Enhance Your Stock Trading Strategy And Double Your Returns Using Elliot Wave Analysis
One question every trader should ask before making an investment decision is: What is the overall trend of the market right at this moment? An understanding of Elliott Wave principles can help traders answer this question, and it can give you a confident forecast of whether the market is likely to go up, down or sideways in the immediate future.
The goal of understanding Elliott Wave Theory is to identify whether the market is trending or is in a counter-trend to the major trend. Understanding these patterns can help you to profitably forecast where the market is likely to go next, and position yourself accordingly.
There are three primary elements to Elliott Wave Theory
Pattern – Is the trend currently up or down? Is it in an impulse move or a correction?
Price – When the market has completed an impulse move, how far will it pull back before resuming the trend?
Time – How long will the market continue to trend in its current direction?
A bull or up trend is signaled by a series of higher highs and higher lows, while a bear trend is characterized by a series lower highs and lower lows. These wave patterns can be seen in the market at all time periods ” daily, weekly, monthly, and even on intra day charts.
When a market has a correction, the major support and resistance ratios are at .382, 50% and .618 and 100% of the previous range in both time and price. In other words, if a bull market were trending upwards strongly, you would expect a normal healthy correction to retrace on average 50% of the previous leg up in both time and price.
Small retracements mean strong trends, so for example, if a stock rallies $5.00 in 2 months, you would estimate a ‘normal’ correction would be around $2.50 in roughly 30 days. If the market retraced less than 50%, say .382 in price ($1.91) and time (23 days), then gave you a signal that it was preparing to resume it’s rally, it would put that Stock in a very bullish position for a continued move higher.
As I said, the major importance of understanding the Elliott Wave pattern in the markets you trade is to determine the direction of the dominant trend. We always want to trade with the main trend, and if possible, enter at the end of corrections to the main trend, so we can maximize our profit from the next move. The problem for many people however is this – how do you know the correction is ending and the major trend is resuming?
There are any number of ‘entry triggers’ people use to enter trends – Moving Average crossovers, trend line breaks, higher highs and lows on our Swing Charts, etc. Your main goal as a trader is to find an entry trigger you are comfortable with, something that has a proven history of reliably identifying the beginning of fast moving trends, and then take every signal that system gives you. Once you are in a position, implement a trailing stop loss system that takes you out of your trades when each trend comes to an end.
This is how professional traders beat everyone else, and when you do this too, your trading will become much less stressful and your account balance will have a chance to consistently grow over time.
Processing your request, Please wait....
