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Lots of nervous bulls and excited bears all over the TV the past couple of days … everybody needs to just chill and look at the roadmap. Everyone loves to call the top and I am as guilty as anyone. I way messed up calling the top of the 3rd Wave … as it turned out I was looking for Wave 4 when it turned out to be just a more minor/smaller wave iv of the bigger wave 3.
In the end, that early call cost me some lost profit opportunities on the long side as well as some losses on the down side on my shorts. Good risk management kept those amounts relatively small compared to my gains so far in 2012 however, so I am still pumped about the possibilities of the market going forward.
I find it much easier to calculate the support areas in a market trending higher than trying to pick the tops. Why is that? Well I have mentioned in several of my earlier blogs about trying to figure out what what chart time frame is in charge of the current wave structure.
Since Tim loves EWT and can't go 24hrs without poking the bear, I thought I would post the EWT chart for the next couple of days.
SPY 60-Min Chart
I will repost this chart in a couple of days to show the POWER of EWT … odds are Tim will refuse to post it due to the public embarassment it will cause him (LOL). (Editor's Note – not so! If you or anyone else out there can make good predictive use of this technique, I'm all ears! – Tim)
How do you become a better trader? Probably for most of us, it can be as simple as looking at our prior trades in retrospect to see if they made sense?
I had a reader e-mail a little while ago and asked about a short trade he tried in the SPY which he covered for a small loss, to see what I thought about the trade … he already knew the answer in retrospect by looking at the trade. He was caught up in the small time frame chart (1-minute) and didn't realize he was swimming against the current.
In my site's Elliott Wave Theory lesson module I talk about how most day traders never make money and that the biggest reason is as simple as they often trade counter-trend. The sad thing is that almost all of these traders don't even realize that they are trading against the bigger trend.
That is why I am always looking at where we are in terms of the wave structure on multiple time frames … I want to avoid the simple mistake of getting long at the top of a wave structure (or short at the bottom of one), and I definitely want to know what the direction of the bigger trends are. That is what my Morning Outlook and Afternoon Trading Plan try to do … assess where the market is going and then trade based on that bigger directional bias.
Squeeze … as I have mentioned in the past, squeezes are better if you can push the market lower first. Was Friday's gap lower that move? Was it big enough to really set-up a strong enough squeeze, or is this move going to fizzle out quickly?
Readers of my blog postings know from my "Dude" series that my thesis for the market has been that the market is going to fail on its reattempt to get above the weekly 78.6% retracement level, and that "failure" will signal the end the bear market bounce that the market has experienced since March 2009.
I wrote a trilogy on some new software that I have been using the past couple of weeks … whoopdedo right? While there are plenty of software packages available to traders out there, I think this code should hit home with traders because it really focuses on the trend of price. I have found that most intra-day traders get caught up trading against the dominate trend and/or don't stay with a trend long enough to maximize their profit potential.
Anyways, I'm not saying all traders should use the system but I think reading the three blogs will open some traders' eyes about how they look at intra-day trends. For that alone the trilogy is worth the read.
Part 1 of the trilogy goes over the software and its color coding features, the second the software code's histogram feature, and finally the third covers a couple of hours of intra-day trading from a recent day to show how it works.
Check it out if you want to learn more about trend trading … here is the third part of that trilogy. Cheers …