Tag: elliott wave

What is Elliott Wave Theory and Why Should I Be Interested

Posted on by The INO.com Team

Today we've asked Kenny Mann of Traders day Trading to share his ideas on Elliot Wave Theory and why you should be interested as an investor.

Elliott wave theory suggests that stock market prices tend to ebb and flow in recurring wave like patterns that can enable us to identify high probability trading opportunities. The knowledge gained from recognizing where the market is within one of the wave patterns, can help us to stay in a trade longer so as to maximize profits, whilst also ensuring that we know when to get out, if the market should turn against us.

What is Elliott Wave Theory?

For most people with even a passing interest in stock markets and trading, the name Elliott is usually a very familiar one. Ralph Nelson Elliott was a well respected accountant who through ill health, had a lot of free time on his hands and spent much of it studying the stock market. It was the 1930’s and a particularly interesting time in the markets. Continue reading "What is Elliott Wave Theory and Why Should I Be Interested" →

Fundamental Analysis or Technical Analysis

Posted on by The INO.com Team

Today's guest post is from our friends at the Benzinga News Desk. Today they are going to ponder the age old question of fundamental or technical analysis and discuss the Elliot Wave Principle. Be sure to comment below with your own thoughts and learn more about the Benzinga News Desk here.

Investors and traders have been arguing for the longest time about which overarching strategy is king: fundamental analysis or technical analysis. Long-term investors believe that technical analysis is trash and nothing more than lucky betting, while short-term traders think that fundamental aspects of companies and economies do not matter for short-term price movement. Continue reading "Fundamental Analysis or Technical Analysis" →

"Saturday Seminars" - Trading the Pankin Strategy for 30% Annual Gains & Low Risk

Posted on by lindsay

Could you use a purely mechanical timing formula that has produced 30 percent gains a year since 1986 with strictly controlled risk? Nelson teaches you everything you need to trade the Pankin Sector Fund Strategy for exceptional profits and reduced risk. The Pankin Strategy trades Fidelity Select sector funds. Sector funds tend to trend more consistently than individual stocks or commodities and produce unusually reliable trading patterns. If you had traded this simple yet powerful system over the past twelve years, you would have outperformed 99 percent of all CTAs. The Pankin Strategy takes just a few minutes each week to update, uses straightforward logic and works for virtually any size account.

The Pankin Strategy has a superb hypothetical track record — 35 percent annual gains since 1986 (real-time performance has been just as strong). However, the original strategy requires withstanding drawdowns most individual traders find unacceptable. Money manager Mark Pankin, developer of the system, posted returns of 57 percent in 1995 and 45 percent in 1996 but the drawdowns sometimes represented as much as 25 percent of total equity.

To better gauge the risk, Nelson tests the Pankin Strategy over a wider range of market conditions. In this workshop, he simulates Pankin trading back to 1970 (considerably longer than the Fidelity Select sector funds have actually been traded). You will see that the original strategy would have generated reassuringly strong profits throughout the past twenty-eight years but with frequent and often punishing equity drawdowns (the maximum equity dip would have been an unacceptable 45 percent).

To help curb the risk, Nelson introduces you to a variety of defensive tactics he uses along with the original Pankin Strategy. As he adds risk-control measures, you will observe a powerful trading system unfold. To insure that the evolving system is theoretically sound, he tests the findings across multiple portfolios, time frames and signals. The resulting variant of the Pankin Strategy has gained 30 percent a year since 1986 with just 12 percent drawdown!

Central to this final comprehensive trading system is a filter Nelson uses to confirm Pankin signals. He demonstrates how this indicator is almost certain to capture every major stock market trend. With this and other defensive measures, you will trade the Pankin Strategy more confidently to achieve aggressive profits with limited risk.

Building a Mechanical Trading System from the Ground Up (1996).

Testing is a critical area often neglected by technicians and traders. Nelson clearly demonstrates the ease with which testing can be performed given today’s sophisticated workstations and high-performance computers. The testing power that these tools provide is now readily accessible to all traders and managers.

