3rd Wave

The 3rd Wave indicator identifies potential Elliott Wave 3 expansion opportunities by detecting specific zigzag retracement patterns and optional volume confirmation.

Usage

The Usage section focuses on identifying the powerful "third wave" in Elliott Wave Theory, which is typically the longest and strongest move in a five-wave sequence. It can also identify 3rd-wave components within waves 1, 5, A, or C.

The tool functions by monitoring price action for a completed Wave 1 and Wave 2. Once the price breaks the extreme of Wave 1, the indicator signals a potential Wave 3 breakout. Users can utilize the built-in target levels—calculated based on the length of Wave 1 projected from the start of Wave 2—to manage exits.

Volume Confirmation

By enabling the "Check Volume Support" setting, the script compares the relative volume of the emerging trend. A valid 3rd wave signal will only trigger if the current volume shows increasing momentum compared to the preceding waves, providing a filter against weak breakouts.

Details

The script utilizes a specialized ZigZag library to track price swings and identify pivot points. To qualify as a potential 3rd wave, the relationship between Wave 1 and Wave 2 must fall within a specific Fibonacci retracement range (e.g., Wave 2 retracing 38.2% to 78.6% of Wave 1).

The construction involves:

• ZigZag Logic: Determining the highs and lows used to define wave structures.
• Retracement Validation: Ensuring Wave 2 does not exceed the start of Wave 1 and meets the user-defined minimum depth.
• Breakout Detection: Monitoring when price closes beyond the Wave 1 pivot to confirm the start of the 3rd wave.
• Targets: Fibonacci extensions (1.0, 1.618, 2.618, etc.) are plotted horizontally from the Wave 2 origin to provide logical profit-taking zones.

Settings

Setup

• ZigZag Period: The lookback length used to calculate the highest highs and lowest lows for the zigzag waves.
• Min/Max Retracements: Sets the required retracement depth for Wave 2 relative to Wave 1.
• Check Volume Support: When enabled, requires the 3rd wave volume to be greater than the volume of waves 1 and 2.

Targets

• Target 1–4: Enable or disable up to four horizontal price targets.
• Target Multipliers: Set the Fibonacci or decimal multiplier of Wave 1 length used to calculate targets.

Colors

• Show Wave 1 and 2: Toggles the visibility of the internal wave structure lines and labels (0, 1, 2).
• Zone: Displays a shaded box between the pivot of Wave 1 and Wave 2 during a breakout.
• Zig Zag: Displays the underlying zigzag lines used for calculations.
• Up/Down Colors: Customizes the visual appearance of bullish and bearish signals.

FAQ

How do I interpret the targets? Targets are calculated by taking the price distance of Wave 1 and projecting it from the start of Wave 2 using your chosen multipliers (e.g., 1.618).

Why is a breakout signal not appearing at every swing? A signal only appears if the retracement of Wave 2 falls within your Min/Max settings and price successfully breaks the Wave 1 high/low. If Volume Support is on, the volume trend must also be positive.

How can I access this script? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.