How Understanding Elliot Wave Analysis Can Enhance Your Stock Trading Strategy And Double Your Returns
Something all investors should consider before to making an investment decision is this: What is the current trend direction of the market right now? A working knowledge of Elliott Wave analysis can help to answer this question. By understanding the waves, we can often confidently know if the market is most likely to go up, down or sideways.
A good reason to take the time to understand Elliott Wave Theory is that it can help you to identify whether the market is trending, or is it in a reaction to the current trend. Understanding these patterns of market behavour can help you to accurately forecast where the market is likely to go next, and position yourself accordingly.
There are three important elements to Elliott Wave Theory
Pattern - Is the market currently trending up or down? Is it in an impulse wave or a corrective wave?
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 market or up trend is signaled by a series of higher highs and higher lows, while a bear market or trend has a series lower highs and lower lows. You can see these wave patterns in the market over all time periods - daily, weekly, monthly, and if you are a short term trader, even on intra day charts.
When a market corrects, the major support and resistance ratios are .382, 50%, .618 and 100% of previous ranges in both time and price. In other words, if the market were trending strongly, you would expect a correction to retrace on average 50% of the previous leg up in both time and price, but it can be more or less.
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.
The major importance of understanding the Elliott Wave pattern for traders in the markets you watch 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. But here's the problem - how do you know the correction is ending and the major trend is resuming?
There are any number of 'entry signals' traders use to enter trends - watching for higher highs and lows on our Swing Charts, entering on a Moving Average crossover, trading trend line breaks or new highs (or lows), etc. Your critical goal as a trader is to find an entry trigger you are comfortable with, something that has reliably identified the resumption of fast moving trends, and then take every entry signal that system gives you. Once you have found your signal and entered a trade, 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. - 23229
A good reason to take the time to understand Elliott Wave Theory is that it can help you to identify whether the market is trending, or is it in a reaction to the current trend. Understanding these patterns of market behavour can help you to accurately forecast where the market is likely to go next, and position yourself accordingly.
There are three important elements to Elliott Wave Theory
Pattern - Is the market currently trending up or down? Is it in an impulse wave or a corrective wave?
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 market or up trend is signaled by a series of higher highs and higher lows, while a bear market or trend has a series lower highs and lower lows. You can see these wave patterns in the market over all time periods - daily, weekly, monthly, and if you are a short term trader, even on intra day charts.
When a market corrects, the major support and resistance ratios are .382, 50%, .618 and 100% of previous ranges in both time and price. In other words, if the market were trending strongly, you would expect a correction to retrace on average 50% of the previous leg up in both time and price, but it can be more or less.
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.
The major importance of understanding the Elliott Wave pattern for traders in the markets you watch 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. But here's the problem - how do you know the correction is ending and the major trend is resuming?
There are any number of 'entry signals' traders use to enter trends - watching for higher highs and lows on our Swing Charts, entering on a Moving Average crossover, trading trend line breaks or new highs (or lows), etc. Your critical goal as a trader is to find an entry trigger you are comfortable with, something that has reliably identified the resumption of fast moving trends, and then take every entry signal that system gives you. Once you have found your signal and entered a trade, 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. - 23229
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posted by X - Men @ 5:58 AM
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