Today I present you with my Elliott Wave Analysis of Raytheon Co. Use these Elliott Wave Charts to learn how to anticipate market turns. It is possible for a careful trader to sit patiently and wait for great opportunities like these. The mistake most of us make is we get impatient, both to enter the market and to take profits. To make it worse, we are willing to wait for ever to cut a loss-making trade because we become hopeful that the market will come back to our breakeven rate! We do all this even though we know we shouldn’t be doing it. That is human nature. To control such behavior you need either someone else to tell you when to get out, or have an iron will and discipline to follow your own rules. Good luck.
Well, it is about 3 weeks since my last post here, and many of you must be wondering if I have forgotten you! Of course not. WaveTimes will always be around as long as I am. The paid service has been keeping me busy as well. And during January, I made a quick trip to India to attend the wedding of my friend’s son…..
Anyway, here I am, boldly sharing with you a trade that went wrong in the paid service. First, read the trade idea carefully, and then let us figure out what went wrong.
The trade was first posted on 6 Jan 2013 as follows:
Sometimes we arrive at a fork in the road. We can see clearly both the roads beyond, but we don’t know which one to take. Elliott Wave analysis of Micro Technologies India Ltd has brought us to such a fork. We have either completed a 3rd wave that traveled 161.8% of the first wave, or we have completed an extended 5th wave. The implications are profound. If an extended fifth wave has been completed at the Rs 38 level, we should soon be on our way to wave ii of the fifth, and this comes at the Rs66 level. On the other hand, if we have just seen a 4th wave unfold as a triangle, we should look for one more move down and then a recovery. What should we do?
15 Jan 2013 update
MICT came to a low of 41.60 today. As your stop is below 38, at this level you are risking less than Rs 4 per share. I am considering we are all LIVE on this trade. Will post an update when a clear move happens on either side.
(Then on 26 Jan, we bit the bullet)
26 Jan 2013 update
We have been stopped out on this trade, losing around Rs 4 per stock. Thankfully, we had kept the position small because we were forewarned that although the returns were attractive if it worked, there was a clear possibility of the count being wrong, and that we could go down all the way to below Rs 32. There is no doubt that some of you are disappointed, and perhaps this is a good time to consider if this service is really for you. Please be aware that professional traders take small losses quite regularly because when they win, it more than adequately compensates for the small losses. However, in order to survive for the big day, you need to keep your trade size reasonably small. No single loss should upset you too much. If this is not the case, then trading is not for you! Most beginning traders give up because they trade too big a position hoping to strike it rich quickly. Unfortunately, in the real world, such notions are pure fiction.
Let us remain optimistic. Our Nifty Trade was a clear winner and there will be many such opportunities going forward
NOw what do you think we did wrong? Unless you are an arm chair analyst, you will realize that we were following a plan. We had identified the opportunity and the risk associated with it. We knew how much to risk, and when to get out. Only Elliott Waves give these advantages, the edge.
Now that the S&P500 has entered the 1435-1450 window that I had discussed in my Forbes article, it is natural that we ask ourselves what next for the index. I thought maybe this is a good time to spell out my approach to the markets again. Elliott Wave analysis is a great tool to have in your armory if you know how to use it. Some of us are under the illusion that Elliott Waves will give all the answers to our problems (the main one being our craving to know in advance where the market will turn). The truth is (and I have no hesitation in admitting this) no one knows the future. Can I be wrong about the anticpated turn in the 1435-1450 window? Of course! Does that make all the charts (and my interview on Forbes) utterly useless? Of course not. The key point we have to learn is this. Have a model on which to base your trades. Then get into the market at key levels. When the odds are highly in your favor, you should risk real money. Elliot Waves gives you that opportunity. For example, in my most recent update I had suggested that we will get a dip below 1400 and then rally to 1435-1450.
The prospect of something bitterly disappointing in terms of news flows was quite remote at that point in time. So there was a low-risk trade below 1400. However, as we enter the window where a turn was anticipated by my analysis, the odds for a continuation of the rally seems to be better than an about turn. In such a situation, we have to be cautious. Even if the market does make an about-face in the next few sessions, the bulls are not going to give up without a fight. So we will very likely get a full re-test of the highs from which any such about-face happens. In these circumstances, it is to our benefit that we remain patient and watch the market developments with interest. Never get into a trade while the odds are not yet moving markedly in your favor.
Now a few words about the value of Elliott Wave analysis even if one is going to be wrong. While the market was recovering from the lows at 1267, Elliott Waves told us to look for a 3-wave recovery before a possible sell off. Then, as the market developed, and not too far away from the lows, I pointed out that we are very likely going to get a full test of the highs (which at that time was still 1422). ANd further out, I came up with a diagonal triangle scenario that suggested we will travel to 1435/1450. AT every stage, if one were persistently bearish, he would have refrained from selling until a better level was seen! However, this trader who remained a bear would have missed buying on dips. Without a question, that was an opportunity loss. But this trader was still following his model. There could have been short-term low risk trades that a bolder trader could have made (for example, the move from 1396-1435) but in general, the value came from being faithful to your model. The persistent bear would strike it rich at some point because he is following a model. Not because he is clever, but because he has a method. That, dear reader, is the lesson that we all have to bear in mind. Use Elliott Waves to tarde the market, not to showcase we are brilliant at counting. Good luck.
PS. The bearish counts on the S&P are still not negated by the way
If you are looking to learn how to use fibonacci ratio retracements, you have come to the right spot. A few years back I read a book by Constance Brown – “Technical Analysis for the Trading Professional”. She made a very good point on how the ‘theorist’ among technical analysts would, incorrectly, choose the extremeities of a move to draw fibonacci retracements.
Choosing the right place to draw fibonacci ratio retracements could mark the difference between success and failure in trading decisions.
Such an approach would often result in their missing a good move because the market falls just short of their ideal retracement levels. The practising professional would spend a few extra minutes to see what were the pressure points in recent history and choose to ignore the spikes that shows up ever so often. Why make the same mistake as some poor trader whose stops were run in by the market at the extremities? Here is a demonstration of the two outcomes using the chart of Sterling Pound. The same technique for using fibonacci ratio retracements works equally well, whether you are considering the chart of a stock, an index, forex or a commodity.