How Understanding Elliot Wave Analysis Can Enhance Your Stock Trading Strategy And Double Your Returns
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.
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 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 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.
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.
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 dozens of 'entry triggers' you can use to enter trends - trend line breaks, Moving Average crossovers, higher highs and lows on our Swing Charts, etc. Your most important goal as a trader is to decide on an entry trigger you are comfortable with, something that has a proven history of reliably finding the beginning of fast moving trends. When you do, take every signal your system gives you. And always remember - as soon as you have entered a trade, implement a trailing stop loss system that removes you from 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. - 23199
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 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 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.
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.
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 dozens of 'entry triggers' you can use to enter trends - trend line breaks, Moving Average crossovers, higher highs and lows on our Swing Charts, etc. Your most important goal as a trader is to decide on an entry trigger you are comfortable with, something that has a proven history of reliably finding the beginning of fast moving trends. When you do, take every signal your system gives you. And always remember - as soon as you have entered a trade, implement a trailing stop loss system that removes you from 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. - 23199
About the Author:
For a Free the Stocks you trade trading strategy Video revealing a proven trade entry signal that's right up to 77.4% of the time, and sa simple ways you a simple way to position yourself breakouts in the the Stocks you trade up to 4 days before they actually occur, visit http://www.stocktradingexperts.com
posted by X - Men @ 5:58 AM
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