What Is The Elliot Wave Oscillator & How To Trade With It

Elliot Wave Oscillator Explained

The Elliot Wave Oscillator is a forex trading indicator that includes oscillatory waves. The Elliott Wave Oscillator is the difference of, a 34 and a 5 period, simple moving average (SMA). The Elliott Wave Oscillator has been created to help in the process of identification of the Elliott’s Waves and of the market trends. Just as the name implies, the Elliot Wave Oscillator is a wave indicator that combines a wave and an oscillator. Most of the other oscillators have mainly bars, oscillating on either side of the centerline. This technical indicator is very similar in appearance and use to the MACD indicator.

What is the Elliot Wave Oscillator indicator?

The Elliot Wave Oscillator is displayed on a separate window below the main trading window. It displays green and red bars on both sides of the zero line. Green stripes are formed on the upper side of the zero lines, while red bars are shown below the zero lines. In both cases, bars begin to form from the zero lines and grow in one of the directions depending on the market movement. The bars are the main part of the oscillator. The oscillation occurs when the bars oscillate or move on either side of the zero lines.

Elliot Wave Oscillator on chart
Elliot Wave Oscillator on chart

The indicator also has a wave. The wave is used to confirm the direction of the trend, as shown by the oscillator. The wave has two Elliott wave lines that are on either side of the oscillator. There is a line on the top and bottom sides of the zero lines. The wave expands and contracts depending on the market price range of the swing.

If the range of market fluctuations is narrow, then the wave will also be narrow, and the bars will be very small. Contrarily, if the range of market fluctuations is very large, then the wave will be very wide and, therefore, the bars will be long and long. The wave has a short default period of 5 and a long period of 35.

In case you look very carefully, you will see a dark bar that appears on both sides of the oscillator—the appearance of yellow bars is of very great importance. A yellow bar appears when market prices prepare to have a pullback. When a yellow bar appears, the traders should know that the market may move a few pips back before continuing the general trend.

How to trade using the Elliot Wave Oscillator indicator?

The simplest way of trading with the Elliot Wave Oscillator is to look to sell when there are red bars and buy when there are green bars. The bars can be used as an additional filter for another trading system rather than on their own. Some traders may look for the bars changing color as a possible opportunity to enter a trend at the very start. The Elliot Wave Oscillator can also be used to prepare for an exit if it looks like the market is turning. You could also consider a cross of the bars and signal line as potential trading signals.

An example of placing trades using the Elliot Wave Oscillator indicator

You can see the chart below which shows a sell trade after the two red bars. The same way a buy order can be placed when two green bars appear.

Using Elliot Wave Oscillator
Using Elliot Wave Oscillator

You can also trade the divergence of waves as well. Such a divergence can give an early signal on trend reversal.

Elliot Wave Oscillator - bullish divergence
Elliot Wave Oscillator – bullish divergence

How to install the Elliot Wave Oscillator indicator in MetaTrader?

  • Download the Elliot Wave Oscillator Indicator file
  • Copy the indicator file in the Metatrader/experts/indicators/ folder
  • Start or restart the Metatrader platform
  • Select chart and time interval where you want to check your indicator
  • Then search for “Custom Indicators” in the navigator window of the Metatrader terminal
  • Right-click on the Elliot Wave Oscillator
  • Attach to the chart
  • Change settings or click OK
Adding Elliot Wave Oscillator to chart
Adding Elliot Wave Oscillator to chart

Elliot Wave Oscillator trading strategy

Like other indicators, the Elliot Wave Oscillator indicator is also a lagging indicator which means that the traders may miss the move or enter late. There could be false signals generated by the indicator too. Therefore, we could add other indicators such as a moving average with a period of 20 to try and filter the false signals. This can help us to stay on the correct side of the trend. I always like to confirm trend direction with a combination of short, mid and long-term moving averages over multiple timeframes.

Elliot Wave Oscillator buy trade setup

  • The price must be above the 20 SMA.
  • You can buy an asset if the indicator bar is green or if there’s a dark bar below the zero line.
  • Look to place the stop-loss near swing low.
  • Look to exit when you see a dark bar above the zero line or when a red bar appears. It depends on what trading style you have.
Elliot Wave Oscillator - buy trade setup
Elliot Wave Oscillator – buy trade setup

Elliot Wave Oscillator sell trade setup

  • The price must be below the 20 SMA.
  • You can sell an asset if the indicator bar is red or if there’s a dark bar above the zero line.
  • Look to place the stop-loss near swing high.
  • Look to exit when you see a dark bar below the zero line or when a green bar appears. It depends on what trading style you have.
Elliot Wave Oscillator - sell trade setup
Elliot Wave Oscillator – sell trade setup

Elliot Wave Oscillator conclusion

The Elliot Wave Oscillator is a great tool that can be used to filter trends and estimate the strength of a trend as well. However, there could be a lag and false signals as there can be with any trading indicator. Therefore, it is advised to use your prudence to systematically develop a forex trading strategy that best fits your needs.

I would prefer to use the majority of technical indicators such as the Elliot Wave Oscillator on the 1-hour charts and above. I tend to find that these charts contain less market noise than the lower time frames and thus give more reliable signals for my forex trading strategies. This also means that I spend less time staring at charts and can also set alert notifications to let me know when price has reached certain levels or a particular indicator value has been reached.

The Elliot Wave Oscillator is just one indicator amongst thousands. I would not build a trading system alone, but rather combine with other technical indicators such as moving averages, Parabolic SAR, Stochastic Oscillator, RSI, ADX and price action analysis.

Of course, every trading system will generate false signals which is why money management is so important. I would personally be implementing sensible money management and only take traders that give me a favorable risk to reward ratio, ideally of at least 1:3. This means that one losing trade does not wipe out consecutive winners.

The methods of implementing the Elliot Wave Oscillator into a trading strategy that are outlined within this article are just ideas. I would always ensure that I have good money management, trading discipline and a trading plan when using any forex strategy.

Furthermore, I would combine multiple technical analysis, fundamental analysis, price action analysis and sentiment analysis to filter all entries. You should trade forex in a way that suits your own individual style, needs and goals.

If you would like to practice trading with the Elliot Wave Oscillator, you can open an account with a forex broker and download a trading platform. If you are looking for a forex broker, you may wish to view my best forex brokers for some inspiration.

Happy trading!