How does the Wave Principle fit in with technical analysis?

Bob Prechter, EWI founder and President, has called the Wave Principle “the purest form of technical analysis”. He explains, “The Wave Principle is a catalog of the ways that the crowd goes from the extreme point of pessimism at the bottom to the extreme point of optimism at the top. It is a description of the steps human beings go through when they are part of the investment crowd, to change their psychological orientation from bullish to bearish. Since people don’t change much, the path they follow in moving from extreme pessimism to extreme optimism and back again tends to be the same over and over, regardless of news and extraneous events.”  (from Prechter’s Perspective, p. 44)

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