The Hindenburg Omen — Omen-ous or Not?
Efficient Market Hypothesis: R.I.P.
The Hindenburg Omen — Omen-ous or Not?
Efficient Market Hypothesis: R.I.P.
Trade View: GBP/USD & GBP/JPY for 20 July 201...
Trade View: GBP/USD for 19 July 2010
How a Kid With a Ruler Can Make a Million
How a Kid With a Ruler Can Make a Million
A Lesson in Drawing and Using Trendlines
September 24, 2009
The following article is adapted from a brand-new 50-page ebook from Elliott Wave International. Learn more about The Ultimate Technical Analysis Handbook, and download your free copy here.
By Jeffrey Kennedy
When I began my career as an analyst, I was lucky enough to have some time with a few old pros.
One in particular that I will always remember told me that a kid with a ruler could make a million dollars in the markets. He was talking about trendlines. I was sold.
I spent nearly three years drawing trendlines and all sorts of geometric shapes on price charts. And you know, that grizzled old trader was only half right.
Trendlines are one the most simple and dynamic tools an analyst can employ… but I have yet to make my million dollars, so he was wrong — or at least early — on that point.
Despite being extremely useful, trendlines are often overlooked. I guess it’s just human nature to discard the simple in favor of the complicated.
(Heaven knows, if they don’t understand it, it must work, right?)
In the chart above, I have drawn a trendline using two lows that occurred in early August and September of 2003.
As you can see, each time prices approached this line, they reversed course and advanced.
Sometimes, soybeans only fell to near this line before turning up.
Other times, prices broke through momentarily before resuming the larger uptrend.
What still amazes me is that two seemingly insignificant lows in 2002 pointed the direction of soybeans — and identified several potential buying opportunities — for the next six months!
Get more lessons like the one above in the free 50-page Ultimate Technical Analysis Handbook. Learn more and download your free copy here.
Jeffrey Kennedy is the Chief Commodity Analyst at Elliott Wave International (EWI). With more than 15 years of experience as a technical analyst, he writes and edits Futures Junctures, EWI’s premier commodity forecasting service.
Robert Prechter’s Five Tips for How To Trade Successfully
Robert Prechter’s Five Tips for How To Trade Successfully
September 15, 2009
Take it from the person who won the United States Trading Championship with profits of more than 440% in 1984 – there are five things that every successful trader needs to know how to do:
- Have a method to trade.
- Have the discipline to follow your method.
- Get real trading experience, instead of only trading on paper.
- Have the mental fortitude to accept the fact that losses are part of the game.
- Have the mental fortitude to accept huge gains.
Bonus tip: Find a mentor.
That trader who won the championship in a record-breaking fashion is Robert Prechter, the founder and president of Elliott Wave International. Once you think you’ve mastered his 5 tips for how to trade successfully, then the best thing to do is to find a mentor. In this excerpt from the book, Prechter’s Perspective, Bob Prechter discusses how sitting at the elbow of a professional trader can make all the difference in learning the trade of trading.
Free 47-page eBook: How to Spot Trading Opportunities
Elliott Wave International has released part one of their hugely popular How to Spot Trading Opportunities eBook for free. The eBook sells as a two-part set for $129. You can now download part 1 for free. Learn more here.
(The following Q&A is excerpted from Prechter’s Perspective, revised 2004.)
Question: Has any specific trading experience decreased your trading success?
Bob Prechter: Yes. My first trade in 1973 was wildly successful, and I was hardly wrong in my first six years at it. Then I had a big trading loss in 1979, and that taught me more than the wins. The best way to develop an optimal state of mind for trading is to fail a few times first and understand why it happened. When you start, you’re better off speculating with small amounts of real money. Using larger amounts of money will bankrupt you early, which, while an excellent lesson, is rather painful. If you want to be a trader, it is good to start young. Then when you lose your first two bundles, you can gain some wisdom and rebound.
Q.: It sounds painful. Is there any way at least to reduce the hard knocks?
Bob Prechter: There is one shortcut to obtaining experience, and that is to find a mentor.
Q.: Did you have a mentor?
Bob Prechter: In 1979, I sat with a professional trader for about a year. The most important thing he taught me was to keep trades small relative to your capital. It reduces the emotional factor.
Q.: How would one select a mentor?
