There are too many recommended and suggested rules in trading by "guru" or self-proclaimed "guru". These may seem to be sound but more than often they are contradictory if one take the effort to analyze them. These rules permit the non chart traders and believers to ridicule the believers. Who can blame the "FA" folks for making jokes?
The most logical and sensible thing to do is not to accept these "rules" blindly but to challenge and questions the premise for such recommendations. Are there truth? It is reliable ALL the time irrespective of market conditions? What are the weakness or contradictions? Should you continue to blindly adopt the rules when there are elements of non-reliable?
These goes back to the foundation of our strategy. We all know that a trend in motion will never be smooth with human factor involve due to the ever changing emotional swing. This is the basic belief of Elliot Wave theory. While Elliot tried his best to document and "fix" the movements, by no means he is perfect. The perfect theory is still DOW Theory provided you simplify it by removing the volume elements.
Historically, trend in motion moves like ripples and waves in the direction of the tide. We can't fix the number of waves and ripples in each tide and how can we fix the number of moves in a trend? Elliot was correct to observe price trend moves in "waves" but the complexity arises when he "fixed" the number of waves in a trend. Doing so allow Elliot to predict the market. That is what everyone love and wants! When you have a theory that is unable to "predict", it loses the shine and credibility.
The question is are we in the business of prediction or riding the movements? Can we ride the movements without predicting the number of movements?
The problem we unintentionally and unaware that we blindly accept what we read as the TRUTH!
Yes, over the years I had to shed and discard many rules, beliefs and modify the reliable profitable rules into simple practical points.
The other challenge that one face is how do you know after a steep or severe fall or correction, the market will climb higher or fail to climb higher? Elliot Wave and Dow Theory did not state or mention market will climb higher! I don't even know who are the proponents that market will climb higher!
As we take the effort to distill the pure from the impurities, you will find there is a lot less of BS to trading. My rules are:
1) Market moves in the direction of the tide (trend) with occasional interruptions within its own cycle.
2) Similar patterns do re-appear but will be different in magnitude. It is not the same as history repeats. One must differentiate between SIMILAR and SAME. All trend will end. It is a question of WHEN!
3) Under normal circumstances, all potential interruptions be it temporary or permanent will have set-ups before they happen.
4) STOP LOSS is only for people who do not know which direction the market is heading but insisting in taking positions (Gamblers).
5) IF you do not know where market is heading, do not take positions and no need for stop loss.
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