26 May 2012 How Elliott Wave Can Improve Your Trading

Each and every trader has their own favourite technique and method of trading the markets and there will always be vendors available to sell the latest and greatest technical indicator. There is however, a difficulty with indicators in as much that many will only plot once bars have completed and as such really only indicate where price has been. They can oscillate and move around intra bar and quite often leave a trader wondering where they are finally going to plot. They also provide a limited view of the market by showing what is happening on the current bar and yet often fail to take into account the market as a whole. Elliott Wave provides an all-encompassing method of trading the markets by not only providing high probability trade entries but also high probability targets.

Many traders will have heard the age old saying of ‘The Trend is Your Friend’ and yet, the Elliott Wave principle can define a major trend by way of identifying a five wave pattern within a market. Trading with the trend sees a trader entering positions along with market direction as well as travelling the path of least resistance. For the braver trader, opportunities do present themselves to trade counter trend as we find that all trends will correct themselves over time. Elliott had discovered that corrective wave patterns form within the major trend and these allow traders to reposition themselves or find an opportunity to enter the market along with the major trend.

One of the fundaments of the Elliott Wave principle is that price waves are evident throughout all timescales of trend. It may be seen that Wave 1 of a given timescale may be subdivided into 5 smaller waves of a lesser timeframe and this helps a trader to identify the maturity of any given trend. Knowing the maturity of a trend helps a trader to position themselves better in the markets for existing positions or even to close a trade completely. In contrast to this an Elliott Wave practitioner will also be able to easily identify when a trade fails due to the rigid rules laid out by the principle. Elliott theorised and derived a set of rules pertinent to each wave and documented the constraints applicable to each.

One of the most useful aspects of Elliott Wave, and one that is not offered by many technical indicators, is that of defining high probability price targets. Elliott theorised that the Fibonacci sequence was a basic fundament of the principle and seen in mathematical evidence in both impulsive and corrective waves. He discovered and documented that the retracements and price extensions of waves terminated at significant Fibonacci levels. This information allows a trader to set price target objectives for existing trades as well as determine high probability turning points within the market. At Alpha Wave Trader we have streamlined the principles of Elliott Wave and combined it with Fibonacci to provide high quality trades. 

Our all-encompassing methodology allows us to trade any instrument on any timeframe and we demonstrate it daily in our Live Trading Room.

Good Luck – Good Trading !

The Importance of Trading Consistent Lot Sizes

As traders we should understand and practice good Money Management techniques. These are not only essential to our trading success but also ensure longevity within our chosen career. Quite often we find traders who are caught up in their success and start to change the lot sizes of their particular trades and find themselves outside the scope of their Trading Plan.

We emphasise rigorous testing of our trading methodology to provide statistical data on each market and timeframe we choose to trade. This ensures that we have the knowledge to position ourselves correctly in the markets and within the tolerances of our account size. If however, we choose to start changing the lot sizes in any given trading session then we are essentially making our prior statistical data redundant.

We will not be able to assess our performance as easily as well as engender a feeling of distrust when placing future trades. Our confidence as a professional trader will diminish and could ultimately lead to the complete erosion of our account. It is therefore essential that we remain consistent in our trading and use only the lot size determined not only by our account size; but also the size that was used throughout the strategy testing phase. Once the account has grown over a pre-determined period of time then it is possible to change the lots size in accordance with the growth that the account has achieved.

The Importance of Trading Consistent Lot Sizes

As traders we should understand and practice good Money Management techniques. These are not only essential to our trading success but also ensure longevity within our chosen career. Quite often we find traders who are caught up in their success and start to change the lot sizes of their particular trades and find themselves outside the scope of their Trading Plan.

We emphasise rigorous testing of our trading methodology to provide statistical data on each market and timeframe we choose to trade. This ensures that we have the knowledge to position ourselves correctly in the markets and within the tolerances of our account size. If however, we choose to start changing the lot sizes in any given trading session then we are essentially making our prior statistical data redundant.

