Elliot Wave Oscillator 


The Elliott Oscillator, or 5/34 Oscillator, is a 34 period simple moving average of prices subtracted
from a 5 period simple moving average of prices displayed as a histogram above and below a zero line.
After Elliot's passing, much research and advancement was done on Elliot Wave Theory during the 1950's  1970's by Hamilton Bolton, Robert Prechter, and A.J. Frost. However, the basic concepts of Elliot Wave Theory are outlined below:
● Action is followed by reaction
● The basic Elliot Wave pattern consists of 8 waves which are often labeled as 1, 2, 3, 4, 5, a, b, c
● There are 5 waves in the direction of the main trend followed by 3 corrective waves (a.k.a. "53" count); Waves 1, 3, and 5 are called "impulse" waves while waves 2 and 4 are called "corrective" waves; Waves 15 can be either up or down; Waves a, b, and c correct the main trend and always travel in the opposite direction of waves 1  5.
● A 53 count completes a cycle; this completed count then becomes 2 subdivisions of the next higher 53 wave; The cycles are as follows: The largest wave count is called the Grand Supercycle which consists of Supercycles which consist of Cycles. This process continues into Primary, Intermediate, Minute, Minuette, and Subminuette wave cycles.
● The underlying 53 pattern remains constant, but the time frame required to complete the pattern may vary
Formula:
EWO (i) = SMA(close, 5)  SMA(close, 35)
where
SMA = Simple Moving Average
● The most important single concept about the Elliott Oscillator is that the highest/lowest point of the Oscillator is connected to the bullish/bearish Wave 3 of the swing.
● The highest/lowest value of the oscillator identifies a potential bullish/bearish wave 3
● Wave 4 almost always pulls back to or crosses over the zero line in the opposite direction of the main trend
● Wave 5 usually makes a new high or low price for the swing, but often diverges from the Elliot Oscillator; if Wave 5 makes a new high/low price, but doesn't diverge from the indicator, alternate analysis may conclude that the wave was not wave 5, but instead an extended wave 3.