Home > Doc > AlphOmega Elliott Waves 5.5 > Moving Averages, Trend Lines and Other Indicators

AlphOmega Elliott Waves 5.5

Moving Averages, Trend Lines and Other Indicators

In the price window, are three exponential moving averages; the red line uses the closing price of 13 days while the dark yellow line uses the closing price of 55 days and the red line is at 144 days. These three lines called EMA reflect the trend for the short term at 13 days to the long term at 144 days. Exponential moving averages tell you the trend of different cycles.

The crossover of trend lines is the most significant signal in technical analysis. In addition to these lines, there are two horizontal red dotted lines; the top line is at the last peak of the normal (21%) sensitivity while the bottom line is at the last trough of the same. Do not mistake these lines to be support and resistance lines even if they are very close to that. They are significant in that they indicate the point that has to be crossed by the next wave for it to meet the definition of a proper pattern. When the peak or trough does not appear as dotted line, it is because another line is stacked on top of it. Still in the price window, the red horizontal line is the Highlighter for normal (21%) sensitivity. It is a price projection for the wave completing its pattern.

It will show only the most common projection and should not be taken as signal to buy or sell when crossed; it can be used to move your stops. The last indicator in the price window is the automatic trend line usually in blue; if there is no trend it will default to the last trough. The trend line acts as a support or resistance for the price; a crossing of line and price is a significant sign of trend changing.

TIP: Why have trend lines when the tool already exists on MetaStock® toolbar? Because when you are cycling through many graphs, you do not want to place manually the trend lines. AlphOmega has a number of automatic indicators that relieve you of the chore of placing them on a chart; these indicators are also tuned specifically to elliottist needs and their setup will respect accepted technical analysis rules. Among these indicators you have trend lines, pitchfork, price or time projections, Gann angles and Fibonacci cycles.

In the volume window, there is an exponential moving average of the volume for 50 days in dark yellow. The Elliott Oscillator has gray bars that are overlaid without scale. The Elliott Oscillator is the difference between the 5 days EMA of closing price and the 35 days EMA of the same. Obviously, when the bars are positive, we say they are in bullish territory while if they are negative, they are in bearish territory. The next indicator is the Relative Strength Index of the close for 14 days in magenta.

With it, there is also in red the Relative Momentum Index of the close for 20 days, momentum of 5. Both indicators are used to confirm trends, time waves in consolidation periods. Neither is good at picking trend tops or trend bottoms. They provide valuable information on the strength of the move and the direction. The horizontal magenta lines across that volume window show the two thresholds of the RSI at 30 and 70. The last indicator in thin blue is the Dynamic Momentum Index and it requires no parameter. All these indicators are laid without scale to preserve the volume and volume MA scale on the right.

TIP: Be careful when trading waves for which the next order of sensitivity is undefined (The wave number for the next order of sensitivity will appear with a question mark). Being undefined means that a full cycle of waves has not been completed in the available security data. Some securities may never go through a full cycle of the highest order. The danger is that a deeper impulse could be at play than the order being investigated, carrying the price in unexpected zones.

Orders of sensitivity are ranked by their percent of sensitivity where the lowest percentage is the smallest wave pattern and the highest percentage is the largest wave pattern. When we get too many waves or signals, we move to a higher percentage of sensitivity and the reverse, when we don’t get enough waves or signals, we move to a lower percentage of sensitivity.

Next: Triggers

Summary: Index