Category Archives: Trading Tips

General trading tips and techniques

Top 5 Risk Management Tips

Your survival as a trader depends on how you manage risk. The single most important aspect of trading is risk management.

Risk management is boring, overlooked by newbies, and ignored by the greedy. Greed without risk management will wipe out your account. The fact is traders have losses, even the most experienced traders. The difference between newbies and experienced traders is how they manage those losses.

If you are new to trading and you read only one thing on this website, then it should be this. The importance cannot be overstated.

Here’s a Fibonacci 5 risk management techniques:

1. Never ever risk more than 3-5% of equity on any one trade.

This rule ensures that with a series of 10 losses in a row a traders account will still have sufficient equity to be able to continue trading. While a series of 10 losses in a row is never expected and never a goal, it is a worst case scenario that must be considered. Would your account survive it?

2. Always use a stop loss.

What would the market have to do to prove you wrong? What is it that you think the market cannot do? Set your stop loss accordingly. Stops could be set just beyond Elliott wave invalidation points, just beyond an important prior high or low, using a trend line or a moving average.

Stop losses should be an order but may also be mental. If using a mental stop loss, the trader must have exceptional discipline to execute it at exactly the time emotion will be against you.

3. Exit a trade as soon as you recognise it has gone wrong.

Sometimes this happens before a stop loss is triggered. Sometimes market behaviour is not what you expected. This may be in terms of wave structure, volatility or anything that looks wrong. If it looks wrong and isn’t what you expected, then exit the trade promptly.

4. Don’t meet margin calls.

Experienced traders view margin calls as an objective indication that the trade has gone wrong. It it gets this bad, stop throwing good money at it!

5. Adjust position size to meet rule 1.

The importance of rule 1 cannot be overstated. Rule 5 really is a repeat of rule 1. Never ever risk more than 3-5% of your equity on any one trade. In order to keep this rule then of course a stop loss order must be used, otherwise potential risk is 100% of your equity. So really, rules 1, 2 and 5 are all the same.

When calculating equity take the value of your account minus all potential losses on all open positions. That is available equity for the next trade. Calculate 3-5% of this number and you have the amount which may be risked on the next trade.

Calculate the potential loss for a trade from the open price to the stop loss price (most trading platforms will do this for you). To keep this potential loss within 3-5% of equity adjust the size of your position.

Finally, one extra tip which is one of my personal favourites. When a position becomes reasonably profitable move your stop loss to break even or just beyond to protect a very small profit. In this way I have turned a series of potential losses into a series of tiny profits, finally getting a position that “sticks” to ride a trend. It may mean I have more tries at entering a trend than traders who can handle the pain of holding a losing trade for longer, but it does mean I sleep easier at night.

Experienced members are encouraged to add their own tips in comments below. Maybe you think there’s a really great tip I’ve not mentioned? Or maybe you think one of these tips could be said differently?

MotiveWave Elliott Wave Software for Windows & Mac – Hot Days of Summer Sale 2015 – Starts Thursday, July 23rd and ends Thursday, July 30th at Midnight EST

Elliott Wave Gold: MotiveWave Summer Sale-728x90

MotiveWave is an incredibly feature-rich platform that works with multiple brokers and data services.

MotiveWave has the most advanced Elliott Wave Software and Elliott Wave Tools available. Elliott Wave Tools range from manual to semi-automatic to automatic Elliott Wave to suit your preference. Elliott Wave labels are always automatically added for you, cutting down your analysis time significantly. Manual Elliott Wave tools let you plot your own wave counts easily. Our Auto Elliott Wave tool will fill in Elliott Wave counts automatically on one chart based on a selected area of a chart. Our Auto Analyze Elliott Wave tool will automatically plot Elliott Waves over a specified range of data to a specified level of decomposition on one chart. The Elliott Wave Scanner (pattern recognition tool) allows you to search for specific Elliott Wave Patterns across multiple symbols/instruments based on options you choose. All wave counts can be moved or adjusted after being placed on the chart and can be decomposed as many levels as you want.

MotiveWave is having a Hot Days of Summer Sale for 8 DAYS ONLY starting Thursday, July 23rd, 2015, with 20% off most products.*

Summer sale means 20% off Lifetime Licenses*, 20% off Leases, and 20% off Add-On Modules.

This special 20% off hot days of summer sale starts Thursday, July 23rd and ends Thursday, July 30th at Midnight EST.

Make sure you take advantage of this sale before it’s gone!

* Excluding the Analyst Edition and the Additional 1 Year of Updates and Support products.

** The prices you see on the MotiveWave website are regular prices, but you will see the special 20% off Summer Sale discount applied during the purchase process before you are asked to pay. If, for some reason, you do not see the discount on the checkout page, please contact MotiveWave before purchasing and before the end of the sale.

MotiveWave Hot Days of Summer Sale

MotiveWave Hot Days of Summer Sale

MotiveWave is having a Hot Days of Summer Sale for 7 DAYS ONLY starting Wednesday, July 30th, 2014, with 20% off most products.*

This means 20% off Lifetime Licenses*, 20% off Leases, and 20% off Add-On Modules.

