7 Ways to Become an Unsuccessful Trader
by ilene - August 12th, 2010 2:03 pm
7 Ways to Become an Unsuccessful Trader
Q&A with an experienced Elliott wave trader reveals seven common trading mistakes.
(My comments in red – Ilene)
By Elliott Wave International
To be a successful trader demands knowledge.
If you’d prefer to become an unsuccessful trader, you can start by making the following common trading mistakes, detailed by a professional who spent 25 years in portfolio management, trading and forecasting in the financial capital of the world, New York City.
In 2002, Wayne Gorman, long-time Elliott wave trader and current head of trader education at Elliott Wave International, left his 35th floor Manhattan apartment and moved to the quiet of North Georgia. He’s been sharing his knowledge and skills with aspiring traders ever since — in both online seminars and before live audiences around the world.
Wayne graciously agreed to a Q&A about trading mistakes. In his interview, Wayne reveals seven common mistakes traders make.
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EWI: Could you name two mistakes frequently made by stock traders?
Wayne Gorman: (mistake 1) The first big mistake is the flawed logic of extrapolation. Many traders and investors assume that a trend will remain in force until an "event" comes along to change it. But market trends are not like billiard balls on a pool table. This false assumption will put you on the wrong side of the market more times than not, especially at major turning points.
(mistake 2) The second big mistake is to suppose that news events drive market trends. In fact, the opposite is true: economic, political and social events lag market trends.
My comment: I don’t agree with this tenet of Elliott Wave Theory. I believe there are many, many causes, effects and correlations involved--multifactorial influences on the market, and that both statements "news drives market" and "market drives news" are incorrect and too simplistic.
EWI: What are two common mistakes among options traders?
WG: (mistake 3) One common mistake is to buy puts or calls that are way "out of the money," with no other transactions to compliment them. Unless your timing is absolutely perfect — and who has perfect timing? — your chance of success is low. It’s like buying a lottery ticket.
(mistake 4) Another common mistake is to buy options with too little time left to expiration. With less than one month to expiration, the time decay begins to accelerate and the chances of success…
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DiggThe Economic Crisis No One Saw Coming: A Convenient Untruth
by ilene - August 11th, 2010 1:32 pm
The Economic Crisis No One Saw Coming: A Convenient Untruth
By Elliott Wave International
The single most convenient untruth about the 2008 (and counting) financial crisis is that it was unforeseen. For two years policymakers have insisted "There was no way to know ahead of time" that the liquidity boom would come to a screeching halt. Back in November 2008, in fact, the usually tight-lipped Queen of England herself publicly described the turmoil of international markets as "awful" and openly asked a panel of experts from the London School of Economics "Why did nobody notice?"
Her Majesty is right: Most financial authorities did NOT notice the crisis before it was too late. Comedy Central’s "The Daily Show with Jon Stewart" of all places provided the most poignant evidence: A March 2009 video montage shows executives and economists from the world’s leading financial firms repeatedly forecasting continued upside strength in stocks, plus renewed bull market growth in financials — right as debt markets came unhinged and the US stock market headed into a 50%-plus selloff.
Dubbed the "8-Minute Rap" (after the "18-Minute Gap" of Nixon’s Watergate tapes), the Daily Show video feature sent an equally powerful message, as the clip below makes plain.
Yet even as the mainstream authorities failed to detect the economic earthquake moving below their own feet, somebody did "notice" well in advance. That person was EWI’s president Bob Prechter.
The clip below is from a 2007 Bloomberg interview. Clear as PLAY, the foreseeable nature of the crisis emerges from Bob’s October 19, 2007 interview.
As the historic trend change began to unfold, Bob issued this timely insight:
"We’ve seen the first crack in the credit structure with a huge drop in commercial paper… These are the harbingers of a change toward the downside for the stock market, commodities including oil, and the debt market itself."
Don’t believe the convenient untruths. Get objective market analysis today. Download this free report that contains valuable market forecasts directly from the desk of Bob Prechter. This article, The Economic Crisis No One Saw Coming: A Convenient Untruth, was syndicated by Elliott Wave International. EWI is the world’s largest market forecasting firm.
EWI also just sent me an offer for a free eBook on trading lessons (click on banner below). – Ilene
Technicals vs. Fundamentals: Which are Best When Trading Crude Oil and Natural Gas?
by ilene - July 23rd, 2010 7:50 pm
Technicals vs. Fundamentals: Which are Best When Trading Crude Oil and Natural Gas?
