WITH the Dow Jones industrial average having climbed to dizzying heights - up 18 percent this year alone - nervous investors keep wondering what they should do. Yesterday, the Dow edged ahead 0.14, closing at a record high of 2,237.63.

''Enjoy the party.'' That succinct advice comes from Robert R. Prechter Jr., who in the past year has emerged as the market's leading guru. He believes the best is yet to come and predicts the industrial average will reach a top between 3,600 and 3,700 in 1988.

Speaking from his home near Gainesville, Ga., the 37-year-old Yale graduate and psychology major said: ''I expect the Dow to move above 2,300 before we see anything worthy of the name correction. Once we reach that level, a market reaction is likely - late this month or early in March. But it will be swift and short.''

While Wall Street professionals pay particular heed to his short-term trading opinions, Mr. Prechter thinks average investors should focus instead on the long term. ''The guy who is already invested should sit still and let the market make money for him,'' he said. ''If there is a correction of 100 points or more, people should use that as a buying opportunity. The best-performing stocks during the remainder of this bull market will be big-capitalization blue chips.''

By implication, this means such stocks as General Electric, Eastman Kodak, Merck, Minnesota Mining and International Business Machines.

The one-time Merrill Lynch employee is the foremost proponent of the Elliott Wave method of forecasting - a complicated and controversial approach to interpreting market movements. He publishes The Elliott Wave Theorist, a monthly advisory letter that sells for $233 a year and goes to 16,000 subscribers. What originally was the basis for his reputation? ''Bob Prechter set out his long-term case for the bull market shortly after it began in August 1982 with the Dow at 776.92 and he has stuck to his guns,'' said Robert S. Robbins, a strategist with the Robinson-Humphrey Company in Atlanta. ''That makes him the best-known super bull in the business.''

Mr. Robbins is bullish, too, but he sees the Dow climbing at a more modest pace, possibly reaching 2,800 next year.

While Mr. Prechter generally advocates a buy-and-hold approach for the average investor, his timing for short-term market swings in 1986 took top honors among investment newsletters monitored by the Hulbert Financial Digest in Washington. For example, he warned subscribers to take profits shortly before the Dow plunged 86.61 points last Sept. 11.

''Prechter has the best following right now among market advisers,'' said Michael S. Jenkins, a professional trader and editor of Stock Market Cycles. ''This includes a whole industry of money managers who feel comfortable with his bull market case. In addition, he does short-term, day-to-day work - finding support and resistance levels in the market - and here his following includes active traders who work with futures and options.''

Mr. Jenkins wants to see the market weather the next few weeks - a crucial period in his study of cycles - before he is willing to concede further substantial gains.

''I don't really understand the Elliott Wave Theory,'' said Joseph A. Feshbach, a technical analyst at Prudential-Bache Securities. ''I think stock prices basically have been climbing because of the public's shift from tangible assets to financial assets. My target is for the Dow to reach 2,400 or 2,500 by April and then to decline in the second half of this year.''

The Elliott Wave Theory holds that stock prices move up and down in distinct waves to complete any single bull market or bear market. According to Mr. Prechter's interpretation, the current bull market entered Wave Five in August 1982 - typically ''the most spectacular, selective and ultimately most euphoric wave.''

This method was developed in the late 1930's by Ralph N. Elliott, a retired accountant who lost most of his savings in the 1929 market crash. He later retired and, before his death in 1947, devoted himself to a study of the market.

Along with his concentration on wave patterns, Mr. Prechter uses market cycles, sentiment indicators - such as hourly put-call ratios - and momentum indicators among the variables that hone his short-term forecasts. ''For example, the three-week cycle indicated that the market was due to bottom between Feb. 10 and Feb. 12,'' he said. ''The rate of change - or how fast the market is moving in terms of price - is one component of momentum, along with breadth and volume. The market almost always slows down before it gets ready to roll over.''

Mainly for professional traders - ''people who care about the next two days or the next week'' -Mr. Prechter offers a ''hotline'' telephone service costing $377 a year. Here, his short-term readings are available Mondays, Wednesdays and Fridays after the market close.

He concentrates his own investments in equity mutual funds, timing occasional switches into money market funds.