Nelson describes the process of building a mechanical trading system, providing concrete examples of high-return/low-risk strategies for a range of markets. Nelson also shares his favorite high-performance trading systems tested on TradeStationTM. The code (which is given to you) and methods Nelson uses are clearly stated and can be translated for use with many other popular software systems.

PDF Workbook

Nelson FreeburgNelson Freeburg is editor of Formula Research, a monthly financial letter that builds systematic timing models for the futures, fixed income, cash, and stock markets. Nelson took up trading while pursuing a Ph.D. at Columbia University. Totally absorbed by the financial markets, Nelson left academia. He decided to let the markets, rather than the university, provide his education. He began publishing Formula Research in 1991 in order to share his findings with a small nucleus of professional traders. Today, Formula Research serves hundreds of money managers and serious researchers in the cash and futures markets. Nelson’s subscribers include many of the leading names in global trading and finance. Nelson initially confined his research and trading to chart signals. When overall results proved poor, he began to examine point and figure, Elliott Wave, Market Profile, candlestick analysis, and an assortment of other technical theories. Nelson considers all of these methods deficient in their application because of their reliance on subjective judgement. In particular, Nelson feels that chart patterns become elusive in fast-paced, highly leveraged markets (such as cash foreign exchange) and that the clear buy and sell signals illustrated in textbooks rarely appear as clearly and reliably in practice. To address these shortcomings, Nelson began testing the theories of leading technicians as well as his own theories against an extensive historical database covering a broad variety of traded market items. Nelson uses the financial database he built, which reaches back into the last century, to test systems in which he can examine clearly defined and precise mechanical buy and sell signals, devoid of subjectivity. Using these objective standards, Nelson can rigorously evaluate complex system features. Additional rules, such as the user’s profit targets and stop orders, or mental stop points, can further strengthen this testing process. As a result of his research, Nelson has developed an impressive number of advanced trading systems.

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Saturday Seminars are just a taste of the power of INO TV. The web's only online video and audio library for trading education. So watch four videos in our free version of INO TV click here.

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A Trading Pattern For The Impatient Or Time Sensitive Trader

Posted on by The INO.com Team

I'm pretty sure many of us fall into the category of impatient trader. I am guilty as charged! I'll spare you the details of the trade but put it this way if I would have held I would have made 15 times my money. Hey I did make 2 times my money so I can't complain...but my impatience got the best of me.

I've asked Dean from ATradersUniverse.com to give us his insight on how to deal with being impatient. ENJOY!

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Your major focus in trading should the softer side of trading, the business and psychological side of it; the harder side which relates more to the technical side is a secondary thought, however in this article I am combining the two because one of my favourite patterns is an ideal pattern for the impatient trader who does not like to hold on to trades for too long.

Impatience is not a good trait to have in the markets when trading or investing. It breeds laziness when it comes to research, planning and analysis, it causes some to exit trades too early, and it causes other’s to constantly monitor their positions. To add to this, trades that linger on can incur costs such as time premium erosion for options traders, and interest costs for CFD traders or stock traders using margin, to name a couple.

Weaknesses are a part of human nature; your job is to ‘manage’ them, not to try and eliminate them or even turn them into strengths. We were brought up to take our weaknesses and try and turn them into strengths which I believe is the wrong approach. Build on your strengths and manage your weaknesses is the best motto I ever heard.

Some traders who don’t like to be in trades for too long will use an exit strategy that will force them out of the trade if the particular stock or market consolidates and moves sideways for a few days, which is a good strategy. Let’s look at an entry technique which is the trading pattern for the impatient trader.

This pattern signals a turning of the market. It does not necessarily signal a top or bottom, it will sometimes just signal a correction, either way; it tells you that a swift and sharp move the other way is imminent, and usually enough to give a good reward to risk. The emphasis here is ‘swift and sharp’, because this is what the impatient trader is looking for.