By Elliott Wave International
If "fundamentals" drive trend changes in financial markets, then shouldn’t the same factors have consistent effects on prices?
For example: Positive economic data should ignite a rally, while negative news should initiate decline. In the real world, though, this is hardly the case. On a regular basis, markets go up on bad news, down on good news, and both directions on the same news — almost as if saying "talk to the hand cuz the chart ain’t listening."
Unable to deny this fly in the fundamental ointment, the mainstream experts often attempt to reconcile the inconsistencies with phrases like "shrugged off," "defied" or "in spite of."
That begs the next question: How do you know when a market is going to cooperate with fundamental logic and when it won’t? ANSWER: You don’t.
Take, for instance, the first three news items below regarding the July 22 performance in crude oil, versus the fourth headline, which occurred on July 23:
- Crude prices surge nearly 4% in their sharpest one-day percentage gain since May. The rally was "aided by fears that Tropical Storm Bonnie will enter the Gulf of Mexico over the weekend and disrupt oil production." (Wall Street Journal)
- "Oil Prices Soar As Gulf Storm Threat Looms" (Associated Press)
- "The storm should keep oil prices bubbling if it continues to strengthen and remain on track." (Bloomberg)
vs.
- "Oil Slips From Surge Despite Storm Threats" (Commodity Online)
Unlike fundamental analysis, technical analysis methods don’t rely on the news to explain or predict market moves. They look at the markets’ internals instead.
*****
Get FREE access to Elliott Wave International’s most intensive forecasting service for the global Energy markets. Now through noon Eastern time July 28, you can get timely intraday charts, forecasts and analysis for Crude Oil and Natural Gas. You’ll also get daily, weekly and monthly analysis and forecasts for all major Energy markets and Energy ETFs. The timing couldn’t be better because Crude Oil and Natural Gas are both approaching important junctures. Learn more and get instant access to EWI’s free week in energy now.
Prechter on CNBC: Prechter’s Perspective on Stocks
by ilene - July 7th, 2010 4:46 pm
Prechter on CNBC: Prechter’s Perspective on Stocks
Robert Prechter joins host Maria Bartiromo on CNBC’s Closing Bell to talk about his bearish forecast for stocks and offer investment advice.
FREE Report: 20 Questions with Robert Prechter
Noted financial commentator Jim Puplava asks Robert Prechter tough questions about fiat currency, gold, the Fed, the Great Depression, financial bubbles, government intervention and how to protect your money — and even profit — in today’s environment. Read Prechter’s candid answers for FREE now. Access the 20-page report here.
Now’s The Time To Buy Leading Stocks At Low Risk Entry Points
by Chart School - May 23rd, 2010 12:52 pm
Now’s The Time To Buy Leading Stocks At Low Risk Entry Points
Courtesy of David at All About Trends
There is a good possibility we are done with the first leg down. We see tagging some support levels on the charts. The reaction off of those support levels was exactly what we wanted to see. Powerful and with conviction.
Notice in the chart above the 50 day average is at 1100? That’s going to serve and a point of initial resistance.
The blue circle is actually about 5 days worth of market action in a range of 1070-1090 with a spike down to 1050 ish thrown in for good nellie action.
In the first chart we talked about 1100 being the 50 day average. It’s also a 38.2% Fibonacci level as shown in yellow. Note the confluence of the blue 38.2% Fibonacci retracement level and the 50% yellow Fibonacci level. See how close they are? That’s confluence and what is commonly called a Fibonacci cluster. Watch those levels next week or the week after for resistance and stalling.
This doesn’t mean we are out of the woods but we liked the action we saw Friday. So IF we now enter into a period of a Wave 2 (upward bias, or the alt count) then it ought to look like an ABC up. We may see some morning weakness on Monday. The chart below is the S&P 500 in a 1 minute time frequency.
As you can see, we stopped cold on a down trendline. We could
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Market Myths Exposed: Inflation Is Not A Threat, Deflation Is
by ilene - April 9th, 2010 11:56 am
Market Myths Exposed: Inflation Is Not A Threat, Deflation Is
Our free eBook reveals the 10 most common financial misconceptions
By Nico Isaac, at Elliott Wave International
Most people are confident they can recognize a myth when they hear one: Wearing a hat causes baldness; eating a bunch of carrots gives you perfect vision; ‘light’ cigarettes are better for your health than the regular kind.
