The Elliot Oscillator is simply the difference of a 5-periods simple moving average and a 34-periods simple moving average.
The Elliott Oscillator measure the rate of change of one wave compared to the Rate of change of another. Essentially the Elliot Oscillator plots the difference of a 5-periods simple moving average and a 34-periods simple moving average on the chart as a histogram with a middle zero line.
The Elliott Oscillator on the EUR/USD Daily chart from Sept. 2010-March 2011
Source: VT Trader
The most important Elliot Oscillator interpretations are:
* The highest/lowest value of the oscillator identifies a the most dynamic wave and thus potential bullish/bearish wave 3
* Wave 4 should pull back to or cross 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 is typically in divergence to the Elliot Oscillator; if Wave 5 makes a new high/low price, but doesn’t diverge from the indicator. Alternatively, the lack of divergence can be used as a reason to suspect that the wave was not wave 5, but instead an extended wave 3.
