Ride the Waves of Profit

When I write an article about profiting in trading, I’m writing based on my own personal experience. My trading started back in the late 80’s, and I’m still at it 25 years later.

Without a doubt I have learned some valuable lessons. Some of these were learned from successes, and quite a few were learned from mistakes. In fact, some of those mistakes were really bad.

So when I make suggestions about trading, I can only hope that you will weigh my many years of experience as motivation.

My lessons have changed very little in the last 10 years. The reason for this is simple. If something works, do not change it!

What works is getting a sense of the overall market direction and refusing to trade against it no matter how tempting it can be. You see, my trading membership provides market turn dates, and it can be pretty tempting to trade every forecast turn. Big mistake!

The only potential turns traders should consider are those that come at the end of a correction. Corrections are pretty simple to identify. Whenever a market has been moving in a particular direction, let’s say up for this illustration, but then starts moving down, if it ends prior to where the prior upward wave started, that was a correction.

Here is a really easy way to look at this. For the sake of simplicity, let’s say that the market can only move 10 points in one direction each day. In other words, let’s say it can either move up 10 points, or move down 10 points. Each day is equal as to the RANGE of the day’s movement.

Okay, now let’s say the market moves up 5 days, then moves down 3 days, then moves up 6 days. Clearly the market is making greater strides going up. We would call the 5 and 6 day move in this example the IMPULSE WAVES, and the trend is UP. The 3 day move going down is the CORRECTION or CORRECTIVE WAVE.

Now we all know that each day does not move an equal number of points. But you should now have an idea as to what a CORRECTION is. So when you look at your price chart, you are going to see WAVES moving longer in one direction and shorter in the opposite direction. You want to be trading in the direction of the longer waves… the trend!

But then you may ask, “How do I know when a wave that is still forming is likely a correction and likely to end?” If you notice that the market is currently moving in the opposite direction following what is clearly an IMPULSE WAVE, and it has not yet reached the beginning price level of that prior IMPULSE WAVE when a ‘turn’ is due, you start preparing for the probability that the market is likely going to stop moving against that prior IMPULSE WAVE and resume the trend.

And if you happen to have a pretty good idea when to expect ‘turns’, such as using our FDates or perhaps you watch for retracements levels of certain percentages that are popular, such as 50% or 62%, then again you have a gauge as to the probability that the CORRECTION is about to end.

Of course nothing is full-proof and you are not going to be right all the time. But trading is a skill that relies on probability, working with the percentages. I not only use my FDate turn dates for timing the end of corrections, I also incorporate price levels such as Fibonacci retracements, watch the MACD and Stochastics, and apply OVERBOUGHT/OVERSOLD zones using Previsions Charting software (you just press the O key).

Another feature that I rely on are cycles. We use Cycle Envelopes within the membership to clearly show the trend with its clearly defined IMPULSE and CORRECTIVE WAVES, along with an projection as to which way these waves may be going in the very near future. Used in conjunction with the ‘turn’ dates, it has been a fantastic tool for catching trades at the end of corrections where the risk is lowest and the profit potential is highest.

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