Market Bearing and Risk Rewards

My first exposure to Elliot Wave was in 1992-93. Elliot Wave was promoted as FORECASTING TOOL. For many years I accepted EW as a forecasting tool projecting targets for UP and DOWN moves. Well, to be fair the financial communities are very objective and realistic group of people. If the tool cannot provide specific target and dates or at least targets it is rendered useless.

After more than a decade of using and learning EW in 1994, I started to question the intent or the “macro” concept of this theory. This brought me to the next approach complimenting DOW THEORY. There are different sets of “rules” to Elliot Wave Theory and DOW Theory. There is no need to follow and set of rules rigidly. What is important is to distill the few rules that consistently appears and reliable instead of 12 rules! Go for quality and not quantity.

Many of the rules are not consistently reliable and I rather call them redundant. I can vouch that I NEVER USE VOLUME in my analysis and I am still in the market after 20 years. You can throw volume out of the window.

Elliot discussed about the 5 moves. I called them 1-3-5 (odd numbers) = UP and 2-4 (even numbers) = DOWN. Elliot talks about A-B-C down swing. I ignore this and maintain 2-4 as down move to be consistent. Who says we cannot amend and adapt the theory to suit our personality?

The key to Elliot Wave is the final (5) move. Will it be below Peak of (3) which I labeled (L)? Equal (S)? Higher (H)? IF you can solve this puzzle, you have crack one puzzle. The next puzzle is to solve is how do you know which ONE of the (A), (B) or (C) is going to happen? (A) = (5) is longest. (B) = (3) is the longest. (C) = (1) is the longest.

After you have solve this two puzzles of 1-2-3-4-5 moves irrespective (5) is below, equal or higher than Peak (3), you know there is a down swing coming. How do you know if this down move will completely retrace to (0) or (2) or (4) or somewhere in between these points? What if after the correction ends and new peak (7) that is not drawn is higher than (5) develops. Where do we go from here?

IF you are able to solve this these puzzles, you have the bearing of the market. You will be able to determine you risk rewards. You will be able to take calculated risks with optimum or maximum returns.

IF you do not understand the holistic concept of the theory, you will not be able to extract maximum opportunities. You are abusing the theory only to end up with losses and frustrations.

What good is projection and forecasting if you lost in the trend maze? Do you know where the current price is versus the overall macro trend? Do you know your risk reward ratio versus the overall trend? If you system or whatever you are using can’t answer these TWO simple questions, I suggest you stop trading or investing. Go back to the drawing board. Let me advise you that volume and candlesticks can’t answer these two questions. I have shortened the process for you.

Enjoy the discovery.