Trading What I See

Wrong again, but all my trades today were profitable. I think there’s a lesson worth learning there. One of the reasons I don’t actually trade Elliott Waves is that the wave counts I see can turn into other wave counts that still make sense.

That’s the nature of the Elliott beast, but if you only use it as a guideline combined with other techniques, it can often give you pinpoint accuracy. But not yesterday. Let’s go over trading by the numbers.

Point #1 is the “top” I saw yesterday, with three Fibonacci measurements ending there. That pivot was the reason I came into today with a downward bias. After the first 3 minute bar, I placed an order for a short sale. As is often the case, my entry techniques offer a certain amount of protection when I am wrong.

I use an array of entries depending upon the situation, but let’s look at some possibilities that would be appropriate here. Sometimes I’ll enter at the break of a previous bar (that was the case today.) Other times I’ll use the short-term moving average (blue.) And there was a well established uptrend line from mid-day yesterday.

It doesn’t make any difference how strongly I believed the Elliott count at that point. I picked Trading What I See as the name of the site for a reason. I want all my actions to have criteria that I can explain. The opening bar wasn’t broken; the moving average wasn’t broken; the trendline wasn’t broken.

If any of those entries had triggered, I use front-end software that sets my exit stop the second the trade fills. I don’t even have to think about it, except to sometimes move the stop closer. Point #2 was a potential trade that I treated just like any other trade. When it doesn’t trigger I look on to the next possibility.

As pointed out several times in the last few days, when the 2.618 extension doesn’t stop price, look to the 4.236 extension. Once again, I “expected” a pause and probably reversal there, but that will never make me take a trade. But by point #3 there was a nice divergence with the Stochastic, and I made my first trade of the day as we broke the blue moving average.

And didn’t go anywhere (point #4.) After seven bars I covered half of my trade. As the blue moving average recrossed to the upside I covered the rest. First profit of the day — it was 40 cents after commissions.

It wasn’t long before we had a well-defined rectangle, but it is only a point wide. That means I’m not interested in trading the breakout at point #5. But watch what happens next. A pullback to the bottom of the rectangle. A poke through a declining moving average, and a reversal that breaks an established trendline. Point #6 is my kind of trade.

Where do we start looking for an exit. At both the Fibonacci retracements and Fibonacci extensions on the way down. I use them for taking partial profits or for moving my trailing stop closer. Point #7 is 262% of the measurement from points 3 to 4, extended from the top of the rectangle.

“Profit, not Prophet” is something I pasted on my computer monitor years ago as I was learning that predicting the market is a whole lot different from trading it. There really is a lesson in that.