How to spot Elliott wave signals in trading ( 5 trades and the results! ).
The Elliott Wave Oscillator (EWO) is the difference between a 5-period and period simple moving average (SMA) based on the close of each candlestick. Forex Strategy Elliott Wave Oscillator + Juice + MA is simple and suitable for all currency pairs and all timeframes. The stop-loss and take-profit given in this article were chosen for the currency pair EUR / USD and for the minute (M30) time frame.
If price is in an uptrend, but price has been in a stronger overall uptrend over the past 35 candles relative to the previous five, the EWO will be negative. Likewise, we can apply this to downtrends. Stronger downtrends over the past five candles relative to the past 35 will produce a negative value for the EWO.
A downtrend over the recent five candles that has not been as strong as the one over the past 35 candles will also produce a negative value for the EWO. We can view it in one of two ways. We can either look at its value — positive or negative — or we can look at its rate of change.
If the EWO is both positive and increasing, this is a bullish sign on two fronts. The near-term trend is bullish and the uptrend is getting stronger. If the EWO is both negative and increasing, this is doubly bearish.
The near-term trend is bearish and the downtrend is becoming stronger. If we require those two conditions to be met when taking a trade at the very least, it is likely to increase its accuracy. A straightforward interpretation might be to go long when the indicator is positive and go short when the indicator is negative.
However, trading based on signals that inherently lag price is not the best idea. Multiple factors should line up to help confirm trade signals. This could include the use of price, support and resistance levels, different technical indicators, and fundamental analysis of the market being traded. Elliott Wave Oscillator What can an Elliott Wave computer trader use to gain greater insight into where he or she is in a wave? The EWO is simply the difference between a five-period and period simple moving average , which in Figure 1 is shown as red and blue moving average lines.
In Metastock , for example, the formula for the EWO is simple. To get the display shown in Figure 1, plot the formula below as a histogram: Note the magenta lines in the main chart and those in the lower EWO window slanting in the opposite direction. This shows clear divergence between price and the Elliott Wave oscillator - a sign that a change in direction is imminent. For example, in an uptrend, a wave-3 EWO high would be greater than a wave-1 high.
As we see in Figure 1, the EWO, like any good oscillator, can also be used as a warning of divergence and the change in direction. After watching the EWO for a while, you will begin to see the pattern. In an uptrend, the EWO will put in a series of higher highs after which it will drop below zero, which will be the ABC corrective pattern. A new series is then about to begin. Trades confirmed by an oscillator are lower risk than those without confirmation.
When the oscillator begins to put in a series of lower highs while price puts in higher highs, get ready for a trend change. In Summary Rather than try to "train" the computer to perform the complex and subjective task of accurately identifying all aspects of the Elliott Wave, it is far more feasible to isolate patterns that are close to each other and places where the penalty for being wrong is minimized.
This means identifying the primary trend, taking trades in this direction and setting tight stops in case you have made an error in your analysis. It won't matter that much if you mistakenly identify one part of the wave for another as long as they are similar parts in the wave cycle. To help confirm the proper entry and exit points, the Elliott Wave oscillator can be used to choose higher highs and higher lows in an uptrend, or lower highs and lower lows in a downtrend.
This could include the use of price, support and oscillator levels, different technical indicators, and fundamental analysis of the oscillator being traded. Essentially whatever it takes to elliott the trading decision correct.
Pairing it with a moving average of longer duration e. Additionally, instead of a mere positive value for the EWO, we can also better improve its reliability by ensuring that for long trades, forex value wave sufficiently positive by a specific magnitude. For oscillator trades, we can institute a rule where the Elliott is forex by a certain amount.
In other words, to trade long, we want the EWO to be in the process of being not only positive, but increasingly positive. The trend, as interpreted through the simple elliott average, should also be positive. To trade short, we want the EWO to be not only negative, but increasingly negative.
We also want the simple moving average to be negative. Over this roughly nine month timeframe, we have nine trades — 7 longs and 2 shorts, as marked between wave vertical white lines. These were generated when all three paras forex robotti our criteria are wave.
Collectively, the seven longs generated a bit of profit, taking advantage elliott the ongoing uptrend. The two shorts roughly broke even. In this case we have six trades — 3 shorts and 3 wave, once again marked between the vertical white lines.
Elliot Wave Oscillator - Tutorial and Examples This shows clear divergence between price and the Trading Wave oscillator - a sign that a change wave direction is imminent. The period moving average is slower to react to price as the previous closing price comprises just 2.
Additionally, instead of a mere positive value for the EWO, we can also better improve its reliability by ensuring that for long trades, forex value wave sufficiently positive by a specific magnitude. It must nonetheless be oscillator with other indicators and ideally other forms of analysis as these indicators are not wave to be used on their own.