A 5-period moving average is much more responsive to price than a 35-period moving average. The 35-period moving average is slower to react to price as the previous closing price comprises just 2.9% of its value (1/35). The 5-period moving average, on the other hand, is based on 20% of the previous candle’s closing price. In the settings window for the indicator, you can adjust all the moving averages as well as configure the type of alerts. EWO works best in conjunction with the market price chart and other Waves indicators. Markets will often make a new high in wave 5 but the oscillator will not top the wave 3.

Helps Identify Trends

• According to the theory, upwards or downwards movements of prices repeat the same patterns.
• This can help increase the accuracy of trading signals and reduce the risk of false signals.
• For example, traders may apply a 9-period exponential moving average (EMA) to the EWO line to create a smoother signal.

Moreover, expert traders use it in conjunction with Fibonacci retracements. Once the retracement of wave 1 is over, the strongest price move will be on cards. Hence, the EWO is an efficient market analysis tool that makes it easier for traders to trade according to the most popular trading theory, the Elliott Wave Theory.

Elliot Wave Theory vs. Other Indicators

The market often makes new highs in wave 5 but the Elliott Wave Oscillator does not cross wave 3. In addition to its core functionality, the EWO indicator also has the potential to be used in conjunction with other technical indicators and analytical tools. This could lead to the development of new and powerful trading strategies that are based on a combination of different indicators and approaches. The EWO indicator can be used in conjunction with other indicators to confirm trading signals.

Can Be Used in Conjunction with Other Indicators

The EWO on its own will produce a ton of signals due to the natural frequency of 5-SMA and 35-SMA crossovers. But on its own that’s not a valid trading system, so strict filtering is necessary. Pairing it with a moving average of longer duration (e.g., 50- or 100-period SMA) and taking trades in the direction of the trend as dictated by that indicator will improve its reliability. If any of the three rules does not hold true at any moment, a trader needs to begina new count.

Moreover, even with accurate counts, a trader needs to re-evaluate and adjust counts as a new price emerges. Besides, determining whereone wave ends and a new one starts is extremely subjective. This oscillator produces a strong correlation with patterns of the Elliot wave. The key take away when using the EWO is that the strongest readings will show you where the 3rd wave lands on the chart. The EWO will work in all time frames but it is recommended you have a large enough sample of price for the oscillator to work effectively.

New Event: “12 Days of Elliott”

Overall, the EWO indicator can be a useful tool for traders to identify momentum and trend changes in the market. By adjusting the period length and applying smoothing techniques, traders can customize the indicator to suit their trading style and improve signal clarity. Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. It is not a solicitation or a recommendation to trade derivatives contracts or securities and should not be construed or interpreted as financial advice. Any examples given are provided for illustrative purposes only and no representation is being made that any person will, or is likely to, achieve profits or losses similar to those examples.

Traders can use this information to enter or exit trades at the right time. The RSI (Relative Strength Index) is another popular momentum indicator that is used to identify overbought and oversold conditions in the market. Like the EWO, it is a technical analysis tool that can be used to identify potential trend changes and momentum shifts. One key difference between the two indicators is their sensitivity to market movements. The EWO tends to be more sensitive to short-term price movements, while the MACD is more suited for identifying longer-term trends.

For example, traders can use the EWO to confirm a trend identified by a moving average crossover. This can help increase the accuracy of trading signals and reduce the risk of false signals. While both indicators can be used to identify overbought and oversold conditions, the EWO is more suited for identifying momentum shifts within the context of Elliott Wave theory. The RSI, on the other hand, is more focused on identifying potential trend reversals.

The https://investmentsanalysis.info/ is widely available on trading platforms and can be easily added to a chart. Traders can customize the parameters of the indicator, such as the period lengths and the type of moving average used. The Elliott Wave Oscillator uses the basic concept of a moving average crossover to generate trade signals. To trade short, we want the EWO to be not only negative, but increasingly negative. In other words, to trade long, we want the EWO to be in the process of being not only positive, but increasingly positive.

The key is to learn how to identify waves correctly is a task that is also highly subjective. If analyzing small time frames, like on our Hourly Charts, an Operative Time Frame chart will display about 120 bars of anywhere from 15 to 240 minutes of intraday data. The time period of the bars in the chart is arranged Ewo indicator to always show the swing as an event consisting of about 120 bars. The completed five wave sequence would be invalidated by any move below the suspected 5th wave 1.17 low. The Elliott Wave Oscillator (EWO) is based on the Elliott Wave Theory created by an accountant by the name of Ralph Nelson Elliot.