Introduction to the Elliott Wave Oscillator Indicator
In the 1930s, Ralph Nelson Elliott developed the Elliott Wave Theory, which quickly became popular due to its effectiveness.
However, not all traders are keen on observing valid wave like structures. The Elliott Wave Oscillator was then developed to help traders objectively identify possible wave like structures which are vital for trading an Elliott Wave Theory type of strategy.
What is the Elliott Wave Oscillator Indicator?
The Elliott Wave Oscillator (EWO) is a momentum-based trend following indicator which presents trend and momentum directions as an oscillator. This indicator is based on the concept of the Elliott Wave Theory. It was developed to help traders identify possible wave impulses as well as corrective waves.
How the Elliott Wave Oscillator Indicator Works?
The Elliott Wave Oscillator computes for the difference between a five-period Simple Moving Average (SMA) and 35-period Simple Moving Average (SMA). Some versions of the EWO uses the close price as a basis for the underlying SMA pairs. This version of the EWO uses the median price of each bar as the basis for its SMA lines. The EWO indicator then plots the difference as histogram bars. The color of the bars also changes depending on whether the current bar has a lower or higher value compared to its preceding bar.
Positive lime bars indicate a strengthening bullish trend, while positive green bars indicate a weakening bullish trend. Negative red bars indicate a strengthening bearish trend, while negative maroon bars indicate a weakening bearish trend.
This version of the EWO also plots a signal line along with the EWO histogram bars. The signal line is basically a five-period Simple Moving Average (SMA) of the EWO histogram bars and is presented as a dotted line.
How to use the Elliott Wave Oscillator Indicator for MT5
This version of the Elliott Wave Oscillator allows the variables used for its EWO bars and its signal line to be modified. These modifications can be done within the indicator’s settings.
The Elliott Wave Oscillator can be used as a trend direction filter wherein traders would take long trades exclusively whenever the bars are positive and sell trades when the bars are negative.
It can also be used as a trend reversal signal indicator based on the crossing over of the EWO bars and the signal line coming from an overextended level.
Crossovers of the bar from positive to negative and vice versa can also be considered as a trend reversal signal.
However, its intended use was simply for identifying the wave like oscillations of price action.
Buy Trade Setup
When to Enter?
Identify an uptrend market based on price action and positive EWO bars. Wait for a retracement and open a buy order as soon as an EWO bars crosses above the signal line. Set the stop loss on the support below the entry candle.
When to Exit?
Close the trade as soon as price action shows signs of reversal.
Sell Trade Setup
When to Enter?
Identify a downtrend market based on price action and negative EWO bars. Wait for a retracement and open a sell order as soon as an EWO bars crosses below the signal line. Set the stop loss on the resistance above the entry candle.
When to Exit?
Close the trade as soon as price action shows signs of reversal.
Conclusion
The Elliott Wave Oscillator was mainly developed to aid in identifying wave like structures which are integral with the Elliott Wave Theory. However, it can also be used to identify trend direction and trend reversals.
Elliott Wave Oscillator Indicator for MT5 is a Metatrader 5 (MT5) indicator and the essence of this technical indicator is to transform the accumulated history data. Elliott Wave Oscillator Indicator for MT5 provides for an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye. Based on this information, traders can assume further price movement and adjust their strategy accordingly. Click here for MT5 Strategies Click here below to download:MT5 Indicators – Download Instructions
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