The wave indicator is the tool of technical analysis, which is based on the cyclical nature of the price changes. This tool was based on the wave theory by Ralph Elliot, but it appeared after his death because he didn’t finish this approach for trading in the world exchange market. He invented the primary axioms, which were laid as the basis of wave robots:
- To every action there is an equal and opposite reaction;
- The rhythm can be traced on eight waves. Five of them show the main movements (trend in trading), and the other three are the corrective movements;
- Each eight waves complete the cycle and are fractal.
The followers of Elliott adapted his theory to trading and created several different indicators basing on it. In fact, there is no primary indicator of waves, but there are several versions, each of which has its advantages and disadvantages. Each modification is popular among traders of different levels.
The types of wave indicators
A lot of authors were trying to create an ideal wave tool, and each took various parameters to the basic ones. Here are the tools of technical analysis, which are based on the wave theory:
- Elliot Wave Prophet is an indicator; with its help, one can predict the price changes of the financial instruments for a selected period, but it is often inaccurate;
- Elliot Wave Oscillator is a tool of technical analysis, which belongs to the type of oscillators and is more popular than the previous one. If you look at its graph, you can notice the similar features to another standard indicator, MACD, but despite the similarity, these robots give different signals and in the basis of their work lies different algorithms;
- Elliot Watl is a great robot for traders, who love clearly-constructed graphics. For using this tool, you need to know the basics of technical analysis, because it has a lot of signals, which will give you a full picture of the situation in the market and, moreover, the clear forecasts. However, you need to set these parameters correctly. If you are just a beginner, it is better to choose one of the previous wave indicators, as this robot is more suitable for the professional traders;
- Elliot Waves is the only version of the listed, which doesn’t show the wave graphs, although it refers to the group of wave indicators. It was created for learning to trade, as this tool shows the trader's mistakes during the trading process. It's a good idea to use such an indicator on a demo account, to learn how to read signals and to trade without mistakes, before opening a real account.
The second type of wave indicators is popular, so its use in trading will be explained below. It is universal in comparison with the ones mentioned above, and every trader can start trading using this tool of technical analysis.
Trading with the help of the wave indicator
You can find this tool on such platforms as MetaTrader4. Also, you can download all versions of this indicator from the MTDownloads website for free.
You can use this tool of technical analysis to work on any time frames but, it is worth noting, that the bigger the time frame is, the better are the signals of this robot. It isn’t a good choice for scalping, where you need as small time frame as possible. The selection of financial instruments also up to the trader, as this robot doesn’t have many limits. The robot gives good signals, both independently and in combination with other tools and you can use it in any trading strategy.
The signals provided by this oscillator depending on where the histogram is located relative to the level 0. There are a couple of tips to predict the price movements more accurately:
- If the histogram crosses the level 0 from the bottom to the top, it is a signal of a bullish (upward) trend;
- If the histogram crosses the level 0 from the top to the bottom, it is a bearish (downward) trend signal;
In each situation, it is important to consider the frequency of divergence, because the more cases of divergence there were before crossing, the higher is the probability of the signal accuracy. It is worth noting, that this oscillator, shows examples of divergence in the market in the best possible way, but not just the direction of price movement, as the divergence gives the excellent signals for entering the market and it can bring you good trading results.
All in all, each trader can choose one of the suitable wave indicators. You can find versions, which suit both professionals and beginners in trading. If you like these robots, each of them can be downloaded on the MTDownloads website for free.