But what about this sentence: Inflation is the number one threat to the US economy? Ask the mainstream experts, and this statement is in no way a fabrication of the truth; it is truth itself. Case in point, this recent insight from a reputable news source:
"Given the extraordinary amounts of government spending, we believe inflation is likely to rear its ugly head." (CNBC)
It looks reliable. It sounds reliable. But the reality is different. That fact is the subject of Chapter Three in Club EWI’s free educational eBook Market Myths Exposed, aptly titled "Myth No. 3: Worry About Inflation Rather Than Deflation."
With groundbreaking insight from EWI’s president Bob Prechter, this chapter reveals how the most vital financial players have been led right up to the water of easy money. Yet, like the saying goes, no amount of incentive — be it record low interest rates or trillions of dollars in federal bailouts — has gotten them to "drink." Here, the "Market Myths" chapter sheds light on this global leverage fast:
- Banks: The premier dispensers of credit are about "95% invested in mortgages," which can fall in dollar value at the start of a crisis. Also, a chart of Credit Standards At All Banks since 1997 reveals a new trend of tighter lending criterion. Both are deflationary.
- Consumers: The premier devourers of credit are paying off their balances. See: chart of Total Consumer Credit (Annual Rate of Change) since 2000. This is deflationary.
- Private Equity: "Of the ten largest leveraged buyout deals since 2007, four have defaulted and two are in distress. Just in this small group, there is nearly one-half a trillion dollars worth of loans headed for the dump."
- Small Businesses are self-liquidating; meaning, they create profits to pay back loans versus consumers. YET, "Market Myths" Chart of Bank Loan Availability to these small Enterprises contains a big, black arrow
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You Still Believe The Fed Can Stop Deflation?
by ilene - March 31st, 2010 7:56 pm
You Still Believe The Fed Can Stop Deflation?
Recent history proves that the Fed’s "control" is just an illusion.
Courtesy of Elliott Wave International
Think back to the fall of 2007. The deflationary "liquidity crunch" that over the next year-and-a-half cuts the DJIA in half, decimates commodities, real estate and world markets is only starting. Almost no one believes that the crash is coming — to a large degree, because everyone is convinced that the U.S. Federal Reserve Bank, with Ben Bernanke at the helm, will never allow deflation to happen: It can just print money!
The excerpt you are about to read is from EWI president Robert Prechter’s October 19, 2007, Elliott Wave Theorist. If you find it insightful, read more of Bob’s writings in the free Club EWI resource, "Robert Prechter’s Most Important Writings on Deflation." (Details below.)
You cannot pick up a newspaper, turn on financial TV or read an economist’s report without hearing that the Fed’s latest discount-rate cut is bullish because it indicates the Fed’s decision to “pump liquidity” into the system. This opinion is so completely wrong that it is hard to believe its ubiquity.
First of all, the Fed does not “decide” where it wants interest rates. All it does is follow the market. Figure 17 proves it. Wherever the T-bill rate goes, the Fed’s “target rate” for federal funds immediately follows. That’s all there is to it.
If you refuse to believe your eyes, then listen to the chairman; Alan Greenspan is very clear on this point. On September 17, a commentator on CNBC asked, “Did you keep the interest rates too low for too long in 2002-2003?” Greenspan immediately responded, “The market did.” Rates were not “too low” or the period “too long,” either, because the market, not the Fed, made the decision on the level and the time, and the market is never wrong; it is what it is. If investors in trillions of dollars worth of U.S. Treasury debt worldwide had demanded higher interest, they would have gotten it, period.
Second, falling interest rates are almost never bullish. All you have to do to understand this point is look at Figure 18.
Interest rates fell persistently through three of the greatest bear markets in history: 1929-1932 in the Dow, 1990-2003 in the Japanese Nikkei, and 2000-2002 in the NASDAQ. The only comparably
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Your Cheatin’ Chart Will Tell On You
by Chart School - March 30th, 2010 11:11 pm
How the Dow Has Really Performed When Measured in Gold?
Courtesy of Elliott Wave International
"Your cheating chart will tell on you."
Hank Williams may not have known about Elliott waves, but he did know when a story doesn’t add up.
Such is the case with the nominal rise of the Dow Jones Industrials from 2000 to 2007. In the language of country music, this stock index has a "Cheatin’ Chart" — it doesn’t tell the real story.
A simple price chart of the Dow is, well, a bit too simple. Robert Prechter explains that pricing via fiat currency is not the same as pricing the Dow in terms of real money (namely gold). Then he shows the difference.
