Enhance Your Stock Trading Strategy And Double Your Returns Using Elliot Wave Analysis
One question on the mind of most of us prior to making an investment decision is: What is the overall trend direction of the market right now? An understanding of Elliott Wave analysis can help us answer this question. It can often tell us if the market will most likely go up, down or sideways.
Elliott Wave Theory can help traders to identify whether the market is currently trending, or is in a counter-trend or reaction. Understanding these wave patterns can help you to forecast accurately where the market is likely to go next, and take a position accordingly.
There are three important 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 retrace?
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 any market corrects, the major support and resistance ratios are .382, 50% and .618 and 100% of it's previous ranges. And it's important to remember that these reactions can be measured in both time and price. So if a bull market were trending strongly, you would expect an average correction to retrace around 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.
When you have a proven system for identifying, entering and exiting trades, you'll find your trading much less stressful and your account balance will start to grow consistently. - 23208
Elliott Wave Theory can help traders to identify whether the market is currently trending, or is in a counter-trend or reaction. Understanding these wave patterns can help you to forecast accurately where the market is likely to go next, and take a position accordingly.
There are three important 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 retrace?
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 any market corrects, the major support and resistance ratios are .382, 50% and .618 and 100% of it's previous ranges. And it's important to remember that these reactions can be measured in both time and price. So if a bull market were trending strongly, you would expect an average correction to retrace around 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.
When you have a proven system for identifying, entering and exiting trades, you'll find your trading much less stressful and your account balance will start to grow consistently. - 23208
About the Author:
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posted by X - Men @ 5:57 AM
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