The wave chart is more complicated than a zig zag.
A wave chart is like a modernised version of a Point and Figure chart.
If your charting software will do Point and Figure charts, and you can also place volume on the chart, it is almost as good.
Sadly, most charting software can not do PnF combined with volume.
A Point and Figure chart can have the 'reversal' set for any size,
The wave size on the wave chart is also completely variable, it can be set at any size.
The reversal or wave size is the minimum that price needs to move (in either direction), before the wave can reverse and move in the other direction.
This means that a wave will keep going in one direction, no matter if price is moving up or down, until the wave size is exceeded, then when price moves in the other direction, a new wave will begin.
So for instance, a micro cap stock may need a wave size of half a cent (0.005), whereas a larger cap stock may need a 10 cent, twenty cent or 50 cent wave on it (put a 50 cent wave over a micro cap, and it would just be a angled line, because price may not have even moved by 50 cents).
So the wave size can be adjusted to best fit the price action, and with a good fit, the 'story' the chart is telling may be revealed.
See below for the XJO with some different sized waves.
XJO 3 point wave - which is a little too small, pretty much every movement has a wave, and is not clearly telling a story.
Below is the current XJO chart, with a 15 point wave over it - i generally find a 12 to 15 point wave suits the XJO well.
This chart easily shows the 'power' of individual wave movements that can be compared to other waves, and also shows the smaller 'no supply' and 'no demand' waves quite clearly.
XJO 75 point wave - which is too large, it doesn't even properly show each wave.
There is a download for this chart on this thread (scroll up - it is somewhere up there ^^), and can be used so long as you have data to put into it.
