Bitcoin Wave Analysis Using the Elliott Wave Oscillator (EWO)
You can use the Elliott Wave Oscillator (EWO, Awesome Oscillator AO) to spot and label Elliott Waves.
Here I'm using an indicator called Elliott Wave Oscillator with Bands. The next best thing is BullTrading_MTF-EWO_V2.0 BullTrading Elliott Wave Oscillator by Gustavo. Don't bother looking into other EWOs.
The Bands version uses hl2 (shifted fwd by 1 bar) instead of close price and has 2 MA signal lines and no % normalization.
The Gustavo version has a signal line, % normalization and uses 34 periods / close price by default.
- Classic EWO is a Price Oscillator and uses 5, 35 SMAs, close price, no MA smoothing. EWO doesn't provide exit points, only divergence. EWO has been backtested thoroughly on history data and is best at spotting EW.
- Awesome Oscillator (AO) by Bill Williams is essentially the same as EWO.
- MACD uses 12, 26 EMAs, close price, 3rd MA for smoothing. MACD provides entry/exit points (EMA and zero crosses), divergence
Watch this video for more info on how EWO works: www.youtube.com/watch?v=konvREHe...
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EWO Signals:
1. histogram above zero line - look for longs, below - look for shorts
2. histogram breaks out of the top/bottom signal line bands - trend is strong, likely a wave 3 or 5 (waves 1/2 usually stay within bands and produce small humps)
3. bar height is rising - trend in the current direction gains momentum (brighter color bars), falling - trend loses momentum (darker color bars),
4. histogram returns to zero line and retraces within 90-140% of the prev high peak - likely a wave 4 (or B or other correction) - Main signal for EW wave 4
5. EWO divergence - likely between waves 3 and 5, possible end of trend, reversal or major correction soon - Main signal for end of wave 5, start of wave 1
Trading:
1. Type 1 Trade (enter at the end of wave 4 to ride wave 5):
- histogram returns to zero and retraces within 90-140% of the prev high peak (crosses up to 40% to the other side) - this is likely the end of wave 4 (or 2/B - some sort of major correction, likely a wave 4)
>140 - this is wave 1/A of the new trend, major correction or reversal. < 90 - this is wave 2 or 4 of lower degree.
- prev high of the histogram is above the top breakout signal band or below the bottom band => market is strong, confirms that this was likely a wave 3/5 and it's strong, so we truly have the end of wave 4 near zero (or some type of major correction)
- in the video they also use signals from proprietary indicators not available on TradingView - use EMAs/fib ratios instead. Enter a trade:
if we retrace within 38.2-50% - high probability zone for wave 4.
Confirm trend direction using EMAs/trend indicators.
Use 61.8-100% of wave 0-3 or 100% of wave 1 as target for wave 5 to exit the trade.
Enter on a breakout from a down channel/prev high or on 2nd bar close in the direction of a new trend with a stop loss below wave 4
2. Type 2 Trade (divergence, trend reversal, enter at wave 1 of the new trend)
- find wave 4, after riding wave 5 look for divergence between the humps of waves 3 and 5. Wave 3 is always the strongest and should have a higher peak, wave 5 - still strong but has a lower peak, producing a divergence.
- if wave 5 hump < wave 3 hump - market is losing momentum, reversal or major correction is likely, enter a trade to ride the new trend in the opposite direction.
- if wave 5 hump >= wave 3 hump - market is still strong, this is a lower degree waves 3 and 5 within wave (3), an extension of wave (3) is likely.
Other Trading Options:
Enter:
1. on the 2nd-3rd bar after a signal band cross (entering a strong market)
2. on a pullback (wave 2/B saddle, histogram retraces inside the signal bands)
3. on crossing of a zero line, a red-green color change
4. on divergence
Exit:
1. on highest peak
2. on momentum decrease (lower bar height, darker color)
3. on a pullback inside the signal bands (weak market)
4. on divergence
Here I'm using an indicator called Elliott Wave Oscillator with Bands. The next best thing is BullTrading_MTF-EWO_V2.0 BullTrading Elliott Wave Oscillator by Gustavo. Don't bother looking into other EWOs.
The Bands version uses hl2 (shifted fwd by 1 bar) instead of close price and has 2 MA signal lines and no % normalization.
The Gustavo version has a signal line, % normalization and uses 34 periods / close price by default.
- Classic EWO is a Price Oscillator and uses 5, 35 SMAs, close price, no MA smoothing. EWO doesn't provide exit points, only divergence. EWO has been backtested thoroughly on history data and is best at spotting EW.
