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An Investigation of the Elliott Wave Oscillator

From market action’s chop it can be tricky to make head or tail of this tendency let alone think of an Elliott Wave count that is acceptable. One instrument frequently employed as an aid to assist the analyst would be that the Elliott Wave Oscillator (EWO). This report investigates using the tool and draws on research to check its worth. It articulates insights and questions a few of the thoughts and assumptions put forward by leading marketplace analysts and leaders in their own work.

The EWO indicates the conclusion of waves: the end of wave 3 is signalled if the MACD reaches its greatest point — its summit; the conclusion of wave 4 is signalled when the MACD comes back down to beneath the zero-line along with the conclusion of 5 if the MACD climbs up across the zero-line and creates a reduce MACD summit, hence establishing a bearish divergence with cost — supposing that’s wave 5 isn’t’truncated’ needless to say.

In his novel’Trading Chaos’ trading trainer Bill Williams explains a further refinement of this EWO where he advocates analysing waves with a interval of between 100 and 140 price pubs. He says research has led him to discover that this is the time for analysing a Elliott wave. In this research this improvement was integrated as a guideline, except in conditions when it had been not possible to match market actions.

Two phases have been analysed, from August 6th to October and a smaller interval in June 2010. A listing of all of the waves with their information is contained in a spread sheet onto another document.

Not of the waves observed in arrangement have been impulses containing the waves and diverging MACD shirts readily recognizable using the EWO envisioned. Due to incidence and their form in and corrective markets that they have been annotated as’zig-zag’ and categorized. All these patterns were common, which makes 40 of those 100 waves up. 5 percent of waves fitted into a further category termed’Triangles’. All these were consolidation zones that were little and cluttered examine and to unravel so that they were cordoned off and treated.

The 3 Chief Kinds of market patterns:
1. Impulses (55 percent )

2. Zig-zags (40 percent )

3. Triangles (5 percent )

Waves inside waves forever. .
In Trading Chaos Williams makes the point that the marketplace is made up that the Elliott wave — which this tide recurs over and over again.

“The Elliott arrangement is made up of fundamental rhythm of’fives’ adjusted by’threes’. This arrangement stays constant regardless of what level of tide has been analysed.”

It’s the debate the Elliott Wave is the fundamental building block of this current market and that it recurs over and over ad infinitum.

It had been found that at a certain stage it wasn’t feasible to split down market segments to into their smaller part components because of constraints from the charting package.

Further, research working with the EWO found marketplace action didn’t necessarily following prescriptions and the principles of the theory of Elliot. Although it was true that the majority of the time urge waves have been discovered at the direction of the major trend and zig-zags as traces of this fad there were many instances where zig-zags were discovered as regions of the trend (ie at the area of impulses) and impulses were seen as corrections. There were cases of impulses following each other without a fracture in-between. This was too common an event to be dismissed and raised question marks regarding the validity of this concept.

One of the fundamental tenets of Elliott Wave theory is that impulses are inclined to be 5 tide points and adjustments 3 waves. Nevertheless this research found that in fact that is only partly correct.

These 3 waves can be examined in level as entities in themselves or as a urge. Zooming a level the 3 condensed together are a nice example of a urge.

Since the 3 waves above were examined since the marketplace unfolded rather than with the benefit of hindsight they had been examined discreetly as smaller sections . It was latter it was found they were part of a wave as cost action unraveled the line down. But with this fortuitous accident of opportunity that the researcher gained an insight into just how hard it can be to utilize the EWO in real time in addition to obtaining an understanding of the components concealed within waves.

The bigger wave was proven to be an urge at the direction of the primary trend questioned the already present premise that loopholes are made up of smaller instincts and zig-zags happen as corrections. As a result, whether due to shortcomings of the Elliott wave theory itself because of the collapse of this EWO the rules of building didn’t necessarily enforce consequently raising doubts about the effectiveness of this’Russian Dolls’ component to Elliott concept.

Another aberration from classical concept was that the monitoring throughout the research that ignites could occasionally begin corrective periods — especially rolling down the highs off, like in the illustration of waves 47 — 49 (see pic below). This inexplicable phenomenon — of urge waves inside a correction of this bigger trend couldn’t even be clarified by identifying them since the first wave of a bigger scale , because in a greater level that the two impulses just proven to form a bigger impulse instead. Therefore at greater level that the EWO failed to differentiate between corrective and spontaneous patterns as put down in orthodox Elliott theory.

This ambiguity might easily fool a trader into thinking a significant change from bull to bear had happened because the trader could witness the first five waves and think this to be the beginning of a completely different bear market stage, when really it had been itself that the sum total of a correction. Another case of the happening of corrective sequences erroneously recognized as impulses by EWO happened at the big corrective tide 19.

It was tricky to match the tiny waves examined from the EWO inside this research into bigger wave patterns and build up satisfying higher level wave counts, but this might have been partially because of the inadequate size of this sample. As mentioned above one of those issues was that corrections might be erroneously identified as reversals yet another problem has been the capability of impulses to apparently endlessly unravel one another without a’end in sight’.

Waves 35 — 60 are a part of a one larger degree wave and it might be hard to forecast when the last 5th of the 5th was likely to happen whether the evaluation had already been done in real life. The best explanation in this situation is the larger amount wave has been an expansion, but this refuge to exceptions highlights one of those Elliotician’s very frequent flaws, which will be to call the previous wave of a transfer . Really possibly the most notable Elliotician of Robert Prechter made this error himself at the 90’s when he called a shirt at the DOW simply to see it grow much further in a protracted 5th tide, which comprised the right-wing bubble.

