What is an Elliott Wave Oscillator?
The cTrader Elliott Oscillator is also known as a 5 & 34 Oscillator, this is because it uses a 34-period slow moving average and a fast 5-period moving average indicator. The calculation that is used for the formula is that the fast-moving average is subtracted from the slow-moving average and the result is displayed as a histogram on the chart as shown below. The key is to learn how to identify waves correctly is a task that is also highly subjective.
It can be applied to any time frame and works just as well in every time frame provided that the correct number of bars are displayed in the chart. The chart below is a good example of how effective this technique can be in counting Momentum Waves.
Three additional simple moving averages are used to determine a bullish, bearish and neutral trend. This indicator will allow the trader to set different periods for these indicators, but as default, they are 20, 100 and 200 periods.
How is the Histogram Calculated?
Assuming the SMA periods are using the default values below:
- SMA-1 = 20 periods.
- SMA-2 = 100 periods.
- SMA-3 = 200 periods.
- A Bullish wave is calculated as follows: SMA 100 > SMA 200 AND SMA 20 > SMA 100
- A Bearish wave is calculated as follows: SMA 100 < SMA 200 AND SMA 20 < SMA 100
- The Elliott Line is calculated by using the data of 3 bars back and plotted as a line: Fast SMA - Slow SMA
- EWO = SMA(5-period, candle-close) – SMA(34-period, candle-close)
The cTrader Elliott Oscillator works best when the chart has the right number of bars displayed this is usually between 100 to 150. Bill Williams suggests around 100 to 140 bars and Tom Joseph mentions that about 150 is a good number.
You do not have to use the SMA default settings of 50, 100 and 200, we use the settings below to simply use this indicator to tell us if we should buy or sell.
- SMA-1 = 34 periods.
- SMA-2 = 50 periods.
- SMA-3 = 100 periods.
How to Trade
- Open a long position on the first bullish signal (green bar)
- Open a short position on the first bearish signal (red bar)
- Close any position when it is neutral or if the prices touch a support or resistance zone.
Types of Alerts
This indicator will inform the trader when the Elliott Wave Oscillator changes trend or momentum, so when the states change from Neutral to Bullish or Bearish or simple Bearish to Bullish or Bullish to Bearish.
- Pop-Up message - this will display a simple popup message to the screen
- Show lines - this shows the start of each wave with a vertical line.
- Sound Alert - this allows you to hear an audible sound, the media file path allows the option to use any sound file.
- Email message - an email message can be sent when the waves change to either bullish or bearish.
If you need any help setting up your email account with cTrader, just visit this email setup page or download the free email configuration tool.
In the settings window for the indicator, you can adjust all the moving averages as well as configure the type of alerts.
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* Manual trading only - source code not available.