We will not be able to assess our performance as easily as well as engender a feeling of distrust when placing future trades. Our confidence as a professional trader will diminish and could ultimately lead to the complete erosion of our account. It is therefore essential that we remain consistent in our trading and use only the lot size determined not only by our account size; but also the size that was used throughout the strategy testing phase. Once the account has grown over a pre-determined period of time then it is possible to change the lots size in accordance with the growth that the account has achieved.

The most Important ingredient of a Successful Trader

If you ever wondered why 93% of traders fail, it’s because what really matters is not for sale in some strategy; and it’s not emphasized in the day trading industry. No, discipline cannot be bought and is not easily acquired. It is so much easier to believe that buying software or indicators will bring a fortune. Newcomers to trading spend money endlessly on indicators, black box systems, semi-automatic systems (I was one of them, I know!) while avoiding the truth: without discipline there is nothing. Even the most spectacular system and software will fail.

So many times I have heard the same story: “I can’t control myself. I am a trigger-happy trader. I don’t know what to do!” Only to repeat the same pattern the next day. This continues predictably until their accounts blow up. And as they walk away from the market, the failed traders blame the software or the market conditions, but very rarely themselves.

Money does not lie. A trader’s account shows if what a trader is doing is working or not, plain and simple. If the account is down 20% one should stop trading live and go back to the simulator. If this is you, look into the mirror and remind yourself: “Insanity is doing the same thing, but expecting different results.” Newbies generally see going back to sim as a failure, so they continuing trading live to their detriment. Only successful traders (and those who have been burned before and learned their lesson) will go to a sim account if their live account is down 20% (without margin).

As Ando said, “Discipline is not mere athleticism: it is a way of life.” I could not agree more. I believe the way you do one thing in life is the way you do everything. So why is something as basic as discipline so difficult to acquire? Why has no one created a “discipline pill” yet?

I believe we all have the potential to become successful traders. If you drive a car and can stop at red lights and stay in your lane, there is hope for you. Think about it: if we don’t follow the rules of the road, we risk our lives. So why can’t we take that dedication to rules (discipline) into our trading? Somehow we think, “It’s only money. Rules can be broken. No bid deal.” But failure can destroy not just our account, but damage our soul and relationships. Success, on the other hand, can give us incredible freedom.

To become a serious trader, become disciplined first. Start with skipping a donut or a cigarette. Continue on with meditation, martial arts or yoga. You must practice discipline. Most successful financial gurus practice yoga. Bill Gross, of Pimco, has been practicing yoga daily for many years. Ray Dalio, founder of one of the most successful hedge funds, Bridgewater Associates, mandates daily meditation as an office policy.

Therefore, start with the truth. Look into the mirror and ask yourself, “I am a disciplined person?” Answering truthfully will allow healing to start. Stay away from a live account, until you are disciplined enough to double your sim. Only then you should start trading live. Becoming a disciplined trader will change your life. You will actually enjoy being patient and waiting for those very few successful trades, that are so worth waiting for! Rewards are exponential. But only YOU can make it happen, not another indicator.

Introduction To Fibonacci

Fibonacci numbers were derived from an Italian mathematician Leonardo Pisano and documented initially in the 13th Century. Leonardo was considered by some as ‘the most talented western mathematician of the middle ages and made many of the original contributions within complex calculations.

He derived a series of Golden Numbers that in essence were a sequence of numbers where each successive number is the sum of the two prior ones. 1, 1, 2, 3, 5, 8, 13, 21. 34, 55, 89 etc. Nicknamed ‘Fibonacci’ by his friends and peers the Golden Number sequence was soon to be renamed Fibonacci.
Traders and investors have used these numbers in their trading and provide exceptional turning points within the market.

Fibonacci Retracements

Technical Analysts found that certain percentages of the Fibonacci Sequence (after the first several numbers) identified that the ratio of any number to the next was approximately 0.618% and the next lower number was 1.618%. These Golden Ratios impact on our daily lives in many ways and have been adopted also by the trading community.