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.
“To aggressively pursue opportunity and equally aggressively refrain from risk when opportunity is not present requires a highly developed Will. We train ourselves for our careers, and we train ourselves physically. Rarely, however, do we train the Will and cultivate our capacity to act with purpose and intent.” Dr. Brett Steenbarger.
There are many good blogs out there in the web, but Traderfeed ranks high. Take a look, and you may wish to review his posts every few days. His posts often leave you thinking about your recent trades. Here is the link.
Welcome to the magical world of Elliott Wave Analysis. You have probably arrived here because you wish to learn more about Elliott Wave Principle and how to use it to improve your trading performance. Whether you are trading in the foreign exchange market (forex) or in stock markets or commodities, you have come to the right spot. Some of you might have been introduced to the Wave theory earlier, but never seen it being applied in real time. Some others might regard Elliott Wave Principle as a load of B.S. because their experience with the so-called experts has been far from satisfactory. To all of you, I extend a hearty welcome. Let us make a fresh start with Wave Times, because what you see here are real-world examples taken from currency markets or stock markets or commodities markets. You will gradually learn how to read the charts more accurately, and pretty soon you will see your trading strategy improve.
I am not going to burden you with the hard-core theory, the rules and the guidelines here. You will find a lot of useful links on either side of this page that will serve as your library of links. (Feel free to return as often as you like. Remember, the more charts you study, the better you get at spotting low risk trading set-ups.) I am going to concentrate on giving you as many examples as possible from my past trading experience. Whether you are a professional trader, or a casual dabbler in any of the financial markets, an understanding of Elliott Wave Analysis will make a tremendous change to your bottom line. Happy hunting!
How do I use Elliott Wave Analysis?
I use Elliott Wave analysis to give me an idea of where we are in an unfolding move, and also how far that move could go. If there is one important lesson I have learnt in using Wave Analysis, it is this: Your analysis could be the best in the world, but until the move happens, you are no better than anyone else out there. In other words, the best use you could put your analysis is to take the trade that is suggested, but be sure to have stops in place. If it works out, then you are a hero, because you got in at the best possible levels, and managed to stick with the move for longer than most others. If you get stopped, well, you paid a smaller price than most others. Do you find this confession a bit disappointing? Unfortunately, this is the real truth.
The Wave Principle will serve you well if you accept that the market will do what it wants to do, when it wants to do it.
It is better for you to know at the outset that the financial market offers no absolutes. Take for instance, the foreign exchange market. It is one of the most liquid markets in the world. Even before the 2008 financial meltdown, in the heydays when big investment banks and hedge funds were able to place single orders running to hundreds of millions of dollars, all they could do was to temporarily move the market a few pips. So anyone who got to know that Soros was selling, and joined in slightly late, would soon find that the market came back. Quite simply, the market is too big for any one, or even a group of players to move it one way or other for too long. However, when the collective sentiment changes, there is a herd instinct that comes to play. This is precisely where Elliott Wave Principle comes to our aid.
The Wave Principle will serve you well if you accept that the market will do what it wants to do, when it wants to do it. I feel that what you really need to succeed in the markets is a guide that will help define probabilities. You should also gain, with experience, the confidence to act on your own judgement. If you can combine this confidence with the discipline that money management requires, then you are already well on the road to success, and riches.
Example of how I use Elliott Wave Analysis
Let me get you started by giving you your first example of how I used Elliott Wave Principle to anticipate a significant move in the S&P500 index. The date was 3rd April 2008, when the index had closed at 1367. I could sense that many traders were looking for the US stock markets to resume its uptrend. As usual, CNBC was giving all the ‘right’ reasons why one should continue to be optimistic. But having studied the Elliott Wave Principle for over 25 years, I felt that we should be getting ready to SELL! Take a look at the chart first, and then the accompanying notes taken from the book “Elliott Wave Principle” by A.J. Frost and Robert R. Prechter, Jr. (This is a must-read book if you are just getting started on the Wave theory, and you can buy it from Amazon.com.
If you are trading in the Forex markets, and wish to learn how to use Elliott Wave Analysis to trade currencies profitably, then you should start by reading the book “Elliott Wave Principle Applied to the Foreign Exchange Markets” written by Robert Balan. I have had the pleasure of discussing many wave counts with Robert Balan during my days at Standard Chartered Bank when I was writing the popular SCXE pages on Reuters, and this is my chance to thank him.
Timing the Forex market and Elliott Wave Analysis
Anyone who has traded the Forex market will be able to tell you that timing is all important to be profitable. This market is not only extremely volatile, it is also very liquid. These are perfect ingredients for successful use of the Elliott Wave Analysis. However, even experienced wave analysts (myself included) frequently find it very difficult to surmount the psychological barriers that prevent people from becoming fabulously wealthy. If you have a strong stomach, and an iron-cast self-discipline in terms of money-management, and a sound knowledge of the Wave Principle, you CAN become very rich trading the Forex markets.
As I mentioned in the main page, you will find a lot of links on either side that will give you the theory, including rules and guidelines governing Elliott Wave Principle. My aim is to provide you with several examples of its real-time application. I have assembled examples of the use of the Wave Principle in EUR/USD, GBP/USD, USD/JPY, AUD/USD etc as well as some crosses such as GBP/JPY. Many of these examples are drawn from recent history, and more will be added as we go along. For now, I suggest you study each chart carefully along with the notes I have placed on them. That will help you gain a better understanding of how to use Elliott Wave Analysis to trade currencies. Good luck.
I use Elliott Wave analysis to give me an idea of where we are in an unfolding move, and also how far that move could go. If there is one important lesson I have learnt in using Wave Analysis, it is this: Your analysis could be the best in the world, but until the move happens, you are no better than anyone else out there. In other words, the best use you could put your analysis is to take the trade that is suggested, but be sure to have stops in place. If it works out, then you are a hero, because you got in at the best possible levels, and managed to stick with the move for longer than most others. If you get stopped, well, you paid a smaller price than most others.
I would like you to consider the attached chart carefully. SNP500-3-apr-08. I had written this on 3rd April 2008 when the S&P was at 1367. This is a weekly chart (which is why the date on the chart shows the last day of the week). If you go to Yahoo-Finance and look up the daily chart of S&P today, you will observe that after spiking for one day to 1440 on 19th May, the index was sold down to 1201 on 15th July. Then we staged a recovery to 1312 on 8th November. From there, we have reached a low of 1097 till date. The objective mentioned on my analysis was 1060, just a few points away. Will we see a strong recovery from 1060 area? A bounce back to around 1110 is likely, but it is still too soon to think of buying. Be patient.
There are certain times when one can be more confident about using wave analysis. One such time is when we are approaching the end of an extending 5th wave, or soon after we start coming off from an extended 5th wave. In my earlier post on the usefulness of wave analysis, I have shown you an example of how I was able to call a 25% down move using SNP500. Now, here is another example that has happened in recent weeks. The Australian dollar, or AUD, aud-9-oct-2008 has collapsed spectacularly. It was perfectly possible for a good wave analyst to predict this. As you follow this blog, over time you should pick up a lot of useful trading tips that will make you a much better trader. Using Elliott wave analysis, you will be able to time your trade with more confidence.
Do let me know your comments on these posts. Other readers would probably want to discuss with you your experiences via these comments as well. That will enhance your learning experience. Regards, Ramki