Elliott Wave Indicator : Download FREE with video Guide (MT4/MT5)

The Elliott Wave indicator for MT4 is one of three Elliott Wave indicators, the other two being the Elliott Wave Oscillator and the Elliott Wave Numbers. Furthermore, Developed by Ralph Nelson Elliott in the 1920s and 1930s, it enables forex traders to apply Elliott Wave theory to forex trading.

In this guide, we will explain the Elliott Wave indicator for MetaTrader 4 and 5. We will learn what it is, how it works, and how to use it for forex trading.

Elliott Wave Indicator FAQ

video Guide

What is elliott wave indicator ?

The Elliott Wave indicator is widely regarded as the most effective tool for identifying and counting waves. Furthermore, wave counting enables Forex traders to pinpoint bullish and bearish trends, as well as the most opportune entry and exit points. Also, Its ability to automatically calculate waves makes it valuable for both novice and experienced traders. The Ew strategy, a theory developed by Ralph Nelson Elliott, assists traders in deciphering the cyclical nature of financial markets. This theory aids Forex traders in forecasting market trends by analyzing price extremes and investor psychology via Metatrader Platform.

Impulsive and Corrective Elliott Waves Chart showing the five-wave impulsive phase and the three-wave corrective phase in a market trend.

What are the type of elliot waves ?

Elliott Wave theory is the most widely used form of technical analysis. It elucidates the inherent rhythm of Forex investor psychology, as manifested in the the indicator. Ew theory posits that crowd trading behavior ebbs and flows like waves in the sea, driving market prices to follow a similar pattern. Consequently, based on these fluctuations in price movements, Elliott devised a specific wave structure comprising five motive waves and three corrective waves, which is represented by an indicator.

Motive waves

Motive waves move in the direction of the market trend and consist of five waves sequence, which set the trend and is numbered from 1 to 5. Waves 1, 2, and 3 shift in the direction of the market trend, while waves 2 and 4 shift in the opposite direction. There are 2 kinds of motive waves: diagonal waves and impulsive waves.

Corrective waves

Corrective waves contradict the main trend. Moreover, they are more complicated and time-consuming than motive waves. Consists of three waves that retrace the trend, and are marked as a, b and c.

There are three types of corrective waves, which are ZZ, Diagonal, and triangle.

Chart showing the three-wave corrective phase in Elliott Wave Theory, depicting the typical A-B-C pattern in a market trend.

Motive waves shift in the direction of the market trend. In an uptrend, increasing waves are named impulsive waves, while falling waves are named corrective waves. Instead, in a downtrend, falling waves are named impulsive waves, and increasing waves are named corrective waves via this indicator.

The 5-3 pattern stays constant nevertheless of its timeframe. Any impulse wave composes 5 motive waves in a shorter timeframe. Besides, any corrective wave comprises 3 corrective waves in a shorter timeframe.

How to Identify them?

1. Impulse

Impulse is the most familiar and the easiest to pinpoint in the Forex market. It has 5 sub-waves: 3 motive waves and 2 corrective waves and labelled as a 5-3-5-3-5 structure.

Moreover, to form an impulsive wave there are 3 rules:

  • Wave two cannot correct more than 100% of wave one.
  • And, Wave three can never be the shortest of the three waves: 1, 3, and 5.
  • Also, wave four can never overlap wave one.

2. Diagonal

Diagonal similar to all motive waves, consists of 5 sub-waves and moves in the same path of the trend. It looks like a wedge that can expand or retract. Moreover, the sub-waves might not contain 5 waves. That depends on the type of observed diagonal.

Each sub-wave of the diagonal wave does not totally correct the prior sub-wave. And sub-wave three is not the shortest wave. 

Diagonal can be split into the ending and leading diagonals. The ending diagonal generally happens in wave Five of an impulsive wave or the last one of corrective waves. While the leading diagonal is located in wave one of an impulsive wave or wave an of a ZZ correction.

3. ZZ wave

A ZZ wave is a corrective wave that consists of three waves labeled as a, b, and c that move extremely up or down.

The a and c are motive waves while the b is a corrective wave.

Moreover, ZZ patterns are sharp drops in a bull rally or rises in a bear rally that rectify the price level of the prior impulse patterns.

4. Triangle

Triangle is made up of 5 sub-waves in the form of a 3-3-3-3-3 structure and labeled as a-b-c-d-e. It shows a balance of forces and moves sideways.

In fact, The triangle can be contracting in the form of a wedge or expanding and each of the sub-waves gets bigger.

These triangles can also be classified as symmetrical, descending, or ascending whether they are telling sideways: up with a flat top, or down with a flat bottom. 

5. Flat  

The flat is a 3-wave correction in the form of a 3-3-5 structure and is labeled as an a-b-c structure.

In this type of EW, a and b waves are corrective waves and c is a motive wave that possesses 5 sub-waves.

Moreover, it is named flat because it moves sideways. Generally, wave 4 is flat, while wave 2 does not always do that.

How to trade with this indicator ?

Elliott wave indicator is a kind of oscillator indicator for MT4. It Possesses similar parameters to MACD. Which explains the similar look. You can use the EW MT5 indicator in 3 different ways. The first way is like the most common oscillators with histograms such as the moving average convergence divergence (MACD) to determine the movement and follow it. In this method, you consider the zero line as the centerline in which you can do comparisons and interpretations. Whereby the peaks above the zero line are considered bullish, while peaks below the zero line are considered bearish.

The second way like all oscillators indicators, is trading divergences. However, not only the divergences can be traded as a standalone. They can also create a bias to the general wave cycle, which is connected with the third method.

The method is more complicated, which aligns more with the Elliott Wave theory and which you can trade with.

How does it work?

Besides the three rules that must be true at all times. Elliott put some guidelines that you must follow: 

  1. When wave three is the longest impulse wave of the motive waves, wave five is about equal to wave one.
  2. The shapes of wave two and wave four alternate. When wave two is a sharp correction, then wave four will be a flat correction. And vice versa.
  3. After a wave motive sequence numbered from 1 to 5, its 3-wave corrective sequence frequently ends in the zone of the previous wave four low.

In this course, we only mentioned three of them.

EW theory depends on an accurate wave count. If any of the 3 rules don’t work at any moment, you need to begin a new count. In addition, even with precise counts, you need to re-assess and adjust counts every time a new price appears. Also, deciding where one wave ends and a new one starts is a personal thing.

Elliot wave indicator for MT5 help to determine when the price movement changes its direction in the market to form an Elliott wave pattern. This will be achieved by evaluating if the computed Elliott wave value responds to the requirements at which the price trend changes its direction or not. These values are computed automatically.

Conclusion

The Elliott wave indicator for MT5 or MT4 is an effective tool that facilitates the wave count and allows forex traders in determining the best buy and sell entry points. However, traders should use another MT4 technical indicator like the spread indicator to confirm the beginning and end of the waves. So by using this indicator, no more wasting time trying to count Elliott waves rightly because it automatically counts waves for you.

Advertisement