The pattern unfolds in 5 waves with the highs and lows of the waves overlapping each other to the point where the 5th wave ends in a spike. Here is a diagram showing what to expect at the end of a run up, and the end of a run down.

This is what you need to see and how to trade it:

1. You join the highs of wave 1 and 3 together, and the lows of wave 2 and 4 together if in an up market, and these lines need to converge [or lows of waves 1 and 3, and highs of waves 2 and 4 if in a down market].
2. You want the high of wave 5 to break the upper line and spike [low of wave 5 to break lower line and spike].
3. The break of the lower line is your entry [the break of upper line is your entry].
4. Your stop goes on the other side of the 5th wave.
5. You want your exit or your first profit target to be within the range between the low of wave 1 and wave 2.
6. You shouldn’t take the trade if this range does not offer you at least a reward to risk ratio of 1:1, however this is obviously a personal choice

This is an example that occurred on the SP500 index in July 2008 on a 30 minute chart.

Elliott Wave users will be familiar with this pattern, known as an ending, leading and 5th wave diagonal; others may know it as three drives pattern, and others may just say it’s a wedge pattern.

The point I wanted to make in this article, so as to benefit you is that when these patterns occur they produce swift and sharp moves and this is an obvious benefit to those who don’t like spending too much time in the markets, whether it’s due to being impatient or because of trading instruments that are time sensitive.

Here's a challenge
Who can tell me a currency (or forex pair) where this pattern has occurred very recently?
Here's a clue; the pattern took months to form and only weeks to retrace.

Dean is the owner of ATradersUniverse.com , a resource and education site for traders. He also has a trading system development program which you can find here PentagonalTrading.com.

Dean has also been researching the mind and why traders self sabotage after seeing his parents win the lotto only to lose it all and more. He is giving away a free portion of his ebook discussing the science behind why we fail to succeed, which you can download here:

http://www.atradersuniverse.com/RMFSGiftMC.pdf

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Traders Toolbox: Elliott Wave Theory

Posted on by lindsay

MarketClub is known for our “Trade Triangle” technology. However, if you have used other technical analysis indicators previously, you can use a combination of the studies and other techniques in conjunction with the “Trade Triangles” to further confirm trends.

Elliott Wave Theory categorizes price movement in terms of predictable waves. Beginning in the late 1920s, R.N. Elliott developed his own concept of price waves and their predictive qualities. In Elliott theory, waves moving with the trend are called impulse waves, while waves moving against it are called corrective waves.

Impulse saves are broken down into five primary price movements, while correction waves are broken down into three. An impulse wave is always followed by a correction wave, so any complete wave cycle will contain eight distinct price movements. Breaking down the primary waves of the impulse/correction wave cycle into subwaves produces a wave count of 34 (21 from the impulse wave plus 13 from teh correction wave), producting more Fibonacci numbers.

Elliott analysis can be applied to time frames as short as 15 minutes or as long as decades, with smaller waves functioning as subwaves of larger waves, which are in turn subwaves of still larger formations. By analyzing price charts and maintaining wave counts, you can determine price objectives and reversal points.

A key element of Elliott analysis is defining the wave context you are in: Are you presently in an impulse wave uptrend, or is it just eh correction wave of a larger downtrend? The larger the time frame you analyze, the larger the trend or wave you find yourself in. Because waves are almost never straightforward, but are instead composed of numerous subwaves and minor aberrations, clearly defining waves (especially correction waves) is as much an art as any other kind of chart analysis.

Fibonacci ratios play a conspicuous role in establishing price objectives in Elliott theory. In an impulse wave, the three principal waves moving in the direction of a trend are separated by two smaller waves moving against the trend. Elliotticians often forecast the tops or bottoms of the upcoming waves by multiplying previous waves by a Fibonacci ratio. For example, to estimate a price objective for wave III, multiply wave I by the Fibonacci ratio of 1.618 and add it to the bottom of wave II for a price target. Fibonacci numbers are also evident in the time it takes for price patterns to develop and cycles to complete.