Whilst the EWO just had marginal significance in construction Elliott counts, it’d possess a useful short-term application for a way for categorizing 2 different kinds of market behaviour — that the diverging from non-diverging — or even impulses from zig-zags. These results appear to point to some possibly more twisted, more complicated but truer image of the marketplace compared to neat and clean world of Elliott Waves promises.

The corrective patterns didn’t necessarily stick to the instincts in an alternating manner as could be anticipated from classic Elliott concept but instead tended to audience if anything, especially the zig-zags which contrasts between waves 43 — 48 and 78 — 84.

One thing that did back up present concept was that reluctantly tended to become commonly seen at the’tendency’ of a level higher with 27 of those 36 trending routines impulses. Impulses were quite typical in corrective action also, but with 25 of those 50 corrective routines being impulses and just 20 being zig-zags (another five triangles).

There has been quite a huge difference between the ordinary ROC for the 2 types of patterns. Nevertheless it should be noted that it had been observed that waves of shorter spans tended to score higher on ROC than waves and awarded zig-zags tended to become shorter, their ROC readings were bound to be greater on average.

Taking a look at the dot distribution graphs over the ROCs for both pattern types as well as the 1000 pip and wave ROC graph, we understand that the most important difference between the two patterns would be the greater density of this clustering from the urge chart under 4ppms, whereas the zig-zags display less consistency, though a lot are also under the 4ppms figure (outlier again eliminated ). The last graph shows just how longer waves tend to smooth ROC into a lesser degree — and awarded most longer waves have been impulses this clarifies their lesser average ROC.

The precise number under 4 pips per second is 26 (66 percent ) to get zig-zags and 46 (84 percent ) for impulses. Conclusion: a greater stone reading might well be a defining feature for differentiating between the two patterns. The huge number of advisers have ROC of under 4 pips each minute.

Design span and time
Zig-zags had a normal period of time of 499 minutes whilst reluctantly had a normal period of 1100 minutes. This might appear to create sense impulses would be expected to display a much and divergence demands time.

Compared to waves in impulses, zig-zags had more C waves. 17 from the 24 waves using the maximum terminal waves (in connection with the whole) were zig-zags. Longest were described as being more than the duration of the move or 75 percent.

The averages for the various pattern types revealed that urge 5th waves totaled 50 percent the amount of the full movement, although zig-zags on average exhibited substantially longer satellite waves, in a mean of 74.87percent of the period of the entire move. Only 6 out of the 55 urge waves had truncated waves.

There weren’t any C waves that are truncated — they all surpassed wave’s peak


There has been although few past a bunch along with 700 pips .

Length of waves and 4th waves and percent retracements
90 percent of all wave B or 4 wave retracements finished in the area of between 20 percent and 80 percent of their movement as exemplified below.

Impulses exhibited retracements that were shallower when compared with 44 of the 55 impulses, or zig-zags with 80 percent, showing 4 retracements of less than 60 percent to wave.

B waves that retraced less than 60 percent of their movement were exhibited by Just 22 of the 40 zig-zags. This works out as 55%. There has been a variation in the number as may be understood by the influence on the chart B waves retraced A waves.

Another of those instruments utilized by Dr Bill Williams in Trading Chaos might be analyzed the method for locating the conclusion of wave 5 that he attributes to some other analyst/trader called Tom Joseph.

The outcomes of the research revealed that the typical length of 5 compared to 1-3 has been 60.17percent — that is close enough but a small low possibly. The distribution graph below shows the lengths of the tide 5 researched in the impulses examined in percentage terms . It reveals a broad distribution and appears to value the William’s method. It seems that far by the great majority of tide 5’s end from the’targetzone’ between 61.8percent and 100% just 26 from their 55 impulses, that will be 47.27%, really went farther than 61.8percent whatsoever and 5 overshot 100 percent so it’s debatable whether they should strictly speaking be comprised. If you eliminate these then just 21 adapt to the rule just — which is 38.2percent of all of the impulses.

The research shows tide 5s finished in a targetzone between 26 percent and 84 percent of their extrapolation of. This wider group included 81.8percent of all of the tide 5s studied.

It has been recognized that zig-zags have a tendency to exhibit equality at the spans of C and legs A. This bit of market lore has been analyzed. If C and A leg equality was exhibited by most zig-zags this ought to be carried out by the results.

On the other hand, the results demonstrated that the general average amount of C in contrast to some was 134.31percent — higher compared to 100 percent for equality. C was. The chart below shows the distribution of spans please disregard the minus scale.

Taking the two outlier effects near the indicate we may observe the supply in detail. It demonstrates that the majority of C waves at the research were between 60 percent and 200% wave A.’s period

It’s apparent that although lots of wave C were near 100 percent of A or equality there have been a number that were.

5 triangles’ sample was too little to tackle any evaluation, suffice to say they less or more followed the principles of Elliot except in regard to their position on the industry as was the situation with the patterns that are visible.

The EWO has been an inadequate tool for removing the ambiguity even though a section of economy has to be assessed to be sure of this — and coming up with wave counts. The research implies that the method outline in Dr Bill William’s publication Trading Chaos to stabilize wave 5’s conclusion might be inaccurate.

The research defined three component’manners’ of market behavior visible through the’lens’ of the Elliott Wave Oscillator viz non-diverging and triangular, as the Elliott concept implies which these happen in a clustering or haphazard manner. Dependent on this EWO’s usage it seems that these are better explained than the 5-3 Elliott wave that is easy.

Additional research would concentrate on adding definition and trying to identify methods by which market practitioners could identify them in earlier stages of their growth permitting them to take advantage of the potential as tradable patterns. The work started on the spans of pattern waves can become an invaluable resource for analyzing risk and discovering entry and exit positions in real time throughout trading.

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