The Elliott wave indicator is a technical indicator that calculates and identifies the five waves of Elliott automatically on the price chart. It helps retail traders to trade using the waves in technical analysis.
Drawing Elliott wave on the price chart is one of the most challenging methods for retail traders, especially for beginners. Because price moves in the form of complex cycles, it is not easy to accurately identify the starting and ending point of a wave cycle. With the screen time, a trader will be able to find a wave cycle correctly on the chart.
However, here I will explain the Elliott wave indicator that will automatically draw the wave cycles on the chart.
Benefits of using the Elliott wave indicator:
You don’t need to scan each currency pair’s candlestick chart manually.
- It will reduce screen time and let you make good decisions in trading.
- It will improve your trading psychology.
- The accuracy of finding a high probability Elliott wave pattern will increase.
The working principle of the Elliott wave indicator is based on the two major market waves.
- Impulsive wave
- Corrective wave
The chart of every market in this world consists of these two waves only. These two waves are further divided into five waves. However, the major ones are only two.
You must understand these two waves first.
The impulsive wave represents the big price moves with high momentum. During this wave, sharp and big candlesticks form on the chart and the value of an asset or currency increases/decreases with high momentum in less time. This shows that big market players are trading, and market volatility is high.
This impulsive wave is further divided into five smaller waves 1-2-3-4-5.
Keep in mind that most of the major trends form during the impulsive wave.
On the other hand, the corrective wave consists of low-momentum price moves. Price will usually form a ranging market structure. Usually, market volatility is also low during the corrective wave formation.
Corrective wave is further classified into three smaller waves A-B-C.
There are three options available in the settings panel.
Invert pattern: it will flip the wave pattern. If a corrective waveform is present, it will plot the impulsive wave first.
In progress: it shows the wave patterns in progress
Show projections: it will show the target levels in the chart
There are other options for changing colours in the settings that you can use according to your temperament.
How does the indicator plot Elliott waves?
The Elliott wave indicator will plot all eight impulsive and corrective waves when you add them to the chart.
Our focus is to identify the first big wave and then trade the next wave.
Let me explain it to you graphically.
In the above image, you can see that after identifying the first wave, we will trade the second wave. We will open the buy trade by the confluence of any other technical tool like a reversal chart pattern or using the trend line breakout as an extra confirmation.
Each wave also consists of further smaller waves. It works like an infinite loop, so if you open lower timeframes, the number of smaller waves will increase. You need to understand this concept here. It will help you in finding accurate waves.
The main benefit of using this Elliott wave indicator is that it tells us about a wave’s ending and starting point so we can trade using the next wave.
I will explain a simple strategy to trade using this indicator.
How to trade using the Elliott wave indicator?
In the trading strategy, we will use the confluence of a reversal chart pattern and the Elliott wave indicator.
The confluence of the reversal chart pattern is most important because it will confirm that the trend is about to change. Without a chart pattern, the probability of success will be lower. Using a chart pattern, we will only trade a high-probability trade setup.
Open a trade
When the wave is complete, look for a reversal chart pattern at the ending point—for example, an inverse head and shoulders pattern. In case of an inverse head and shoulders pattern, wait for the neckline breakout and then open a buy trade. You should use the stop loss according to the rules of the chart pattern. The take-profit level is measured by using the Elliott wave indicator.
The indicator will help you find the ending of the first wave and then use the chart pattern to open the reversal trade.
So, this is also a semi-manual trading system.
Increasing the probability of a certain technical trade setup is the most important. If you rely on a single technical tool, your chances of failure will increase.
Elliott wave is the best technical tool, and advanced traders use it. I highly recommend this Elliott wave indicator to find high-probability trade setups.
Frequently asked questions?
No, this indicator does not work in the MetaTrader platform. It works on tradingview, that’s a cloud-based platform. That’s why this indicator can also be used on mobile devices. it is available in the indicator’s library of tradingview.
This indicator is developed by the tradingview team, updating it constantly. That’s why the accuracy of this indicator is high. I also recommend manually checking the waves as an additional confirmation before trading.
To access the indicator, kindly follow this path in your tradingview price chart.
Price chart > Indicators > Technicals > Auto > Elliott wave chart pattern