For six long years, we’ve had declining real values in stocks. Since the 2002 bottom, we’ve had rising values in nominal terms. This is the same set-up that we saw in the early ’70s except for one thing: it’s bigger. Ultimately, real prices are leading dollar prices, and we’re going to see a tremendous drop in the dollar price of the Dow as well, because I’m making a case that this is a much bigger top.Elliott Wave Theorist, December 2006
If gold were our money, the major stock market indexes would have declined relentlessly from 2000 to the present, with a muted bounce in 2003. There would be no arguing the point of whether a bull or bear market was in force.Elliott Wave Theorist, March 2006
This "oh-so-true" chart of the DJIA priced in gold showed the path that the "cheatin’" nominal Dow would eventually follow. Our forecast was that it’s just a matter of time. This analysis has played out as expected several times since the 1999 high in the Dow Jones Industrials.
The monthly Elliott Wave Financial Forecast keeps an eye on stocks, real estate, commodities and more. Download Robert Prechter’s FREE 40-Page Gold and Silver eBook, an ebook exploring the role of gold in today’s markets. You will get more than Prechter’s long-term outlook on gold and silver; you’ll also learn how gold still plays an important role in determining the real value behind nominal share prices. Learn more, and download your Gold and Silver eBook here.
Three Change In Trend Chart Patterns To Profit From
by Chart School - March 23rd, 2010 1:49 pm
Three Change In Trend Chart Patterns To Profit From
Eventually all trends change. If you are short at a market low you need to know when to cover and get out. Likewise if you are long at a market high, here too you need to know when to get out. This is where Change In Trends patterns come into play.
A Double top is just that. There are variations to this pattern though. One such variation is that of a shake out high. This is where an issue breaks above the prior high by a smidge and then rolls back over much like a shake and bake. The other variation is that of a continuation high. This is where an issue is further along in a correction then goes thru a rally period much like a snap back rally then proceeds to put in a double top an rolls over.
Below is a recent example of a name we shorted earlier in the year and below that is a continuation double top example
Below is DRYS in a continuation double top. As you can see the issue has been in a correction for months then gets a retracement rally and that retracement rally ends with a double top.
Trend Line Breaks
This is rather self explanatory in the sense that it’s simply all about a trendine break. Just remember bigger is better. The bigger the pattern in time duration and scope the better. Just take a look at TSL from January.
First Thrusts Down
This is when an issue is in a clearly defined uptrend that all of a sudden falls to either a prior support level or the 50 day average as in the case below (The Blue Box is the first thrust down), then it proceeds to make a rally attempt (Everything above the pink line). We call that rally attempt a snapback rally
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Elliott Wave Analysis – Free Learning Materials
by ilene - March 5th, 2010 5:53 pm
Here’s a series of Elliott Wave Lessons from the recent week or so, all wrapped up into one post with several free offers from Elliott Wave International. As always, would love comments from anyone who has incorporated Elliott Waves into their trading methods or who has experience with the EW program. - Ilene
Learn Elliott Wave Analysis — Free
Often, basics is all you need to know.
Courtesy of Elliott Wave International
Understand the basics of the subject matter, break it down to its smallest parts — and you’ve laid a good foundation for proper application of… well, anything, really. That’s what we had in mind when we put together our free 10-lesson online Basic Elliott Wave Tutorial, based largely on Robert Prechter’s classic "Elliott Wave Principle — Key to Market Behavior." Here’s an excerpt:
Successful market timing depends upon learning the patterns of crowd behavior. By anticipating the crowd, you can avoid becoming a part of it. …the Wave Principle is not primarily a forecasting tool; it is a detailed description of how markets behave. In markets, progress ultimately takes the form of five waves of a specific structure.
The personality of each wave in the Elliott sequence is an integral part of the reflection of the mass psychology it embodies. The progression of mass emotions from pessimism to optimism and back again tends to follow a similar path each time around, producing similar circumstances at corresponding points in the wave structure.
These properties not only forewarn the analyst about what to expect in the next sequence but at times can help determine one’s present location in the progression of waves, when for other reasons the count is unclear or open to differing interpretations.
As waves are in the process of unfolding, there are times when several different wave counts are perfectly admissible under all known Elliott rules. It is at these junctures that knowledge of wave personality can be invaluable. If the analyst recognizes the character of a single wave, he can often correctly interpret the complexities of the larger pattern.
The following discussions relate to an underlying bull market… These observations apply in reverse when the actionary waves are downward and the reactionary waves are upward.
1) First waves — …about half of first waves are part of the "basing" process and thus tend to be heavily corrected by wave two.
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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