Did you ever wonder if there is an indicator that analyses Elliott Waves? Does a “wave trend indicator” actually exist or is it just a myth? And the short answer is yes.
This article reveals the best wave trend indicator and explains how to use indicators for improved price swing recognition and Elliott Wave analysis. We also show how traders can use a simple method for analysing oscillators that drastically improves your accuracy when determining price swings and wave patterns.
Yes, they can. But keep in mind that not everyone agrees. According to Elite CurrenSea and our chief wave analyst, Chris Svorcik, both price action and the oscillator indicator can be of enormous help in understanding the Elliott wave structure. But there is a “dispute” among wave analysts and some believe that indicators do not play any significant role whatsoever.
Whether style you eventually choose, it makes sense to be open to both styles at first and to see which one fits your own analysis and trading the most. Based on your own experience, you can then choose whether you analyse Elliott Waves based on price action only or a combination of price and oscillators.
In this article Elite CurrenSea will share its methods how we use the oscillator for a better understanding, interpretation, analysis, and trade setups based on the wave patterns.
Elite CurrenSea uses the Awesome Oscillator as a wave trend indicator – available for free via MetaTrader 4/5 . The AO (Awesome Oscillator), which is created by the Elliott Wave expert, legendary trader, and Fractal creator Bill Williams, is in our view the best oscillator for analyzing the waves of the Forex, CFD, and other financial markets.
A good second place however is reserved for its own proprietary MACD indicator called the macd.PRO. Although there a wide range of wave trend indicators that are mentioned online, the AO and the macd.PRO are two of the most accurate wave trend indicators. We will now explain why.
Before we explain the benefits of the AO (Awesome Oscillator) and macd.PRO, we need to identify the problem they solve which is:
What is the definition of a price swing and wave?
Traders must have a clear and logical system of identifying one price swing because without a rules based approach, traders will misinterpret the chart and always be unsure about their analysis. In fact, most traders fail in trading, mastering the waves, and trading the waves because they do not use a systematic method for understanding and reading price swings.
The AO and macd.PRO are both extremely valuable for identifying the correct price swings with a rules based approach. They are also equally valuable in determining wave patterns because wave analysis is simply an analysis of price swings. Once you understand price swing, you will understand wave patterns too.
In the field of Elliott Wave analysis both oscillators provide key information about the exact price swing, wave count, and wave pattern outlook. Here are the three major benefits of using the AO or the ecs.MACD as a wave trend indicator:
If you do not use the AO or macd.PRO, the problem is twofold when applying a discretionary (and not a rules based method based on oscillators) approach to your wave analysis:
The key to success in analysing and trading price swings and the Elliott Wave Theory is by applying a systematic way of identifying one single wave, which can be done via the AO and macd.PRO.
There are multiple solid methods of applying a rules based approach for identifying the correct price swing. One of them is the oscillators, such as the mentioned AO (Awesome Oscillator) and macd.PRO.
Here are the key factors to analyse:
How do you recognize on the price chart what is the correct price swing when analysing the zero line of our wave trend indicator, the AO or ecs.MACD?
As indicated above, the cross of the zero line is key for understanding price swings and wave patterns. Here is an example of how traders can understand the process in more detail.
The above image is an example where we zoomin to one spot of the chart. Let’s now show a chart now which shows a larger piece of the price action.
The above chart shows purple arrows, which indicate each time the AO bars cross the zero line. Each crossing of that zero line indicates the end of a price swing and wave pattern too. The purple boxes on the chart indicate the turning spot of each swing whereas the arrows in between the purple boxes show whether the price swing is a:
Compare the above chart to a naked chart that you can see here below. Would you be able to achieve the same consistency with the AO as without the AO? Would you truly be able to recognise the price swings as quick and with the same consistency?That is possible for traders who have more experience but is much more difficult for traders that are beginning or intermediate. They are much better by using a rules based approach. All the rules connected to this and much, much more is what we fully explain in our ecs.SWAT methodology.
Now that you know how you can find, measure, and analyse the correct price swing on any chart, we wanted to provide you with more examples on how to identify momentum and correction
Here is a summary:
Once you know how to spot the correct price swing, know its direction (bullish or bearish), and know its behavior (impulsive or corrective), then you are well on your way to becoming an Elliott Wave analyst. Wave analysis is nothing more or less than analysing price swings from the past and analysing what the current and next price swing is likely to be. Analysing swings is like putting together a puzzle and you are using the pieces from the past to understand what piece might fit next.
Although wave analysis might sound or seem complicated, its complexity is massively reduced when using a wave trend indicator to understand price swings. But keep in mind that knowing how to do wave analysis is not necessary if you trade our ecs.SWAT method because we trade the waves without labelling them and you can do the same.
Although we will not dive into all the facets of wave analysis in this sub paragraph of today’s article, we did want to provide an overview of how the AO works together with wave analysis.
The AO bars are showing a first stronger push away from the zero line, often into the opposite direction of the previous swing.
A shallow retracement back to the zero line occurs, but the AO bars do not go much into the opposite direction.
Strong AO bars push away from the zero line. Keep in mind that the wave 3 might become extended and hence you might see several strong pushes away from the zero line. Some of these pushes could all be part of a larger wave 3.
Eventually the strong wave 3 will finish and a larger retracement will take place back to the zero line, which could easily occur on a higher time frame as well because waves 4 are often lengthy.
The last push in the trend. The AO bars move away from the 0 line but not as much as the wave 3, which creates divergence because price does often make a higher high but the AO does not.
The AO bars were closer to the zero line usually because the trend is becoming slower. The first counter trend move shows impulse as the AO bars cross the zero line and keep their speed, moving into the opposite direction.
A last push with the previous trend but the AO bars hardly cross the zero line any more.
The larger correction continues as a large push creates a 3rd counter trend wave.
When a triangle or wedge chart pattern takes place, the AO bars will be mostly hanging around the zero line.
All in all, the AO is a major asset when analysing the charts, price swings, and wave patterns as it helps you:
Analysing wave patterns is nothing more or less than understanding the sequence of price swings. Mastering wave analysis is now within your reach.
But keep in mind that knowing how to do wave analysis is absolutely unnecessary if you trade our ecs.SWAT method. The beauty of SWAT (Simple Wave Analysis & Trading) is that you can:
Trade the waves without knowing the waves.
We built our SWAT methodology in such a way that you can benefit from the waves without needing to use the wave patterns themselves.