The first trade under the new Exclusive Membership was closed last evening, and I thought readers of this blog would love to see how we handled it. I am aware that a few thousand people visit this blog regularly with a view to learning from the numerous real-life examples of using Elliott Waves. So this update is specially for you, folks.
It is important for one to be humble if one is to succeed in the markets. Being aware that NO ONE can tell the future is the first step in that direction. I have been involved with the markets since the early 1980s and even now I freely acknowledge that I do get things wrong. However, because of the time I spend on each chart, the amount that is risked on any trade is usually very small compared to the profit potential. Secondly, I am willing to forget the past. Because I made a superb call yesterday it does not mean my next trade will also be great. At the same time, just because the markets changed after I made a call, it does not mean I have to be running scared of the markets! Every trade is different, more importantly, every trade is NEW. Having a deep understanding of the markets certainly helps. Sometimes the charts ‘speak’ to you. Just by looking at the way a certain move is unfolding is enough to alert you that you have to make some adjustments. This is what happened to our recent EURUSD trade idea.
On 8 November 2012, I sent out an email to all members of the exclusive club that the EURUSD was getting ready for a decent move. The common currency had already come off sharply from 1.2875 to 1.2735 and was trading near 1.2750. I identified three possible levels where a turn could happen. These were 1.2704, 1.2692 and 1.2665. So I suggested buying 30% of one’s usual position size at 1.2705 and 70% at 1.2675. The stop was placed at 1.2650. The risk was thus 34 pips and I was looking for 136 pips in profits, a decent reward/risk ratio.
This is what happened afterwards. The EURUSD came down to 1.2716 and rallied directly to 1.2789! Opps, have we missed it? Patience is a virtue. After a while (on 9 Nov), it came down to 1.2688 and we were long our 30%. The Euro rallied to 1.2739. I observed that whereas the prior rally from 1.2716 to 1.2789 took 16 hours, this recovery from 1.2688 to 1.2739 took over 20 hours. This was not exactly what I had in mind! Little surprise then that the currency started coming off again. This time it broke below the 1.2690 area support and went down to 1.2660. I have no doubt that many of the members were worried sick! This is a normal human emotion. However, our protective stop was clearly in place at 1.2650 and having been willing to lost the 34 pips before the market moved to our levels, there should be no qualms of losing that AFTER the order was filled! This is the subtle difference between doing a paper trade and a real trade. Those who do paper trades are really happy to say I am willing to risk $xy on a trade. But when real money is involved, the heart starts beating faster, and as the market approaches the stop loss level, some traders can actually start hearing their heart beats! Trading is really not for these people. One needs to have steadier nerves in order to be successful. Fortunately for our members, the market stopped right there and started moving up. I am fairly sure that smart money moved in at the same time, because the EURUSD went from 1.2660 to 1.2724 in under two hours! Now we are in business, I said to myself. However, life is never so easy! Over the next two hours, the EURO almost gave back all of its gains, and it was back at 1.2670. But in the following two hours it recovered back to 1.2723 and then settled down in a sideways movement for a loooong time. I suggested to the members to exit 50% of their position at 1.2710 so that they could buy it back if it dips again to 1.2670. It was clear to me that we are in a complex correction and a new set of tactics had to be employed. I told members to sell the remaining position at 1.2740 and 1.2760. There was a decent resistance around 1.2770 and we should just take some profits and move on.. We did not get a second dip to 1.2670, but many traders sold their first 50% well above 1.2710 because the move happened overnight. The Euro climbed to 1.2757 and came off! So are we going to miss the 1.2760 level after all! It took considerable time, but eventually there was a dash to 1.2778 at which time everyone got out and the EURO has since come down to a low of 1.2715.
The key lesson here: You can’t enter into a position and forget it. You have got to monitor it and make changes as required. Another lesson: Some people think if I write an article in Forbes that such and such a move will happen, and if it doesn’t, it is a reflection of my being right or wrong. As readers of this blog I want you to know that NO ONE can predict the future. However, one can have a trade idea based on Elliott Waves (or any other model). After that, it all boils down to execution of the trade. This is completely different from making armchair forecasts. Thirdly, the position size that you trade is important. Can you afford to lose some real money? How much can you lose on any one trade? How many losses can you sustain, and still continue to trade? These are the really important questions you should ask yourself. It is because most traders don’t think through these issues well enough that a majority of them lose.
Here are two charts I posted for the members of the Exclusive Club. Enjoy! (By the way I will not be able to write such detailed comments every time we have a trade because it takes away so much of my time. But every once in a while I will try and do so. I do recommend that you regularly revise my book “Five Waves to Financial Freedom“. Doing so will help you navigate the markets much better. Good luck.)