Page 49 - Trading #101 Course – Part One: Trading Basics

TRADING #101 COURSE – PART ONE: TRADING BASICS /2017-10-06

and not absolutes. With that mind-set, I update my readings weekly to see where the
market is moving and how the wave patterns are behaving from one week to the next.
Elliott wave analysis works for me as a filter, and for my actual entries and exits I use
the Applied Reality Trading® (ART®) software, which gives me entries and exits based
on the reality of price and volume in the current moment. Again, Elliott wave analysis is
an advanced technique and you should exercise caution in utilizing it.

Pitfalls of Not Identifying Market Cycles

Correctly

In my experience working with traders over the years, one of the most common reasons
for failure is that traders are unable to identify market cycles correctly and do not realize
the importance of identifying these cycles.

Sometimes when traders can identify a market cycle that their approach does not
perform well in, it is difficult for them to sit on the sidelines and not take a trade.
Often the best trade is no trade at all, but for some traders it can be uncomfortable to
not be in the game. Patience is part of the psychological mind-set and a trader needs to
develop the ability to read market cycles effectively.
Effectively identifying market cycles is a skill that all successful traders must master. It is
also essential to know what market cycles your system or approach will work well in and
then have the discipline to stay out of the market when necessary.

Common pitfalls of not identifying market cycles correctly:

• Not identifying a channeling market. Here the pitfall is that you
will get whipsawed by repeatedly entering the market and getting
stopped out, resulting in paying a lot in commission fees to your
broker and not capturing a profitable move in the market.
• Solution: Use trend lines and channel lines along with software to
identify channeling markets.

• Misidentifying a reverse in trend. The pitfall is that you might exit
a perfectly good trend and miss out on significant profit potential as
the market continues to move in the direction of your original
position.
• Solution: Use scaling-out techniques for exiting the market so that
you still have a portion of your position on the table and can profit
from that if the trend is still in play.

NOTE: Study market cycles and factor this concern into your trading strategy so you
can effectively enter the market only when the conditions exist for your system to
perform well.

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