This special 20% off sale starts Wednesday, July 30th and ends Tuesday, August 5th at Midnight EST.

Make sure you take advantage of this sale before it’s gone!

* Excluding the Analyst Edition and the Additional 1 Year of Updates and Support products.

** The prices you see on the MotiveWave website are regular prices, but you will see the special 20% off Summer Sale discount applied during the purchase process before you are asked to pay. If, for some reason, you do not see the discount on the checkout page, please contact MotiveWave before purchasing and before the end of the sale.

Entry Timing Technique Using Bollinger Bands® and Elliott Wave Oscillator

Set up the following indicators on a 15 minute chart:

– Bollinger bands; 1 sd and 2 sd.

– Elliott wave oscillator, or MACD (to use the histogram only).

The sequence of steps is:

1. Get the expected direction from your Elliott wave count. On the hourly chart draw a channel about the most recent movement which should be nearing an end.

2. Wait for a channel breach. Depending upon risk appetite, either on the hourly chart (less risky) or the 15 minute chart (more risky).

3. Wait for price to enter the two Bollinger bands on the OPPOSITE side to the expected trend direction. If you expect price to go up wait for price to enter the lower two bands. If you expect price to go down wait for it to enter the upper two bands.

4. Finally, wait for a bar on the histogram which is smaller than the one before it.

5. Enter your trade.

6. Take profit either using a target calculated from your Elliot wave count, or after a channel breach of the new movement.

Example for an upwards trend:

upwardstrend

Example for a downwards trend:

downwardstrend

New to Elliott Wave? Read This First!

Upon first hearing about the Elliott wave principle most people have one of two reactions.

Many will disclaim the concept that it is social mood which moves the markets (it’s normal to think it’s the other way around) and they will insist that the market cannot be patterned and must be random. That’s okay. If this is how you think you’re with the majority. I must ask though, if the market is random then how do some people manage to consistently profit from trading it?

Others may think that they have found a magic bullet and can use Elliott wave to tell them where and when the market will move with enough accuracy to profit from the principle. This is problematic for a few reasons.

If you are already a trader then I would point out that you probably do not make trading decisions using only one technical analysis tool. This would be extremely unusual and mostly confined to those new to trading. Most traders know that in order to make good trading decisions a variety of tools should be used. Elliott wave is no different. It is best used as one tool amongst several when making trading decisions. If a wave count agrees with your other tools you may have increased confidence in your trading decision. If the wave count disagrees it is up to you to decide what to do based upon your risk appetite and experience.

However, Elliott wave is one of the most difficult tools to learn to apply. It takes years of daily analysis to become truly proficient and it takes hours each day to analyse a market in enough depth for the analysis to be useful to traders. This is why traders subscribe to my service.

Elliott wave is the best tool I know of for predicting price direction. It can sometimes be uncannily accurate in target calculation. Sometimes does not mean it is always accurate though, as not all waves have Fibonacci ratios between them. Elliott wave cannot always be accurately applied however because the analyst who never makes mistakes simply does not exist. No method will have 100% accuracy.

At any one point in time there may be multiple alternate Elliott wave counts possible. An expert analyst should be able to see as many alternates as possible and present them ranked in order of probability. Probability of a wave count is based upon several factors, the strongest being the likelihood of the structure unfolding. If the structure is common the wave count would have a higher probability. Rare structures must have a low probability. This means that when a rare structure unfolds (as probability says they must do sometimes) then the analyst would have advised that wave count has a low probability and would not have expected price to move in that direction. Many people fail to understand how probability works in Elliott wave and so dismiss it when they see an analyst make a wrong call when a rare structure unfolds.

Most of the time it is common structures which unfold, that’s why they’re common, and most of the time an analyst should predict the next movement correctly.

A common complaint of Elliott wave is changing targets. Again I must say that you would not expect any other technical analysis tool to predict tops and bottoms and be always right, and for a prediction once made to never change. Why should Elliott wave be any different? There are several Fibonacci ratios. No analyst is going to be able to predict which Fibonacci ratio will be the relationship which is eventually seen. All an analyst can do is to state which is the most commonly seen ratio (there’s that probability again!) and calculate targets based upon several possible ratios ranked in order of probability, or in price order.

Another common complaint of those new to Elliott wave is an analyst changing a wave count. This complaint shows a depth of misunderstanding of not just Elliott wave but markets in general. If an analyst were to never change a wave count what they must do is to pick the right wave count from the very start of a movement amongst several possibilities, and they must pick the right wave count even if it has a lower probability than others. Which is patently ridiculous.

If you can get past the initial enthusiasm and see Elliott wave for what it is, an exercise in probability, then you’re on your way to learning how to profit from it.

Members of Elliott Wave Stock Market who have stayed for years tend to be seasoned experienced traders who understand how probability works. They stay with this service because I am able to predict direction for them correctly more often than not; I’m better than a coin toss. But they understand it is not possible to be always right.