Bob Prechter: The best way to select one is to find a person who is doing exactly what you would like to do for a living, then get to know him well enough to ask if he will tutor you or at least let you watch while he works. Locate someone who has proved himself over the years to be a successful trader or investor, and go visit him. Listen to him. Sit down with him, if possible, for six months. Watch what he does. More important, watch what he doesn’t do. Finding a guy who knows what he is doing is the best lesson you could ever have. You will undoubtedly find that he is very friendly as well, since his runaway ego of yesteryear, which undoubtedly got him involved in the markets in the first place, has long since been humbled, matured by the experience of trading. He will usually welcome the opportunity to tell you what he knows.
Free 47-page eBook: How to Spot Trading Opportunities
Elliott Wave International has released part one of their hugely popular How to Spot Trading Opportunities eBook for free. The eBook sells as a two-part set for $129. You can now download part 1 for free. Learn more here.
Prechter Stands Alone Again… He’s Done the Math
By Neil Beers
So Bob Prechter is bearish again.
That may be no surprise to some, but recall that Prechter was about the only bull on February 23 of this year when he covered the short position he had recommended on July 17, 2007. That was nearly two years later and 800 points lower in the S&P. And the Daily Sentiment Index (DSI) reading for the S&P had gotten down to only 3% bulls!
His February 2009 Elliott Wave Theorist explained, “The market is compressed, and when it finds a bottom and rallies, it will be sharp and scary for anyone who is short.” Elliott Wave analysis, the DSI, and other indicators suggested it was time for a Primary-degree bear market rally. And that is what we got.
Now in his August 2009 Theorist, Bob explains what “the prudent thing to do” in the markets is, based on the same Elliott wave pattern and sentiment indicators — plus the Dow’s 3/8 Fibonacci retracement from the March 9 low.
For more analysis from Robert Prechter, download a free 10-page July issue of Prechter’s Elliott Wave Theorist.
What’s so special about Fibonacci? And why is a certain level of Fibonacci retracement so significant in conjunction with The Wave Principle? Well…
In its broadest sense, the Wave Principle suggests the idea that the same law [the Golden Ratio] that shapes living creatures and galaxies is inherent in the spirit and activities of men en masse. Because the stock market is the most meticulously tabulated reflector of mass psychology in the world, its data produce an excellent recording of man’s social psychological states and trends. This record of the fluctuating self-evaluation of social man’s own productive enterprise makes manifest specific patterns of progress and regress. What the Wave Principle says is that mankind’s progress (of which the stock market is a popularly determined valuation) does not occur in a straight line, does not occur randomly, and does not occur cyclically. Rather, progress takes place in a “three steps forward, two steps back” fashion, a form that nature prefers. More grandly, as the activity of social man is linked to the Fibonacci sequence and the spiral pattern of progression, it is apparently no exception to the general law of ordered growth in the universe. … The briefest way to express this principle is a simple mathematical statement: the 1.618 ratio.
-Elliott Wave Principle, chapter 3
Fibonacci ratios in conjunction with The Wave Principle can help you anticipate trend changes. They allow you to calculate specific price levels of when and where a wave is likely to end. In this case, where the rally from the March 9 low is likely to end. There are several Fibonacci retracements that appear most commonly, so the market could of course move higher before it settles on the next wave down, “but we are no longer compelled to wait.”
Bob Prechter’s August Elliott Wave Theorist published a week and a half early: he did so to give subscribers time to prepare for what’s ahead. The issue provides a list of levels that mark Fibonacci and Elliott-wave related retracements for the rally. He analyzes which one is the most likely end point, and even explains how you can make the most of the waning rally.
You don’t have to be taken by surprise. Get the latest Elliott Wave Theorist and you’ll see where the rally is likely to end. Think about the difference this knowledge can make for you.
For more analysis from Robert Prechter, download a FREE 10-page July issue of The Elliott Wave Theorist. It challenges current recovery hype with hard facts, independent analysis, and insightful charts. You’ll find out why the worst is NOT over and what you can do to safeguard your financial future.
Neil Beers has a bachelors degrees in political science and philosophy, and a masters in classical languages. His broad range of study and focus on ancient and modern thought led him to Elliott Wave International to research and write about the Wave Principle, Socionomics, and human social behavior.
Our Sponsors
