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Finance Investing How Understanding Elliot Wave Analysis Can Enhance Your Stock Trading Strategy And Double Your Returns
Finance Investing How Understanding Elliot Wave Analysis Can Enhance Your Stock Trading Strategy And Double Your Returns
| How Understanding Elliot Wave Analysis Can Enhance Your Stock Trading Strategy And Double Your Returns |
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| Written by James P Kupe |
| Thursday, 24 September 2009 09:20 |
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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 correct? 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. The shallower the retracement before the trend resumes, the stronger the trend is deemed to be. As an example, let's say a stock rallies $5.00 in 60 days. You would assume a 'normal' correction to be around $2.50 and take 30 days. If the market retraced only .382 in price ($1.91) and time (23 days), and then gave a signal that it was starting to resume the rally, it would put the Stock in a very strong (bullish) position. 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. When you do that, you'll find your trading becomes much less stressful, you'll have less losing trades, and your account balance will have every chance to grow consistently. About the Author: For a Free stock trading strategy Video revealing a proven trade entry signal that's right up to 77.4% of the time, and will sa simple way you a simple way to predict breakouts in the the Stocks you trade days before they actually occur, visit us at http://www.stocktradingexperts.com Kindly provided by LJ-Marketing.dk You are welcome to use this article on your own website, if you include the link just before this text. |
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