- Awesome Oscillator (AO) by Bill Williams is essentially the same as EWO.
- MACD uses 12, 26 EMAs, close price, 3rd MA for smoothing. MACD provides entry/exit points (EMA and zero crosses), divergence
Watch this video for more info on how EWO works: www.youtube.com/watch?v=konvREHe...
___________________________________________________
EWO Signals:
1. histogram above zero line - look for longs, below - look for shorts
2. histogram breaks out of the top/bottom signal line bands - trend is strong, likely a wave 3 or 5 (waves 1/2 usually stay within bands and produce small humps)
3. bar height is rising - trend in the current direction gains momentum (brighter color bars), falling - trend loses momentum (darker color bars),
4. histogram returns to zero line and retraces within 90-140% of the prev high peak - likely a wave 4 (or B or other correction) - Main signal for EW wave 4
5. EWO divergence - likely between waves 3 and 5, possible end of trend, reversal or major correction soon - Main signal for end of wave 5, start of wave 1
Trading:
1. Type 1 Trade (enter at the end of wave 4 to ride wave 5):
- histogram returns to zero and retraces within 90-140% of the prev high peak (crosses up to 40% to the other side) - this is likely the end of wave 4 (or 2/B - some sort of major correction, likely a wave 4)
>140 - this is wave 1/A of the new trend, major correction or reversal. < 90 - this is wave 2 or 4 of lower degree.
- prev high of the histogram is above the top breakout signal band or below the bottom band => market is strong, confirms that this was likely a wave 3/5 and it's strong, so we truly have the end of wave 4 near zero (or some type of major correction)
- in the video they also use signals from proprietary indicators not available on TradingView - use EMAs/fib ratios instead. Enter a trade:
if we retrace within 38.2-50% - high probability zone for wave 4.
Confirm trend direction using EMAs/trend indicators.
Use 61.8-100% of wave 0-3 or 100% of wave 1 as target for wave 5 to exit the trade.
Enter on a breakout from a down channel/prev high or on 2nd bar close in the direction of a new trend with a stop loss below wave 4
2. Type 2 Trade (divergence, trend reversal, enter at wave 1 of the new trend)
- find wave 4, after riding wave 5 look for divergence between the humps of waves 3 and 5. Wave 3 is always the strongest and should have a higher peak, wave 5 - still strong but has a lower peak, producing a divergence.
- if wave 5 hump < wave 3 hump - market is losing momentum, reversal or major correction is likely, enter a trade to ride the new trend in the opposite direction.
- if wave 5 hump >= wave 3 hump - market is still strong, this is a lower degree waves 3 and 5 within wave (3), an extension of wave (3) is likely.
Other Trading Options:
Enter:
1. on the 2nd-3rd bar after a signal band cross (entering a strong market)
2. on a pullback (wave 2/B saddle, histogram retraces inside the signal bands)
3. on crossing of a zero line, a red-green color change
4. on divergence
Exit:
1. on highest peak
2. on momentum decrease (lower bar height, darker color)
3. on a pullback inside the signal bands (weak market)
4. on divergence
First, sort out all the corrections to isolate possible wave 4's and major corrections/reversals, check 90-140 retracement, in/out bands. Think of a suitable count to include these waves (as waves 4/2/B/X if necessary). Assign waves 3 and 5 based on high peaks and divergence, waves 1 and 2 are usually within bands. If wave 5 peak is higher than wave 3 it can be viewed as an extension within a larger degree wave 3. Lower degree waves 1/2 and 4 are typically saddles in a histogram or smaller humps after zero crosses. Finally, check which waves may belong to similar moves structuraly and which larger degree corrections connect larger degree waves on separate histograms.
1. EWO shows waves of at least 3 degrees on the same chart
2. Lower Peaks = Same/lower degree waves inside wave 3 or 5
3. Same Height Peaks = Waves of the same structure (ABC, 12345), should be viewed as the same price move
4. Always measure wave 4 retracement 90-140% from the highest peak of the prev histogram
5. Correction within bands - usually waves 1/2 or smaller degree waves 2/4 (saddle), part of the same structure
6. Larger degree waves (3) and (5) usually are on separate histograms
7. Usually 1st peak = Wave 3, 2nd peak = Wave 5
8. When Wave 5 Peak < Wave 3 Peak = Divergence, Reversal or Major Correction soon. The end of 5 wave sequence does not always mean reversal
9. When Wave 5 Peak > Wave 3 Peak = this Wave 5 will become a lower degree Wave 3, soon to be extended as part of a developing Wave (3) or (5) of a larger degree