The indicator is based on TD D-Wave developed by Thomas .
Therefore, its approach is derived from the theory and may slightly diverge from the cardinal rules of .
are useful as you can apply them to any market or time frame, regardless of the underlying of the instrument in question.
MATHR3E WAVES indicator can provide a roadmap of market direction that you can use to determine price targets and isolate exhaustion points from potential trends in conjunction with other indicators.
It is based on relative price action, so you can apply it without having to change any of the default settings.
Principle of the 1930’s Theory
Movement in the direction of the trend is unfolding in 5 waves (called motive wave) while any correction against the trend is in three waves (called corrective wave). The movement in the direction of the trend is labeled as 1, 2, 3, 4, and 5. The three-wave correction is labeled as a, b, and c. These patterns can be seen in the long term as well as short term charts.
Wave one is rarely obvious at its inception. When the first wave of a new bull market begins, the fundamental news is almost universally negative. The previous trend is considered still strongly in force. Fundamental analysts continue to revise their estimates lower; the economy probably does not look strong. Sentiment surveys are decidedly , put options are in vogue, and implied in the options market is high. might increase a bit as prices rise, but not by enough to alert many technical analysts.
Wave two corrects wave one, but can never extend beyond the starting point of wave one. Typically, the news is still bad. As prices retest the prior low, sentiment quickly builds, and "the crowd" haughtily reminds all that the bear market is still deeply ensconced. Still, some positive signs appear for those who are looking: should be lower during wave two than during wave one, prices usually do not retrace more than 61.8% of the wave one gains, and prices should fall in a three-wave pattern.
Wave three is usually the largest and most powerful wave in a trend. The news is now positive and fundamental analysts start to raise estimates. Prices rise quickly, corrections are short-lived and shallow. Anyone looking to "get in on a pullback" will likely miss the boat. As wave three starts, the news is probably still , and most market players remain negative; but by wave three's midpoint, "the crowd" will often join the new . Wave three often extends wave one by a ratio of 1.618:1.
Wave four is typically clearly corrective. Prices may meander sideways for an extended period, and wave four typically retraces less than 38.2% of wave three. is well below that of wave three. This is a good place to buy a pullback if you understand the potential ahead for wave 5. Still, fourth waves are often frustrating because of their lack of progress in the larger trend.
Wave five is the final leg in the direction of the dominant trend. The news is almost universally positive and everyone is . Unfortunately, this is when many average investors finally buy-in, right before the top. is often lower in wave five than in wave three, and many momentum indicators start to show divergences (prices reach a new high but the indicators do not reach a new peak).
Corrections are typically harder to identify than impulse moves. In wave A of a bear market, the fundamental news is usually still positive. Most analysts see the drop as a correction in a still-active bull market. Some technical indicators that accompany wave A include increased , rising implied in the options markets, and possibly a turn higher in open interest in related markets.
Prices reverse higher, which many see as a resumption of the now long-gone bull market. Those familiar with classical may see the peak as the right shoulder of a reversal pattern. The during wave B should be lower than in wave A. By this point, fundamentals are probably no longer improving, but they most likely have not yet turned negative.
Prices move impulsively lower in five waves. picks up, and by the third leg of wave C, almost everyone realizes that a bear market is firmly entrenched. Wave C is typically at least as large as wave A and often extends to 1.618 times wave A or beyond.
- Fix: Algorithm improvement
- New: Temporize parameters replaced by Onset parameters for each wave
- New: Color parameters
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