliott Wave Theory include:

Five-Wave Structure (Impulse Waves): According to Elliott, a complete market cycle consists of eight waves, with the first five waves forming an impulse and the remaining three waves forming a correction. The impulse is further divided into an upward phase (Waves 1, 3, and 5) and a corrective downward phase (Waves 2 and 4). The upward waves represent the main trend, while the corrective waves are countertrends.
Three-Wave Structure (Corrective Waves): The corrective phase consists of three waves, labeled as A, B, and C. Wave A is the initial phase of the correction and is usually a downward move. Wave B is a corrective upward move, and Wave C is the final phase, typically another downward move. Corrective waves are counter to the main trend.
Wave Degrees: Elliott Wave Theory introduces the concept of wave degrees, which classifies waves based on their size and duration. The main degrees include Grand Supercycle, Supercycle, Cycle, Primary, Intermediate, Minor, Minute, Minuette, and Sub-Minuette.
Wave Extensions and Truncations: Elliott also observed that some waves can be extended, meaning they are longer than expected, while others may be truncated or shorter. Extensions often occur in the third wave of an impulse, which is often the longest. Truncations happen when the fifth wave fails to exceed the end of the third wave.
Fibonacci Ratios: The theory suggests that waves often exhibit Fibonacci relationships in terms of their lengths. Common Fibonacci ratios, such as 0.618 and 1.618, are frequently observed in the measurements of wave segments.

It's important to note that while many traders and analysts find the Elliott Wave Theory to be a valuable tool, it is also subjective and open to interpretation. Critics argue that it can be challenging to apply consistently, and the identification of specific waves can be subjective, leading to different interpretations among analysts. As with any technical analysis tool, it's often used in conjunction with other indicators and analysis methods for a more comprehensive view of market dynamics.